<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 1997
REGISTRATION NO. 333-20417
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PARK NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OHIO 6021 31-1179518
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
50 NORTH THIRD STREET
NEWARK, OHIO 43055
(614) 349-8451
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
WILLIAM T. MCCONNELL, CHAIRMAN OF THE BOARD
PARK NATIONAL CORPORATION
50 NORTH THIRD STREET
NEWARK, OHIO 43055
(614) 349-8451
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
<TABLE>
<S> <C> <C>
Elizabeth Turrell Farrar, Esq. Mary Beth M. Clary, Esq. Patrick J. Dugan, Esq.
Vorys, Sater, Seymour and Pease Porter, Wright, Morris & Arthur Squire, Sanders & Dempsey, L.L.P.
52 East Gay Street 41 South High Street 1300 Huntington Center
Columbus, Ohio 43215 Columbus, Ohio 43215 41 South High Street
(614) 464-5607 (614) 227-2166 Columbus, Ohio 43215
(614) 365-2709
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE DATE
OF THE REGISTRATION STATEMENT
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities being registered registered per unit (1) offering price (1) fee (1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares,
without par value........... 2,345,000 $51.1469 $119,939,586 $36,346
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The registration fee has been calculated in accordance with Rules
457(c) and 457(f)(1) based upon the market value of the securities to
be cancelled in exchange for Park Common Shares in the Merger. On
January 17, 1997, there were 3,964,945 common shares of First-Knox Banc
Corp. outstanding (including shares issuable upon exercise of
outstanding options) and the average of the high and low prices of such
common shares on The Nasdaq National Market on such date was $30.25,
resulting in an aggregate value of $119,939,586.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
[Park National Corporation letterhead]
March 19, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Park National
Corporation ("Park") which will be held at the offices of The Park National
Bank, 50 North Third Street, Newark, Ohio 43055, on Monday, April 21, 1997, at
2 p.m.
Enclosed are the Joint Proxy Statement/Prospectus, Proxy Card, Annual Report
to Stockholders for Park National Corporation, as well as the Annual Report to
Stockholders for First-Knox Banc Corp. This year you are being asked to approve
the proposed merger of First-Knox Banc Corp. into Park National, elect four
directors, approve a proposed amendment to Park's Articles of Incorporation,
and approve a proposed amendment to Park's Regulations.
THE BOARD OF DIRECTORS believes that these proposals are in the best interest
of Park and its shareholders and RECOMMENDS THAT YOU VOTE "FOR" EACH PROPOSAL.
The proposals and the reasons for the Board's recommendations are set forth in
the accompanying Proxy Statement.
The primary item of business will be the vote to adopt the Agreement and Plan
of Merger with First-Knox Banc Corp. We urge you to read the enclosed
information for details of this transaction.
WHETHER OR NOT YOU ARE ABLE TO ATTEND, IT IS VERY IMPORTANT THAT YOUR
SHARES BE REPRESENTED AND VOTED AT THE ANNUAL MEETING. THEREFORE, PLEASE RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE.
Thank you for your support.
Sincerely,
/s/ William T. McConnell
William T. McConnell
Chairman
50 North Third Street - Post Office Box 850 - Newark, Ohio 43055-0695
Phone: 614-349-8451 - FAX: 614-349-3765
<PAGE> 3
PARK NATIONAL CORPORATION
50 North Third Street
Newark, Ohio 43055
(614) 349-8451
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MONDAY, APRIL 21, 1997
-------------------------
To the Shareholders of
Park National Corporation: March 20, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders (the
"Annual Meeting") of Park National Corporation ("Park") will be held at the
offices of The Park National Bank, 50 North Third Street, Newark, Ohio 43055, on
Monday, April 21, 1997, at 2:00 p.m., local time, for the following purposes:
1. To consider and vote upon a proposed merger (the "Merger") of
First-Knox Banc Corp., an Ohio corporation ("First-Knox"),
with and into Park pursuant to an Agreement and Plan of
Merger, dated as of October 28, 1996, as amended by the
Amendment to Agreement and Plan of Merger, dated as of January
10, 1997 (collectively, the "Merger Agreement"), which will
result in the outstanding First-Knox common shares, $3.125 par
value (the "First-Knox Common Shares") (other than those owned
directly by Park, First-Knox or any wholly-owned subsidiary of
Park or of First-Knox and those as to which dissenters' rights
are perfected under the General Corporation Law of Ohio),
being converted into the right to receive Park common shares,
without par value (the "Park Common Shares"), as more fully
described in the accompanying Joint Proxy Statement/
Prospectus.
2. If the Merger Agreement is adopted, to consider and act upon a
proposal to amend Subsection 2.02(A) of the Regulations of
Park in order to decrease the maximum allowable number of
directors from twenty-five to sixteen.
3. To elect four directors to serve for terms of three years
each.
4. To consider and act upon a proposal to amend Article SIXTH of
the Articles of Incorporation of Park to eliminate pre-emptive
rights in respect of the offering or sale of Park Common
Shares held as treasury shares.
5. To transact such other business as may properly come before
the Annual Meeting and adjournment(s) thereof.
THE BOARD OF DIRECTORS OF PARK RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF THE NOMINEES LISTED IN ITEM NO. 3 OF THE PROXY CARD AS DIRECTORS
OF PARK AND FOR PROPOSALS NO. 1, 2 AND 4.
Only shareholders of record at the close of business on February 28,
1997, will be entitled to receive notice of, and to vote at, the Annual Meeting
and any adjournment(s) thereof.
<PAGE> 4
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. THE VOTE OF
EACH SHAREHOLDER IS IMPORTANT, WHATEVER THE NUMBER OF PARK COMMON SHARES HELD.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND
RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID,
RETURN-ADDRESSED ENVELOPE. SHOULD YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE
YOUR PROXY AND VOTE IN PERSON. ATTENDANCE AT THE ANNUAL MEETING WILL NOT, IN AND
OF ITSELF, CONSTITUTE REVOCATION OF A PROXY.
By Order of the Board of Directors,
/s/ David C. Bowers
David C. Bowers, Secretary
2
<PAGE> 5
[FIRST-KNOX BANC CORP. LOGO]
Carlos E. Watkins
President and Chief Executive Officer
March 19, 1997
Dear Shareholder:
Please find enclosed the proxy statement, proxy card, and annual
report for First-Knox Banc Corp. In addition, an annual report for Park
National Corporation has been included.
Also enclosed is the notice for our Special Shareholders' Meeting
which will be on Wednesday, April 23, 1997, at 3:30 p.m. in the Dan Emmett
Conference Center, 150 Howard Street, Mount Vernon, Ohio. We extend a cordial
invitation to you and sincerely hope you will be able to attend the meeting.
For your convenience, a map detailing the directions to the Conference Center
is also enclosed. IF YOU ARE PLANNING TO ATTEND, PLEASE CHECK THE APPROPRIATE
BOX ON THE REVERSE SIDE OF THE PROXY CARD.
The primary item of business will be the vote to adopt the Agreement
and Plan of Merger with Park National Corporation. THE BOARD OF DIRECTORS OF
THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL NUMBER ONE. Please
take the time to read the enclosed information for details of the transaction.
As usual, reports of the Corporation's 1996 operations will be made by
our officers. We expect the meeting to last less than an hour, and refreshments
will be served following the meeting.
YOUR VOTE IS IMPORTANT. PLEASE RETURN THE PROXY CARD AS SOON AS
POSSIBLE.
Very truly yours,
/s/ Carlos E. Watkins
One South Main Street - Mount Vernon, OH 43050
(614) 399-5500 - (800) 837-5266
<PAGE> 6
FIRST-KNOX BANC CORP.
One South Main Street
P.O. Box 871
Mount Vernon, Ohio 43050
(614) 399-5500
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, APRIL 23, 1997
-------------------------
To the Shareholders of
First-Knox Banc Corp.: March 20, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"Special Meeting") of First-Knox Banc Corp. ("First-Knox") will be held at the
Dan Emmett Conference Center, 150 Howard Street, Mount Vernon, Ohio 43050, on
Wednesday, April 23, 1997, at 3:30 p.m., local time, for the following purposes:
1. To consider and vote upon a proposed merger (the "Merger") of
First-Knox with and into Park National Corporation, an Ohio
corporation ("Park"), pursuant to an Agreement and Plan of
Merger, dated as of October 28, 1996, as amended by the
Amendment to Agreement and Plan of Merger, dated as of January
10, 1997 (collectively, the "Merger Agreement"), which will
result in outstanding First-Knox common shares, $3.125 par
value (the "First-Knox Common Shares") (other than those owned
directly by Park, First-Knox or any wholly-owned subsidiary of
Park or of First-Knox and those as to which dissenters' rights
are perfected under the General Corporation Law of Ohio),
being converted into the right to receive Park common shares,
without par value (the "Park Common Shares"), as more fully
described in the accompanying Joint Proxy Statement/
Prospectus.
2. To transact such other business as may properly come before
the Special Meeting and adjournment(s) thereof.
Only shareholders of record at the close of business on February 28,
1997, will be entitled to receive notice of, and to vote at, the Special Meeting
and any adjournment(s) thereof.
THE BOARD OF DIRECTORS OF FIRST-KNOX RECOMMENDS THAT SHAREHOLDERS VOTE
FOR PROPOSAL NO. 1.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. THE VOTE OF
EACH SHAREHOLDER IS IMPORTANT, WHATEVER THE NUMBER OF FIRST-KNOX COMMON SHARES
HELD. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID,
RETURN-ADDRESSED ENVELOPE. SHOULD YOU ATTEND THE SPECIAL MEETING, YOU MAY REVOKE
YOUR PROXY AND VOTE IN PERSON. ATTENDANCE AT THE SPECIAL MEETING WILL NOT, IN
AND OF ITSELF, CONSTITUTE REVOCATION OF A PROXY.
By Order of the Board of Directors,
/s/ Ian Watson
Ian Watson, Secretary
<PAGE> 7
PARK NATIONAL CORPORATION PARK NATIONAL CORPORATION
AND PROSPECTUS
FIRST-KNOX BANC CORP. FOR
JOINT PROXY STATEMENT UP TO 2,345,000 COMMON SHARES,
WITHOUT PAR VALUE,
FOR TO BE ISSUED IN CONNECTION WITH THE MERGER OF
FIRST-KNOX BANC CORP. WITH AND INTO
THE ANNUAL MEETING OF SHAREHOLDERS PARK NATIONAL CORPORATION
OF PARK NATIONAL CORPORATION
TO BE HELD ON APRIL 21, 1997,
AT 2:00 P.M.
(THE "PARK ANNUAL MEETING")
AND
THE SPECIAL MEETING OF SHAREHOLDERS
OF FIRST-KNOX BANC CORP.
TO BE HELD ON APRIL 23, 1997,
AT 3:30 P.M.
(THE "FIRST-KNOX SPECIAL MEETING")
This Joint Proxy Statement/Prospectus constitutes both a Prospectus of
Park National Corporation, an Ohio corporation ("Park"), in respect of up to
2,345,000 common shares, without par value (the "Park Common Shares"), to be
issued in connection with the proposed merger of First-Knox Banc Corp., an Ohio
corporation ("First-Knox"), with and into Park and the Joint Proxy Statement of
Park and First-Knox for use in connection with the solicitation of proxies by
the Boards of Directors of Park and First-Knox for use at the Park Annual
Meeting and the First-Knox Special Meeting, respectively (collectively, the
"Shareholder Meetings"), and any adjournment(s) thereof. This Joint Proxy
Statement/Prospectus is first being mailed to shareholders of Park and of
First-Knox on or about March 22, 1997.
At the Shareholder Meetings, shareholders of Park and of First-Knox
will vote upon the proposed merger (the "Merger") of First-Knox with and into
Park pursuant to the Agreement and Plan of Merger, dated as of October 28, 1996,
as amended by the Amendment to Agreement and Plan of Merger, dated as of January
10, 1997 (collectively, the "Merger Agreement"). As a result of the Merger, each
outstanding First-Knox common share, $3.125 par value (the "First-Knox Common
Shares"), other than First-Knox Common Shares owned directly by Park, by
First-Knox or by any of their wholly-owned subsidiaries, which will be
canceled in the Merger, and other than First-Knox Common Shares as to which
dissenters' rights have been perfected under the General Corporation Law of
Ohio, will be converted into the right to receive Park Common Shares. The exact
number of Park Common Shares to be received for each First-Knox Common Share
(the "Exchange Ratio") will be determined pursuant to a specified formula that
is based upon certain variables, including the average closing sale price of a
Park Common Share on the American Stock Exchange for the five "trading days"
(meaning days on which actual trades of Park Common Shares occur) ending on the
tenth business day immediately preceding the closing (the "Closing") of the
Merger (the "Park Trading
<PAGE> 8
Price") and the aggregate of the amount of cash paid to First-Knox
prior to Closing as a result of the exercise of stock options to purchase
First-Knox Common Shares (the "First-Knox Stock Options") and the exercise price
of any First-Knox Stock Options which are not exercised prior to Closing (the
"Option Exercise Cash Payment Total"). Management of Park and of First-Knox
currently anticipate that the Exchange Ratio will be approximately .5914 (the
"Assumed Exchange Ratio"). For a complete description of the Exchange Ratio and
the assumptions used in calculating the Assumed Exchange Ratio, see "THE MERGER
- -- EFFECT ON OUTSTANDING PARK COMMON SHARES AND CONVERSION OF FIRST-KNOX COMMON
SHARES -- Conversion of First-Knox Common Shares."
On February 28, 1997, the closing sale price of the Park Common Shares
on the American Stock Exchange was $51 7/8 and the closing sale price of the
First-Knox Common Shares on The Nasdaq National Market was $29. Shareholders of
Park who wish to exercise dissenters' rights must, among other things, not vote
in favor of the adoption of Merger Agreement and approval of the Merger and must
make a written demand on Park on or before May 1, 1997. First-Knox shareholders
who wish to exercise dissenters' rights must, among other things, not vote in
favor of the adoption of Merger Agreement and approval of the Merger and must
make a written demand on First-Knox on or before May 3, 1997. See "DISSENTERS'
RIGHTS".
In addition, the shareholders of Park will be asked to vote upon and
approve certain amendments to the Articles of Incorporation and the Regulations
of Park and to elect four directors to serve for terms of three years each.
This Joint Proxy Statement/Prospectus does not cover any resales of
Park Common Shares to be received by First-Knox shareholders in the Merger, and
no person is authorized to make any use of this Joint Proxy Statement/Prospectus
in connection with any such resale.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PARK COMMON SHARES WHICH ARE BEING OFFERED PURSUANT TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND WHICH WILL BE ISSUED UPON THE CONSUMMATION OF THE
MERGER ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR
NON-BANK SUBSIDIARY AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
BECAUSE A PROXY CARD WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL BE
VOTED FOR THE ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER, A
SHAREHOLDER WHO WISHES TO EXERCISE DISSENTERS' RIGHTS MUST EITHER (I) NOT SIGN
AND RETURN HIS PROXY CARD OR (II) IF HE SIGNS AND RETURNS HIS PROXY CARD, VOTE
AGAINST, OR ABSTAIN FROM VOTING ON, THE ADOPTION OF THE MERGER AGREEMENT AND THE
APPROVAL OF THE MERGER. SEE "DISSENTERS' RIGHTS".
The date of this Joint Proxy Statement/Prospectus is March 20, 1997
2
<PAGE> 9
AVAILABLE INFORMATION
Park and First-Knox are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the SEC's Public
Reference Section, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
where copies may be obtained at prescribed rates, as well as at the regional
offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New
York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The SEC also maintains a Web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the SEC.
The address of such site is http://www.sec.gov. In addition, material filed by
Park, whose Common Shares are listed on the American Stock Exchange, can be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006-1881, and material filed by First-Knox, whose Common Shares
are traded on The Nasdaq Stock Market, can be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
Park has filed with the SEC a Registration Statement on Form S-4
(herein, together with any amendments, supplements and exhibits, referred to as
the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Park Common Shares to be issued in
connection with the Merger. This Joint Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information, reference is hereby made to the Registration
Statement. Such additional information may be obtained from the SEC's principal
office in Washington, D.C. Statements contained in this Joint Proxy
Statement/Prospectus as to the contents of any agreement or other document
referred to herein disclose all material terms of such agreement or other
document but are not necessarily complete, and in each instance, reference is
made to the copy of such agreement or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS OF PARK AND OF FIRST-KNOX WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THIS JOINT PROXY
STATEMENT/PROSPECTUS) ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR DOCUMENTS OF PARK SHOULD
BE DIRECTED TO DAVID C. BOWERS, SECRETARY, PARK NATIONAL CORPORATION, 50 NORTH
THIRD STREET, NEWARK, OHIO 43055. REQUESTS FOR DOCUMENTS OF FIRST-KNOX SHOULD BE
DIRECTED TO IAN WATSON, SECRETARY, FIRST-KNOX BANC CORP., ONE SOUTH MAIN STREET,
P.O. BOX 871, MOUNT VERNON, OHIO 43050. IN ORDER TO ENSURE TIMELY DELIVERY OF
SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE NO LATER THAN APRIL 14, 1997.
The following documents filed by Park with the SEC under the Exchange
Act are hereby incorporated by reference into this Joint Proxy
Statement/Prospectus: (a) Park's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995; (b) Park's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1996, June 30, 1996, and September 30, 1996;
(c) the description of the Park Common Shares contained in Park's Registration
Statement
3
<PAGE> 10
on Form 8-A (File No. 1-13006) filed with the SEC on April 11, 1994; and (d)
the information contained in the section captioned "FINANCIAL REVIEW" and the
consolidated financial statements of Park and its subsidiaries as of December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996, all of which are included in Park's Annual Report to
Shareholders for the fiscal year ended December 31, 1996, a copy of which
Annual Report to Shareholders is being delivered herewith as Appendix B (the
"Park Annual Report to Shareholders") (such Park Annual Report to Shareholders
shall not be deemed to be a part of the Registration Statement except to the
extent specifically incorporated herein by this reference).
The following documents filed by First-Knox with the SEC under the
Exchange Act are hereby incorporated by reference into this Joint Proxy
Statement/Prospectus: (a) First-Knox's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995; (b) First-Knox's Quarterly Reports on Form
10-Q for the fiscal quarters ended March 31, 1996, June 30, 1996, and September
30, 1996; (c) First-Knox's Current Report on Form 8-K, dated November 1, 1996;
(d) the description of the First-Knox Common Shares contained in First-Knox's
Registration Statement on Form 8-A (File No. 0-13161) filed with the SEC on
February 1, 1985, as amended by the Form 8 Amendment No. 1 filed with the SEC
on April 19, 1991; and (e) the information contained in the section captioned
"Financial Review" and the consolidated financial statements of First-Knox and
its subsidiaries as of December 31, 1996 and 1995 and for each of the years in
the three-year period ended December 31, 1996, all of which are included in
First-Knox's Annual Report to Shareholders for the fiscal year ended December
31, 1996, a copy of which Annual Report to Shareholders is being delivered
herewith as Appendix C (the "First-Knox Annual Report to Shareholders") (such
First-Knox Annual Report to Shareholders shall not be deemed to be a part of
the Registration Statement except to the extent specifically incorporated
herein by this reference).
All documents filed by Park and First-Knox under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act between the date of this Joint Proxy
Statement/Prospectus and the dates of the Shareholder Meetings, and any
exhibits thereto, shall be deemed to be incorporated by reference in this Joint
Proxy Statement/Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement/Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which is also incorporated or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement, as so modified or
superseded, shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
The information relating to Park and First-Knox contained in this Joint
Proxy Statement/Prospectus should be read together with the information and the
documents incorporated by reference.
Following the Merger, Park will continue to be subject to the
informational, reporting and proxy statement requirements of the Exchange Act.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PARK OR
FIRST-KNOX. NEITHER THIS JOINT PROXY STATEMENT/PROSPECTUS, NOR ANY DISTRIBUTION
OF SECURITIES OFFERED PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS,
CONSTITUTES AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
4
<PAGE> 11
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF PARK OR OF FIRST-KNOX SINCE THE DATE HEREOF OR THAT THE INFORMATION
IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES THEREOF. IF
ANY MATERIAL CHANGE OCCURS DURING THE PERIOD IN WHICH THIS JOINT PROXY
STATEMENT/PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS JOINT PROXY
STATEMENT/PROSPECTUS WILL BE AMENDED AND SUPPLEMENTED ACCORDINGLY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SUMMARY
Introduction.............................................................. 9
Parties to the Merger Agreement........................................... 10
Park Annual Meeting....................................................... 10
First-Knox Special Meeting................................................ 11
Reasons for the Merger.................................................... 12
Opinion of McDonald & Company ............................................ 12
Opinion of Danielson...................................................... 13
Terms of Merger........................................................... 13
Recommendations of the Boards of Directors of Park and First-Knox......... 17
Comparison of Rights of Holders of Park Common Shares and of First-Knox
Common Shares.......................................................... 18
Exchange of Certificates Evidencing First-Knox Common Shares.............. 18
Resale of Park Common Shares.............................................. 19
Dissenters' Rights........................................................ 19
Market Prices............................................................. 19
Historical and Pro Forma Comparative Unaudited Per Share Data............. 20
UNAUDITED PARK SELECTED FINANCIAL DATA........................................ 22
UNAUDITED FIRST-KNOX SELECTED FINANCIAL DATA.................................. 23
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA.......................... 24
THE PARK ANNUAL MEETING....................................................... 26
General................................................................... 26
Matters to be Considered at the Park Annual Meeting....................... 26
Voting at the Park Annual Meeting; Park Record Date....................... 26
THE FIRST-KNOX SPECIAL MEETING ............................................... 27
General................................................................... 27
Matters to be Considered at the First-Knox Special Meeting................ 28
Voting at the First-Knox Special Meeting; First-Knox Record Date.......... 28
</TABLE>
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<TABLE>
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PRINCIPAL SHAREHOLDERS OF PARK........................................................ 29
Section 16(a) Beneficial Ownership Reporting Compliance........................... 31
PRINCIPAL SHAREHOLDERS OF FIRST-KNOX.................................................. 31
THE MERGER............................................................................ 33
General........................................................................... 33
Background........................................................................ 34
Reasons for the Merger............................................................ 36
Opinion of McDonald & Company..................................................... 38
Opinion of Danielson.............................................................. 42
Effect on Outstanding Park Common Shares and Conversion of First-Knox
Common Shares.................................................................. 45
Accounting Treatment of the Merger................................................ 48
Certain Federal Income Tax Consequences of the Merger............................. 48
Interests of Certain Persons in the Merger........................................ 50
Board Representation and Management of Park Following Consummation of the Merger.. 51
Resale of Park Common Shares Received in the Merger............................... 51
Regulatory Approvals.............................................................. 52
THE MERGER AGREEMENT.................................................................. 52
The Merger........................................................................ 52
Conversion of Shares.............................................................. 53
Representations and Warranties.................................................... 53
Conduct of Business Pending the Merger and Certain Other Covenants................ 53
Conditions to the Consummation of the Merger...................................... 55
Effective Time.................................................................... 56
Amendment and Termination......................................................... 56
Costs and Expenses; Indemnification............................................... 57
Recommendation and Vote........................................................... 57
DISSENTERS' RIGHTS.................................................................... 58
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.................................... 60
BUSINESS OF PARK...................................................................... 65
General........................................................................... 65
Additional Information............................................................ 65
CERTAIN INFORMATION CONCERNING FIRST-KNOX............................................. 66
Business.......................................................................... 66
Directors of First-Knox........................................................... 66
Change-in-Control Arrangements with First-Knox Management to be Assumed by Park... 68
Director Compensation............................................................. 69
</TABLE>
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<TABLE>
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Indebtedness of and Transactions with Management................................ 69
Additional Information.......................................................... 69
DESCRIPTION OF PARK COMMON SHARES................................................... 70
General......................................................................... 70
Voting Rights................................................................... 70
Nomination Procedure; Number of Directors; Classified Board of Directors........ 72
Pre-Emptive Rights.............................................................. 72
Repurchases..................................................................... 73
Dividend Rights................................................................. 73
Liquidation Rights.............................................................. 74
COMPARISON OF RIGHTS OF HOLDERS OF PARK COMMON SHARES
AND HOLDERS OF FIRST-KNOX COMMON SHARES............................................. 74
General......................................................................... 74
Board of Directors.............................................................. 74
Voting Rights................................................................... 75
Antitakeover Provisions......................................................... 75
Pre-Emptive Rights.............................................................. 76
Antitakeover Statutes........................................................... 76
Director and Officer Liability and Indemnification.............................. 77
PROPOSED AMENDMENT TO SUBSECTION 2.02(A) OF PARK'S REGULATIONS...................... 78
Proposed Amendment to Subsection 2.02(A)........................................ 78
Effect of Adoption of Amendment................................................. 79
Recommendation and Vote......................................................... 79
ELECTION OF PARK DIRECTORS.......................................................... 80
Nominees for Election........................................................... 80
Nomination Procedure............................................................ 83
Recommendation and Vote......................................................... 83
Executive Officers of Park...................................................... 84
Performance Graph............................................................... 84
Compensation Committee Interlocks and Insider Participation..................... 86
Report of the Executive Committee of the Park Board of Directors on Executive
Compensation................................................................. 86
Executive Compensation.......................................................... 89
Certain Matters Pertaining to the Park Board of Directors....................... 93
Transactions Involving Management............................................... 94
PROPOSAL TO AMEND ARTICLE SIXTH OF PARK'S ARTICLES OF INCORPORATION................. 94
Proposed Amendment to Article SIXTH............................................. 94
Effect of Adoption of Amendment................................................. 95
Recommendation and Vote......................................................... 96
</TABLE>
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NOTIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS FOR PARK........... 96
SHAREHOLDER PROPOSALS.................................................. 96
LEGAL MATTERS.......................................................... 96
EXPERTS................................................................ 97
Appendix A-1 - Agreement and Plan of Merger, dated as of October 28, 1996,
between Park National Corporation and First-Knox Banc Corp.
Appendix A-2 - Amendment to Agreement and Plan of Merger, dated as of
January 10, 1997, between Park National Corporation and
First-Knox Banc Corp.
Appendix B - Annual Report to Shareholders for the fiscal year ended
December 31, 1996 of Park National Corporation
Appendix C - Annual Report to Shareholders for the fiscal year ended
December 31, 1996 of First-Knox Banc Corp.
Appendix D - Additional Statistical Financial Disclosures with
respect to First-Knox Banc Corp.
Appendix E - Opinion of McDonald & Company Securities, Inc.
Appendix F - Opinion of Danielson Associates Inc.
Appendix G - Ohio Revised Code Section 1701.85
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SUMMARY
The following is a brief summary of certain information included
elsewhere in this Joint Proxy Statement/Prospectus with respect to matters to be
considered at the Park Annual Meeting and at the First-Knox Special Meeting and
is not intended to be a complete statement of all material facts regarding the
matters to be considered at the Park Annual Meeting and at the First-Knox
Special Meeting. It is qualified in its entirety by reference to the more
detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the Appendices attached hereto and the other documents
referred to herein.
This Joint Proxy Statement/Prospectus contains a number of
forward-looking statements which reflect the current views of Park and/or of
First-Knox with respect to future events that will have an effect on their
future financial performance. These forward-looking statements are subject to
various risks and uncertainties, including those set forth elsewhere herein,
that could cause actual results to differ materially from historical results or
those currently anticipated. Readers are cautioned not to place undue reliance
on these forward-looking statements.
INTRODUCTION
On October 28, 1996, Park and First-Knox entered into an Agreement and
Plan of Merger, a copy of which is attached hereto as Appendix A-1, and on
January 10, 1997, Park and First-Knox entered into an Amendment to Agreement and
Plan of Merger, a copy of which is attached hereto as Appendix A-2
(collectively, the "Merger Agreement"). If the Merger Agreement is adopted and
the Merger is approved by the affirmative vote of the holders of two-thirds of
the issued and outstanding Park Common Shares and by the affirmative vote of the
holders of two-thirds of the issued and outstanding First-Knox Common Shares and
if all other conditions to the consummation of the Merger are satisfied,
First-Knox will merge with and into Park. On the date upon which the Merger
becomes effective (the "Effective Time"), each of the outstanding First-Knox
Common Shares (other than those directly owned by Park, by First-Knox or by any
wholly-owned subsidiary of Park or of First-Knox and those as to which
dissenters' rights are perfected under the General Corporation Law of Ohio) will
be cancelled and extinguished in consideration and exchange for a number of Park
Common Shares equal to the Exchange Ratio. See "THE MERGER -- EFFECT ON
OUTSTANDING PARK COMMON SHARES AND CONVERSION OF FIRST-KNOX COMMON SHARES --
Conversion of First-Knox Common Shares." The Exchange Ratio was determined as a
result of arm's-length negotiations between the managements and the Boards of
Directors of Park and First-Knox and is currently anticipated to be
approximately, 5914. See "THE MERGER -- BACKGROUND" and "THE MERGER -- REASONS
FOR THE MERGER."
On October 28, 1996, there were 3,755,618 First-Knox Common Shares
issued and outstanding and 209,327 First-Knox Common Shares subject to
outstanding First-Knox Stock Options, the average exercise price of which was
$14.47. As of February 28, 1997 (the "First-Knox Record Date"), First-Knox Stock
Options to purchase 1,358 First-Knox Common Shares had been exercised, as a
result of which there are 3,756,976 First-Knox Common Shares issued and
outstanding and 207,969 First-Knox Common Shares subject to outstanding
First-Knox Stock Options, the average exercise price of which is $14.43.
Pursuant to the terms of the Merger Agreement, prior to the Effective Time,
First-Knox is to take such actions as are reasonably necessary to cause each
outstanding First-Knox Stock Option, whether vested or unvested, to be exercised
and each outstanding First-Knox stock appreciation right (each, a "First-Knox
SAR"), whether vested or unvested, to be exercised and "cashed out." To the
extent that there remain outstanding First-Knox Stock Options or First-Knox SARs
at the Effective Time of the Merger, such First-Knox Stock Options will become
options to purchase Park Common Shares and such First-Knox SARs will become SARs
based on the fair market value of Park Common Shares, except that
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the number of Park Common Shares to be issued upon exercise of such options and
the option price under such options and SARs will be adjusted for the Exchange
Ratio. See "THE MERGER -- EFFECT ON OUTSTANDING PARK COMMON SHARES AND
CONVERSION OF FIRST-KNOX COMMON SHARES -- Treatment of Outstanding First-Knox
Stock Options and SARs."
PARTIES TO THE MERGER AGREEMENT
Park
Park is a bank holding company under the Bank Holding Company Act of
1956, as amended (the "BHC Act"), and is subject to regulation by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). Park is
also a savings and loan holding company, but is exempt from regulation by the
Office of Thrift Supervision (the "OTS"), because Park is regulated as a bank
holding company. The principal executive offices of Park are located at 50 North
Third Street, Newark, Ohio 43055, and its telephone number is (614) 349-8451.
Through its subsidiaries, The Park National Bank, Newark, Ohio, a
national banking association ("PNB"), The Richland Trust Company, Mansfield,
Ohio, an Ohio state-chartered bank ("Richland"), and Mutual Federal Savings
Bank, Zanesville, Ohio, a federally-chartered stock savings association
("Mutual"), Park is engaged in a general commercial banking and trust business,
in eleven counties in central and southern Ohio. PNB operates through two
banking divisions with the Park National Division headquartered in Newark, Ohio
and the Fairfield National Division headquartered in Lancaster, Ohio. At
December 31, 1996, Park had total consolidated assets of approximately $1.6
billion. See "BUSINESS OF PARK."
First-Knox
First-Knox is also a bank holding company under the BHC Act and subject
to regulation by the Federal Reserve Board. The principal executive offices of
First-Knox are located at One South Main Street, P.O. Box 871, Mount Vernon,
Ohio 43050, and its telephone number is (614) 393-5500.
Through its subsidiaries, The First-Knox National Bank of Mount Vernon,
Mount Vernon, Ohio, a national banking association ("FKNB"), and The Farmers &
Savings Bank, Loudonville, Ohio, an Ohio state-chartered bank ("Farmers"),
First-Knox is also engaged in a general commercial banking and trust business,
in five counties in central Ohio. At December 31, 1996, First-Knox had total
consolidated assets of approximately $574 million. See "CERTAIN INFORMATION
CONCERNING FIRST-KNOX -- BUSINESS." After the Merger, FKNB and Farmers will
operate as separate subsidiaries of Park.
PARK ANNUAL MEETING
The Park Annual Meeting will be held on Monday, April 21, 1997, at 2:00
p.m., local time, at the offices of The Park National Bank, 50 North Third
Street, Newark, Ohio 43055. Only the holders of record of outstanding Park
Common Shares at the close of business on February 28, 1997 (the "Park Record
Date") will be entitled to notice of, and to vote at, the Park Annual Meeting
and any adjournment(s) thereof. On the Park Record Date, there were 7,107,859
Park Common Shares outstanding, each of which will be entitled to one vote on
each matter properly submitted for vote to the Park shareholders at the Park
Annual Meeting and to cumulative voting in the election of directors if an
appropriate request therefor
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is made. See "THE PARK ANNUAL MEETING -- VOTING AT THE PARK ANNUAL MEETING; PARK
RECORD DATE."
At the Park Annual Meeting, Park shareholders will be asked to consider
and vote upon (i) a proposal to adopt the Merger Agreement and approve the
Merger; (ii) a proposed amendment to Park's Regulations to decrease the maximum
allowable number of directors from twenty-five to sixteen if the Merger
Agreement is adopted, the approval of which is a condition precedent to the
consummation of the Merger; (iii) the election of four directors; (iv) a
proposal to amend Article SIXTH of Park's Articles of Incorporation dealing with
the pre-emptive rights of shareholders; and (v) the transaction of such other
business as may properly come before the Park Annual Meeting and any
adjournment(s) thereof. The affirmative vote of two-thirds of the outstanding
Park Common Shares, voting in person or by proxy, is required to (1) adopt the
Merger Agreement and approve the Merger, (2) approve the proposed amendment to
Park's Regulations and (3) approve the proposed amendment to Park's Articles of
Incorporation. As of the Park Record Date, the directors and executive officers
of Park (13 persons) and their respective affiliates in the aggregate
beneficially owned 1,603,803, or 22.6%, of the outstanding Park Common Shares.
See "PRINCIPAL SHAREHOLDERS OF PARK."
The Park Common Shares represented by each properly executed proxy card
received prior to the Park Annual Meeting and not revoked prior to its use will
be voted at the Park Annual Meeting, or any adjournment(s) thereof, as specified
on such proxy card or, in the absence of specific instructions to the contrary,
will be voted FOR adoption of the Merger Agreement and the approval of the
Merger, FOR adoption of the proposed amendment to Park's Regulations if the
Merger Agreement is adopted, FOR the persons nominated for election as directors
by the Park Board and FOR approval of the proposed amendment to Park's Articles
of Incorporation. See "THE PARK ANNUAL MEETING -- VOTING AT THE PARK ANNUAL
MEETING; PARK RECORD DATE."
THE PROXIES OF THE PARK BOARD OF DIRECTORS MAY NOT VOTE PARK COMMON
SHARES REPRESENTED BY A PROXY CARD WHICH HAS BEEN VOTED AGAINST ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER OR AGAINST ADOPTION OF THE PROPOSED
AMENDMENT TO SUBSECTION 2.02(A) OF PARK'S REGULATIONS TO DECREASE THE MAXIMUM
ALLOWABLE NUMBER OF DIRECTORS, TO ADJOURN THE PARK ANNUAL MEETING FOR THE
PURPOSE OF SOLICITING FURTHER SUPPORT FOR APPROVAL OF THE MERGER AND THE
RELATED PROPOSALS.
FIRST-KNOX SPECIAL MEETING
The First-Knox Special Meeting will be held on Wednesday, April 23,
1997, at 3:30 p.m., local time, at the Dan Emmett Conference Center, 150 Howard
Street, Mount Vernon, Ohio 43050. Only the holders of record of the outstanding
First-Knox Common Shares at the close of business on February 28, 1997 (the
"First-Knox Record Date") will be entitled to notice of, and to vote at, the
First-Knox Special Meeting and any adjournment(s) thereof. On the First-Knox
Record Date, there were 3,756,976 First-Knox Common Shares outstanding, each of
which will be entitled to one vote on each matter properly submitted for vote to
the First-Knox shareholders at the First-Knox Special Meeting. See "THE
FIRST-KNOX SPECIAL MEETING -- VOTING AT THE FIRST-KNOX SPECIAL MEETING;
FIRST-KNOX RECORD DATE."
At the First-Knox Special Meeting, First-Knox shareholders will be
asked to consider and vote upon (i) a proposal to adopt the Merger Agreement and
approve the Merger and (ii) the transaction of such other business as may
properly come before the First-Knox Special Meeting and any adjournment(s)
thereof. The affirmative vote of two-thirds of the outstanding First-Knox Common
Shares, voting in person or by proxy, is required to adopt the Merger Agreement
and approve the Merger. As of the First-Knox Record Date, the directors and
executive officers of First-Knox (13 persons) and their respective affiliates
in the aggregate beneficially owned 383,200, or 10.04%, of the outstanding
First-Knox Common Shares. See "PRINCIPAL SHAREHOLDERS OF FIRST-KNOX."
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The First-Knox Common Shares represented by each properly executed
proxy card received prior to the First-Knox Special Meeting and not revoked
prior to its use will be voted at the First-Knox Special Meeting, or any
adjournment(s) thereof, as specified on such proxy card or, in the absence of
specific instructions to the contrary, will be voted FOR adoption of the Merger
Agreement and approval of the Merger. See "THE FIRST-KNOX SPECIAL MEETING --
VOTING AT THE FIRST-KNOX SPECIAL MEETING; FIRST-KNOX RECORD DATE."
THE PROXIES OF THE FIRST-KNOX BOARD OF DIRECTORS MAY NOT VOTE
FIRST-KNOX COMMON SHARES REPRESENTED BY A PROXY CARD WHICH HAS BEEN VOTED
AGAINST ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER, TO ADJOURN
THE FIRST-KNOX SPECIAL MEETING FOR THE PURPOSE OF SOLICITING FURTHER SUPPORT
FOR APPROVAL OF THE MERGER.
REASONS FOR THE MERGER
Park
The Board of Directors of Park believes that the Merger with First-Knox
is fair and in the best interests of Park and its shareholders. In negotiating
the terms of the Merger, management of Park considered a number of factors with
a view to maximizing shareholder value in the intermediate and long term,
including earnings potential, realization of economies of scale, expansion into
four new counties which are contiguous to counties in which Park has banking
offices, and the opinion of Park's financial advisor, McDonald & Company
Securities, Inc. ("McDonald & Company"). Park believes that the operating
results of FKNB and Farmers will improve as a result of the Merger. See "THE
MERGER -- REASONS FOR THE MERGER."
First-Knox
The Board of Directors of First-Knox believes that the Merger with Park
is fair and in the best interests of First-Knox and its shareholders. In
negotiating the terms of the Merger, management of First-Knox considered a
number of factors with a view to maximizing shareholder value in the
intermediate and long term, including Park's strong earnings performance,
improved customer service by offering more diversified products, a strong
philosophical similarity with heavy emphasis on affiliate bank autonomy and
community service, improved employee career opportunities within a larger
organization, and the opinion of First-Knox's financial advisor, Danielson
Associates Inc. ("Danielson"). First-Knox believes that the operating results of
FKNB and Farmers will improve as a result of the Merger through the sharing of
management information and the operating efficiencies gained from the Merger,
and that such improved operating results will benefit shareholders. See "THE
MERGER -- REASONS FOR THE MERGER."
OPINION OF MCDONALD & COMPANY
McDonald & Company, Park's financial advisor, has delivered its written
opinion to the Board of Directors of Park to the effect that, as of October 28,
1996, the Exchange Ratio pursuant to the Merger was fair, from a financial point
of view, to the holders of Park Common Shares. A copy of the updated opinion of
McDonald & Company, dated as of the date of this Joint Proxy
Statement/Prospectus, is attached hereto as Appendix E. The opinion should be
read in its entirety for a description of the procedures followed, assumptions
and qualifications made and matters considered by McDonald & Company and for a
description of the limitations of the opinion. See "THE MERGER -- OPINION OF
MCDONALD & COMPANY" for information regarding, among other things, the selection
of McDonald & Company by Park and the compensation of McDonald & Company in
connection with the Merger.
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OPINION OF DANIELSON
Danielson, First-Knox's financial advisor, has delivered its written
opinion to the Board of Directors of First-Knox to the effect that, as of
October 28, 1996, the financial terms of Park's offer to acquire First-Knox were
fair to First-Knox and its shareholders. A copy of the updated opinion of
Danielson, dated as of the date of this Joint Proxy Statement/Prospectus, is
attached hereto as Appendix F. The opinion should be read in its entirety for a
description of the procedures followed, assumptions and qualifications made and
matters considered by Danielson and for a description of the limitations of the
opinion. See "THE MERGER -- OPINION OF DANIELSON" for information regarding,
among other things, the selection of Danielson by First-Knox and Danielson's
compensation in connection with the Merger.
TERMS OF MERGER
Exchange of First-Knox Common Shares
At the Effective Time, First-Knox will merge with and into Park and
Park will thereafter be the continuing and surviving corporation. As a result of
the consummation of the Merger, each of the First-Knox Common Shares will be
canceled and extinguished in consideration and exchange for a number of Park
Common Shares equal to the Exchange Ratio. The Exchange Ratio will be determined
pursuant to a specified formula that is based upon certain variables, including
the Park Trading Price and the Option Exercise Cash Payment Total. Management of
Park and of First-Knox currently anticipate that the Exchange Ratio will be
approximately .5914 (the "Assumed Exchange Ratio"). Cash will be paid for all
fractional shares, without interest. For a complete description of the Exchange
Ratio and the assumptions used in calculating the Assumed Exchange Ratio, see
"THE MERGER -- EFFECT ON OUTSTANDING PARK COMMON SHARES AND CONVERSION OF
FIRST-KNOX COMMON SHARES -- Conversion of First-Knox Common Shares." Please also
see "THE MERGER AGREEMENT -- AMENDMENT AND TERMINATION."
On October 28, 1996, there were 3,755,618 First-Knox Common Shares
issued and outstanding and 209,327 First-Knox Common Shares subject to
outstanding First-Knox Stock Options, the average exercise price of which was
$14.47. As of the First-Knox Record Date, 1,358 First-Knox Stock Options had
been exercised, as a result of which there are 3,756,976 First-Knox Common
Shares issued and outstanding and 207,969 First-Knox Common Shares subject to
First-Knox Stock Options, the average exercise price of which is $14.43.
Pursuant to the terms of the Merger Agreement, prior to the Effective Time,
First-Knox is to take such actions as are reasonably necessary to cause each
outstanding First-Knox Stock Option, whether vested or unvested, to be exercised
and each outstanding First-Knox SAR, whether vested or unvested, to be
exercised and "cashed out." See "THE MERGER -- EFFECT ON OUTSTANDING PARK
COMMON SHARES AND CONVERSION OF FIRST-KNOX COMMON SHARES --Treatment of
Outstanding First-Knox Stock Options and SARs."
On February 28, 1997, the closing sale price of the Park Common Shares
on the American Stock Exchange was $51 7/8 and the closing sale price of the
First-Knox Common Shares on The Nasdaq National Market was $29.
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Fractional Shares
No fractional Park Common Shares will be issued in the Merger. In lieu
of any such fractional shares, Park will pay to each holder of First-Knox Common
Shares who otherwise would be entitled to receive a fraction of a Park Common
Share an amount in cash, without interest, equal to the Park Trading Price,
multiplied by such fraction. See "THE MERGER -- EFFECT ON OUTSTANDING PARK
COMMON SHARES AND CONVERSION OF FIRST-KNOX COMMON SHARES -- No Fractional Park
Common Shares to be Issued."
Representations, Warranties and Covenants
Each of Park and First-Knox has made certain representations and
warranties in the Merger Agreement in respect of various matters, including, but
not limited to, the corporate organization and financial condition of each. In
addition, each of Park and First-Knox has made certain covenants in respect of
various matters, including, but not limited to, the conduct of business between
the date of the Merger Agreement and the Effective Time. See "THE MERGER
AGREEMENT -- REPRESENTATIONS AND WARRANTIES" and "THE MERGER AGREEMENT --
CONDUCT OF BUSINESS PENDING THE MERGER AND CERTAIN OTHER COVENANTS."
Conditions and Effective Time
The consummation of the Merger is subject to the satisfaction or waiver
of a number of conditions, including, but not limited to, the adoption of the
Merger Agreement and the approval of the Merger by the affirmative vote of the
holders of two-thirds of the issued and outstanding Park Common Shares and by
the affirmative vote of the holders of two-thirds of the issued and outstanding
First-Knox Common Shares; the adoption of the proposed amendment to Subsection
2.02(A) of Park's Regulations (to decrease the maximum allowable number of
directors from twenty-five to sixteen) by the affirmative vote of the holders of
two-thirds of the issued and outstanding Park Common Shares; the receipt of all
necessary regulatory approvals; the authorization for listing on the American
Stock Exchange of the Park Common Shares to be issued in the Merger; and certain
customary closing conditions which include, among other things, the condition
that the Merger qualify for "pooling-of-interests" accounting treatment and the
condition that none of the regulatory approvals impose any condition or
restriction which would reasonably be expected to either (i) have a material
adverse effect after the Effective Time on the present or prospective
consolidated financial condition, business or operating results of Park, or (ii)
prevent the parties from realizing the major portion of the economic benefits of
the Merger and the transactions contemplated thereby that they currently
anticipate obtaining. Following the satisfaction or waiver of all conditions, a
Certificate of Merger will be filed as soon as practicable with the Ohio
Secretary of State, after which the Merger will be effective. See "THE MERGER
AGREEMENT -- CONDITIONS TO THE CONSUMMATION OF THE MERGER" and "THE MERGER
AGREEMENT -- EFFECTIVE TIME." It is currently anticipated that the Merger will
be consummated during the second quarter of 1997.
No Solicitation of Transactions
Pursuant to the Merger Agreement, Park and First-Knox have agreed not
to solicit or encourage the submission of any takeover proposal by a third
party. However, the Board of Directors of First-Knox is not prohibited from
taking any action which is necessary in the exercise of its fiduciary duties.
See "THE MERGER AGREEMENT -- CONDUCT OF BUSINESS PENDING THE MERGER AND CERTAIN
OTHER COVENANTS."
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Amendment and Termination
The Merger Agreement may be amended prior to the Effective Time either
before or after shareholder approval; provided, however, that after shareholder
approval, no amendment may be made which alters or changes the amount or kind of
consideration to be paid to the First-Knox shareholders, which alters or changes
any term of Park's Articles of Incorporation, or which otherwise is required by
law to be approved by the shareholders of Park and/or of First-Knox, unless such
further shareholder approval is obtained. The Merger Agreement is subject to
termination by Park or First-Knox, either before or after the approval of the
Park and First-Knox shareholders, upon the occurrence of certain events,
including, but not limited to, the mutual agreement of the parties; the failure
to satisfy or waive all conditions to consummation of the Merger; or the failure
to consummate the Merger on or before October 31, 1997.
In addition, First-Knox may elect to terminate the Merger Agreement in
the event that (a) the Park Trading Price is less than $45.50 but equal to or
greater than $43.875 and the percentage decline in the Park Common Share price
since October 25, 1996 is greater than the percentage decline in the SNL All
Bank Index for the same period, or (b) the Park Trading Price is less than
$43.875. Before making any decision to terminate this transaction, the Board of
Directors of First-Knox would consult with its financial and other advisors and
would consider all financial and other information it deemed relevant to its
decision. The First-Knox Board of Directors is under no obligation to resolicit
the First-Knox shareholders in the event First-Knox elects not to exercise its
termination right in connection with the occurrence of any of the
above-described events. A decision regarding resolicitation of the shareholders
will be made by the First-Knox Board based on the market conditions and other
circumstances relating to the Merger existing at the time. See "THE MERGER
AGREEMENT -- AMENDMENT AND TERMINATION."
In the event of termination, the Merger Agreement will become void
except that certain provisions regarding expenses and confidentiality will
survive such termination and if terminated by reason of a Takeover Proposal (as
defined in the Merger Agreement) for First-Knox which is approved by
shareholders of First-Knox prior to October 31, 1997 or in the event the
First-Knox Board of Directors fails to recommend the Merger to the First-Knox
shareholders or withdraws such recommendation or fails to solicit proxies to
approve the Merger and the Merger is not consummated by October 31, 1997,
First-Knox will be required to pay a termination fee of $2,140,000 to Park.
Tax and Accounting Treatment
The following is a summary discussion of the material federal income
tax consequences of the Merger. This summary does not purport to discuss all
aspects of federal income taxation that may be applicable to particular
shareholders, some of whom may be subject to special rules, nor does it address
any aspects of state, local or foreign tax laws. This summary is based upon
current law, which is subject to change. Park and First-Knox shareholders are
advised to consult their own tax advisors.
The consummation of the Merger is conditioned upon the receipt of an
opinion of counsel to the effect that the Merger will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). If the Merger constitutes a tax-free reorganization for
federal income tax purposes, no gain or loss will be recognized by the
shareholders of First-Knox upon the issuance of Park Common Shares to them. If
the Merger is not treated as a reorganization for tax purposes, First-Knox
shareholders generally will recognize as taxable income any gain or loss
realized. In addition, a gain or loss will be recognized in respect of cash
received upon the exercise of dissenters' rights by Park shareholders or by
First-Knox shareholders. Gain or loss, if any, will also be recognized by
First-Knox shareholders upon the receipt of cash in lieu of the issuance of
fractional shares. Neither the opinion of counsel nor the discussion of federal
income tax consequences in this Joint Proxy Statement/ Prospectus is binding up
on either the Internal Revenue Service (the "IRS") or the courts. See "THE
MERGER -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER" and
"DISSENTERS' RIGHTS."
The consummation of the Merger is also conditioned upon the
availability of the pooling-of-interests method of accounting for the Merger.
Accounting conventions provide, however, that the exercise of dissenters' rights
by shareholders owning, in the aggregate, more than 10% of the shares of either
Park or First-Knox may prevent the utilization of the pooling-of-interests
method of accounting for the Merger. Because the use of the pooling-of-interests
accounting method is a condition to the consummation of the
15
<PAGE> 22
Merger, the unavailability of such method could result in the termination of the
Merger Agreement. See "THE MERGER -- ACCOUNTING TREATMENT OF THE MERGER."
Regulatory Approvals
Consummation of the Merger is subject to prior receipt by Park and
First-Knox of all necessary regulatory approvals. The principal regulatory
approvals required to be obtained are from the Federal Reserve Board and the
Ohio Division of Financial Institutions (the "ODFI"). A bank holding company
merger application and a change of bank control notice were submitted for filing
to the Federal Reserve Board and the ODFI, respectively, on December 31, 1996.
On February 14, 1997, the bank holding company merger application filed with the
Federal Reserve Board was approved. Pursuant to the terms of such approval, the
Merger could not be consummated before March 1, 1997 and must be consummated
before May 14, 1997, unless such period is extended by the Federal Reserve
Board. On March 10, 1997, the ODFI notified Park that the ODFI had no objection
to the proposed change in control of First-Knox's Ohio state-chartered bank
subsidiary. See "THE MERGER -- REGULATORY APPROVALS."
Park Board Representation
Pursuant to the Merger Agreement, at the Effective Time, the Park Board
of Directors will consist of sixteen persons, twelve of whom will be the current
members of the Park Board of Directors (assuming the persons nominated for
election at the Park Annual Meeting are elected) and four of whom will be
selected by Park, after consultation with First-Knox, from the First-Knox Board
of Directors immediately prior to the Effective Time. As of the date of this
Joint Proxy Statement/Prospectus, no decision has been made as to which of the
current First-Knox directors will be the First-Knox representatives on the Park
Board. See "THE MERGER -- BOARD REPRESENTATION AND MANAGEMENT OF PARK FOLLOWING
CONSUMMATION OF THE MERGER." In addition, it is a condition to the consummation
of the Merger that the shareholders of Park approve the proposed amendment of
Park's Regulations to effect a reduction in the maximum allowable number of
directors from twenty-five to sixteen. See "PROPOSED AMENDMENT TO SUBSECTION
2.02(A) OF PARK'S REGULATIONS."
Interests of Certain Persons in the Merger
Pursuant to the terms of the Merger Agreement, upon the Effective Time
of the Merger, Park will grant options to purchase 25,000 Park Common Shares
under the Park National Corporation 1995 Incentive Stock Option Plan (the "Park
1995 Plan") to such First-Knox employees as First-Knox and Park jointly select
and in such proportions as First-Knox and Park jointly determine. Subject to the
limitations imposed by law and consistent with the terms of the Park 1995 Plan,
it is currently Park's intention to use up to half of such 25,000 Park Common
Shares as incentives to existing First-Knox Stock Option holders to exercise
their First-Knox Stock Options and First-Knox SARs prior to the Effective Time
and to pay the exercise price for such First-Knox Stock Options in cash.
Notwithstanding this intention, Park, with the approval of First-Knox, may use
more than 12,500 Park Common Shares as incentives depending upon the
circumstances that then exist. The First-Knox Stock Options and First-Knox SARs
held by First-Knox Stock Option holders generally must be exercised in tandem.
Park desires to have the First-Knox Stock Options and First-Knox SARs exercised
at or prior to the effective time of the Merger so that the expense related to
the First-Knox SARs will be capped and not impact earnings of Park following the
consummation of the Merger. See "THE MERGER -- INTERESTS OF CERTAIN PERSONS
IN THE MERGER."
Park has developed the "First-Knox Severance Plan" which, for a period
of twelve months following the consummation of the Merger, will apply to any
person who was an employee of First-Knox or one of its subsidiaries immediately
prior to the Merger and whose employment is terminated by Park during the
twelve-month period after the consummation of the Merger, unless such
termination was due to a voluntary resignation, retirement, or termination for
cause. See "THE MERGER -- INTERESTS OF CERTAIN PERSONS IN THE MERGER."
16
<PAGE> 23
Park has also agreed to assume existing Employment Security Agreements
between three executive officers of First-Knox and FKNB. See the discussion of
such agreements in "CERTAIN INFORMATION CONCERNING FIRST-KNOX -- CHANGE-IN-
CONTROL ARRANGEMENTS WITH FIRST-KNOX MANAGEMENT TO BE ASSUMED BY PARK."
Park has agreed to indemnify each of the officers and directors of
First-Knox from and against certain liabilities arising out of the fact that
each such person is or was a director, officer or employee of First-Knox or any
of each its subsidiaries, in each case to the full extent First-Knox would have
been permitted to indemnify such person under Ohio law and the Amended Articles
of Incorporation and Code of Regulations of First-Knox. See "THE MERGER
AGREEMENT -- COSTS AND EXPENSES; INDEMNIFICATION" and "COMPARISON OF RIGHTS OF
HOLDERS OF PARK COMMON SHARES AND HOLDERS OF FIRST-KNOX COMMON SHARES --
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF PARK AND FIRST-KNOX
The Boards of Directors of Park and First-Knox both believe that the
consummation of the Merger is in the best interest of their respective
corporations and shareholders. Accordingly, the Boards of Directors of Park and
First-Knox recommend that the shareholders of their respective corporations vote
FOR the adoption of the Merger Agreement and the approval of the Merger.
The Board of Directors of Park also has unanimously approved each of
the other matters described in this Joint Proxy Statement/Prospectus and
recommends that the Park shareholders vote FOR (i) the proposed amendment to
Subsection 2.02(A) of Park's Regulations; (ii) the election of the four nominees
of the Park Board for election as Park directors; and (iii) the proposed
amendment to Article SIXTH of Park's Articles of Incorporation. See "PROPOSED
AMENDMENT TO SUBSECTION 2.02(A) OF PARK'S REGULATIONS;" "ELECTION OF PARK
DIRECTORS;" and "PROPOSAL TO AMEND ARTICLE SIXTH OF PARK'S ARTICLES OF
INCORPORATION."
COMPARISON OF RIGHTS OF HOLDERS OF PARK COMMON SHARES AND OF FIRST-KNOX COMMON
SHARES
The rights of the holders of First-Knox Common Shares are currently
governed by Ohio law and by First-Knox's Amended Articles of Incorporation and
Code of Regulations. Upon consummation of the Merger, First-Knox's shareholders
(except Park, First-Knox and their respective wholly-owned subsidiaries and
holders who exercise and perfect dissenters' rights) will become shareholders of
Park and their rights will be governed thereafter by Ohio law and by Park's
Articles of Incorporation and Regulations.
The rights of holders of Park Common Shares and those of holders of
First-Knox Common Shares differ in some respects, but are similar in most
material respects. Such differences are attributable to variation between
First-Knox's Amended Articles of Incorporation and Code of Regulations and
Park's Articles of Incorporation and Regulations.
Park's Regulations call for a classified Board consisting of not fewer
than five nor more than twenty-five directors; whereas, the First-Knox Code of
Regulations provides for a classified Board consisting of twelve directors. The
By-Laws of First-Knox provide for mandatory retirement of directors upon
reaching certain age and years of service levels; whereas, there is no mandatory
retirement age for directors of Park. A merger, consolidation or acquisition of
First-Knox by another corporation requires the approval of holders of at least
80% of the issued and outstanding First-Knox Common Shares if less than a
majority of the directors recommend approval. In contrast, under Ohio law, the
affirmative vote of holders of at least two-thirds of the voting power of Park
would be required to approve any similar transaction.
17
<PAGE> 24
The Amended Articles of Incorporation of First-Knox contain no provisions
similar to the "fair price" provision contained in the Park Articles of
Incorporation; whereas, First-Knox has not opted out of the Ohio Control Share
Acquisition Act and the Ohio Merger Moratorium Statute as has Park. Park
shareholders have pre-emptive rights with certain exceptions; however,
First-Knox shareholders have no pre-emptive rights.
The preceding summary is not intended to be a complete description of
the differences between the rights of holders of Park Common Shares and those of
holders of First-Knox Common Shares. For a comprehensive comparison of such
differences, see "DESCRIPTION OF PARK COMMON SHARES" and "COMPARISON OF RIGHTS
OF HOLDERS OF PARK COMMON SHARES AND HOLDERS OF FIRST-KNOX COMMON SHARES."
EXCHANGE OF CERTIFICATES EVIDENCING FIRST-KNOX COMMON SHARES
As soon as practicable after the consummation of the Merger, each
First-Knox shareholder will be advised of such consummation by letter
accompanied by instructions for use in surrendering the certificate or
certificates evidencing First-Knox Common Shares to Registrar and Transfer
Company, the exchange agent for the Merger (the "Exchange Agent"). CERTIFICATES
FOR FIRST-KNOX COMMON SHARES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL
AFTER RECEIPT OF A LETTER OF TRANSMITTAL AND SHOULD NOT BE RETURNED TO
FIRST-KNOX WITH THE ENCLOSED PROXY. See "THE MERGER -- EFFECT ON OUTSTANDING
PARK COMMON SHARES AND CONVERSION OF FIRST-KNOX COMMON SHARES--Closing of
First-Knox Stock Tranfers Books; Exchange of Certificates Evidencing
First-Knox Common Shares."
RESALE OF PARK COMMON SHARES
The Park Common Shares to be issued upon consummation of the Merger
have been registered with the SEC under the Securities Act and will be freely
transferable, except for Park Common Shares received by persons who may be
deemed to be affiliates of First-Knox. The term "affiliate" is defined in Rule
145 promulgated under the Securities Act and generally includes executive
officers and directors. Affiliates may not sell their Park Common Shares, except
pursuant to any effective registration statement under the Securities Act
covering the Park Common Shares or in compliance with Rule 145 or another
applicable exemption from the registration requirements of the Securities Act.
In addition, First-Knox will obtain customary agreements with all directors,
officers and affiliates of First-Knox under which those persons will agree not
to dispose of their Park Common Shares in a manner that would adversely affect
the ability of Park to treat the Merger as a pooling-of-interests for financial
accounting purposes. See "THE MERGER -- RESALE OF PARK COMMON SHARES RECEIVED IN
THE MERGER."
DISSENTERS' RIGHTS
Any shareholder of either Park or First-Knox who does not vote in favor
of the adoption of the Merger Agreement and the approval of the Merger and who
delivers a written demand for payment of the fair cash value of such
shareholder's shares in the manner provided by Ohio Revised Code Section
1701.85, a copy of which is attached hereto as Appendix G, will be entitled, if
and when the Merger is consummated, and upon strict compliance with the
procedures set forth in Ohio Revised Code Section 1701.85, to receive the fair
cash value of the Park Common Shares, if such dissenter is a shareholder of
Park, or the fair cash value of the First-Knox Common Shares, if such dissenter
is a shareholder of First-Knox. A shareholder of Park who wishes to submit a
written demand for payment of the fair cash value of his Park Common Shares
should deliver such notice to Park National Corporation, 50 North Third Street,
Newark, Ohio
18
<PAGE> 25
43055, Attention: David C. Bowers. A First-Knox shareholder who wishes to submit
a written demand for payment of the fair cash value of his First-Knox Common
Shares should deliver such notice to First-Knox Banc Corp., One South Main
Street, P.O. Box 871, Mount Vernon, Ohio 43050, Attention: Ian Watson. See
"DISSENTERS' RIGHTS."
MARKET PRICES
The Park Common Shares are traded on the American Stock Exchange, under
the symbol PRK. The First-Knox Common Shares are traded on The Nasdaq National
Market, under the symbol FKBC.
The following tables set forth the high and low sales prices on the
American Stock Exchange of the Park Common Shares and the high and low sales
prices as reported on The Nasdaq Stock Market of the First-Knox Common Shares on
October 28, 1996, the last trading day prior to the joint public announcement by
Park and First-Knox of the proposed Merger as well as the equivalent per share
basis of the First-Knox Common Shares calculated by multiplying the high and low
sales prices of the Park Common Shares on such date by the Assumed Exchange
Ratio of .5914 (see definition of the Assumed Exchange Ratio in "TERMS OF MERGER
- -- Exchange of First-Knox Common Shares" above).
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Sales Prices on October 28, 1996
for Park Common Shares.................... $48.875 $48.875
Sales Prices on October 28, 1996
for First-Knox Common Shares.............. $29.00 $27.00
Equivalent Per Share Basis................ $28.90 $28.90
</TABLE>
NO ASSURANCE CAN BE GIVEN AS TO WHAT THE MARKET PRICE OF THE PARK
COMMON SHARES WILL BE IF AND WHEN THE MERGER IS CONSUMMATED OR WHEN THE PARK
COMMON SHARES ARE ACTUALLY ISSUED. SHAREHOLDERS ARE ENCOURAGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR THEIR SHARES.
HISTORICAL AND PRO FORMA COMPARATIVE UNAUDITED PER SHARE DATA
The following tables present selected comparative unaudited per share
data for the Park Common Shares on a historical and pro forma combined basis and
for the First-Knox Common Shares on a historical and pro forma equivalent basis
giving effect to the Merger using the pooling-of-interests method of accounting.
The pro forma combined per share data is based on the Assumed Exchange Ratio of
.5914 and assumes that the Closing had occurred on December 31, 1996. The
following tables should be read in conjunction with the historical consolidated
financial statements of Park and of First-Knox incorporated by reference in this
Joint Proxy Statement/Prospectus and the unaudited pro forma condensed combined
financial information giving effect to the Merger presented elsewhere herein.
19
<PAGE> 26
BOOK VALUE PER COMMON SHARE:
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995
-------------- -------------
<S> <C> <C>
Park - historical (A) $20.89 $19.12
First-Knox - historical (B) 13.31 12.49
Park and First-Knox pro forma combined(C) 20.99 19.31
First-Knox pro forma equivalent (D) 12.41 11.42
</TABLE>
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Park - historical (E) $3.60 $3.09 $2.80
First-Knox - historical (F) 1.59 1.50 1.34
Park and First-Knox pro forma combined(G) 3.38 2.95 2.67
First-Knox pro forma equivalent (D) 2.00 1.74 1.58
</TABLE>
DIVIDENDS DECLARED PER COMMON SHARE:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Park - historical $1.45 $1.25 $.98
First-Knox - historical .68 .47 .40
Park and First-Knox pro forma combined(H) 1.45 1.25 .98
First-Knox pro forma equivalent (D) .86 .74 .58
</TABLE>
- -------------------
(A) Based on 7,133,184 and 7,135,222 Park Common Shares outstanding as of
December 31, 1996 and December 31, 1995, respectively.
(B) Based on 3,755,926 and 3,738,273 First-Knox Common Shares outstanding
as of December 31, 1996 and December 31, 1995, respectively. The
number of First-Knox Common Shares shown as outstanding for 1995
reflects an adjustment for the 5% stock dividend distributed in
September, 1996 whereby the 3,560,260 First-Knox Common Shares shown
as outstanding in the consolidated financial statements of First-Knox
for the fiscal year ended December 31, 1995, included in the
First-Knox Annual Report to Shareholders delivered herewith as
Appendix C, was multiplied by 1.05 to equal the 3,738,273 adjusted
number.
20
<PAGE> 27
(C) Represents the pro forma combined net book value of Park and
First-Knox, divided by the sum of the number of Park Common Shares
outstanding as of December 31, 1996 or December 31, 1995, as
appropriate, plus the 2,345,000 Park Common Shares expected to be
issued in the Merger.
(D) The equivalent pro forma combined per share data for First-Knox
represents, in the case of book value and earnings per common share,
the pro forma per share data for Park Common Shares multiplied by the
Assumed Exchange Ratio of .5914 and, in the case of dividends declared,
the historical per share data for Park Common Shares multiplied by the
Assumed Exchange Ratio of .5914.
(E) Based on average Park Common Shares outstanding of 7,136,889,
7,165,930 and 7,154,796, for the years ended December 31, 1996, 1995
and 1994, respectively.
(F) Based on the average First-Knox Common Shares and common share
equivalents outstanding of 3,802,449, 3,821,589, 3,856,009 for the
years ended December 31, 1996, 1995 and 1994, respectively. The
First-Knox Common Shares outstanding for 1995 and 1994 have been
adjusted to reflect the 5% stock dividend distributed in September,
1996.
(G) Amount reflects net income per common and common equivalent shares on a
pro forma combined basis. Such amount is determined by dividing the pro
forma combined net income by the sum of the average number of Park
Common Shares outstanding during the applicable period plus the number
of Park Common Shares to be issued in the Merger, computed by
multiplying the Assumed Exchange Ratio of .5914 times the First-Knox
average common and common equivalent shares outstanding.
(H) The pro forma combined dividends declared assume no changes in the
historical dividends declared per Park Common Share.
21
<PAGE> 28
UNAUDITED PARK SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data
concerning Park. Except for average balance information, the selected financial
data for each of the five years ended December 31, 1996 is derived from the
audited consolidated financial statements of Park, including footnotes to those
statements, included in the Park Annual Report to Shareholders delivered
herewith as Appendix B, and incorporated herein by reference. This information
should be read in conjunction with the consolidated financial statements of
Park, and the related notes thereto, incorporated by reference herein.
UNAUDITED PARK SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands Except Per Share Date)
<S> <C> <C> <C> <C> <C>
Interest Income $ 122,291 $ 113,200 $ 94,817 $ 90,384 $ 95,811
Interest Expense 49,332 46,848 35,164 33,823 41,627
Net Interest Income 72,959 66,352 59,653 56,561 54,184
Provision for Loan Losses 4,520 4,664 1,840 2,810 3,704
Noninterest Income 13,142 12,922 9,036 10,910 9,636
Noninterest Expense 43,239 41,643 37,867 39,132 36,697
Provision for Income 12,678 10,847 8,965 7,984 7,271
Taxes
Income Before Extraordinary Item
and Cumulative Effect of a Change
in Accounting Principle 25,664 22,120 20,017 17,545 16,148
Extraordinary Item 0 0 0 0 372
Cumulative Effect of Accounting Change 0 0 0 1,500 0
---------- ---------- ---------- ---------- ----------
Net Income $ 25,664 $ 22,120 $ 20,017 $ 19,045 $ 16,520
========== ========== ========== ========== ==========
Earnings Per Share Before
Extraordinary Item and Cumulative
Effect of Accounting Change $3.60 $ 3.09 $ 2.80 $ 2.48 $ 2.28
Extraordinary Item 0 0 0 0 0.05
Cumulative Effect of Accounting Change 0 0 0 0.21 0
---------- ---------- ---------- ---------- ----------
Earnings Per Share $3.60 $ 3.09 $ 2.80 $ 2.69 $ 2.33
========== ========== ========== ========== ==========
Cash Dividends Declared Per Common
Share $1.45 $ 1.25 $ .98 $ 1.05 $ .88
Average Balances:
Assets $1,485,557 $1,396,222 $1,316,620 $1,246,903 $1,202,449
Earning Assets 1,373,140 1,282,895 1,206,264 1,151,481 1,116,738
Deposits 1,213,151 1,123,059 1,072,688 1,033,507 1,012,540
Short-Term Borrowings 114,187 132,839 121,678 102,304 85,139
Long-Term Debt 0 0 0 0 5,160
Stockholders' Equity 139,638 125,042 110,741 100,081 88,629
Year-End Balances:
Assets $1,614,767 $1,476,208 $1,362,228 $1,285,333 $1,232,004
Long-Term Debt 0 0 0 0 0
Average Common Shares Outstanding 7,136,889 7,165,930 7,154,796 7,085,088 7,085,088
</TABLE>
22
<PAGE> 29
UNAUDITED FIRST-KNOX SELECTED FINANCIAL DATA
The following table sets forth certain consolidated financial data
concerning First-Knox. Except for average balance information, the selected
financial data for each of the five years ended December 31, 1996 is derived
from the audited consolidated financial statements of First-Knox, including
footnotes to those statements, included in the First-Knox Annual Report to
Shareholders delivered herewith as Appendix C, and incorporated herein by
reference. The number of First-Knox Common Shares has been adjusted to reflect
the 5% stock dividend distributed in September, 1996. This information should
be read in conjunction with the consolidated financial statements of
First-Knox, and the related notes thereto, incorporated by reference herein.
UNAUDITED FIRST-KNOX SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands Except Per Share Date)
<S> <C> <C> <C> <C> <C>
Interest Income $ 40,779 $ 37,088 $ 32,594 $ 31,292 $ 32,709
Interest Expense 19,811 17,499 13,627 12,697 16,061
---------- ---------- ---------- ---------- ----------
Net Interest Income 20,968 19,589 18,967 18,595 16,648
Provision for Loan Losses 774 584 638 1,124 1,394
Noninterest Income 3,428 3,127 2,747 2,465 2,452
Noninterest Expense 15,578 14,858 14,645 13,827 12,584
Provision for Income Taxes 2,008 1,565 1,267 1,443 1,171
---------- ---------- ---------- ---------- ----------
Net Income $ 6,036 $ 5,709 $ 5,164 $ 4,666 $ 3,951
========== ========== ========== ========== ==========
Primary Earnings Per Share $ 1.59 $ 1.50 $ 1.34 $ 1.31 $ 1.21
Fully Diluted Earnings Per Share $ 1.59 $ 1.50 $ 1.34 $ 1.27 $ 1.12
Cash Dividends Declared Per
Common Share $ 0.68 $ 0.47 $ 0.40 $ 0.35 $ 0.32
Average Balances:
Assets $ 527,729 $ 476,777 $ 456,228 $ 415,630 $ 400,936
Earning Assets 494,672 446,204 427,523 391,198 377,433
Deposits 416,407 390,672 378,682 365,849 357,603
Short-Term Borrowings 13,043 6,196 9,153 8,669 8,071
Long-Term Debt 46,497 33,413 27,246 4,773 5,222
Stockholders' Equity 47,636 43,390 39,899 34,561 28,539
Year-End Balances:
Assets $ 573,763 $ 496,899 $ 467,191 $ 439,414 $ 409,605
Long-Term Debt 62,375 33,415 34,720 5,900 5,159
Average Common and Common
Equivalent Shares Outstanding:
Primary 3,801,519 3,818,759 3,852,941 3,567,056 3,268,006
Fully Diluted 3,802,449 3,821,589 3,856,009 3,784,362 3,776,343
</TABLE>
23
<PAGE> 30
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following table summarizes certain unaudited pro forma combined
selected financial data for Park and First-Knox combined, giving effect to the
Merger as a pooling-of-interests for accounting and financial reporting
purposes. Such pro forma data assumes that the Merger had been effective at the
beginning of the years ended December 31, 1996, 1995, 1994, 1993 and 1992 and
that the Exchange Ratio in determining the number of Park Common Shares to be
issued in connection with the Merger was .5914. This pro forma combined selected
financial data is derived from, and should be read in conjunction with, the
historical consolidated financial statements of Park and of First-Knox,
including the respective footnotes to those statements, incorporated by
reference in this Joint Proxy Statement/Prospectus, and the unaudited pro forma
condensed combined financial information giving effect to the Merger included
elsewhere herein. THE FOLLOWING PRO FORMA COMBINED SELECTED FINANCIAL DATA IS
PRESENTED FOR INFORMATIONAL PURPOSES ONLY, AND IS NOT NECESSARILY INDICATIVE OF
RESULTS OF THE FUTURE OPERATIONS OF THE COMBINED ENTITY OR THE ACTUAL RESULTS
THAT WOULD HAVE BEEN ACHIEVED HAD THE MERGER BEEN CONSUMMATED PRIOR TO THE
PERIODS PRESENTED.
24
<PAGE> 31
UNAUDITED PRO FORMA COMBINED
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands Except Per Share Date)
<S> <C> <C> <C> <C> <C>
Interest Income $ 163,070 $ 150,288 $ 127,411 $ 121,676 $ 128,520
Interest Expense 69,143 64,347 48,791 48,520 57,688
---------- ---------- ---------- ---------- ----------
Net Interest Income 93,927 85,941 78,620 75,156 70,832
Provision for Loan Losses 5,294 5,248 2,478 3,934 5,098
Noninterest Income 16,570 16,049 11,783 13,375 12,088
Noninterest Expense 58,817 56,501 52,512 52,959 49,281
Provision for Income Taxes 14,686 12,412 10,232 9,427 8,442
---------- ---------- ---------- ---------- ----------
Income Before Extraordinary Item
and Cumulative Effect of a Change
in Accounting Principle 31,700 27,829 25,181 22,211 20,099
Extraordinary Item 0 0 0 0 372
Cumulative Effect of Accounting Change 0 0 0 1,500 0
---------- ---------- ---------- ---------- ----------
Net Income $ 31,700 $ 27,829 $ 25,181 $ 23,711 $ 20,471
========== ========== ========== ========== ==========
Primary Earnings Per Share Before
Extraordinary Item and Cumulative
Effect of Accounting Change $ 3.38 $ 2.95 $ 2.67 $ 2.42 $ 2.23
Extraordinary Item 0 0 0 0 0.04
Cumulative Effect of Accounting Change 0 0 0 0.16 0
---------- ---------- ---------- ---------- ----------
Primary Earnings Per Share $ 3.38 $ 2.95 $ 2.67 $ 2.58 $ 2.27
========== ========== ========== ========== ==========
Fully Diluted Earnings Per Share
Before Extraordinary Item and
Cumulative Effect of
Accounting Change $ 3.38 $ 2.95 $ 2.67 $ 2.40 $ 2.19
Extraordinary Item 0 0 0 0 0.04
Cumulative Effect of Accounting Change 0 0 0 0.16 0
---------- ---------- ---------- ---------- ----------
Fully Diluted Earnings Per Share $ 3.38 $ 2.95 $ 2.67 $ 2.56 $ 2.23
========== ========== ========== ========== ==========
Average Balances:
Assets $2,013,286 $1,872,999 $1,772,848 $1,662,533 $1,603,385
Earning Assets 1,867,812 1,729,099 1,633,787 1,542,679 1,494,171
Deposits 1,629,558 1,513,731 1,451,370 1,399,356 1,370,143
Short-Term Borrowings 127,230 139,035 130,831 110,973 93,210
Long-Term Debt 46,497 33,413 27,246 4,773 10,382
Stockholders' Equity 187,274 168,432 150,640 134,642 117,168
Year-End Balances:
Assets $2,188,530 $1,973,107 $1,829,419 $1,724,747 $1,641,609
Long-Term Debt 62,375 33,415 34,720 5,900 5,159
Average Common and Common
Equivalent Shares Outstanding:
Primary 9,385,107 9,424,345 9,433,425 9,194,645 9,017,787
Fully Diluted 9,385,657 9,426,018 9,435,240 9,323,160 9,318,417
</TABLE>
25
<PAGE> 32
THE PARK ANNUAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is furnished to the shareholders
of Park in connection with the solicitation on behalf of the Board of Directors
of Park of proxies for use at the Park Annual Meeting to be held at the offices
of The Park National Bank, 50 North Third Street, Newark, Ohio, 43055, on
Monday, April 21, 1997, at 2:00 p.m., local time, and at any adjournment(s)
thereof. This Joint Proxy Statement/Prospectus and the accompanying form of
proxy card were first mailed to Park shareholders on or about March 22, 1997.
MATTERS TO BE CONSIDERED AT THE PARK ANNUAL MEETING
At the Park Annual Meeting, Park shareholders will be asked (i) to
consider and vote upon the adoption of the Merger Agreement and the approval of
the Merger; (ii) to consider and act upon a proposal to amend Subsection 2.02(A)
of Park's Regulations to decrease the maximum allowable number of directors from
twenty-five to sixteen if the Merger Agreement is adopted; (iii) to elect four
directors; (iv) to consider and act upon a proposal to amend Article SIXTH of
Park's Articles of Incorporation to eliminate pre-emptive rights in respect of
the offering or sale of Park Common Shares held as treasury shares; and (v) to
transact such other business as may properly come before the Park Annual
Meeting.
The Park Board of Directors has unanimously approved the Merger
Agreement and the Merger and each of the other matters to be voted upon at the
Park Annual Meeting. The Park Board recommends a vote FOR adoption of the Merger
Agreement and each of the other matters described herein and FOR the election of
the nominees of the Park Board as Park directors.
VOTING AT THE PARK ANNUAL MEETING; PARK RECORD DATE
Only holders of record of Park Common Shares at the close of business
on the Park Record Date will be entitled to vote at the Park Annual Meeting. As
of the Park Record Date, there were 7,107,859 Park Common Shares outstanding.
Each Park Common Share entitles the holder thereof to one vote on each matter
to be submitted to the Park shareholders at the Park Annual Meeting. A quorum
for the Park Annual Meeting is a majority of the Park Common Shares outstanding.
If written notice is given by any Park shareholder to the President or
the Secretary of Park before 2:00 p.m. on April 19, 1997, that the Park
shareholder desires that the voting for the election of Park directors be
cumulative, and if an announcement of the giving of such notice is made upon the
convening of the Park Annual Meeting by the Chairman or Secretary or by or on
behalf of the Park shareholder giving such notice, each Park shareholder will
have the right to cumulate such voting as he possesses in voting for Park
directors. If cumulative voting is invoked, each Park shareholder will have
votes equal to the number of Park directors to be elected, multiplied by the
number of Park Common Shares owned by him, and will be entitled to distribute
his votes among the candidates as he sees fit.
Park Common Shares represented by signed proxy cards that are returned
to Park will be counted toward the quorum in all matters even though they are
marked as "abstain," "against" or "withhold authority" on one or more or all
matters or they are not marked at all. Broker-dealers, who hold their customers'
shares in street name, may, under the applicable rules of the exchange or other
self-regulatory organizations of which the broker-dealers are members, sign and
submit proxy cards for such Park Common Shares and may vote such Park Common
Shares on routine matters, which, under such rules,
26
<PAGE> 33
typically include the election of directors, but broker-dealers may not vote
such Park Common Shares on other matters, which typically include approval of
significant corporate transactions such as mergers and acquisitions, amendments
to the articles of incorporation or the regulations of a corporation and the
approval of stock compensation plans, without specific instructions from the
customer who owns such shares. Proxy cards signed and submitted by
broker-dealers which have not been voted on certain matters as described in the
preceding sentence are referred to as "broker non-votes". Such proxies count
toward the establishment of a quorum. THE EFFECT OF AN ABSTENTION OR BROKER
NON-VOTE ON EACH OF THE MATTERS TO BE VOTED UPON AT THE PARK ANNUAL MEETING IS
THE SAME AS A "NO" VOTE.
If the accompanying proxy card is properly signed and returned to Park
prior to the Park Annual Meeting and not revoked, it will be voted in accordance
with the instructions contained therein. If no instructions are given, the
persons designated as proxies in the accompanying proxy card will vote FOR the
election as Park directors of the persons named as nominees of the Park Board
herein and FOR all of the other proposals set forth herein.
THE PROXIES OF THE PARK BOARD OF DIRECTORS MAY NOT VOTE PARK COMMON
SHARES REPRESENTED BY A PROXY CARD WHICH HAS BEEN VOTED AGAINST ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER OR AGAINST ADOPTION THE PROPOSED
AMENDMENT TO SUBSECTION 2.02(A) OF PARK'S REGULATIONS TO DECREASE THE MAXIMUM
ALLOWABLE NUMBER OF DIRECTORS, TO ADJOURN THE PARK ANNUAL MEETING FOR THE
PURPOSE OF SOLICITING FURTHER SUPPORT FOR APPROVAL OF THE MERGER AND THE
RELATED APPROVALS.
The Park Board of Directors is not currently aware of any matters other
than those referred to herein which will come before the Park Annual Meeting. If
any other matter should be presented at the Park Annual Meeting for action, the
persons named in the accompanying proxy card will vote the proxy in their own
discretion.
A Park shareholder may revoke his proxy at any time before it is
actually voted at the Park Annual Meeting by delivering written notice of
revocation to the Secretary of Park, by submitting a later dated proxy, or by
attending the Park Annual Meeting and voting in person. ATTENDANCE AT THE PARK
ANNUAL MEETING WILL NOT, IN AND OF ITSELF, CONSTITUTE REVOCATION OF A PROXY.
The expense of preparing, printing and mailing proxy materials to the
Park shareholders will be shared by Park and First-Knox. In addition, proxies
may be solicited personally or by telephone, mail or telegraph. Officers or
employees of Park may assist with personal or telephone solicitation and will
receive no additional compensation therefor. Park will also reimburse brokerage
houses and other nominees for their reasonable expenses in forwarding proxy
materials to beneficial owners of the Park Common Shares.
THE FIRST-KNOX SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is furnished to the shareholders
of First-Knox in connection with the solicitation on behalf of the Board of
Directors of First-Knox of proxies for use at the First-Knox Special Meeting to
be held at the Dan Emmett Conference Center, 150 Howard Street, Mount Vernon,
Ohio 43050, on Wednesday, April 23, 1997, at 3:30 p.m., local time, and at any
adjournment(s) thereof. This Joint Proxy Statement/Prospectus and the
accompanying form of proxy card were first mailed to First-Knox shareholders on
or about March 22, 1997.
MATTERS TO BE CONSIDERED AT THE FIRST-KNOX SPECIAL MEETING
At the First-Knox Special Meeting, First-Knox shareholders will be
asked (i) to consider and vote upon the adoption of the Merger Agreement and the
approval of the Merger; and (ii) to transact such other business as may properly
come before the First-Knox Special Meeting.
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<PAGE> 34
The First-Knox Board of Directors has approved the Merger Agreement and
recommends a vote FOR adoption of the Merger Agreement and approval of the
Merger.
VOTING AT THE FIRST-KNOX SPECIAL MEETING; FIRST-KNOX RECORD DATE
Only holders of record of First-Knox Common Shares at the close of
business on the First-Knox Record Date will be entitled to vote at the
First-Knox Special Meeting. As of the First-Knox Record Date, there were
3,756,976 First-Knox Common Shares outstanding. Each First-Knox Common Share
entitles the holder thereof to one vote on each matter to be submitted to the
First-Knox shareholders at the First-Knox Special Meeting. A quorum for the
First-Knox Special Meeting is a majority of the First-Knox Common Shares
outstanding.
First-Knox Common Shares represented by signed proxy cards that are
returned to First-Knox will be counted toward the quorum in all matters even
though they are marked as "abstain," "against" or "withhold authority" on one or
more or all matters or they are not marked at all. Broker non-votes will also
count toward the establishment of a quorum. THE EFFECT OF AN ABSTENTION OR
BROKER NON-VOTE ON EACH OF THE MATTERS TO BE VOTED UPON AT THE FIRST-KNOX
SPECIAL MEETING IS THE SAME AS A "NO" VOTE.
If the accompanying proxy card is properly signed and returned to
First-Knox prior to the First-Knox Special Meeting and not revoked, it will be
voted in accordance with the instructions contained therein. If no instructions
are given, the persons designated as proxies in the accompanying proxy card will
vote FOR adoption of the Merger Agreement and approval of the Merger.
THE PROXIES OF THE FIRST-KNOX BOARD OF DIRECTORS MAY NOT VOTE
FIRST-KNOX COMMON SHARES REPRESENTED BY A PROXY CARD WHICH HAS BEEN VOTED
AGAINST ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER, TO ADJOURN
THE FIRST-KNOX SPECIAL MEETING FOR THE PURPOSE OF SOLICITING FURTHER SUPPORT
FOR APPROVAL OF THE MERGER.
The First-Knox Board of Directors is not currently aware of any matters
other than those referred to herein which will come before the First-Knox
Special Meeting. If any other matter should be presented at the First-Knox
Special Meeting for action, the persons named in the accompanying proxy card
will vote the proxy in their own discretion.
A First-Knox shareholder may revoke his proxy at any time before it is
actually voted at the First-Knox Special Meeting by delivering written notice of
revocation to the Secretary of First-Knox, by submitting a later dated proxy, or
by attending the First-Knox Special Meeting and voting in person. ATTENDANCE AT
THE FIRST-KNOX SPECIAL MEETING WILL NOT, IN AND OF ITSELF, CONSTITUTE REVOCATION
OF A PROXY.
The expense of preparing, printing and mailing proxy materials to the
First-Knox shareholders will be shared by Park and First-Knox. In addition,
proxies may be solicited personally or by telephone, mail or telegraph. Officers
or employees of First-Knox may assist with personal or telephone solicitation
and will receive no additional compensation therefor. First-Knox will also
reimburse brokerage houses and other nominees for their reasonable expenses in
forwarding proxy materials to beneficial owners of the First-Knox Common Shares.
PRINCIPAL SHAREHOLDERS OF PARK
The following table furnishes certain information as of January 1, 1997
(except as otherwise noted), as to the Park Common Shares beneficially owned by
each of the current directors of Park, by each of the nominees for election as a
director of Park, by each of the executive officers of Park named in the Summary
Compensation
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<PAGE> 35
Table under "ELECTION OF PARK DIRECTORS -- EXECUTIVE COMPENSATION" and by all
directors and executive officers of Park as a group, and to Park's knowledge, by
the only persons beneficially owning more than 5% of the outstanding Park Common
Shares. None of the directors or executive officers of Park currently hold
First-Knox Common Shares.
Amount and Nature of Beneficial Ownership (1)
<TABLE>
<CAPTION>
Park Common Shares
Which Can Be
Acquired Upon Percent of Class (2)
Name of Beneficial Park Exercise of Options --------------------
Owner or Number Common Shares Exercisable Post-
of Persons in Group Presently Held Within 60 Days Total 1/1/97 Merger
------------------- -------------- -------------- ----- ------ ------
<S> <C> <C> <C> <C> <C>
The Park National Bank, 1,215,370 (3) 0 1,215,370 17.0% 12.8%
Trust Department
50 North Third Street
Newark, Ohio 43055
J. Gilbert Reese 416,034 (4)(5) 0 416,034 5.8% 4.4%
1 East Parnassus Drive
Granville, Ohio 43023
John L. Warner 692,160 (6) 0 692,160 9.7% 7.3%
868 Shoreham Road
Newark, Ohio 43055
C. Daniel DeLawder (7) 72,248 (8) 2,056 74,304 1.0% (9)
Dominick C. Fanello 400 (10) 0 400 (9) (9)
R. William Geyer 3,834 (11) 0 3,834 (9) (9)
Tamala Longaberger Kaido 765 0 765 (9) (9)
Howard L. LeFevre 50,254 (5)(12) 0 50,254 (9) (9)
Phillip T. Leitnaker 1,578 (13) 0 1,578 (9) (9)
William T. McConnell (7) 195,464 (5)(14) 0 195,464 2.7% 2.1%
John J. O'Neill 129,190 (5) 0 129,190 1.8% 1.4%
William A. Phillips 11,939 (15) 0 11,939 (9) (9)
Rick R. Taylor 667 0 667 (9) (9)
David C. Bowers (7) 25,679 (16) 1,750 27,429 (9) (9)
All current executive officers
and directors as a group
(13 persons) 1,600,212 (17) 3,806 1,604,018 22.5% 16.9%
</TABLE>
- --------------------
(1) Unless otherwise noted, the beneficial owner has sole voting and
investment power with respect to all of the Park Common Shares reflected in the
table. All fractional Park Common Shares have been rounded to the nearest whole
Park Common Share.
(2) The percent of class at January 1, 1997 is based upon the sum of
7,133,184 Park Common Shares outstanding and entitled to vote on January 1, 1997
and the number of Park Common Shares, if any, as to which the named person has
the right to acquire beneficial ownership upon the exercise of options
exercisable
29
<PAGE> 36
within 60 days of January 1, 1997. The post-Merger percent of class assumes that
the Merger has been consummated with the Assumed Exchange Ratio of .5914 Park
Common Shares for each First-Knox Common Share resulting in the issuance of an
aggregate of 2,345,000 Park Common Shares.
(3) The Trust Department of PNB, as the fiduciary of various agency,
trust and estate accounts, beneficially owns 1,215,370 Park Common Shares. PNB
has sole voting and investment power with respect to 1,206,370 of these Park
Common Shares and shares voting and investment power with Mr. Warner with
respect to 9,000 Common Shares. See Note (6) below. The officers and directors
of PNB and Park disclaim beneficial ownership of the Park Common Shares
beneficially owned by the Trust Department of PNB. The number shown does not
include Park Common Shares held by PNB's Trust Department in various trust
accounts, as to which PNB's Trust Department has no voting or investment power.
(4) The number shown includes 364,914 Park Common Shares held in a
revocable inter vivos trust created by Mr. Reese with respect to which he
exercises sole voting and investment power; and 51,120 Park Common Shares held
by the wife of Mr. Reese with respect to which she exercises sole voting and
investment power.
(5) The number shown does not include 14,220 Park Common Shares owned
by the Newark Campus Development Fund, an Ohio not for profit corporation, of
which the following directors of Park serve as officers and/or trustees: Messrs.
LeFevre, McConnell, O'Neill and Reese. None of these individuals has the power
to vote these Park Common Shares without the consent of a majority of the Board
of Trustees and, therefore, each disclaims beneficial ownership of such Park
Common Shares.
(6) The number shown includes 217,062 Park Common Shares held by Mr.
Warner in a family trust for which Mr. Warner serves as trustee and exercises
sole voting and investment power; 9,000 Park Common Shares held in a family
trust for which he serves as co-trustee with PNB's Trust Department and
exercises shared voting and investment power; and 4,532 Park Common Shares held
by the wife of Mr. Warner as to which she exercises sole voting and investment
power.
(7) Executive officer of Park named in the Summary Compensation Table.
(8) The number shown includes 33,300 Park Common Shares held by the
wife of Mr. DeLawder as to which she exercises sole voting and investment power;
405 Park Common Shares held by each of Mr. DeLawder's two children as to which
Mr. DeLawder exercises shared voting and investment power; and 5,164 Park Common
Shares held for the account of Mr. DeLawder in the Park National Corporation
Employees Voluntary Salary Deferral Plan and Trust (the "Park 401(k) Plan").
(9) Represents ownership of less than 1% of the outstanding Park
Common Shares.
(10) The number shown does not include 400 Park Common Shares held in a
grantor trust established for the benefit of the wife of Mr. Fanello or 150 Park
Common Shares held in a trust for the benefit of Mr. Fanello, with respect to
which Park Common Shares Mr. Fanello has no voting or investment power.
(11) The number shown includes 584 Park Common Shares held by the wife
of Mr. Geyer as to which she exercises sole voting and investment power; and
2,500 Park Common Shares held in Mr. Geyer's account in a Keogh plan.
30
<PAGE> 37
(12) The number shown includes 50,254 Park Common Shares held in an
inter vivos trust created by Mr. LeFevre for which Mr. LeFevre serves as
co-trustee with PNB's Trust Department and exercises sole voting and investment
power.
(13) The number shown includes 578 Park Common Shares held jointly by
Mr. Leitnaker and his wife as to which they share voting and investment power;
and 500 Park Common Shares held by the wife of Mr. Leitnaker as to which she
exercises sole voting or investment power.
(14) The number shown includes 67,600 Park Common Shares held by the
wife of Mr. McConnell as to which she exercises sole voting and investment
power; and 15,400 Park Common Shares held in a grantor retained income trust
established by Mr. McConnell with respect to which PNB's Trust Department serves
as trustee.
(15) The number shown includes 454 Park Common Shares held for the
account of Mr. Phillips in the Park 401(k) Plan.
(16) The number shown includes 3,193 Park Common Shares held for the
account of Mr. Bowers in the Park 401(k) Plan.
(17) See Notes (4) through (6), (8) and (10) through (16) above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the knowledge of Park, based solely on a review of the copies of the
reports furnished to Park and written representations that no other reports were
required, during the 1996 fiscal year, all filing requirements applicable to
officers, directors and greater than 10% beneficial owners of Park under Section
16(a) of the Exchange Act were complied with; except each of Tamala Longaberger
Kaido and J. Gilbert Reese, who are directors of Park, filed late one report
related to one transaction.
PRINCIPAL SHAREHOLDERS OF FIRST-KNOX
The following table furnishes certain information as of January 1, 1997
(except as otherwise noted), as to the First-Knox Common Shares beneficially
owned by each of the current directors of First-Knox, by the only executive
officer of First-Knox whose total salary and bonus for the 1996 fiscal year
exceeded $100,000 and by all directors and executive officers of First-Knox as a
group. To the best of First-Knox's knowledge, no person beneficially owns more
than 5% of the outstanding First-Knox Common Shares.
31
<PAGE> 38
Amount and Nature of Beneficial Ownership (1)
<TABLE>
<CAPTION>
First-Knox
Common Shares
Which Can Be
Acquired Upon
Exercise of Park Common Post-Merger
Name of Beneficial First-Knox Options Percentage Shares to be Percentage
Owner or Number Common Shares Exercisable Ownership Received in Ownership
of Persons in Group Presently Held Within 60 Days Total of First-Knox (2) Merger(3) of Park (3)
- ------------------- -------------- -------------- ----- ----------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Maureen Buchwald 1,576 2,100 3,676 (5) 2,173 (5)
James J. Cullers 41,981(4) 2,100 44,081 (5) 26,069 (5)
Robert S. Gregg 32,280(6) 2,100 34,380 (5) 20,332 (5)
Philip H. Jordan, Jr 3,688 1,050 4,738 (5) 2,802 (5)
James E. McClure 1,675 630 2,305 (5) 1,363 (5)
James A. McElroy 52,126(7) 2,100 54,226 1.44% 32,069 (5)
John B. Minor 62,489(8) 2,100 64,589 1.72% 38,197 (5)
Noel C. Parrish 27,055(9) 2,100 29,155 (5) 17,242 (5)
Alan E. Riedel 8,262(10) 1,050 9,312 (5) 5,507 (5)
Kenneth W. Stevenson 10,127(11) 2,100 12,227 (5) 7,231 (5)
Carlos E. Watkins 43,612(12) 24,440(13) 68,052 1.80% 45,008 (5)
All current executive 321,071(14) 62,129(15) 383,200 10.04% 242,144 2.56%
officers and directors
as a group
(13 persons)
</TABLE>
- --------------------
(1) Unless otherwise noted, the beneficial owner has sole voting and
investment power with respect to all of the First-Knox Common Shares reflected
in the table. All fractional First-Knox Common Shares have been rounded to the
nearest whole First-Knox Common Share.
(2) The percentage ownership of First-Knox Common Shares at January 1,
1997 is based upon the sum of First-Knox Common Shares outstanding and entitled
to vote on January 1, 1997 and the number of First-Knox Common Shares, if any,
as to which the named person has the right to acquire beneficial ownership upon
the exercise of First-Knox Stock Options exercisable within 60 days of January
1, 1997.
(3) Assumes that (a) the Merger has been consummated with the Assumed
Exchange Ratio of .5914 Park Common Shares for each First-Knox Common Share,
resulting in the issuance of an aggregate of 2,345,000 Park Common Shares and
(b) all First-Knox Stock Options held by named person have been exercised.
(4) Includes 887 First-Knox Common Shares owned by Mr. Cullers' wife;
6,765 First-Knox Common Shares held in a trust of which Mr. Cullers is the
beneficiary; 31,872 First-Knox Common Shares held in trusts in which Mr.
Cullers has voting and investment power; 240 First-Knox Common Shares held by
Mr. Cullers as custodian for his grandchildren; and 98 First-Knox Common Shares
held by Mr. Cullers' wife as custodian for their grandchildren.
(5) Represents less than 1% of class.
32
<PAGE> 39
(6) Includes 12,187 First-Knox Common Shares owned by Mr. Gregg's wife
and 1,122 First-Knox Common Shares held by Mr. Gregg as custodian for his
children.
(7) Includes 31,148 First-Knox Common Shares held in a trust of which
Mr. McElroy is the beneficiary; 18,475 First-Knox Common Shares owned by AMG
Industries, Inc., a corporation controlled by Mr. McElroy; and 975 First-Knox
Common Shares owned by Mr. McElroy's wife.
(8) Includes 14,272 First-Knox Common Shares held in a trust of which
Mr. Minor is the beneficiary.
(9) Includes 15,308 First-Knox Common Shares owned by Mr. Parrish's
wife.
(10) Includes 444 First-Knox Common Shares owned by Mr. Riedel's wife
as to which Mr. Riedel disclaims beneficial ownership.
(11) Includes 4,788 First-Knox Common Shares owned by Mr. Stevenson's
wife.
(12) Includes 3,640 First-Knox Common Shares owned by Mr. Watkins' wife
and 1,134 First-Knox Common Shares held in an account for Mr. Watkins' benefit
under the First-Knox Savings Retirement Plan.
(13) Does not include 8,053 First-Knox Common Shares which are subject
to a First-Knox Stock Option which is not currently exercisable.
(14) See Notes (4) and (6) through (12) above.
(15) Does not include an aggregate of 26,243 First-Knox Common Shares
which are subject to First-Knox Stock Options which are not currently
exercisable.
THE MERGER
GENERAL
This section of the Joint Proxy Statement/Prospectus contains a summary
of the material terms of the Merger which are more specifically described in
the Merger Agreement which is attached hereto as Appendix A. The following
description summarizes all of the material terms of the Merger; however, it
does not purport to address every provision of the Merger Agreement and is
qualified in its entirety by reference to the Merger Agreement. All
shareholders of Park and of First-Knox are urged to read that document in its
entirety.
In accordance with the terms of the Merger Agreement, at the Effective
Time of the Merger, First-Knox will be merged into Park and the separate
existence of First-Knox will cease. At the Effective Time of the Merger, each
outstanding First-Knox Common Share (other than First-Knox Common Shares owned
directly by Park, by First-Knox or by any wholly-owned subsidiary of Park or
of First-Knox and First-Knox Common Shares as to which dissenters' rights are
perfected under the General Corporation Law of Ohio) will be converted into the
right to receive a number of Park Common Shares equal to the Exchange Ratio.
See "EFFECT ON OUTSTANDING PARK COMMON SHARES AND CONVERSION OF FIRST-KNOX
COMMON SHARES -- Conversion of First-Knox Common Shares". As discussed further
below, the consideration to be received by the First-Knox
33
<PAGE> 40
shareholders in the Merger was determined by arm's-length negotiations between
the managements and Boards of Directors of Park and First-Knox.
All information contained in this Joint Proxy Statement/Prospectus
relating to Park has been furnished by Park. All information relating to
First-Knox has been furnished by First-Knox. The party furnishing any such
information is responsible for the accuracy thereof.
BACKGROUND
The terms and conditions of the Merger Agreement were determined
through arm's-length negotiations between the managements and Boards of
Directors of First-Knox and Park. The following is a brief summary of those
negotiations.
William T. McConnell, Chairman of the Board and Chief Executive
Officer, and C. Daniel DeLawder, President, of Park have been acquainted for a
number of years with William A. Stroud, former Chairman, and Carlos E. Watkins,
President, of First-Knox. All four have been active in the Ohio Bankers
Association with each of Messrs. Stroud, McConnell and Watkins having served as
President of that Association.
Messrs. Stroud and McConnell have had a number of casual conversations
concerning the possible advantages of a business combination of the two
institutions over a period of more than ten years. In March, 1994, Mr. McConnell
wrote to Mr. Stroud suggesting once again that they should seriously consider
the possibility of merging the two corporations. In November, 1994, Mr.
McConnell met in Columbus with Messrs. Watkins and Stroud on the same subject,
and this conversation was followed with a letter from Mr. McConnell to Messrs.
Watkins and Stroud containing a "white paper" making the case for a merger of
First-Knox and Park. In December, 1994, this conversation and the "white paper"
were discussed by Messrs. Watkins and Stroud at a meeting of the Planning and
Budget Committee of the First-Knox Board of Directors. In January, 1995, Mr.
Watkins distributed to the First-Knox Board of Directors all the written
material furnished to him by Mr. McConnell. In May, 1995, Messrs. McConnell and
DeLawder met in Gambier with Russell E. Ramser, Jr., a First-Knox director and
significant shareholder, to discuss a possible merger in general terms. In
November, 1995, Mr. McConnell met with several First-Knox directors in Mount
Vernon.
All these meetings, plus a number of phone conversations and
correspondence that occurred during 1995, were of a general nature exploring
whether there were advantages to be had by combining the two institutions. Park
and First-Knox have common concerns -- to insure that the surviving institution
would maintain the same level of commitment to community banking as has each of
Park and First-Knox; that a combination would result in an enhancement of
products and services offered by each institution and its subsidiary banks and
not a degradation in either; that there would be no loss of commitment to the
welfare of the respective communities served; and that the combined entity would
be stronger and better able to compete with the large regional banks operating
in their respective market areas than either Park or First-Knox could
separately. Neither the possible structure of the transaction nor the price was
discussed during these preliminary meetings.
On November 27, 1995, Mr. McConnell wrote to Mr. Stroud requesting that
he and Mr. DeLawder be allowed to meet with the First-Knox Board of Directors.
On December 11, 1995, this meeting took place in Mount Vernon. Messrs. McConnell
and DeLawder presented the rationale for considering the combination of the two
institutions and answered questions posed by the First-Knox Board. The
discussion involved the future structure of the banking industry and the ability
of community banks to
34
<PAGE> 41
compete. While both Park and First-Knox had excellent records of achievement as
community banks, both institutions believed that the banking industry would
become increasingly competitive, and that it may become more difficult to
compete with large regional banks. By combining their resources, however, they
may be able to retain their community banking focus while attaining enough size
to realize the economies of scale which would allow the combined institution to
compete effectively. During January and February of 1996, there were frequent
contacts between Messrs. DeLawder and McConnell and Messrs. Stroud and Ramser.
These discussions included issues surrounding the provisions of a possible
confidentiality agreement including exclusivity provisions and issues of
controlling persons. During this time, Park furnished First-Knox data concerning
the history of Park's earnings, dividends and stock price. On February 24,
Messrs. McConnell and DeLawder met with three directors representing the
First-Knox Board: Messrs. Stroud, Ramser and Parrish. Plans were made for
Messrs. DeLawder and McConnell to meet with groups of two or three First-Knox
directors in a series of informal gatherings for the purpose of becoming better
acquainted and discussing the possible merits of affiliation. These meetings
took place over the next several months and included all but one First-Knox
director. On March 1, 1996, Mr. DeLawder furnished Mr. Stroud with biographical
sketches of the top officers of each of the Park affiliate banks together with
details concerning the community involvement of each. Also furnished to Mr.
Stroud were data relating to the charitable contributions of each affiliate.
On March 26, the shareholders of First-Knox met and elected Mr. Ramser
to be their Chairman (replacing Mr. Stroud, who retired) and Phillip H. Jordan
as Vice Chairman. During March and April, meetings were held with First-Knox
directors and Messrs. McConnell and DeLawder, and plans were made for the
initial meeting of the negotiation teams from each institution. On June 19, five
representatives from First-Knox met with five representatives from Park in
Granville to discuss the possible merger in more detail. At that time, Park made
a specific offer which was confirmed by letter dated June 21. Park's initial
expression of interest was limited in scope, but did suggest very specific
financial consideration. The First-Knox Board of Directors did not reject
outright such expression of interest, but instead chose to further investigate
First-Knox's sale options.
On June 26, David Martin, President of Danielson, the financial
advisory firm that had been engaged by First-Knox in June, 1996, advised Mr.
McConnell by phone that on the advice of counsel, the Board of Directors of
First-Knox had instructed him to confidentially contact several other bank
holding companies that might be interested in affiliating with First-Knox.
During July and August, Danielson prepared an informational booklet about
First-Knox, talked with interested parties, and received their expressions of
interest.
Danielson contacted, in addition to Park, four bank holding companies
that were in the position to make competitive offers to First-Knox. Each of
these four prospective bidders chose to submit expressions of interest to
First-Knox. Park was given the opportunity, as part of this process, to revise
its original expression of interest, but declined the opportunity. Of the five
expressions of interest (including Park's original expression of interest),
three were dismissed by the First-Knox Board of Directors as they offered
substantially less financial consideration than the top two expressions of
interest. The two remaining interested parties, which included Park, were close
in financial consideration and the First-Knox Board decided to negotiate
directly with the other institution. The terms of the expression of interest of
the other banking holding company included an exchange of shares in a tax-free
transaction valued at approximately $104 million to $108 million and included
similar levels of operational autonomy for First-Knox as offered by Park.
On August 20, Mr. Martin called Mr. McConnell to report that the
First-Knox Board had met, considered other bids, and decided to initiate
discussions with another bank holding company. In early September, Park was
informed that First-Knox had decided to request second bids from Park and at
least one other party with whom First-Knox was negotiating. Consequently, on
September 6, Park submitted a second offer to First-Knox. The terms of Park's
second offer were substantially the same as the terms and conditions of the
Exchange Ratio outlined in the Agreement and Plan of Merger signed by the
parties, and included an exchange of shares in a tax-free transaction valued at
that time at approximately $112 million to $115 million (assuming the issuance
of an aggregate of 2,345,000 Park Common Shares in the exchange). The other
bank holding company chose not to modify the terms of its expression of
interest.
After this second round of bidding, the Board of Directors of First-Knox
accepted the bid submitted by Park. First-Knox' Board of Directors accepted the
bid of Park because that bid would provide the highest financial return to
First-Knox shareholders in comparison to the other bids received by First-Knox.
The Board of Directors of First-Knox also accepted Park's bid because a merger
with Park would provide other benefits to First-Knox' shareholders, customers
and community as described below in the section entitled "Reasons for the
Merger-First-Knox."
On the basis of Park's September 6 offer, First-Knox agreed to
negotiate further with Park and a draft of an agreement and plan of merger was
received from First-Knox's attorneys on September 16. On September 25,
negotiating teams from both institutions met in Columbus to discuss details
of a proposed merger. On September 30, senior operations officers from each
institution met to explore specific means by which a merger could reduce
overhead expenses. The negotiating teams met once again in Columbus on October
1, and during the month of October, attorneys representing both sides worked to
modify the proposed agreement and plan of merger on the basis of the decisions
reached by the negotiating teams. On October 4, First-Knox announced publicly
that it had received expressions of interest from prospective acquirors and
that it was negotiating with one of these parties (which was not named). On
October 18, Mr. McConnell met with Mr. Jordan and Kenneth W. Stevenson, a
First-Knox director and member of the First-Knox negotiating team, in Granville
for the purpose of reaching agreement on final details.
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<PAGE> 42
On October 28, the Agreement and Plan of Merger was signed by both
parties and fairness opinions issued to First-Knox by Danielson and to Park by
McDonald & Company. On October 29, the Agreement and Plan of Merger was made
public through a press release issued jointly by Park and First-Knox. On
January 10, 1997, Park and First-Knox entered into the Amendment to Agreement
and Plan of Merger in order to (i) permit the continuation of the First-Knox
Dividend Reinvestment Plan on the terms set forth in the Amendment and (ii)
provide for the consent of First-Knox to the Park National Corporation
Supplemental Executive Retirement Plan.
REASONS FOR THE MERGER
Park
The Board of Directors of Park believes that the Merger with First-Knox
is fair and in the best interests of Park and its shareholders and recommends
that its shareholders vote in favor of adoption of the Merger Agreement and
approval of the Merger. In negotiating the terms of the Merger, management of
Park considered a number of factors with a view to maximizing shareholder value
in the intermediate and long term, including earnings potential, realization of
economies of scale, expansion into four new counties which are contiguous to
counties in which Park has banking offices, and the opinion of Park's financial
advisor, McDonald & Company.
Park believes that the operating results of FKNB and Farmers will
improve as a result of the Merger. The following table provides a comparison of
the return on average assets for Park, all U.S. bank holding companies with $1
billion to $3 billion in consolidated assets (the "Park Peer Group"), and
First-Knox. The Park Peer Group information for 1996 is as of September 30,
1996 because year-end information is not available.
RETURN ON AVERAGE ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Park 1.52% 1.58% 1.73%
Park Peer Group 1.05% 1.11% 1.18%*
First-Knox 1.13% 1.20% 1.14%
</TABLE>
* For nine months ended September 30, 1996
First-Knox has produced solid operating results compared to the Park
Peer Group, but Park believes that future results of the First-Knox subsidiaries
can be improved. Park believes that the desired improvement may be realized by
improving the pricing of loans and deposits, increasing the loan portfolio, and
reducing operating expenses through economies of scale. It is anticipated that
operating expense reductions will be obtained from the elimination of duplicate
back-office functions and from the conversion of the First-Knox data processing
operations to Park's.
The geographic fit of the Merger is excellent from Park's point of
view. Park currently operates a total of 41 full-service banking offices in
eleven central and southern Ohio counties, through its three banking
subsidiaries, PNB, Richland and Mutual. First-Knox currently operates twelve
full-service banking offices in five central Ohio counties through its two
banking subsidiaries, FKNB and Farmers. There is a service overlap between Park
depository offices and First-Knox depository offices only with respect to
Richland County, where Richland operates twelve branches and FKNB operates two.
Park will gain access to customers and potential customers in Knox, Morrow,
Holmes and Ashland Counties as a result of the Merger.
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<PAGE> 43
First-Knox
The Board of Directors of First-Knox believes that the Merger with Park
is fair and in the best interests of First-Knox and its shareholders and
recommends that its shareholders vote in favor of the adoption of the Merger
Agreement and approval of the Merger. In negotiating the terms of the Merger,
management of First-Knox considered a number of factors with a view to
maximizing shareholder value in the intermediate and long term, including Park's
strong earnings performance, improved customer service by offering more
diversified products, a strong philosophical similarity with heavy emphasis on
affiliate bank autonomy and community service, improved employee career
opportunities within a larger organization, and the opinion of First-Knox's
financial advisor, Danielson.
First-Knox believes that the operating results of FKNB and Farmers will
improve as a result of the Merger through the sharing of management information
and the operating efficiencies gained from the Merger, and that such improved
operating results will benefit shareholders.
Park's primary financial goal is to maximize the return on
shareholders' equity which the Board of Directors of First-Knox believes may be
achieved through the Merger. The table below compares the performance of Park
with the mean return of the Park Peer Group and with the return of First-Knox.
The Park Peer Group information for 1996 is as of September 30, 1996, as
year-end information is not yet available.
RETURN ON AVERAGE EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Park 18.1% 17.7% 18.4%
Park Peer Group 12.3% 12.6% 13.6%*
First-Knox 12.9% 13.2% 12.7%
</TABLE>
* For nine months ended September 30, 1996.
First-Knox believes that customer service will improve by the
introduction to FKNB and Farmers customers of new Park products not currently
offered by them, by the availability to FKNB and Farmers customers of Park's
larger institutional resources, and by the substantially larger geographic area
within which FKNB and Farmers customers will be able to easily access their
accounts and transact their banking business. Examples of new products or
services that could become available to FKNB and Farmers customers include
MasterCard credit cards, home equity lines of credit accessed by a credit card,
and seven-day-a-week banking.
OPINION OF MCDONALD & COMPANY
Park has requested that McDonald & Company render its opinion with
respect to the fairness, from a financial point of view, of the Exchange Ratio
to the holders of Park Common Shares. McDonald & Company rendered its oral
opinion to the Park Board of Directors on October 28, 1996, which it
subsequently confirmed in writing, that as of the date of such opinion, the
Exchange Ratio pursuant to the Merger was fair, from a financial point of view,
to the holders of Park Common Shares.
THE FULL TEXT OF THE OPINION OF MCDONALD & COMPANY, UPDATED AS OF THE
DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS UNDERTAKEN,
IS ATTACHED AS APPENDIX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS, AND SHOULD
BE READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF
37
<PAGE> 44
MCDONALD & COMPANY SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION. MCDONALD & COMPANY'S
OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF PARK COMMON SHARES AS A
RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE PARK ANNUAL MEETING.
In arriving at its opinion, McDonald & Company reviewed, among other
things, the Merger Agreement, together with exhibits and schedules thereto,
certain publicly available information relating to the business, financial
condition and operations of Park and First-Knox as well as certain other
non-public information, primarily financial in nature, furnished to it by Park
and First-Knox relating to the respective businesses, earnings, assets,
financial forecasts and prospects. McDonald & Company also held discussions with
members of senior management of Park and First-Knox concerning their respective
businesses, assets, financial forecasts and prospects. McDonald & Company also
reviewed certain publicly available information concerning the trading of, and
the trading market for, Park Common Shares and First-Knox Common Shares and
certain publicly available information concerning comparable companies and
transactions, all as more fully set forth in McDonald & Company's opinion.
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties or facilities of either Park or
First-Knox, and was not engaged to conduct and has not made, obtained or been
furnished with any independent evaluation or appraisal of any such assets,
properties or facilities or any of the liabilities of Park or First-Knox.
McDonald & Company has assumed and relied, without independent investigation,
upon the accuracy and completeness of the financial and other information
provided to it or publicly available, has relied upon the representations and
warranties of Park and First-Knox contained in the Merger Agreement, and has not
independently attempted to verify any such information. With respect to
financial forecasts used in its analysis, McDonald & Company has assumed that
such forecasts have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Park and
First-Knox as to the future performance of Park and First-Knox, as the case may
be. McDonald & Company was not engaged to assess the reasonableness or
achievability of such financial forecasts or the assumptions on which they were
based and has expressed no view as to such forecasts or assumptions. McDonald &
Company has also assumed that all of the conditions to the Merger as set forth
in the Merger Agreement would be consummated on a timely basis in the manner
contemplated by the Merger Agreement. No limitations were imposed by Park upon
McDonald & Company with respect to the scope of its investigation.
In connection with rendering its opinion, McDonald & Company considered
a variety of financial analyses, which are summarized below. McDonald & Company
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and of the factors considered by McDonald & Company
without considering all such analyses and factors may create an incomplete view
of the analytical process underlying McDonald & Company's opinion. In its
analyses, McDonald & Company made numerous assumptions with respect to industry
performance, business and economic conditions, and other matters. Any estimates
contained in McDonald & Company's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates.
For the purposes of rendering its opinion, McDonald & Company based
the following analyses on the October 25, 1996 closing prices of the Park
Common Shares and the First-Knox Common Shares of $48.75 and $20.00,
respectively. The following is a summary of selected analyses considered by
McDonald & Company in connection with McDonald & Company's opinion:
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<PAGE> 45
Comparison with Selected Companies
McDonald & Company compared the financial performance and stock market
valuation of Park with corresponding data for the following selected companies
(the "Park Comparative Peer Group"): Associated Banc Corp., Citizens Bancshares,
Firstbank of Illinois Co., First Financial Bancorp, Irwin Financial Corporation,
Mark Twain Bancshares, Inc., Mississippi Valley Bancshares, National City
Bancshares, Inc., Peoples First Corporation, and Shoreline Financial Corp. Based
on market data as of October 25, 1996, this analysis showed that (i) Park had a
price to trailing twelve months earnings per share multiple of 13.5x compared to
a median multiple of 13.0x for the Park Comparative Peer Group; (ii) Park had a
price to book value multiple of 2.41x compared to a median multiple of 2.05x for
the Park Comparative Peer Group; and (iii) Park had a dividend yield of 2.9%
compared to a median dividend yield of 2.9% for the Park Comparative Peer Group.
In addition, McDonald & Company compared such data of First-Knox with
corresponding data for the following selected companies (the "First-Knox
Comparative Peer Group"): ANB Corporation, BancFirst Ohio Corp., Belmont
Bancorp., Cass Commercial Corporation, Capital Bancorp Ltd., CoBancorp, Inc.,
First Oak Brook Bancshares, Grand Premier Financial, Indiana United Bancorp, Old
Second Bancorp Inc., Peoples Bank Corporation of IN, Shoreline Financial Corp.,
and S.Y. Bancorp, Inc. Based on market data as of October 25, 1996, this
analysis showed that (i) First-Knox had a price to trailing twelve months
earnings per share multiple of 17.6x compared to a median multiple of 12.2x for
the First-Knox Comparative Peer Group; (ii) First-Knox had a price to book value
multiple of 2.27x compared to a median multiple of 1.6x for the First-Knox
Comparative Peer Group; and (iii) First-Knox had a dividend yield of 2.2%
compared to a median dividend yield of 2.8% for the First-Knox Comparative Peer
Group. At the time, none of the companies identified above had announced a
merger transaction or disclosed a possible interest in pursing a possible merger
transaction which would have significantly affected its stock market valuation.
Contribution Analysis
McDonald & Company analyzed the contribution of each of First-Knox and
Park to, among other things, the assets, shareholders' equity and after-tax net
income of the pro forma combined company. This analysis showed that, among other
factors, First-Knox would have contributed 27.1%, 24.9%, and 19.7% of the
assets, shareholders' equity, and net income of the pro forma combined company
as of and for the twelve months ended September 30, 1996, respectively. This
compared with a proposed ownership of 24.7% of the combined company to be held
by holders of First-Knox Common Shares.
Pro Forma Merger Analyses
McDonald & Company analyzed the changes in per share amount of
earnings, book value and indicated dividend represented by one Park Common Share
after the Merger. The analysis was performed on the basis of financial
information for both companies as of and for the years ended December 31, 1994
and December 31, 1995, and as of and for the twelve months ended September 30,
1996. The analysis indicated, among other things, that exchanging one First-Knox
Common Share at the Exchange Ratio for Park Common Shares on a pro forma basis
would have resulted in a 5.3% decrease in earnings per share for each Park
Common Share for the twelve months ended September 30, 1996 (assuming no cost
savings related to the Merger), a 0.3% increase in book value per share for each
Park Common Share as of September 30, 1996, and no change in dividends per share
of Park Common Shares based on Park's indicated annual dividend rate as of
October 28, 1996.
Analysis of Selected Merger Transactions
McDonald & Company reviewed five groups of selected pending and
completed bank merger transactions involving (i) selling banks headquartered in
Illinois, Iowa, Indiana, Kansas, Kentucky, Michigan, Minnesota, North Dakota,
Ohio, South Dakota, and Wisconsin; (ii) transactions having an aggregate deal
value of between $50 million and $200 million; (iii) selling banks having an
equity to assets ratio of between 8.00% and 9.50%; (iv) selling banks having a
return on average assets ratio of between 1.10% and 1.30%; and (v) selling banks
having non-performing assets as a percent of total assets of between 0.15% and
0.40%. McDonald & Company reviewed the ratios of the offer value to stated book
value and tangible book value, the multiple of the last twelve months earnings
of the acquired company, and the ratio of the offer value to assets in each such
transaction and computed median ratios and multiples for each group. The
calculations yielded ranges of median ratios of price to stated book value of
182% to 210%. Median ratios of price to tangible book value ranged from 184% to
231%. Median multiples of
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<PAGE> 46
earnings among the five groups ranged from 16.7x to 17.9x. Median ratios of
offer value to assets ranged from 18.1% to 21.4%. Applying the median of the
medians for each of these four ratios to First-Knox's actual per share financial
data as of September 30, 1996 showed an imputed reference range of $24.25 to
$29.75 per First-Knox Common Share.
NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSES AS A COMPARISON IS
IDENTICAL TO PARK, FIRST-KNOX, OR THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE
RESULTS OF THE FOREGOING NECESSARILY INVOLVES COMPLEX CONSIDERATIONS AND
JUDGMENTS CONCERNING THE DIFFERENCES IN FINANCIAL AND OPERATING CHARACTERISTICS
OF THE COMPANIES AND OTHER FACTORS THAT COULD AFFECT THE PUBLIC TRADING VALUES
OR ACQUISITION VALUES OF THE COMPANIES TO WHICH THEY ARE BEING COMPARED.
MATHEMATICAL ANALYSIS (SUCH AS DETERMINING THE MEAN OR MEDIAN) IS NOT, IN
ITSELF, A MEANINGFUL METHOD OF USING COMPARABLE COMPANY OR COMPARABLE
TRANSACTION DATA.
Discounted Cash Flow Analysis
Using a discounted cash flow analysis, McDonald & Company estimated the
present value of the future streams of after-tax cash flows that First-Knox
could produce over a five-year period from 1997 through 2001, under various
assumptions, based upon management forecasts of Park and of First-Knox. McDonald
& Company then estimated the terminal value of First-Knox after the five year
period by applying an estimated perpetual growth rate of 4% to the terminal
year's projected after-tax cash flow and then applied to this multiples ranging
from 9.0x to 11.0x. The five year cash flow streams and terminal values were
then discounted to present values using discount rates of between 13.0% and
15.0%, which were chosen to reflect different assumptions regarding the required
rates of return of prospective buyers of First-Knox. On the basis of such
varying assumptions, this discounted cash flow analysis indicated a reference
range of $24.74 to $30.61 per First-Knox Common Share. This analysis was based
upon management's forecasts including variations and assumptions made by
McDonald & Company which included adjustments to reflect the anticipated effects
of potential merger-related cost savings estimated by Park. Park's and
First-Knox's management forecasts are based upon many factors and assumptions,
many of which are beyond the control of Park or First-Knox.
Other Analysis
In addition to performing the analyses summarized above, McDonald &
Company also considered its analysis of the general market for bank and thrift
mergers, First-Knox's relative share of the deposit market that it serves and
the general economic conditions and prospects of those markets.
In performing its analyses, McDonald & Company made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters. The analyses performed by McDonald & Company are
not necessarily indicative of actual values, which may be significantly more or
less favorable than the values suggested by such analyses. Such analyses were
prepared solely as part of McDonald & Company's opinion. The term "fair from a
financial point of view" is a standard phrase contained in investment banker
fairness opinions and refers to the fact that McDonald & Company's opinion as to
the fairness of the Exchange Ratio is addressed solely to the financial
attributes of the Exchange Ratio. The analyses do not purport to be appraisals
or to reflect the prices at which a company might actually be sold or the price
at which any securities may trade at present or in the future. In addition, as
described above, McDonald & Company's fairness opinion and presentation to the
Park Board of Directors were one of many factors taken into consideration by the
Park Board of Directors in making its determination to approve the Merger
Agreement. Consequently, the McDonald & Company's analyses described above
should not be viewed as determinative of the Park
40
<PAGE> 47
Board of Directors' conclusions with respect to the value of First-Knox or of
the decision of the Park Board of Directors to agree to the Exchange Ratio.
McDonald & Company's opinion is based on economic and market conditions
and other circumstances existing on, and information made available as of, the
date of such opinion. In addition, the opinion does not address Park's
underlying business decision to effect the Merger or any other terms of the
Merger. McDonald & Company is not rendering any opinion as to the value of Park
Common Shares or First-Knox Common Shares at the Effective Time.
In connection with its opinion dated as of the date of this Joint Proxy
Statement/Prospectus, McDonald & Company performed procedures to update certain
of its analyses and reviewed the assumptions on which such analyses were based
and the factors considered therewith.
McDonald & Company, as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions. Park's Board
of Directors selected McDonald & Company as its financial advisor because of
McDonald & Company's industry expertise with respect to financial institutions
and because of McDonald & Company's experience in transactions similar to the
Merger. McDonald & Company is not affiliated with either Park or First-Knox.
In the ordinary course of business, McDonald & Company makes a market
in First-Knox Common Shares and may actively trade the securities of Park and
First-Knox for its own account and for the accounts of its customers.
Accordingly, at any time McDonald & Company may hold a long or short position in
such securities.
For rendering this opinion, Park has paid McDonald & Company a retainer
of $75,000 and a fee of $50,000 upon the rendering of McDonald & Company's
October 28, 1996 fairness opinion. Additional fees equal to approximately
$50,000 will be payable to McDonald & Company upon consummation of the Merger.
Park has also agreed to reimburse McDonald for its reasonable out-of-pocket
expenses and to indemnify McDonald & Company against certain liabilities,
including certain liabilities under federal securities laws.
OPINION OF DANIELSON
The Board of Directors of First-Knox retained Danielson in June, 1996
to act as its financial advisor and, as such, among other things, to advise the
First-Knox Board of Directors as to the fairness to its shareholders of the
financial terms of the offer to acquire First-Knox. Danielson is regularly
engaged in the valuation of banks, bank holding companies and thrifts in
connection with mergers, acquisitions and other securities transactions and has
knowledge of, and experience with, Ohio banking markets and banking
organizations operating in those markets. Danielson was selected by First-Knox
because of its knowledge of, experience with, and reputation in, the financial
services industry.
In such capacity, Danielson participated in the negotiations with
respect to the pricing and other terms and conditions of the Merger, but the
decision of whether to accept the Park offer was ultimately made by the Board of
Directors of First-Knox. Danielson advised the First-Knox Board of Directors
that, in its opinion, as of October 28, 1996, the financial terms of Park's
offer were "fair" to First-Knox and its
41
<PAGE> 48
shareholders. No limitations were imposed by the First-Knox Board of Directors
upon Danielson with respect to the investigations made or procedures followed by
it in arriving at its opinion.
In arriving at its fairness opinion, Danielson reviewed certain publicly
available business and financial information relating to First-Knox and Park,
including (a) annual reports for each of the fiscal years ended December 31,
1994 and 1995; (b) call report data from 1989 through 1996, including quarterly
reports for March 31, 1996, June 30, 1996 and September 30, 1996; (c) recently
reported prices and trading activities of, and dividends paid on, the Park
Common Shares; and (d) certain other publicly available information, including
data relating to the current economic environment generally and the banking
market in particular. Danielson also met with the management of First-Knox to
discuss First-Knox's past and current business operations and financial
condition. The share price used in Danielson's fairness opinion relative to
the Park Common Shares was $48.75. The trading price of the First-Knox Common
Shares was not relevant for purposes of such fairness opinion.
As more fully described below, Danielson also considered certain
financial and stock market data of First-Knox and Park in comparison with
similar data of other publicly-held banks and thrifts and their holding
companies and considered financial terms of comparable transactions which have
recently been effected.
Danielson did not obtain any independent appraisal of assets or
liabilities of First-Knox or Park or their respective subsidiaries. Further,
Danielson did not independently verify the information provided by First-Knox or
Park and assumed the accuracy and completeness of all such information.
In arriving at its fairness opinion, Danielson performed a variety of
financial analyses. Danielson believes that its analyses must be considered
as a whole and that consideration of portions of such analyses and the factors
considered therein, without considering all factors and analyses, could create
an incomplete view of the analyses and the process underlying Danielson's
fairness opinion. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis and summary description.
In its analyses, Danielson made certain assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which are beyond Park's or First-Knox's control. Any estimates contained in
Danielson's analyses are not necessarily indicative of future results or value,
which may be significantly more or less favorable than such estimates. Estimates
of values of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities may actually be sold.
Danielson analyzed the changes in the amount of earnings, book value,
and indicated dividends represented by the receipt of approximately 2,345,000
Park Common Shares in exchange for all of the First-Knox Common Shares
surrendered. The analysis evaluated, among other things, possible dilution in
earnings and book value per share for Park Common Shares and dividends to be
received by First-Knox shareholders.
Comparable Companies and Comparable Acquisitions Analyses
Danielson compared First-Knox's (a) tangible capital of 9.42% of assets
as of June 30, 1996, (b) .35% of assets nonperforming as of June 30, 1996, and
(c) net operating income (defined to be (i) (A) net interest income less (B)
operating expense plus (ii) noninterest income) of 1.75% of average assets for
the six-month period ending June 30, 1996, with the medians for selected Ohio
banks with assets between $350 and $700 million that Danielson deemed
comparable. These medians were (a) tangible
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<PAGE> 49
capital of 8.62% of assets, (b) .23% of assets nonperforming, and (c) net
operating income of 1.84% of average assets.
Danielson also compared Park's (a) Common Share price as of October 25,
1996, of 13.5 times earnings and 243% of book, (b) dividend yield based on
Park's Common Share price as of October 25, 1996 and Park's most recent dividend
on an annualized basis, of 2.87%, (c) tangible capital as of June 30, 1996,
equal to 9.44% of assets, (d) nonperforming assets as of June 30, 1996, equal to
.31% total assets and (e) return on average assets during the trailing four
quarters ended June 30, 1996, equal to 1.67% with the medians for selected bank
and bank holding companies that Danielson deemed to be comparable to Park.
The selected institutions included publicly-traded Indiana, Michigan
and Ohio bank and bank holding companies with assets between $750 million and $5
billion and no extraordinary characteristics. The comparable medians were (a)
stock price of 13.9 times earnings and 181% of book, (b) dividend yield of
2.92%, (c) tangible capital of 8.15% of assets, (d) .53% of assets
nonperforming, and (e) return on average assets of 1.23%. Danielson also
compared other income, expense and balance sheet information of such companies
with similar information about Park.
Park's strong financial performance is reflected in a stock price that
is above the median of the comparable banks when measured by book value and
below the median based on earnings. The earnings multiple is the key
determinant of the "fair" value of Park's Common Shares, and as of October 25,
1996, Park's Common Share price of $48.75 per share was 13.5 times trailing
twelve months earnings ending September 30, 1996. This was below the 13.9 times
earnings median of the comparative group. Ten of the comparable banks had
higher earnings multiples. Based on the median earnings multiple of the
comparative group of 13.9, a price for Park's Common Shares between 13 and 15
times earnings is considered "fair." At $48.75 per share, or 13.5 times
earnings, Park's Common Shares are in the lower half of the fair range.
Danielson also compared the consideration to be paid in the Merger to the
latest twelve months' earnings and book value of First-Knox with the earnings
and book value multiples paid in 19 recent acquisitions of banks. For this
comparison, Danielson used the median of these multiples for 1995, and
year-to-date announced merger and acquisition transactions as of October 25,
1996 for acquisitions of comparable Midwest banks and of comparable banks
nationwide. At the time Danielson made its analysis, the consideration to be
paid in the Merger equaled 235% of First-Knox's September 30, 1996 book value
and 18.0 times First-Knox's earnings for the trailing four quarters as of
September 30, 1996. This compared to median multiples of 180% of book value and
16.6 times earnings for comparable Midwest acquisitions, and 199% of book value
and 17.5 times earnings for comparable acquisitions nationwide.
Valuation of First-Knox
The determinant of First-Knox' "fair" sale value is its earnings, which
were $6,279,000 during the twelve months ending September 30, 1996. Using the
median pricing for comparable Midwest banks and comparable banks nationwide (as
identified above) in the last couple of years of 16.6 to 17.5 times earnings,
results in the "fair" sale value range for First-Knox as of October 28, 1996
of $103.6 to $109.9 million. This range translates into a per share range
of $26.51 to $28.10 and a book value range equal to 203% to 229%.
Since the aggregate value of the Park offer (2,345,000 Park Common Shares)
equals $114.3 million ($112.8 million when cash payments made by option
holders are netted out), or $29.21 per share, as of October 28, 1996, which
amount is in excess of the "fair" sale value range for First-Knox as of
October 28, 1996, and since the Park Common Shares to be exchanged are
fairly valued, the Park offer was considered to be a "fair" offer.
No company or transaction used in this composite analysis is identical
to First-Knox or Park. Accordingly, an analysis of the results of the foregoing
is not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
company or companies to which they are being compared.
The summary set forth above describes all of the material terms of the
analyses and procedures performed by Danielson in the course of arriving at
its fairness opinion; however, it does not purpose to address every aspect
of such analyses and procedures.
In payment for its services as the financial advisor to First-Knox,
Danielson was paid an initial fee of $50,000. Upon the signing of the definitive
Agreement and Plan of Merger with Park and the delivery of the October 28, 1996
fairness opinion, Danielson was paid a transaction fee of $284,000. At the
closing of the Merger, Danielson will be paid a second transaction fee of
approximately $287,000.
THE FULL TEXT OF THE OPINION OF DANIELSON, DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH ASSUMPTIONS MADE AND MATTERS
CONSIDERED, IS ATTACHED HERETO AS APPENDIX F TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. FIRST-KNOX SHAREHOLDERS ARE URGED TO READ THIS OPINION IN
ITS ENTIRETY. DANIELSON'S OPINION IS DIRECTED ONLY TO THE CONSIDERATION TO BE
RECEIVED BY FIRST-KNOX SHAREHOLDERS IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY FIRST-KNOX SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE FIRST-KNOX SPECIAL MEETING.
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EFFECT ON OUTSTANDING PARK COMMON SHARES AND CONVERSION OF FIRST-KNOX
COMMON SHARES
Effect on Outstanding Park Common Shares
Each issued and outstanding Park Common Share will continue to be one
Park Common Share after consummation of the Merger. All Park Common Shares, if
any, that are owned by First-Knox (other than trust account shares and shares
acquired in respect of debts previously contracted (any such shares, "DPC
Shares")) will become treasury shares. See "PRINCIPAL SHAREHOLDERS OF PARK". See
also "SUMMARY -- HISTORICAL AND PRO FORMA COMPARATIVE UNAUDITED PER SHARE DATA"
and "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" for certain pro forma
data for Park.
Conversion of First-Knox Common Shares
Upon consummation of the Merger, all First-Knox Common Shares that are
owned by First-Knox as treasury shares and all First-Knox Common Shares, if any,
that are owned by Park or by any wholly-owned subsidiary of Park or of First-
Knox (other than shares held in trust, managed, custodial or nominee accounts
and the like, or held by mutual funds for which a subsidiary of Park or of
First-Knox acts as investment advisor, that in any such case are beneficially
owned by third parties (any such shares, "trust account shares") and DPC
shares) will be canceled and retired and will cease to exist and no Park Common
Shares or other consideration will be delivered in exchange therefor. The exact
number of whole Park Common Shares to be received for each First-Knox Common
Share (other than the First-Knox Common Shares to be canceled as described in
the immediately preceding sentence) will be determined as follows:
(i) If (a) the Park Trading Price is equal to or greater than
$43.875, and (b) the Option Exercise Cash Payment Total is equal to or
greater than $1,500,000, then the Exchange Ratio is determined by
dividing 2,345,000 Park Common Shares by 3,964,945 (which represents
the anticipated sum of the total number of First-Knox Common Shares
issued and outstanding immediately prior to the Effective Time of the
Merger and the total number of First-Knox Common Shares which are
subject to First-Knox Stock Options immediately prior to the Effective
Time of the Merger (the "Total First-Knox Common Shares Outstanding or
Subject to Options")). This results in an Exchange Ratio of
approximately .5914 of a Park Common Share for each First-Knox Common
Share exchanged in the Merger (the "Assumed Exchange Ratio").
(ii) If (a) the Park Trading Price is equal to or greater than
$43.875, and (b) the Option Exercise Cash Payment Total is less than
$1,500,000, then the number of Park Common Shares used as the numerator
for the Exchange Ratio calculation will be reduced by a number derived
by dividing the shortfall (i.e., amount less than $1,500,000) in such
Option Exercise Cash Payment Total by $48.75 (which is referred to as
the "Park Index Price" in the Merger Agreement). It is not currently
contemplated that this adjustment will significantly change the
Exchange Ratio from the number used for the Assumed Exchange Ratio.
The Exchange Ratio will not be less than .5914 and will not increase by more
than .01 from the Assumed Exchange Ratio of .5914.
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First-Knox may elect to terminate the Merger Agreement in the event
that (a) the Park Trading Price is less than $45.50 but equal to or greater than
$43.875 and the percentage decline in the Park Common Share price (determined by
dividing the Park Trading Price by the Park Index Price and subtracting one) is
greater than the percentage decline in the SNL All Bank Index for the same
period, or (b) the Park Trading Price is less than $43.875. Before making any
decision to terminate this transaction, the Board of Directors of First-Knox
would consult with its financial and other advisors and would consider all
financial and other information it deemed relevant to its decision.
The First-Knox Board of Directors is under no obligation to resolicit
the First-Knox shareholders in the event First-Knox elects not to exercise its
termination right in connection with the occurrence of any of the
above-described events. A decision regarding resolicitation of the shareholders
will be made by the First-Knox Board based on the market conditions and other
circumstances relating to the Merger existing at the time. See "THE
MERGER AGREEMENT - Amendment and Termination."
No Fractional Park Common Shares to be Issued
Neither script nor fractional interests in Park Common Shares will be
issued in the Merger, but in lieu thereof, each holder of First-Knox Common
Shares who otherwise would have been entitled to a fraction of a Park Common
Share, upon surrender of his certificates representing First-Knox Common Shares,
will be paid the cash value of such fraction. Such holder will receive an amount
of cash (without interest) determined by multiplying the fractional share
interest by the Park Trading Price.
Closing of First-Knox Stock Transfer Books; Exchange of Certificates Evidencing
First-Knox Common Shares
The stock transfer books in respect of the First-Knox Common Shares
will be closed as of the close of business on that date which is two business
days prior to the date of the Closing.
As soon as practicable after the Effective Time of the Merger (but no
later than the fifth business day following the Effective Time), each First-Knox
shareholder will be advised of the effectiveness of the merger by letter
accompanied by a letter of transmittal and instruction for use to surrender the
certificate or certificates representing First-Knox Common Shares to Park's
exchange agent, Registrar and Transfer Company (the "Exchange Agent").
The letter of transmittal will be used to exchange certificates for
Park Common Shares and cash in lieu of any fractional share interest. If any
certificate representing Park Common Shares is to be issued in a name other than
that in which the certificate representing First-Knox Common Shares surrendered
for exchange is registered, the certificate so surrendered must be properly
endorsed or otherwise in proper form for transfer and the person requesting such
exchange must pay to Park or the Exchange Agent any applicable transfer or other
taxes required by reason of the issuance of the certificate. With respect to any
uncertificated First-Knox Common Shares, the Exchange Agent will issue
certificates representing the number of whole Park Common Shares (plus any cash
in lieu of fractional Park Common Shares) into which such uncertificated
First-Knox Common Shares have been converted upon receipt of evidence of
ownership satisfactory to the Exchange Agent. CERTIFICATES FOR FIRST-KNOX COMMON
SHARES SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL AFTER RECEIPT OF THE
LETTER OF TRANSMITTAL AND SHOULD NOT BE RETURNED TO FIRST-KNOX WITH THE ENCLOSED
PROXY CARD.
Rights of Holders of First-Knox Share Certificates Prior to Surrender
Upon surrender to the Exchange Agent of certificates representing
First-Knox Common Shares and a properly completed letter of transmittal, the
holder thereof will be entitled to receive in exchange therefor
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a certificate or certificates representing the Park Common Shares (and cash in
lieu of any resulting fractional share interest) to which he is entitled. Unless
and until the certificates representing First-Knox Common Shares are so
surrendered, together with a properly completed letter of transmittal, no
dividend payable to holders of record of Park Common Shares as of any time
subsequent to the Effective Time of the Merger will be paid to such holder of
any such outstanding First-Knox share certificate and his other rights as a Park
shareholder (including the right to vote on any matter submitted to Park
shareholders for their approval) will be suspended; but upon surrender of his
outstanding First-Knox share certificates to the Exchange Agent, together with a
properly completed letter of transmittal, there will be paid to the recordholder
of the certificates representing the right to receive Park Common Shares the
dividends (without interest) that have theretofore become payable with respect
to the Park Common Shares to be issued upon such surrender and conversion and
his other rights as a Park shareholder will thereafter be restored.
Lost Stock Certificates
Any First-Knox shareholder who has lost or misplaced a certificate for
any of his First-Knox Common Shares should immediately call the Trust Department
of FKNB (1-800-837-5266) for information regarding the procedures to be followed
in order to obtain Park Common Shares in exchange for such First-Knox Common
Shares.
Treatment of Outstanding First-Knox Stock Options and SARs
As of the First-Knox Record Date, there were 207,969 unexercised
First-Knox Stock Options outstanding under all incentive and stock option
programs of First-Knox. Pursuant to the Merger Agreement, prior to the Effective
Time of the Merger, First-Knox is to take such actions as are reasonably
necessary to cause each outstanding First-Knox Stock Option, whether vested or
unvested, to be exercised and each outstanding First-Knox SAR, whether vested or
unvested, to be exercised and "cashed out". To the extent that there remain
outstanding First-Knox Stock Options or First-Knox SARs at the Effective Time of
the Merger, such First-Knox Stock Options will become options to purchase Park
Common Shares and such First-Knox SARs will become SARs based on the fair market
value of Park Common Shares, except that the number of Park Common Shares to be
issued upon exercise of such options and the option price under such options and
SARs will be adjusted for the Exchange Ratio. See also "INTERESTS OF CERTAIN
PERSONS IN THE MERGER."
ACCOUNTING TREATMENT OF THE MERGER
The Merger, if completed as proposed, will qualify as a
pooling-of-interests for accounting and financial reporting purposes. Under the
pooling-of-interests method of accounting, the historical basis of the assets
and liabilities of Park and First-Knox will be retroactively combined for the
entire fiscal period in which the Merger occurs and for all periods prior to the
Merger at historically recorded amounts. See "UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION."
The obligations of Park and First-Knox to effect the Merger are
conditioned, among other things, upon their receipt from Park's auditors of a
letter, dated the Effective Time, to the effect that, for financial reporting
purposes, the Merger qualifies for pooling-of-interests accounting treatment
under generally accepted accounting principles if consummated in accordance with
the Merger Agreement. See "THE MERGER AGREEMENT -- CONDITIONS TO THE
CONSUMMATION OF THE MERGER." The Merger Agreement further provides that neither
Park nor First-Knox shall intentionally take or cause to be taken
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any action, whether before or after the Effective Time, which would disqualify
the Merger as a pooling-of-interests for accounting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Park and First-Knox will receive an opinion of Porter, Wright, Morris &
Arthur as of the Closing Date to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code, Park and First-Knox will each be parties to that
reorganization within the meaning of Section 368(b) of the Code, and
accordingly, for United States federal income tax purposes:
(i) no gain or loss will be recognized by either Park or
First-Knox (except for the inclusion of income of amounts
resulting from any required changes in accounting methods or
similar items) as a result of the Merger;
(ii) no gain or loss will be recognized by shareholders of
First-Knox who exchange their First-Knox Common Shares
solely for Park Common Shares pursuant to the Merger, except
to the extent that such shareholders receive cash in lieu
of the issuance of a fractional share;
(iii) the tax basis of Park Common Shares received by shareholders
of First-Knox who exchange all of their First-Knox Common
Shares solely for Park Common Shares in the Merger will be
the same as the tax basis of the First-Knox Common Shares
surrendered in exchange therefor; and
(iv) the holding period of the Park Common Shares received in the
Merger will include the holding period of First-Knox Common
Shares surrendered in exchange therefor, provided such
First-Knox Common Shares were held as capital assets at the
Effective Time.
The Merger Agreement provides that neither Park nor First-Knox shall
intentionally take or cause to be taken any action, whether before or after the
Effective Time, which would disqualify the Merger as a reorganization within the
meaning of Section 368 of the Code. Porter, Wright, Morris & Arthur's opinion
will be based on facts, representations and assumptions set forth in such
opinion, the Merger Agreement, and certificates of officers of First-Knox and
Park, which will not have been independently investigated or verified
(including, among others, representations that (a) to the best knowledge of
First-Knox, there is no plan or intention by the shareholders of First-Knox to
dispose of a number of Park Common Shares received in the Merger such that the
value, as of the Effective Time of the Merger, of the Park Common Shares
retained by such shareholders will not be less than 50% of the value of the
formerly outstanding First-Knox Common Shares held by such shareholders as of
that date, (b) there is no plan or intention for Park to reacquire any of the
Park Common Shares issued pursuant to the Merger, and (c) there is no plan or
intention to dispose of any of the assets of First-Knox acquired in the Merger
(other than in the ordinary course of business)), and such facts,
representations and assumptions are assumed to be true at the Effective Time.
THE FOREGOING DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE
MERGER TO FIRST-KNOX SHAREHOLDERS WHO PERFECT DISSENTERS' RIGHTS. SEE
"DISSENTERS' RIGHTS."
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THE DISCUSSION SET FORTH ABOVE DOES NOT ADDRESS THE STATE, LOCAL OR
FOREIGN TAX ASPECTS OF THE MERGER OR THE TAX CONSEQUENCES OF THE MERGER TO
CERTAIN SHAREHOLDERS INCLUDING, FOR EXAMPLE, FOREIGN SHAREHOLDERS. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. THE OPINION OF COUNSEL DESCRIBED ABOVE IS NOT BINDING UPON THE
IRS, AND NO RULINGS OF THE IRS WILL BE SOUGHT OR OBTAINED. THERE CAN BE NO
ASSURANCE THAT THE IRS WILL AGREE WITH THE TAX CONSEQUENCES OF THE MERGER
DESCRIBED ABOVE. ALL OF THE FOREGOING IS SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. THE FOREGOING
DISCUSSION MAY NOT BE APPLICABLE TO A FIRST-KNOX SHAREHOLDER WHO ACQUIRED
FIRST-KNOX COMMON SHARES PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR
OTHERWISE AS COMPENSATION. EACH FIRST-KNOX SHAREHOLDER IS URGED TO CONSULT HIS
OR HER OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO
SUCH SHAREHOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE,
LOCAL AND OTHER TAX LAWS AND ANY PROPOSED CHANGES IN SUCH TAX LAWS.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Pursuant to the terms of the Merger Agreement, upon the Effective Time
of the Merger, Park will grant options to purchase 25,000 Park Common Shares
under the Park 1995 Plan to such First-Knox employees as First-Knox and Park
jointly select and in such proportions as First-Knox and Park jointly determine.
Subject to the limitations imposed by law and consistent with the terms of the
Park 1995 Plan, it is currently Park's intention to use up to half of such
25,000 Park Common Shares as incentives to existing First-Knox Stock Option
holders to exercise their First-Knox Stock Options and First-Knox SARs prior to
the Effective Time and to pay the exercise price for such First-Knox Stock
Options in cash. Notwithstanding this intention, Park, with the approval of
First-Knox, may use more than 12,500 Park Common Shares as incentives depending
upon the circumstances that then exist. The First-Knox Stock Options and
First-Knox SARs held by First-Knox Stock Option holders generally must be
exercised in tandem. Park desires to have the First-Knox Stock Options and
First-Knox SARs exercised at or prior to the Effective Time of the Merger so
that the expense related to the First-Knox SARs will be capped and not impact
earnings of Park following the consummation of the Merger.
Park has developed the "First-Knox Severance Plan" which, for a period
of twelve months following the consummation of the Merger, will apply to any
person who was an employee of First-Knox or one of its subsidiaries immediately
prior to the Merger and whose employment is terminated by Park during the
twelve-month period after the consummation of the Merger, unless such
termination was due to a voluntary resignation, retirement, or termination for
cause. Generally, the amount of severance pay to be received is based upon years
of service with First-Knox with persons serving less than one year receiving two
weeks of severance pay, persons with one through four years of continuous
service receiving four weeks of severance pay and persons with five or more
years of continuous service receiving one week of severance pay for each year of
service. Employees receiving severance pay benefits will also be paid for any
unused earned vacation and may elect to continue to receive medical and/or
dental benefits for up to a maximum of eighteen months, according to the COBRA
federal law.
Park has also agreed to assume existing Employment Security Agreements
between three executive officers of First-Knox and FKNB. See the discussion of
such agreements in "CERTAIN INFORMATION CONCERNING FIRST-KNOX --
CHANGE-IN-CONTROL ARRANGEMENTS WITH FIRST-KNOX MANAGEMENT TO BE ASSUMED BY
PARK".
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Park has agreed to indemnify each of the officers and directors of
First-Knox from and against certain liabilities arising out of the fact that
such person is or was a director, officer or employee of First-Knox or any of
its subsidiaries, in each case to the full extent First-Knox would have been
permitted to indemnify such person under Ohio law and the Amended Articles of
Incorporation and Code of Regulations of First-Knox. See "THE MERGER AGREEMENT
- -- COSTS AND EXPENSES; INDEMNIFICATION" and "COMPARISON OF RIGHTS OF HOLDERS OF
PARK COMMON SHARES AND HOLDERS OF FIRST-KNOX COMMON SHARES -- DIRECTOR AND
OFFICER LIABILITY AND INDEMNIFICATION."
BOARD REPRESENTATION AND MANAGEMENT OF PARK FOLLOWING CONSUMMATION OF THE MERGER
Pursuant to the terms of the Merger Agreement, at the Effective Time,
the number of Park directors will be fixed at sixteen and the Park Board of
Directors will consist of sixteen persons, twelve of whom will be selected by
Park from the Park Board of Directors immediately prior to the Effective Time
and four of whom will be selected by Park, after consultation with First-Knox,
from the First-Knox Board of Directors immediately prior to the Effective Time.
Of the members selected from the Park Board, four members will have terms
expiring in each of 1998, 1999 and 2000. Of the members selected from the
First-Knox Board, one member will have a term expiring in each of 1998 and 1999
and two members will have terms expiring in 2000.
It is currently anticipated that each of the current twelve members of
the Park Board of Directors identified in "ELECTION OF PARK DIRECTORS --
NOMINEES FOR ELECTION" (assuming the persons nominated for election at the Park
Annual Meeting are elected) will continue to serve on the Park Board after the
Effective Time for the same term. As of the date of this Joint Proxy
Statement/Prospectus, no decision has been made as to which of the current First
Knox directors identified in "CERTAIN INFORMATION CONCERNING FIRST-KNOX --
DIRECTORS OF FIRST-KNOX" will be the First-Knox representatives on the Park
Board after the Effective Time.
It is currently anticipated that the executive officers of Park will
remain: William T. McConnell, Chairman and Chief Executive Officer; C. Daniel
DeLawder, President; and David C. Bowers, Secretary, Chief Financial Officer and
Chief Accounting Officer. See "ELECTION OF PARK DIRECTORS -- EXECUTIVE OFFICERS
OF PARK."
RESALE OF PARK COMMON SHARES RECEIVED IN THE MERGER
The Park Common Shares that will be issued if the Merger is consummated
have been registered under the Securities Act and will be freely transferable,
except for Park Common Shares received by persons, including directors and
executive officers of First-Knox, who may be deemed to be affiliates of
First-Knox, as that term is defined in Rule 145 promulgated under the Securities
Act. Affiliates may not sell their Park Common Shares acquired pursuant to the
Merger, except pursuant to an effective registration statement under the
Securities Act covering the Park Common Shares or in compliance with Rule 145 or
another applicable exemption from the registration requirements of the
Securities Act. SEC guidelines further indicate that the pooling-of-interests
method of accounting will generally not be challenged on the basis of sales by
affiliates of the acquiring or acquired corporation if they do not dispose of
any of the shares of the corporation they own or shares of the corporation they
receive in connection with a merger during a period beginning thirty days before
the merger and ending when financial results covering at least thirty days of
post-merger operations of the combined entity have been published. Pursuant to
the Merger Agreement, First-Knox has obtained customary agreements with all
directors, officers and affiliates of First-Knox under which those persons have
agreed not to dispose of their Park
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Common Shares in a manner that would adversely affect the ability of Park to
treat the Merger as a pooling-of-interests for financial accounting purposes.
FIRST-KNOX SHAREHOLDERS SHOULD CONSULT WITH THEIR LEGAL ADVISORS PRIOR TO MAKING
ANY OFFER OR SALE OF PARK COMMON SHARES RECEIVED IN THE MERGER.
REGULATORY APPROVALS
Consummation of the Merger is subject to prior receipt by Park and
First-Knox of all necessary regulatory approvals. The principal regulatory
approvals required to be obtained are from the Federal Reserve Board and the
Ohio Division of Financial Institutions (the "ODFI").
The application to the Federal Reserve Board (which was submitted on
December 31, 1996 to the Federal Reserve Bank of Cleveland as the delegate of
the Federal Reserve Board) sought approval, as required by the Bank Holding
Company Act, of the Merger. On February 14, 1997, the Federal Reserve Bank of
Cleveland approved Park's acquisition of 100% of the voting shares of
First-Knox, and incident thereto, First-Knox's wholly-owned subsidiaries. The
Federal Reserve Bank of Cleveland considered a number of factors, including the
extent to which the transaction may have prohibited anticompetitive effects; the
financial condition and future prospects of Park; the competence, experience and
integrity of Park's officers, directors and principal shareholders; the
convenience and needs of the communities to be served, including Park's record
of performance under the Community Reinvestment Act; and Park's readiness to
provide to the Federal Reserve Board information on its operations and
activities that the Federal Reserve Board deems appropriate to determine and
enforce compliance with the Bank Holding Company Act. Pursuant to the terms of
the approval of the Federal Reserve Bank of Cleveland, the Merger could not be
consummated prior to March 1, 1997 and must be consummated before May 14, 1997,
unless such period is extended by the Federal Reserve Board. No separate
federal approval for the change of control of First-Knox's subsidiary banks was
required.
The application to the ODFI is in the form of a change of control
notice for First-Knox's state chartered bank subsidiary, which was submitted on
December 31, 1996. On March 10, 1997, the ODFI notified Park that the ODFI had
no objection to the proposed change in control of First-Knox's Ohio
state-chartered bank subsidiary.
Other applications required to obtain proper approvals under state
securities laws and American Stock Exchange rules have been filed with the
appropriate regulatory authorities.
The Merger will not proceed in the absence of all requisite regulatory
approvals. There can be no assurance that all such approvals will be obtained or
that such approvals will not impose conditions which would have a material
adverse effect on the business, operations, assets or financial condition of
Park and the Park subsidiaries taken as a whole or otherwise materially impair
the value to Park of First-Knox and the First-Knox subsidiaries as a whole. If
any such condition is imposed, the Merger Agreement permits the Boards of
Directors of Park and First-Knox to abandon the Merger.
No assurance can be given as to when, or if, necessary regulatory
approvals will all be obtained. In the event the Merger is not effected on or
before October 31, 1997, the Merger Agreement may be terminated by Park or
First-Knox.
THE MERGER AGREEMENT
THE MERGER
The Merger Agreement provides that, subject to the adoption of the
Merger Agreement by the shareholders of Park and First-Knox and the satisfaction
or waiver of the other conditions to the Merger,
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First-Knox will be merged with and into Park. Following consummation of the
Merger, First-Knox will no longer exist. The Merger Agreement provides for Park
and First-Knox to implement the Merger by filing a Certificate of Merger, as
required by the General Corporation Law of Ohio, consistent with the applicable
provisions of the Merger Agreement.
The material provisions of the Merger Agreement are briefly
summarized below. This summary does not purport to be complete and is qualified
in its entirety by reference to the complete text of the Merger Agreement,
which is reprinted as Appendix A to this Joint Proxy Statement/Prospectus and
incorporated herein by this reference. Shareholders of Park and of First-Knox
are urged to read the Merger Agreement in its entirety for a more complete
description of the Merger.
CONVERSION OF SHARES
At the Effective Time of the Merger, each First-Knox Common Share
outstanding immediately prior to the Effective Time (other than First-Knox
Common Shares directly owned by Park, by First-Knox or by any wholly-owned
subsidiary of Park or of First-Knox and First-Knox Common Shares as to which
dissenters' rights have been perfected pursuant to the Ohio General Corporation
Law), will be converted into the right to receive a number of Park Common
Shares equal to the Exchange Ratio. See "THE MERGER--EFFECT ON OUTSTANDING PARK
COMMON SHARES AND CONVERSION OF FIRST-KNOX COMMON SHARES" for a discussion of
the effect of the Merger on outstanding Park Common Shares, the conversion of
First-Knox Common Shares, the treatment of fractional shares, the manner in
which certificates evidencing First-Knox Common Shares are to be exchanged, the
rights of holders of First-Knox share certificates prior to surrender and the
treatment of outstanding First-Knox Stock Options and SARs.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of Park and First-Knox has made certain
representations and warranties concerning corporate organization, standing and
power; capital structure; corporate power and authority to enter into the Merger
Agreement and consummate the Merger; governmental consents and approval;
non-contravention of agreements and instruments; the accuracy and completeness
of information supplied to the other; compliance with SEC reporting
requirements; compliance with applicable laws; legal proceedings; taxes; the
existence of certain agreements; employee benefit plans; subsidiaries;
agreements with bank regulators; absence of certain changes or events;
inapplicability of certain charter provisions; required votes; properties;
ownership of each other's shares; finder's fees; labor matters; environmental
matters; compliance with applicable capital requirements; and loan losses. Park
and First-Knox believe that the representations and warranties contained in the
Merger Agreement are customary in transactions similar in nature to the Merger.
See Article III of the Agreement and Plan of Merger, dated as of October 28,
1996, between Park and First-Knox, attached as Appendix A-1 hereto.
CONDUCT OF BUSINESS PENDING THE MERGER AND CERTAIN OTHER COVENANTS
The Merger Agreement requires each of Park and First-Knox to conduct,
and to cause each of their respective subsidiaries to conduct, each of their
respective businesses and engage in transactions permitted under the Merger
Agreement prior to the Effective Time of the Merger only in the ordinary course
of business in accordance with their respective past practices or policies
(except as permitted with the written consent of the other party). Under the
Merger Agreement, each of Park and First-Knox has agreed not to take certain
actions (or to prevent any of their respective subsidiaries from taking such
action) without the prior written consent of the other party or unless
permitted by the Merger Agreement, including, among other things, the
following: (1) declaration or payment of dividends or other distributions in
respect of any
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<PAGE> 58
capital shares except as contemplated by the terms of the Merger Agreement; (2)
declaration or approval of stock splits, combinations or reclassifications
except, in the case of Park, the issuance of up to 2,672 Park Common Shares in
accordance with Park's prior written disclosure to First-Knox; (3) repurchases
or redemptions, except that Park is permitted to take any such action so long as
it does not disqualify the Merger as a pooling-of-interests for accounting
purposes; (4) authorization or issuance of securities other than (A) the
issuance of Park Common Shares pursuant to the exercise of stock options granted
under the Park 1995 Incentive Stock Option Plan or the issuance of up to 2,672
Park Common Shares in accordance with Park's prior written disclosure and (B)
the issuance of First-Knox Common Shares pursuant to the exercise of outstanding
First-Knox Stock Options; (5) amendment of its charter documents, except as
contemplated by the Merger Agreement; (6) solicitation or encouragement of the
submission of any tender or exchange offer, proposal for a merger, consolidation
or other business combination involving Park or First-Knox or any "significant
subsidiary" (within the meaning of Rule 1-02 of SEC Regulation S-X) of Park or
First-Knox or any proposal or offer to acquire in any manner 20% or more of the
outstanding shares of any class of voting securities, or 15% or more of the
consolidated assets, of Park or First-Knox or any significant subsidiary of
either (a "Takeover Proposal"); (7) in the case of First-Knox, acquisition or
disposition of material assets or the acquisition of an equity interest in any
other entity; (8) in the case of First-Knox, incurring of long-term indebtedness
other than in replacement of existing or maturing debt or in the ordinary course
of business; (9) taking of any action that would result in any of its
representations and warranties set forth in the Merger Agreement being untrue at
the Effective Time in any material respect or any of the conditions of the
Merger not being satisfied; (10) taking any action to change its method of
accounting in effect at December 31, 1995 or to change its fiscal year; (11)
taking any action which would disqualify the Merger as a pooling-of-interests
for accounting purposes or as a "reorganization" within the meaning of Section
368(a) of the Code; or (12) adopting or amending any employee benefit plan and,
in the case of First-Knox, taking any action which would increase compensation
or benefits other than normal increases in the ordinary course of business
consistent with past practices.
Each of Park and First-Knox is required to use all reasonable efforts
to take all actions necessary to comply with all applicable legal requirements
and to obtain all required governmental and third party consents. Park is also
to use all reasonable efforts to cause the Park Common Shares to be issued in
the Merger to be approved for listing on the American Stock Exchange. First-Knox
is also required to provide Park with surveys in respect of the real property
owned or leased by First-Knox and its subsidiaries if so requested by Park.
Park will coordinate the conversion of First-Knox employee benefit
plans into similar employee benefit plans of Park, to the extent similar plans
are maintained by Park, and give credit under the Park employee benefit plans
for purposes of eligibility, vesting, benefit accrual and other purposes for
which such service is taken into account or recognized, to the extent
permissible under applicable laws, to any employee of First-Knox or of one of
its subsidiaries who becomes an employee of Park or of one of its subsidiaries
following consummation of the Merger.
Park and First-Knox have agreed to coordinate the payment of dividends
with respect to the Park Common Shares and the First-Knox Common Shares and the
record dates and payment dates relating thereto. First-Knox is to increase its
quarterly dividend to shareholders in such amount that, after giving effect to
the increase in the quarterly dividend rate per First-Knox Common Share for such
quarter, its quarterly dividend to shareholders equals the amount that is paid
on a Park Common Share for that quarter as adjusted to reflect the Exchange
Ratio. As contemplated by the Merger Agreement, Park increased its quarterly
dividend to $.40 per share for the fourth quarter of 1996 in accordance with its
past practices with respect to fourth quarter dividends and, based thereon,
First-Knox declared in December, 1996, a quarterly cash dividend for the fourth
quarter of $.24 per First-Knox Common Share.
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<PAGE> 59
See also the discussion in "THE MERGER -- INTERESTS OF CERTAIN PERSONS
IN THE MERGER."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to the fulfillment at or before
the Effective Time of certain conditions, including (but not limited to) the
following conditions: (A) the required approvals by shareholders of Park and of
First-Knox having been obtained, including the adoption of an amendment to
Subsection 2.02(A) of Park's Regulations to limit the maximum allowable number
of directors; (B) the Park Common Shares issuable to First-Knox shareholders
pursuant to the Merger Agreement and the other Park Common Shares required to be
reserved for issuance in connection with the Merger having been authorized for
listing on the American Stock Exchange upon official notice of issuance; (C) the
receipt of all necessary regulatory approvals and the lapsing of all applicable
waiting periods, without the imposition of any condition which, in the
reasonable judgment of Park or First-Knox, is materially burdensome; (D) Park
having made all state securities or Blue Sky filings and other authorizations
necessary to issue the Park Common Shares in exchange for First-Knox Common
Shares and to consummate the Merger; (E) the Registration Statement, of which
this Joint Proxy Statement/Prospectus forms a part, filed by Park with the SEC
having been declared effective and not being subject to a stop order or any
threatened stop order; (F) no temporary restraining order, preliminary or
permanent injunction or other order having been issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger being in effect; and there not being any action taken, or any
statute, rule, regulation, order or decree enacted, entered, enforced or deemed
applicable to the Merger, by any governmental authority which makes consummation
of the Merger illegal; (G) the receipt by Park of a letter from its auditors, to
the effect that the Merger qualifies for "pooling-of-interest" accounting
treatment if consummated in accordance with the Merger Agreement; and (H)
receipt by Park and First-Knox of a written opinion, dated the Effective Time,
from Porter, Wright, Morris & Arthur, counsel to Park, that the Merger will have
the tax consequences described in "THE MERGER -- CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER". Under the terms of the Merger Agreement, any of the
above-described conditions may be waived by the parties without shareholder
approval; however, shareholder and regulatory approval of the Merger and related
matters are required by law in order to consummate the Merger and, therefore,
as a practical matter cannot be waived.
In addition to the foregoing conditions, Park's obligations under the
Merger Agreement are conditioned upon the following, any one or more of which
may be waived by Park: the representations and warranties of First-Knox set
forth in the Merger Agreement being true and correct in all material respects at
the Effective Time, subject to such exceptions as do not have, and would not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on First-Knox or on Park following the Effective Time;
performance by First-Knox in all material respects of its obligations under the
Merger Agreement; receipt by First-Knox of any consents or approvals required in
order to permit the succession by Park pursuant to the Merger to any obligation,
right or interest of First-Knox or any of its subsidiaries; receipt by Park of
certain legal opinions of legal counsel for First-Knox; receipt by Park of an
opinion from McDonald & Company as to the fairness of the Exchange Ratio, as
of the date of this Joint Proxy Statement/Prospectus, to the shareholders of
Park from a financial point of view; and First-Knox furnishing to Park such
certificates of its officers or others and such other documents to evidence
fulfillment of the conditions as Park may reasonably request.
In addition to the foregoing conditions, First-Knox's obligations under
the Merger Agreement are conditioned upon the following, any one or more of
which may be waived by First-Knox: the representations and warranties of Park
set forth in the Merger Agreement being true and correct in all material
respects at the Effective Time, subject to such exceptions as do not have, and
would not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on Park following the Effective Time; performance by
Park in all material respects of its obligations under the
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<PAGE> 60
Merger Agreement; receipt by Park of any required consents or approvals; receipt
by First-Knox of certain legal opinions of legal counsel for Park; receipt by
First-Knox of an opinion from Danielson as to the fairness of the Merger to the
shareholders of First-Knox from a financial point of view; Park taking the steps
necessary to authorize the Park Common Shares to be issued in the Merger; and
Park furnishing to First-Knox such certificates of its officers or others and
such other documents to evidence fulfillment of the conditions as First-Knox may
reasonably request.
EFFECTIVE TIME
Upon satisfaction or waiver of all conditions under the Merger
Agreement, Park and First-Knox will file an appropriate Certificate of Merger
with the Ohio Secretary of State. The Merger will become effective upon the
filing of the Certificate of Merger or at such time thereafter as is agreed to
in writing by Park and First-Knox and so provided in the Certificate of Merger
(the "Effective Time").
The closing of the transactions contemplated by the Merger Agreement
will take place on the first day which is (a) the last business day of a month
and (b) at least ten business days after satisfaction or waiver of the
conditions set forth in the Merger Agreement. Park and First-Knox may also close
the transactions contemplated by the Merger Agreement on another mutually agreed
upon date. Park and First-Knox believe that the Merger will be completed during
the second quarter of 1997; however, there could be delays in the completion of
the Merger as a result of delays in obtaining the required regulatory approvals.
AMENDMENT AND TERMINATION
The Merger Agreement may be further amended by Park and First-Knox by
action of their respective Boards of Directors and in an instrument in writing
signed by both Park and First-Knox. The Merger Agreement may be amended at any
time before or after the Park Annual Meeting or the First-Knox Special Meeting.
However, after approval of the matters to be considered at the Shareholder
Meetings, no amendment may be made which by law requires further approval by
shareholders of Park and/or First-Knox unless such further approval has been
obtained.
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the shareholders of Park and
First-Knox: (a) by mutual consent of the Boards of Directors of Park and
First-Knox for any reason; or (b) by either of the Board of Directors of Park or
First-Knox (i) if the Merger has not been consummated on or before October 31,
1997, (ii) the shareholders of either Park or First-Knox fail to approve matters
submitted to them for approval in connection with the Merger or (iii) if any
application for regulatory or governmental approval necessary to consummate the
Merger is denied or the applicable regulatory agency or governmental authority
imposes a burdensome condition.
First-Knox may terminate the Merger Agreement if (1) (i) the Park
Trading Price is less than $45.50 but greater than or equal to $43.875 and (ii)
the percentage determined by dividing the Park Trading Price by the Park Index
Price is less than the percentage determined by dividing the average of the SNL
All Bank Index for the five trading days ending on the tenth business day
immediately preceding the Closing by the SNL All Bank Index as of the close of
trading on October 25, 1996; or (2) the Park Trading Price is less than $43.875.
Before making any decision to terminate this transaction, the Board of
Directors of First-Knox would consult with its financial and other advisors and
would consider all financial and other information it deemed relevant to its
decision. The First-Knox Board of Directors is under no obligation to resolicit
the First-Knox shareholders in the event First-Knox elects not to exercise its
termination right in connection with the occurrence of any of the
above-described events. A decision regarding resolicitation of the shareholders
will be made by the First-Knox Board based on the market conditions and other
circumstances relating to the Merger existing at the time. See "THE MERGER
AGREEMENT - Amendment and Termination."
First-Knox may also terminate the Merger Agreement if the Board of Directors
determines in good faith, after consultation with Danielson with respect to the
financial aspects of any Takeover Proposal for First-Knox and the Merger, and
with legal counsel to First-Knox, that termination of the Merger Agreement and
pursuit of the Takeover Proposal for First Knox is required by their fiduciary
54
<PAGE> 61
duties or if Park receives a Takeover Proposal or events have occurred or
actions commenced which are reasonably expected to result in a Takeover Proposal
for Park.
In the event of termination, the Merger Agreement will become void
except that certain provisions regarding expenses and confidentiality will
survive such termination and if terminated by reason of a Takeover Proposal for
First-Knox which is approved by shareholders of First-Knox prior to October 31,
1997 or in the event the First-Knox Board of Directors fails to recommend the
Merger to the First-Knox shareholders or withdraws such recommendation or fails
to solicit proxies to approve the Merger and the Merger is not consummated by
October 31, 1997, First-Knox will be required to pay a termination fee of
$2,140,000 to Park.
COSTS AND EXPENSES; INDEMNIFICATION
Whether or not the Merger is consummated, all costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the party incurring such costs and
expenses, except that expenses incurred in connection with filing, printing and
mailing this Joint Proxy Statement/Prospectus and the Registration Statement of
which it forms a part, will be shared equally by Park and First-Knox.
Park has agreed to indemnify each of the officers and directors of
First-Knox from and against certain liabilities arising out of the fact that
such person is or was a director, officer or employee of First-Knox or any of
its subsidiaries, in each case to the full extent First-Knox would have been
permitted to indemnify such person under Ohio law and its Amended Articles of
Incorporation and Code of Regulations. See "COMPARISON OF RIGHTS OF HOLDERS OF
PARK COMMON SHARES AND HOLDERS OF FIRST-KNOX COMMON SHARES -- DIRECTOR AND
OFFICER LIABILITY AND INDEMNIFICATION." Unless Park and First-Knox otherwise
agree, First Knox will, prior to the Effective Time of the Merger, elect under
its existing directors' and officers' liability insurance policy to obtain
extension coverage for the maximum period allowable thereunder (36 months) and
an endorsement providing lifetime coverage for First-Knox directors and will pay
the premiums necessary to obtain such coverage extension and endorsement (with
respect to the coverage extension, 75% of the annual premium for the first 12
months, 50% of the annual premium for the second 12 months and 25% of the annual
premium for the last 12 months, and with respect to the endorsement, $1,500 per
First-Knox director).
RECOMMENDATION AND VOTE
For the Merger Agreement to be adopted and the Merger approved, the
affirmative vote of the holders of two-thirds of the outstanding Park Common
Shares and the affirmative vote of the holders of two-thirds of the outstanding
First-Knox Common Shares is required.
THE PARK BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT AND THE APPROVAL OF THE MERGER.
THE FIRST-KNOX BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE MERGER
AGREEMENT AND THE APPROVAL OF THE MERGER.
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<PAGE> 62
DISSENTERS' RIGHTS
Holders of Park Common Shares who so desire and holders of First-Knox
Common Shares who so desire are entitled to relief as dissenting shareholders
under Ohio Revised Code Section1701.85. A shareholder of either Park or
First-Knox will be entitled to such relief, however, only if he complies
strictly with all of the procedural and other requirements of Section1701.85.
The following summary does not purport to be a complete statement of the method
of compliance with Section1701.85 and is qualified in its entirety by reference
to the copy of Section1701.85 attached hereto as Appendix G.
A Park or First-Knox shareholder who wishes to perfect his rights as a
dissenting shareholder in the event the Merger Agreement is adopted and the
Merger is approved:
(a) must have been a recordholder of the Park Common Shares as to
which he seeks relief on the Park Record Date or of the
First-Knox Common Shares as to which he seeks relief on the
First-Knox Record Date;
(b) must not have voted his Park Common Shares or First-Knox
Common Shares in favor of adoption of the Merger
Agreement and the approval of the Merger; and
(c) must deliver to the company of which he is a
shareholder, not later than ten days after the
appropriate Shareholder Meeting, a written demand for
payment of the fair cash value of the shares as to which
he seeks relief. Such written demand must state the
name of the shareholder, his address, the number of
shares as to which he seeks relief and the amount
claimed by him as the fair cash value thereof.
A vote against the adoption of the Merger Agreement and the approval of
the Merger will not satisfy the requirements of a written demand for payment.
Any written demand for payment should be mailed or delivered, (i) in the case of
a dissenting Park shareholder, to: Park National Corporation, 50 North Third
Street, Newark, Ohio 43055, Attention: David C. Bowers, Secretary and (ii) in
the case of a dissenting First-Knox shareholder, to: First-Knox Banc Corp., One
South Main Street, P.O. Box 871, Mount Vernon, Ohio 43050, Attention: Ian
Watson, Secretary. As the written demand must be delivered within the ten-day
period following the appropriate Shareholder Meeting, it is recommended,
although not required, that a shareholder using the mails use certified or
registered mail, return receipt requested, to confirm that he has made a timely
delivery.
If Park or First-Knox sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificate(s) representing
his shares, such dissenting shareholder must deliver the certificate(s) within
fifteen days of the sending of such request. The company may endorse the
certificate(s) with a legend to the effect that the shareholder has demanded the
fair cash value of the shares represented by the certificate(s). Failure to
deliver the certificate(s) within fifteen days of the request terminates the
shareholder's rights as a dissenting shareholder. Park or First-Knox,
respectively, must notify the shareholder of its election to terminate his
rights as a dissenting shareholder within twenty days after the lapse of the
fifteen-day period.
Unless Park or First-Knox and the dissenting shareholder of Park or
First-Knox, as appropriate, agree on the fair cash value per share of the Park
Common Shares or the First-Knox Common Shares, respectively, either may, within
three months after the service of the written demand by the shareholder, file a
petition in the Court of Common Pleas of Licking County, Ohio (in the case of
Park) or Knox County, Ohio (in the case of First-Knox). If the court finds that
the shareholder is entitled to be paid the fair cash
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<PAGE> 63
value of any shares, the court may appoint one or more appraisers to receive
evidence and to recommend a decision on the amount of the fair cash value.
Fair cash value: (i) will be determined as of the day prior to the
appropriate company's Shareholder Meeting, (ii) will be the amount a willing
seller and willing buyer would accept or pay with neither being under compulsion
to sell or buy, (iii) will not exceed the amount specified in the shareholder's
written demand, and (iv) will exclude any appreciation or depreciation in market
value resulting from the Merger. The court will make a finding as to the fair
cash value of a share and render judgment against Park or First-Knox,
respectively, for its payment, with interest at such rate and from such date as
the court considers equitable. The costs of proceedings will be assessed or
apportioned as the court considers equitable.
The rights of any dissenting shareholder will terminate if (a) the
dissenting shareholder has not complied with Section 1701.85, unless Park or
First-Knox, respectively, by its Board of Directors waives such failure, (b)
Park or First-Knox, respectively, rescind their adoption of the Merger
Agreement, (c) the dissenting shareholder withdraws his written demand, with the
consent of the appropriate company by its Board of Directors, or (d) Park or
First-Knox, respectively, and the dissenting shareholder do not agree upon the
fair cash value per share of the Park Common Shares or the First-Knox Common
Shares, respectively, and neither has timely filed or joined in a petition in an
appropriate court for a determination of the fair cash value of the shares.
A dissenting shareholder of Park or First-Knox who receives payment for
shares in cash will generally recognize capital gain or loss (if the shares were
held as a capital asset at the Effective Time of the Merger) equal to the
difference between the cash received and the holder's basis in such shares,
provided the payment is neither essentially equivalent to a dividend within the
meaning of Section 302 of the Code, nor has the effect of the distribution of a
dividend within the meaning of Section 356(a)(2) of the Code (collectively, a
"Dividend Equivalent Transaction"). A sale of shares pursuant to an exercise of
dissenters' rights will generally not be a Dividend Equivalent Transaction, if,
as a result of such exercise, the shareholder owns no shares of stock in Park as
the surviving corporation in the Merger (either actually or constructively
within the meaning of Section 318 of the Code).
BECAUSE A PROXY WHICH DOES NOT CONTAIN VOTING INSTRUCTIONS WILL BE
VOTED FOR ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER, A
SHAREHOLDER WHO WISHES TO EXERCISE DISSENTERS' RIGHTS MUST EITHER (I) NOT SIGN
AND RETURN HIS PROXY OR, (II) IF HE SIGNS AND RETURNS HIS PROXY, VOTE AGAINST
OR ABSTAIN FROM VOTING ON THE ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL
OF THE MERGER.
Park shareholders and First-Knox shareholders who are not in favor of
the Merger but who do not wish to exercise dissenters' rights may, in the
alternative, attempt to sell their shares in the open market at the then current
market price.
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
statements are presented to show the impact on Park's historical financial
position and results of operations of the Merger with First-Knox. The Merger is
reflected in the unaudited pro forma condensed combined financial information
under the pooling-of-interests method of accounting. See "THE MERGER --
ACCOUNTING Treatment".
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The unaudited pro forma condensed combined balance sheet assumes that
the Merger was consummated on December 31, 1996, and the unaudited pro forma
condensed combined statement of income assumes that the Merger was consummated
at the beginning of each period. In each instance, the Exchange Ratio was
assumed to be .5914.
The pro forma information should be read in conjunction with the
historical financial statements (including the related notes thereto) and the
financial data regarding Park and First-Knox incorporated herein by reference.
The pro forma information is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the
Merger been consummated at the beginning of the periods for which an income
statement is presented, nor is it necessarily indicative of the results of
operations of future periods or the future combined financial position.
CONDENSED PRO FORMA COMBINED BALANCE SHEET
AT DECEMBER 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Park First-Knox Combined
---- ---------- --------
<S> <C> <C> <C>
Cash and Due from Banks $ 61,454 $ 20,308 $ 81,762
Interest-Bearing Deposits with Banks 0 539 539
Federal Funds Sold 0 0 0
Securities Available - For-Sale 386,187 177,426 563,613
Securities Held to Maturity 10,780 0 10,780
Loans, Net of Unearned Income 1,112,603 361,840 1,474,443
Allowance for Loan Losses 27,802 4,545 32,347
---------- ---------- ----------
Loans, Net 1,084,801 357,295 1,442,096
Bank Premises and Equipment 16,812 10,791 27,603
Other Assets 54,733 7,404 62,137
---------- ---------- ----------
Total Assets $1,614,767 $ 573,763 $2,188,530
========== ========== ==========
Deposits $1,336,617 $ 430,763 $1,767,380
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 107,345 9,972 117,317
Other Short-Term Borrowings 1,885 14,915 16,800
Long-Term Debt 0 62,375 62,375
Other Liabilities 19,934 5,763 25,697
---------- ---------- ----------
Total Liabilities 1,465,781 523,788 1,989,569
Common Stock 26,857 11,737 38,594
Capital Surplus 0 26,017 26,017
Unrealized Holding Gain on
Available-for-Sale Securities, Net 3,296 1,391 4,687
Retained Earnings 121,818 10,830 132,648
Treasury Stock (2,985) 0 (2,985)
---------- ---------- ----------
Total Stockholders' Equity 148,986 49,975 198,961
---------- ---------- ----------
Total Liabilities and Stockholders'
Equity $1,614,767 $ 573,763 $2,188,530
========== ========== ==========
</TABLE>
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<PAGE> 65
CONDENSED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
PRO FORMA
PARK FIRST-KNOX COMBINED
----------- ---------- ---------
<S> <C> <C> <C>
Interest Income $ 122,291 $ 40,779 $ 163,070
Interest Expense 49,332 19,811 69,143
---------- ---------- ----------
Net Interest Income 72,959 20,968 93,927
Provision for Loan Losses 4,520 774 5,294
---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 68,439 20,194 88,633
Noninterest Income 13,142 3,428 16,570
Noninterest Expense 43,239 15,578 58,817
---------- ---------- ----------
Income Before Federal Income Taxes 38,342 8,044 46,386
---------- ---------- ----------
Provision for Federal Income Taxes 12,678 2,008 14,686
---------- ---------- ----------
$ 25,664 $ 6,036 $ 31,700
Net Income ========== ========== ==========
Earnings Per Common and Common
Equivalent Shares:
Primary $ 3.60 $ 1.59 $ 3.38
Fully Diluted $ 1.59 $ 3.38
Average Common and Common Equivalent
Shares Outstanding:
Primary 7,136,889 3,801,519 9,385,107
Fully Diluted 3,802,449 9,385,657
</TABLE>
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<PAGE> 66
CONDENSED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Park First-Knox Combined
---- ---------- --------
<S> <C> <C> <C>
Interest Income $ 113,200 $ 37,088 $ 150,288
Interest Expense 46,848 17,499 64,347
---------- ---------- ----------
Net Interest Income 66,352 19,589 85,941
Provision for Loan Losses 4,664 584 5,248
---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 61,688 19,005 80,693
Noninterest Income 12,922 3,127 16,049
Noninterest Expense 41,643 14,858 56,501
---------- ---------- ----------
Income Before Federal Income Taxes 32,967 7,274 40,241
Provision for Federal Income Taxes 10,847 1,565 12,412
---------- ---------- ----------
Net Income $ 22,120 $ 5,709 $ 27,829
========== ========== ==========
Earnings Per Common and Common
Equivalent Shares:
Primary $ 3.09 $ 1.50 $ 2.95
Fully Diluted $ 1.50 $ 2.95
Average Common and Common Equivalent
Shares Outstanding:
Primary 7,165,930 3,818,759 9,424,345
Fully Diluted 3,821,589 9,426,018
</TABLE>
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<PAGE> 67
CONDENSED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Park First-Knox Combined
---- ---------- --------
<S> <C> <C> <C>
Interest Income $ 94,817 $ 32,594 $ 127,411
Interest Expense 35,164 13,627 48,791
---------- ---------- ----------
Net Interest Income 59,653 18,967 78,620
Provision for Loan Losses 1,840 638 2,478
---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 57,813 18,329 76,142
Noninterest Income 9,036 2,747 11,783
Noninterest Expense 37,867 14,645 52,512
---------- ---------- ----------
Income Before Federal Income Taxes 28,982 6,431 35,413
Provision for Federal Income Taxes 8,965 1,267 10,232
---------- ---------- ----------
Net Income $ 20,017 $ 5,164 $ 25,181
========== ========== ==========
Earnings Per Common and Common
Equivalent Shares:
Primary $ 2.80 $ 1.34 $ 2.67
Fully Diluted $ 1.34 $ 2.67
Average Common and Common Equivalent
Shares Outstanding:
Primary 7,154,796 3,852,941 9,433,425
Fully Diluted 3,856,009 9,435,240
</TABLE>
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<PAGE> 68
BUSINESS OF PARK
GENERAL
Park is a bank holding company and a savings and loan holding company
which is incorporated under Ohio law. Through its subsidiaries, PNB, Richland
and Mutual, Park is engaged in a general commercial banking and trust business
in eleven counties in central and southern Ohio (Athens, Coshocton, Fairfield,
Franklin, Hamilton, Hocking, Licking, Morgan, Muskingum, Perry and Richland
Counties).
PNB, Richland, and Mutual provide the following principal services: the
acceptance of deposits for demand, savings and time accounts and the servicing
of such accounts; commercial, industrial, consumer and real estate lending,
including installment loans, credit cards and personal lines of credit; safe
deposit operations; trust services; cash management; electronic funds transfers;
and a variety of additional banking-related services tailored to the needs of
individual customers. PNB also leases equipment under terms similar to its
commercial lending policies. Park Leasing Company, a division of PNB, originates
and services direct leases of equipment which PNB acquires with no outside
financing. In addition, Scope Leasing, Inc., a wholly-owned subsidiary of PNB,
specializes in aircraft financing.
Park is subject to regulation by the Federal Reserve Board. As a
national bank, PNB is supervised and regulated by the Comptroller of the
Currency. As an Ohio state-chartered bank, Richland is supervised and regulated
by the ODFI. As a federally-chartered savings association, Mutual is supervised
and regulated by the OTS. In addition, as insurer of their deposits, the Federal
Deposit Insurance Corporation has some regulatory authority over PNB, Richland
and Mutual, including authority to impose assessments for such deposit
insurance.
PNB, in addition to having six offices in Newark (including the main
office and the Operations Center) has offices in Granville, Heath (two offices),
Hebron, Johnstown, Kirkersville and Utica in Licking County, an office in
Columbus in Franklin County, an office in Cincinnati in Hamilton County and
offices in Baltimore, Pickerington and Lancaster (four offices) in Fairfield
County. The offices in Fairfield County comprise the Fairfield National
Division. PNB also operates six stand-alone automatic banking center locations.
Richland, in addition to six offices in Mansfield (including the main office),
has offices in Butler, Lexington, Ontario and Shelby (two offices) in Richland
County. Richland also operates three stand-alone automatic banking center
locations. Mutual, in addition to having four offices (including the main
office) and a mortgage lending office in Zanesville, has offices in New Concord
in Muskingum County, Malta in Morgan County, New Lexington in Perry County,
Logan in Hocking County, Athens in Athens County and Coshocton in Coshocton
County. Mutual also operates three stand-alone automatic banking center
locations and a lending office in Dresden in Muskingum County.
ADDITIONAL INFORMATION
Additional information concerning Park is included in the Park Annual
Report to Shareholders, which is included as Appendix B to the Joint Proxy
Statement/Prospectus. Such document and certain other documents are also
incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
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<PAGE> 69
CERTAIN INFORMATION CONCERNING
FIRST-KNOX
BUSINESS
First-Knox is a bank holding company which is incorporated under Ohio
law. Through its subsidiaries, FKNB and Farmers, First-Knox is engaged in a
general commercial banking and trust business in five counties in central Ohio
(Knox, Morrow, Richland, Holmes and Ashland). First-Knox and Farmers provide the
following: checking accounts; savings accounts; certificates of deposit;
commercial loans; installment loans; credit card loans; commercial and
residential real estate mortgage loans; vehicle and equipment leasing; corporate
and personal trust services; discount brokerage services; and safe deposit
rental facilities. FKNB and Farmers will operate as separate subsidiaries of
Park following the Merger.
First-Knox is subject to regulation by the Federal Reserve Board. As a
national bank, FKNB is supervised and regulated by the Comptroller of the
Currency. As an Ohio state-chartered bank, Farmers is supervised and regulated
by the ODFI.
FKNB, in addition to having two offices (including the main office) in
Mount Vernon, has offices in Fredericktown, Danville and Centerburg in Knox
County, an office in Millersburg in Holmes County, offices in Lexington and
Bellville in Richland County and two offices in Mount Gilead in Morrow County.
Farmers has offices in Loudonville and Perrysville in Ashland County.
Certain statistical financial disclosures with respect to First-Knox
have been included in Appendix D to this Joint Proxy Statement/Prospectus and
are incorporated herein by this reference. These financial disclosures are
required by Securities Act Industry Guide 3, "Statistical Disclosure by Bank
Holding Companies," and should be read in conjunction with the narrative
analysis presented in the section captioned "FINANCIAL REVIEW" and the
consolidated financial statements of First-Knox, both included in the
First-Knox Annual Report to Shareholders which is delivered as Appendix C to
this Joint Proxy Statement/Prospectus.
DIRECTORS OF FIRST-KNOX
The First-Knox Board of Directors consists of eleven directors divided
into three classes with regular three-year staggered terms. Five directors hold
office for terms expiring in 1997, two directors hold office for terms
expiring in 1998 and four directors hold office for terms expiring in 1999.
The following information, as of January 1, 1997, with respect to the
principal occupation or employment, other affiliations and business experience
of each director during the last five years, has been furnished by each
director. Except where indicated, each director has had the same principal
occupation for the last five years.
<TABLE>
<CAPTION>
Name and Age Principal Occupation Director Since
- ------------ -------------------- --------------
DIRECTORS WHOSE TERMS EXPIRE IN 1997
<S> <C> <C>
Robert S. Gregg President, Phoenix Holding Company (farming 1985
Age 73 and land development company) since 1995.
President, Gregg Manufacturing Co.
(manufacturer of lighting fixtures) from 1970
to 1995
James A. McElroy Chairman of the Board since 1972, AMG 1985
Age 64 Industries, Inc. (manufacturer of metal
stampings and sub-assemblies)
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
Name and Age Principal Occupation Director Since
- ------------ -------------------- --------------
<S> <C> <C>
DIRECTORS WHOSE TERMS EXPIRE IN 1998
John B. Minor Retired. President, Coca-Cola Bottling 1985
Age 73 Company of Mount Vernon prior to 1986
Alan E. Riedel Of counsel to Squire, Sanders & Dempsey, 1994
Age 66 L.L.P. (attorneys) since 1994. From
September, 1992 to March, 1994, Vice
Chairman, and from 1981 to 1992, a Director
and Senior Vice President, Administration,
Cooper Industries, Inc. (a diversified
manufacturing company, producing
electrical automotive and hand tool
products)
DIRECTORS WHOSE TERMS EXPIRE IN 1999
James J. Cullers Senior Partner, Zelkowitz, Barry & Cullers 1985
Age 66 (attorneys and general legal counsel for FKNB)
Philip H. Jordan, Jr. Chairman of the Board of FKNB since March, 1985
Age 65 1995 and of First-Knox since December, 1996.
Retired. From July, 1975 to June, 1995,
President, Kenyon College
Noel C. Parrish President, NOE, Inc. (aircraft insurance 1985
Age 59 financing)
Carlos E. Watkins President and Chief Executive Officer of 1987
Age 60 First-Knox since March, 1989 and of FKNB
since January, 1988
APPOINTED DIRECTORS WHOSE TERMS EXPIRE IN 1997
Maureen Buchwald Vice President of Ariel Corporation 1996
Age 65 (manufacturer of reciprocating compressors)
Kenneth W. Stevenson Retired. President of Cooper Energy 1996
Age 66 Services, a subsidiary of Cooper Industries,
Inc., from April, 1990 to September, 1994
James E. McClure Retired. Prior to 1993, owner of McClure 1996
Age 69 Motors, Loudonville, Ohio. Director since
1970, and Chairman of the Board since August
1989, of Farmers
</TABLE>
As noted above (see "THE MERGER -- BOARD REPRESENTATION AND MANAGEMENT
OF PARK FOLLOWING CONSUMMATION OF THE MERGER"), Park has agreed, at the
Effective Time, to select, after consultation with First-Knox, four members of
the First-Knox Board to serve as directors of Park, of which
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<PAGE> 71
one member will have a term expiring in each of 1998 and 1999 and two members
will have terms expiring in 2000. As of the date of this Joint Proxy
Statement/Prospectus, no decision has been made as to which of the current
First-Knox directors will be the First-Knox representatives on the Park Board.
CHANGE-IN-CONTROL ARRANGEMENTS WITH FIRST-KNOX MANAGEMENT TO BE ASSUMED BY PARK
Park has agreed to assume the Employment Security Agreements, dated as
of July 12, 1996 (the "Employment Security Agreements"), between FKNB and each
of Carlos E. Watkins, President and Chief Executive Officer of First-Knox,
Gordon E. Yance, Vice President and Treasurer of First-Knox, and Ian Watson,
Vice President and Secretary of First-Knox (each, a "First-Knox Executive").
Each Employment Security Agreement becomes operative upon a change in control of
First-Knox (as will occur upon consummation of the Merger) or of the subsidiary
of First-Knox (including FKNB) employing the First-Knox Executive (the
"Employing Entity") and will continue for a term of twenty-four months
thereafter (the "Employment Security Term"). Pursuant to each Employment
Security Agreement, the Employing Entity will continue the First-Knox Executive
in its employ and the First-Knox Executive agrees to remain in the employ of the
Employing Entity during the Employment Security Term. Unless the First-Knox
Executive's employment is terminated during the Employment Security Term for
cause or by reason of death or long-term disability (in which case he will
receive no benefits under his Employment Security Agreement), the Executive will
receive an annual base salary of not less than his salary at the time of the
change in control and all other fringe benefits of the Employing Entity during
the Employment Security Term. In the event of a breach of the Employment
Security Agreement by the Employing Entity or the termination of a First-Knox
Executive's employment other than for cause or by reason of death or long-term
disability, the First-Knox Executive will be paid a sum equal to two years'
annual compensation and the Employing Entity will maintain the same or
equivalent hospital, medical, dental, accident, disability and life insurance as
covered the First-Knox Executive prior to the breach or termination, until the
end of the Employment Security Term or until the Executive has obtained
full-time employment, whichever is earlier. If a First-Knox Executive resigns
from his employment with the Employing Entity during the Employment Security
Term, he will be paid a sum equal to his annual compensation for the remainder
of the Employment Security Term reduced by any compensation paid during that
Term for employment with any third party. Each Employment Security Agreement
will terminate on the later to occur of July 12, 1998 or twenty-four months
after the consummation of the Merger, if the Merger is consummated.
DIRECTOR COMPENSATION
Directors who are not employees of First-Knox or its subsidiaries
receive a fee of $3,000 per year plus $300 for each First-Knox Board meeting and
each First-Knox Board committee meeting attended. Directors traveling from out
of state to attend First-Knox Board meetings and each Board committee meeting
are reimbursed for reasonable travel expenses incurred.
Under the First-Knox Banc Corp. 1995 Stock Option and Stock
Appreciation Rights Plan, directors, other than those employed by First-Knox
(the "First-Knox Non-Employee Directors"), are entitled to receive an annual
grant on the first business day following the date of each annual meeting of
shareholders of an option (the "First-Knox Director Options") to purchase 1,000
First-Knox Common Shares at an exercise price equal to the fair market value of
the underlying First-Knox Common Shares on the date of grant. First-Knox
Director Options granted to First-Knox Non-Employee Directors become exercisable
immediately upon grant and remain exercisable until the earlier to occur of the
following two dates (i) the tenth anniversary of the date of grant of such
First-Knox Director Options or (ii) three months (twelve months in the case of a
First-Knox Non-Employee Director who becomes disabled, as defined in Section
22(e)(3) of the Code, or who dies) after the date the First-Knox Non-Employee
Director ceases to be a member of the First-Knox Board, except that if the
First-Knox Non-Employee Director ceases to
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<PAGE> 72
be a member of the Board after having been convicted of, or pled guilty or nolo
contendere to, a felony, his First-Knox Director Options would be canceled on
the date he ceases to be a member of the First-Knox Board.
INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT
During 1996 and up to the present date, some of the directors and
officers of First-Knox and its subsidiaries were customers of and had banking
transactions with FKNB and Farmers. All of these transactions were in the
ordinary course of each bank's business. All loans and commitments to loan
included in such transactions were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and, in
the opinion of the management of First-Knox, do not involve more than a normal
risk of collectibility or present other unfavorable features. As of December 31,
1996, the aggregate amount of loans to directors and executive officers of
First-Knox and its subsidiaries as a group was $11,885,000.
Alan E. Riedel, a director of First-Knox, is of counsel to the law firm
of Squire, Sanders & Dempsey, L.L.P. , which rendered legal services to
First-Knox during First-Knox's 1996 fiscal year and continues to render legal
services to First-Knox during First-Knox's 1997 fiscal year.
James J. Cullers, a director of First-Knox, is a partner in the firm of
Zelkowitz, Barry & Cullers, which rendered legal services to First-Knox's
subsidiary FKNB during First-Knox's 1996 fiscal year and continues to render
legal services to FKNB during First-Knox's 1997 fiscal year.
ADDITIONAL INFORMATION
Additional information concerning First-Knox is included in the
First-Knox Annual Report to Shareholders, which is included as Appendix C to
the Joint Proxy Statement/Prospectus. Such document and certain other documents
are also incorporated by reference herein. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
DESCRIPTION OF PARK COMMON SHARES
The following is a summary of the material attributes of the Park
Common Shares.
GENERAL
The Articles of Incorporation of Park (as amended, the "Park Articles")
authorize 20,000,000 common shares, each without par value. As of
February 28, 1997, 7,107,859 Park Common Shares were outstanding. The Park
Common Shares are listed on the American Stock Exchange.
VOTING RIGHTS
Each Park Common Share entitles the holder thereof to one vote for the
election of directors and for all other matters submitted to the shareholders of
Park for their consideration, except that Park shareholders are entitled to
exercise cumulative voting in the election of directors if written notice is
given
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<PAGE> 73
by any Park shareholder to the President, a Vice President or the Secretary of
Park not less than 48 hours before a meeting held for the purpose of electing
directors (if the meeting notice has been given at least ten days prior thereto,
and otherwise not less than 24 hours before the meeting) that the shareholder
desires that the vote for the election of directors be cumulative. As a result,
the holders of less than a majority of the Park Common Shares could elect some
of the directors then standing for election if they cumulate their votes.
The Park Regulations provide that all elections of directors will be
determined by a plurality of the votes cast. Any other matters submitted to the
shareholders of Park for their vote will be decided by the vote of such
proportion as is required by law, the Park Articles or the Park Regulations.
Article EIGHTH of the Park Articles requires an enlarged majority vote
of Park's shareholders before Business Combinations (as defined in Article
EIGHTH) between Park and a beneficial owner of shares of Park entitling such
owner to exercise 20% or more of the voting power of Park (a "Controlling
Person") (or his or its Affiliates or Associates as those terms are defined in
Article EIGHTH) may be consummated, unless (i) a "Minimum Price Per Share" is
paid to those shareholders who do not vote in favor of the transaction and whose
propriety interest will be terminated in connection with such transaction and
(ii) a proxy statement satisfying the requirements of the Exchange Act is
submitted to the shareholders, by the Controlling Person or by Park at the
request of the Controlling Person, for the purpose of soliciting shareholder
approval of the transaction. If the price criteria and procedural requirements
were met, a Business Combination would require only such affirmative vote, if
any, as is required by law, the Park Articles or the Park Regulations.
The enlarged majority vote required if Article EIGHTH is applicable is
the greater of (1) four-fifths (4/5) of the outstanding Park Common Shares
entitled to vote on the proposed Business Combination, or (2) that fraction of
the outstanding Park Common Shares having as the numerator a number equal to the
sum of (i) the number of Park Common Shares Beneficially Owned by Controlling
Persons plus (ii) two-thirds (2/3) of the remaining number of Park Common Shares
outstanding, and as the denominator a number equal to the total number of
outstanding Park Common Shares entitled to vote.
"Beneficial Ownership" as used in Article EIGHTH of the Park Articles
includes without limitation: (i) all shares directly or indirectly owned by a
person, by an Affiliate of such person or by an Associate of such person or such
Affiliate; (ii) all shares which such person, Affiliate or Associate has the
right to acquire through the exercise of any option, warrant or right (whether
or not currently exercisable), through the conversion of a security, pursuant to
the power to revoke a trust, discretionary account or similar arrangement or
pursuant to the automatic termination of a trust, discretionary account or
similar arrangement; and (iii) all shares as to which such person, Affiliate or
Associate directly or indirectly through any contract, arrangement,
understanding, relationship or otherwise (including without limitation any
written or unwritten agreement to act in concert) has or shares voting power
(which includes the power to vote or to direct the voting of such shares) or
investment power (which includes the power to dispose or to direct the
disposition of such shares) or both.
"Business Combination" as used in Article EIGHTH of the Park Articles
means: (i) any merger or consolidation of Park with or into a Controlling Person
or an Affiliate of a Controlling Person or an Associate of such Controlling
Person or Affiliate; (ii) any sale, lease, exchange, transfer or other
disposition, including without limitation a mortgage or any other security
device, of all or any substantial part of the assets of Park, including without
limitation any voting securities of a Park subsidiary, or of the assets of a
Park subsidiary, to a Controlling Person or Affiliate of a Controlling Person or
Associate of such Controlling Person or Affiliate; (iii) any merger into Park,
or into a Park subsidiary, of a Controlling
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<PAGE> 74
Person or an Affiliate of a Controlling Person or an Associate of such
Controlling Person or Affiliate; (iv) any sale, lease, exchange, transfer or
other disposition to Park or a Park subsidiary of all or any part of the assets
of a Controlling Person or Affiliate of a Controlling Person or Associate of
such Controlling Person or Affiliate but not including any disposition of any
assets which, if included with all other dispositions consummated during the
same fiscal year of Park by the same Controlling Person, Affiliates thereof and
Associates of such Controlling Person or Affiliates, would not result in
dispositions during such year by all such Persons of assets having an aggregate
fair value (determined at the time of disposition of the respective assets) in
excess of 1% of the total consolidated assets of Park (as shown on its certified
balance sheet as of the end of the fiscal year preceding the proposed
disposition); provided, however, that in no event will any disposition of assets
be excepted from shareholder approval by reason of the preceding exclusion if
such disposition when included with all of the dispositions consummated during
the same and immediately preceding four fiscal years of Park by the same
Controlling Person, Affiliates thereof and Associates of such Controlling Person
or Affiliates, would result in disposition by all such Persons of assets having
an aggregate fair value (determined at the time of disposition of the respective
assets) in excess of 2% of the total consolidated assets of Park (as shown on
its certified balance sheet as of the end of the fiscal year preceding the
proposed disposition); (v) any reclassification of the Park Common Shares, or
any recapitalization involving the Park Common Shares, consummated within five
years after a Controlling Person becomes a Controlling Person; and (vi) any
agreement, contract or other arrangement providing for any of the transactions
described in the definition of Business Combination.
"Minimum Price Per Share" is defined in Article EIGHTH of the Park
Articles as the sum of (a) the higher of either (i) the highest gross per share
price paid or agreed to be paid to acquire any Park Common Shares Beneficially
Owned by a Controlling Person within five years of the record date which
determines the persons entitled to vote on the Business Combination in question,
or (ii) the highest per share closing public market price of the Park Common
Shares during such five-year period plus (b) the aggregate amount, if any, by
which 5% for each year after a person becomes a Controlling Person, of the
higher price [either (a)(i) or (a)(ii)] exceeds the aggregate of all cash
dividends per share declared and paid on the Common Shares during the same
period.
NOMINATION PROCEDURE; NUMBER OF DIRECTORS; CLASSIFIED BOARD OF DIRECTORS
The Park Regulations provide that shareholder nominations for election
to the Park Board of Directors must be made in writing and must delivered or
mailed to the President of Park not less than fourteen days nor more than fifty
days prior to any meeting of shareholders called for the election of directors;
provided, however, that if less than twenty-one days' notice of the meeting is
given to the shareholders, such nomination must be mailed or delivered to the
President of Park not later than the close of business on the seventh day
following the day on which the notice of the meeting was mailed. Such
notification must contain the following information to the extent known by the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of Park
Common Shares that will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the number of Park
Common Shares beneficially owned by the notifying shareholder. Nominations which
the chairman of the meeting determines are not made in accordance with the Park
Regulations will be disregarded.
Pursuant to the Park Regulations, the number of Park directors may be
fixed or determined by resolution of a majority of the full Park Board of
Directors or by resolution of the shareholders at any meeting thereof; provided,
however, that the number of directors must not be less than five nor more than
twenty-five. If the Merger Agreement is adopted and the proposed amendment to
Subsection 2.02(A) of the
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<PAGE> 75
Park Regulations is also adopted, the maximum allowable number of directors will
be reduced to sixteen. See "PROPOSED AMENDMENT TO SUBSECTION 2.02(A) OF PARK'S
REGULATIONS".
The Park Board of Directors is divided into three classes, each
containing at least three directors; and the election of each class of directors
constitutes a separate election. Directors serve for terms of three years and
until their respective successors are duly elected and qualified, or until their
earlier resignation, removal from office or death. As a result of the
classification of the Park Board, a minimum of two annual meetings of
shareholders will be necessary for a majority of the members of the Board to
stand for election. Since shareholders will be entitled to cumulative voting
upon proper notice by any shareholder, the holders of less than a majority of
the Common Shares could elect some of each class of directors then standing for
election if they cumulate their votes.
PRE-EMPTIVE RIGHTS
Holders of Park Common Shares have pre-emptive rights. Article SIXTH of
the Park Articles provides holders of Park Common Shares with rights to purchase
Park Common Shares in proportion to their respective holdings of Park Common
Shares upon the offering or sale of any Park Common Shares, except for Park
Common Shares issued as a share dividend or distribution; Park Common Shares
offered or sold in connection with acquisition transactions with other business
entities; Park Common Shares offered or sold in connection with stock option
plans and other employee benefit, compensation or incentive plans approved by a
three-fourths vote of the shareholders of Park; and Park Common Shares released
from pre-emptive rights by a two-thirds vote of the holders of Park Common
Shares.
If the proposed amendment to Article SIXTH of the Park Articles is
adopted by the Park shareholders, holders of Park Common Shares will no longer
have pre-emptive rights in respect of the offering or sale of Park Common Shares
held as treasury shares. See "PROPOSAL TO AMEND ARTICLE SIXTH OF PARK'S ARTICLES
OF INCORPORATION."
REPURCHASES
Park has the right to repurchase, if and when any shareholder desires
to sell, or on the happening of any event is required to sell, Park Common
Shares previously issued; provided, however, that Park may not repurchase Park
Common Shares if immediately thereafter its assets would be less than its
liabilities plus its stated capital, if any, or if Park is insolvent or would be
rendered insolvent by such a purchase.
DIVIDEND RIGHTS
Holders of outstanding Park Common Shares are entitled to receive
dividends when and if declared by the Board of Directors of Park from funds
legally available therefor. An Ohio corporation, such as Park, may pay dividends
out of surplus, however created, but must notify its shareholders if a dividend
is paid out of capital surplus.
The ability of Park to obtain funds for the payment of dividends and
for other cash requirements is largely dependent on the amount of dividends
which may be declared by its subsidiary banks (PNB, Richland and Mutual) and
other subsidiaries. PNB, Richland and Mutual may not pay dividends to Park if,
after paying such dividends, they would fail to meet the required minimum levels
under the risk-based capital guidelines and the minimum leverage ratio
requirements. PNB and Richland must have the approval of their respective
regulatory authorities if a dividend in any year would cause the total dividends
for that year to exceed the sum of the current year's net profits and the
retained net profits for the preceding
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two years, less required transfers to surplus. Payment of dividends by the bank
subsidiaries may be restricted at any time at the discretion of the regulatory
authorities, if they deem such dividends to constitute an unsafe and/or unsound
banking practice or if necessary to maintain adequate capital for the bank.
These provisions could have the effect of limiting Park's ability to pay
dividends on outstanding Park Common Shares.
Mutual will not be permitted to pay dividends on its capital stock if
its regulatory capital would be reduced below the amount required for the
liquidation account established in its conversion from mutual to stock form or
if such payment of dividends would contravene the capital distribution
regulations promulgated by the OTS, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends to the holding company,
if such payment is deemed unsafe or unsound.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Act") which was signed into law on August 21, 1996, earnings appropriated to
bad debt reserves and deducted for federal income tax purposes could not be used
by Mutual to pay cash dividends to Park without the payment of federal income
taxes by Park at the then current income tax rate on the amount deemed
distributed, which would include the amount of any federal income taxes
attributable to the distribution. As a result of modifications enacted in the
Act, pre-1988 bad debt reserves which are not otherwise recaptured, may be
recaptured if they are used for payment of cash dividends or other distributions
to a shareholder. Thus, any dividends to Park that would reduce amounts
appropriated to Mutual's pre-1988 bad debt reserves and deducted for federal
income tax purposes could create a significant tax liability for Mutual. Park
intends to make full use of the favorable tax treatment afforded to Mutual and
Park does not contemplate any distribution by Mutual in a manner which would
create the above-mentioned federal tax liabilities.
LIQUIDATION RIGHTS
In the event of liquidation, after payment in full of all amounts
required to be paid to creditors or provision for such payment, each holder of
Park Common Shares is entitled to share ratably, according to the number of Park
Common Shares held by him, in all remaining assets of Park legally available for
distribution to its shareholders.
COMPARISON OF RIGHTS OF HOLDERS
OF PARK COMMON SHARES AND
HOLDERS OF FIRST-KNOX COMMON SHARES
GENERAL
Upon consummation of the Merger, all First-Knox Common Shares, if any,
that are owned by First-Knox as treasury shares and all First-Knox Common
Shares, if any, that are owned by Park or by any wholly-owned subsidiary of
Park or of First-Knox (other than trust account shares and DPC shares) will be
canceled and retired. Each First-Knox Common Share outstanding immediately
prior to the Effective Time of the Merger (other than the First-Knox Common
Shares to be canceled as described in the immediately preceding sentence and
First-Knox Common Shares as to which dissenters' rights have been perfected)
will be converted into that number of Park Common Shares equal to the Exchange
Ratio.
There are certain differences between the rights of holders of Park
Common Shares and the rights of holders of First-Knox Common Shares arising from
the distinctions between Park's Articles of Incorporation and Regulations and
First-Knox's Amended Articles of Incorporation and Code of
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Regulations. However, the rights of holders of Park Common Shares and those of
holders of First-Knox Common Shares are similar in most material respects. The
differences are addressed below.
BOARD OF DIRECTORS
General
Park's Regulations provide for a classified Board of Directors, divided
into three classes and elected for three-year terms. The number of directors may
be fixed by the Board of Directors or the shareholders within a range of five to
twenty-five; however, the Park Board may not increase the number of directors to
a number which exceeds by more than two the number of directors last elected by
the shareholders. If the Merger Agreement is adopted and the proposed amendment
to Subsection 2.02(A) of Park's Regulations is also adopted by the shareholders,
the maximum allowable number of Park directors will be reduced to sixteen. See
"PROPOSED AMENDMENT TO SUBSECTION 2.02(A) OF PARK'S REGULATIONS."
First-Knox's Code of Regulations provides for a classified Board of
Directors consisting of twelve directors, divided into three classes and elected
for three-year terms; however, the First-Knox Board of Directors, by vote of a
majority of the full Board, may, between annual meetings of shareholders,
increase the membership of the First-Knox Board by not more than two members.
Nominations
The Park Regulations provide that shareholder nominations for election
to the Park Board of Directors must be made in writing and must be delivered or
mailed to the President of Park not less than fourteen days nor more than fifty
days prior to any meeting of shareholders called for the election of directors;
provided, however, that if less than twenty-one days' notice of the meeting is
given to the shareholders, such nomination must be mailed or delivered to the
President of Park not later than the close of business on the seventh day
following the day on which the notice of the meeting was mailed. Such
notification must contain the following information to the extent known by the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of Park
Common Shares that will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the number of Park
Common Shares beneficially owned by the notifying shareholder. Nominations which
the chairman of the meeting determines are not made in accordance with the Park
Regulations will be disregarded.
The First-Knox Code of Regulations contains the same nomination
procedure; however, in addition to the nomination being mailed or delivered to
the President of First-Knox, such nomination must also be mailed or delivered to
the Chairman of the Federal Reserve Board.
Mandatory Retirement
There is no mandatory retirement age for directors of Park. Pursuant to
the By-Laws of First-Knox, a First-Knox director who was first elected after
October 19, 1993, must retire from the Board at the first annual meeting of
shareholders following his or her 72nd birthday or at the end of four full terms
(twelve or more consecutive years) on the First-Knox Board, whichever comes
first. With respect to First-Knox directors first elected before October 19,
1993, the By-Laws provide that (a) beginning at the 1995 Annual Meeting of
Shareholders, First-Knox directors are to retire by age, oldest first, until all
directors over 72 years of age have retired; (b) two First-Knox directors are to
retire each year until all directors over
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<PAGE> 78
age 72 have retired; and (c) all remaining directors with twelve consecutive
years of service on the First-Knox Board of Directors are to retire from the
First-Knox Board at the first annual meeting of shareholders following their
70th birthday.
VOTING RIGHTS
Special Voting Requirements
The First-Knox Amended Articles of Incorporation provide that the
holders of at least 80% of the issued and outstanding First-Knox Common Shares
and 80% of the issued and outstanding preferred shares or any other class of
shares of First-Knox outstanding at the time are required to approve any merger,
consolidation or acquisition of First-Knox by another corporation unless the
First-Knox Board of Directors has approved the transaction by majority vote. The
Park Articles of Incorporation and Regulations contain no similar provision and,
therefore, under Ohio law, the affirmative vote of holders of at least
two-thirds of the voting power of Park would be required to approve any similar
transaction.
ANTITAKEOVER PROVISIONS
The Amended Articles of Incorporation of First-Knox contain no
provision similar to the "fair price" provisions contained in the Park Articles
of Incorporation. See "DESCRIPTION OF PARK COMMON SHARES -- VOTING RIGHTS".
PRE-EMPTIVE RIGHTS
Holders of Park Common Shares have pre-emptive rights upon the offering
or sale of any Park Common Shares, except for Park Common Shares issued as a
share dividend or distribution; Park Common Shares offered or sold in connection
with acquisition transactions with other business entities; Park Common Shares
offered or sold in connection with stock option plans and other employee
benefit, compensation or incentive plans approved by a three-fourths vote of the
shareholders of Park; and Park Common Shares released from pre-emptive rights by
a two-thirds vote of the holders of Park Common Shares. If the proposed
amendment to Article SIXTH of the Park Articles of Incorporation is adopted by
the Park shareholders, holders of Park Common Shares will no longer have
pre-emptive rights in respect of the offering or sale of Park Common Shares held
as treasury shares. See "PROPOSAL TO AMEND ARTICLE SIXTH OF PARK'S ARTICLES OF
INCORPORATION."
None of the shareholders of First-Knox have pre-emptive rights.
ANTITAKEOVER STATUTES
The statutes described below apply to First-Knox. Park has opted out of
the application of each statute.
Ohio Control Share Acquisition Act
Section 1701.831 of the Ohio Revised Code (the "Ohio Control Share
Acquisition Act") provides that certain notice and informational filings and
special shareholder meetings and voting procedures must occur prior to
consummation of a proposed "control share acquisition," which is defined as any
acquisition of shares of an "issuing public corporation" that would entitle the
acquirer, directly or indirectly, alone or with others, to exercise or direct
the voting power of the issuing public corporation in the election of
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<PAGE> 79
directors within any of the following ranges: (a) one-fifth or more but less
than one-third of such voting power; (b) one-third or more but less than a
majority of such voting power; or (c) a majority or more of such voting power.
An "issuing public corporation" is defined as an Ohio corporation with fifty or
more shareholders that has its principal place of business, principal executive
offices, or substantial assets within the State of Ohio, and as to which no
valid close corporation agreement exists. Assuming compliance with the notice
and informational filing requirements prescribed by the Ohio Control Share
Acquisition Act, the proposed control share acquisition may take place only if,
at a duly convened special meeting of shareholders, the acquisition is approved
by both a majority of the voting power of the issuing public corporation in the
election of directors represented at the meeting and a majority of such voting
power remaining after excluding the voting shares owned by the acquiring
shareholder and certain "interested shares," including shares owned by officers
elected or appointed by the directors of the issuing public corporation and by
directors who are also employees of the issuing public corporation. "Interested
shares" also include those shares acquired by a person or group between the
date of the first disclosure of a proposed control share acquisition or
change-in-control transaction and the date of the special meeting of
shareholders held pursuant to the Ohio Control Share Acquisition Statute. Shares
acquired during that period by a person or group will be deemed "interested
shares" only if (i) the amount paid for the shares by such person or group
exceeds $250,000 or (ii) the number of shares acquired by such person or group
exceeds 1/2 of 1% of the outstanding voting shares.
The Ohio Control Share Acquisition Act does not apply to a corporation
whose articles of incorporation or regulations so provide. The Ohio Control
Share Acquisition Act applies to First-Knox since it has not taken any corporate
action to opt out of it. Park has opted out of the application of the Ohio
Control Share Acquisition Act in its Regulations.
Ohio Merger Moratorium Statute
Chapter 1704 of the Ohio Revised Code (the "Ohio Merger Moratorium
Statute") prohibits certain business combinations and transactions between an
"issuing public corporation" and a beneficial owner of shares representing 10%
or more of the voting power of the corporation (an "Interested Shareholder") for
at least three years after the Interested Shareholder becomes such, unless the
board of directors of the issuing public corporation approves either (i) the
transaction or (ii) the acquisition of the corporation's shares that resulted in
the person becoming an Interested Shareholder, in each case before the
Interested Shareholder became such. Examples of transactions regulated by the
Ohio Merger Moratorium Statute include asset sales, mergers, consolidations,
loans, voluntary dissolutions, and the transfer of shares ("Moratorium
Transactions"). After the three-year period, a Moratorium Transaction may take
place provided that certain conditions are satisfied, including that (a) the
board of directors approves the transaction, (b) the transaction is approved by
the holders of shares with at least two-thirds of the voting power of the
corporation (or a different proportion set forth in the articles of
incorporation), including at least a majority of the outstanding shares after
excluding shares controlled by the Interested Shareholder, or (c) the business
combination results in shareholders, other than the Interested Shareholder,
receiving a "fair price" plus interest for their shares.
A corporation may elect not to be covered by the Ohio Merger Moratorium
Statute by the adoption of an appropriate amendment to its articles of
incorporation. The Ohio Merger Moratorium Statute applies to First-Knox since it
has not taken any corporate action to opt out of it. Park has opted out of the
Ohio Merger Moratorium Statute in the Park Articles.
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<PAGE> 80
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
The Regulations of Park provide that Park will indemnify its directors
or officers against expenses (including, without limitation, attorney's fees,
filing fees, court reporter's fees and transcript costs), judgments, fines and
amounts paid in settlement by reason of the fact that they are or were
directors, officers, employees or agents of Park or, at the request of Park,
were serving another entity in a similar capacity, if the directors or officers
acted in good faith and in a manner they reasonably believed to be in the best
interests of Park. With regard to criminal matters, directors and officers will
be similarly indemnified by Park if the directors or officers had no reasonable
cause to believe their conduct was unlawful. Directors or officers claiming
indemnification will be presumed to have acted in good faith and in a manner
they reasonably believed to be not opposed to the best interests of Park and,
with respect to any criminal matter, to have had no reasonable cause to believe
their conduct was unlawful.
Park will not indemnify any officer or director of Park who was a party
to any completed action or suit instituted by (or in the right of) Park for any
matter asserted in such action as to which the officer or director has been
adjudged to be liable for acting with reckless disregard for the best interests
of Park or misconduct (other than negligence) in the performance of his or her
duty to Park. However, should the court in which the action was brought
determine that the officer or director is fairly and reasonably entitled to such
indemnity, Park must indemnify such officer or director to the extent permitted
by the court.
Any indemnification not precluded by Park's Regulations will be made by
Park only upon a determination that the director or officer has met the
applicable standard of conduct. Such determination may be made only (a) by a
majority vote of a quorum of disinterested directors, (b) if such a quorum is
not obtainable or if a majority of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel, (c) by the
shareholders, or (d) by the court, if any, in which such action was brought.
Expenses incurred in defending any action, suit or proceeding will be paid by
Park in advance upon receipt of an undertaking by or on behalf of the director
or officer to repay such amount if such director or officer is not entitled to
be indemnified by Park.
The Regulations of Park state that the indemnification provided thereby
is not exclusive of any other rights to which any person seeking indemnification
may be entitled. Additionally, the Park Regulations provide that Park may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of Park, or who is or was serving another
entity at the request of Park, against any liability asserted against him or her
and incurred by him or her in such capacity, or arising out of his or her status
as such, whether or not Park would have the obligation or power to indemnify him
or her under the Park Regulations.
The Code of Regulations of First-Knox provides similar indemnification
rights to directors and officers of First-Knox. In addition, Park has agreed to
indemnify each of the officers and directors of First-Knox from and against
certain liabilities arising out of the fact that such person is or was a
director, officer or employee of First-Knox, in each case to the full extent
First-Knox would have been permitted to indemnify such person under Ohio law and
the Amended Articles of Incorporation and Code of Regulations of First-Knox. See
"THE MERGER -- INTERESTS OF CERTAIN PERSONS IN THE MERGER" and "THE MERGER
AGREEMENT -- COSTS AND EXPENSES; INDEMNIFICATION."
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<PAGE> 81
PROPOSED AMENDMENT TO SUBSECTION 2.02(A)
OF PARK'S REGULATIONS
PROPOSED AMENDMENT TO SUBSECTION 2.02(A)
Pursuant to Subsection 2.02(A) of Park's Regulations, the number of
directors of Park may be determined by the affirmative vote of the holders of
not less than a majority of the voting shares which are represented at a meeting
called for the purpose of electing directors; or by resolution adopted by the
affirmative vote of a majority of the directors then in office. Further, the
number of directors may not be fewer than five nor more than twenty-five and the
directors may not increase the number of directors to a number which exceeds by
more than two the number of directors last elected by the shareholders. As
permitted by Subsection 2.02(A), the Park Board of Directors has set the number
of directors at twelve. See "ELECTION OF PARK DIRECTORS -- NOMINEES FOR
ELECTION." The proposed amendment to Subsection 2.02(A) would decrease the
maximum allowable number of directors to sixteen. The proposed amended
Subsection 2.02(A) would read as follows:
Section 2.02. Number of Directors and Term of Office.
(A) The number of directors of the corporation may be
determined at a meeting of the shareholders called for the
purpose of electing directors at which a quorum is present, by
the affirmative vote of the holders of not less than a
majority of the voting shares which are represented at the
meeting, in person or by proxy, and entitled to vote on such
proposal; or by resolution adopted by the affirmative vote of
a majority of the directors then in office. Notwithstanding
the foregoing, the number of directors shall in no event be
fewer than five or more than sixteen and the directors may not
increase the number of directors to a number which exceeds by
more than two the number of directors last elected by the
shareholders.
EFFECT OF ADOPTION OF AMENDMENT
Pursuant to the Merger Agreement, Park has agreed, at the Effective
Time of the Merger, to take such action as may be necessary to decrease the
maximum allowable number of directors, as specified in the Park Regulations, to
sixteen and to cause the number of directors to be fixed at sixteen, with twelve
members to be selected by Park in its sole discretion from the Board of
Directors of Park immediately prior to the Effective Time; and with four members
to be selected by Park, after consultation with First-Knox, from the Board of
Directors of First-Knox immediately prior to the Effective Time. See "THE MERGER
- -- BOARD REPRESENTATION AND MANAGEMENT OF PARK FOLLOWING CONSUMMATION OF THE
MERGER." The current number of Park directors is twelve. As part of the
negotiations with respect to the terms of the Merger, Park agreed to give
First-Knox four seats on the Park Board of Directors and to fix the number of
directors at sixteen so that First-Knox would have 25% representation. By
decreasing the maximum number of directors which may be elected to sixteen, such
relative representation will be maintained unless the shareholders of Park
determine otherwise in the future by voting to increase the size of the Board
and filling the vacancies created thereby.
Adoption of the proposed amendment to Subsection 2.02(A) was made a
condition precedent to the Merger because both parties felt that maintaining the
relative representation of the former First-Knox shareholders on the Park Bond
was important following consummation of the Merger. Accordingly, if the proposed
amendment to Subsection 2.02(A) is not adopted, the Merger cannot be consummated
unless Park and First-Knox agree to waive the condition precedent. The proposed
amendment to Subsection 2.02(A) will not, however, take effect if the Merger
Agreement is not adopted. The Park Board believes that if the Merger is not
consummated, the reason for reducing the maximum number of directors below that
number previously approved by the shareholders no longer exists and,
accordingly, Board no change in such maximum number should be made.
If the proposed amendment to Subsection 2.02(A) is adopted, the Park
shareholders could increase the numbers of directors beyond sixteen only by
amending the Park Regulations.
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<PAGE> 82
RECOMMENDATION AND VOTE
The affirmative vote of the holders of two-thirds of the outstanding
Park Common Shares is required to adopt the proposed amendment to Subsection
2.02(A) of the Park Regulations.
THE PARK BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE
PROPOSED AMENDMENT TO SUBSECTION 2.02(A) OF THE PARK REGULATIONS IF THE MERGER
AGREEMENT IS ADOPTED.
ELECTION OF PARK DIRECTORS
NOMINEES FOR ELECTION
In accordance with Subsection 2.02(A) of the Park Regulations, the Park
Board of Directors has set the number of directors at twelve and at four the
number of directors to be elected at the Park Annual Meeting to hold office for
terms of three years each and until their respective successors are elected and
qualified. It is the intention of the persons named in the accompanying proxy
card to vote the Park Common Shares represented by the proxies received pursuant
to this solicitation for the nominees named below who have been designated by
the Park Board, unless otherwise instructed on the proxy card.
The Park Board knows of no reason why any of the nominees will not
serve if elected to the Board; however, if one or more nominees at the time of
the Park Annual Meeting should be unavailable or unable to serve as a director,
and if prior to the Park Annual Meeting, the Park Board designates a substitute
nominee, the persons named in the accompanying proxy card will vote for the
election of the substitute nominee designated by the Park Board.
The following table gives certain information as of January 1, 1997,
concerning each nominee for election as a director of Park. Unless otherwise
indicated, each person has held his principal occupation for more than five
years.
<TABLE>
<CAPTION>
Position(s) Held with
Park and its Principal Director of Park
Subsidiaries and Continuously Nominee For
Nominee Age Principal Occupations Since Term Expiring In
- ------- --- --------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
R. William Geyer 65 Partner, Kincaid, Taylor 1992 2000
and Geyer, Attorneys at
Law, Zanesville, Ohio;
Director of Mutual
</TABLE>
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<PAGE> 83
<TABLE>
<CAPTION>
Position(s) Held with
Park and its Principal Director of Park
Subsidiaries and Continuously Nominee For
Nominee Age Principal Occupations Since Term Expiring In
- ------- --- --------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
William T. McConnell 63 Chairman of the Board since 1986 2000
April, 1994, Chief Executive
Officer since July, 1986, and
President from July, 1986 to
April, 1994, of Park; Chairman
of the Board since April, 1993,
Chief Executive Officer since
April, 1983, President from
March, 1979 to April, 1993, and
Director of PNB; Director of
Richland and of Mutual
William A. Phillips 63 Chairman of the Board, Chief 1990 2000
Executive Officer and Director
of Mutual
John L. Warner 69 Agent, W. A. Wallace Co., 1987 2000
Newark, Ohio (insurance);
Director of PNB
</TABLE>
The following table gives certain information, as of January 1, 1997,
concerning the current directors of Park whose terms will continue after the
Park Annual Meeting. Unless otherwise indicated, each person has held his or her
principal occupation for more than five years.
<TABLE>
<CAPTION>
Position(s) Held with
Park and its Principal Director of Park
Subsidiaries and Continuously
Name Age Principal Occupations Since Term Expires In
- ---- --- --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Dominick C. Fanello 74 Chairman of Shiloh Industries, 1990 1998
Mansfield, Ohio
(stamping/blanking); Director
of Richland
</TABLE>
77
<PAGE> 84
<TABLE>
<CAPTION>
Position(s) Held with
Park and its Principal Director of Park
Subsidiaries and Continuously
Name Age Principal Occupations Since Term Expires In
- ---- --- --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Phillip T. Leitnaker 68 Owner of Leitnaker Farms, 1990 1998
Baltimore, Ohio (farming);
President and Owner of Phillip
Leitnaker Construction, Inc.,
Baltimore, Ohio (construction company);
President and majority owner of D & B
Paving Company, Baltimore, Ohio (paving
company); Member of Advisory Board of
Fairfield National Division of PNB
J. Gilbert Reese 71 Attorney-at-Law, Reese, Pyle, 1987 1998
Drake & Meyer, Attorneys at
Law, Newark, Ohio; Chairman of
the Board of First Federal
Savings & Loan Association of
Newark, Newark, Ohio; Director
of PNB(1)
Rick R. Taylor 49 President of Jay Plastics, 1995 1998
Mansfield, Ohio (plastic parts
manufacturer); Director of
Richland
C. Daniel DeLawder 47 President of Park since April, 1994 1999
1994; President since April,
1993, Executive Vice President
from March, 1992 to April,
1993, and Director of PNB; Chairman of
Advisory Board since November, 1989 and
President from 1985 to March, 1992 of
the Fairfield National Division of PNB
</TABLE>
78
<PAGE> 85
<TABLE>
<CAPTION>
Position(s) Held with
Park and its Principal Director of Park
Subsidiaries and Continuously
Name Age Principal Occupations Since Term Expires In
- ---- --- --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Tamala Longaberger Kaido 35 President since 1994, 1996 1999
President, Sales and Marketing, from
1991 to 1993, and Vice President, Sales
and Marketing from 1987 to 1991, of The
Longaberger Company, Dresden, Ohio
(specialty goods manufacturer);
Director of Mutual
Howard E. LeFevre 89 Chairman of the Board of 1987 1999
Freight Service, Inc., Newark,
Ohio (leasing and warehousing);
Director of PNB
John J. O'Neill 76 President/Owner of Southgate 1987 1999
Corporation, Newark, Ohio (real
estate development and
management); Director of PNB
</TABLE>
- ---------------------
(1) Mr. Reese is also a director of ALLTEL of Ohio, Inc., a
wholly-owned subsidiary of ALLTEL Corporation, a corporation whose shares are
publicly traded.
NOMINATION PROCEDURE
The Park Regulations provide that shareholder nominations for election
to the Park Board of Directors must be made in writing and must delivered or
mailed to the President not less than fourteen days nor more than fifty days
prior to any meeting of shareholders called for the election of directors;
provided, however, that if less than twenty-one days' notice of the meeting is
given to the shareholders, such nomination must be mailed or delivered to the
President not later than the close of business on the seventh day following the
day on which the notice of the meeting was mailed. Such notification must
contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total number of Park
Common Shares that will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the number of Park
Common Shares beneficially owned by the notifying shareholder. Nominations which
the chairman of the meeting determines are not made in accordance with the Park
Regulations will be disregarded.
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<PAGE> 86
RECOMMENDATION AND VOTE
Under Ohio law and the Park Regulations, the four nominees for election
as Park directors in the class whose terms expire in 2000 receiving the greatest
number of votes will be elected.
Park Common Shares represented by the accompanying proxy card will be
voted FOR the election of the above nominees unless authority to vote for one or
more nominees is withheld. Park shareholders may withhold authority to vote for
the entire slate as nominated or, by writing the name of one or more nominees in
the space provided in the proxy card, withhold the authority to vote for such
nominee or nominees. Park Common Shares as which the authority to vote is
withheld and broker non-votes will be counted for quorum purposes but will not
be counted toward the election of directors, or toward the election of the
individual nominees specified on the form of proxy.
THE PARK BOARD RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE
NOMINEES.
EXECUTIVE OFFICERS OF PARK
The following table lists the names and ages of the executive officers
of Park as of January 1, 1997, the positions presently held by each such
executive officer and the business experience of each such executive officer
during the past five years. All executive officers serve at the pleasure of the
Park Board.
<TABLE>
<CAPTION>
Position(s) Held with Park and its Principal
Name Age Subsidiaries and Principal Occupation(s)
- ---- --- ----------------------------------------
<S> <C> <C>
William T. McConnell 63 Chairman of the Board since April, 1994, Chief Executive
Officer and Director since July, 1986, and President
from July, 1986 to April, 1994, of Park; Chairman of
the Board since April, 1993, Chief Executive
Officer since April, 1983, President from March, 1979
to April, 1993, and Director of PNB; Director
of Richland and of Mutual
C. Daniel DeLawder 47 President and Director of Park since April, 1994; President
since April, 1993, Executive Vice President from March, 1992
to April, 1993, and Director of PNB; Chairman of Advisory
Board since November, 1989, and President from 1985 to March,
1992, of the Fairfield National Division of PNB
David C. Bowers 59 Secretary since February, 1987, Chief Financial Officer and
Chief Accounting Officer since July, 1990, and Director from
1989 to 1990, of Park; Senior Vice President since September,
1986, and Director of PNB
</TABLE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the monthly percentage change
in the cumulative total shareholder return on the Park Common Shares with an
index for Nasdaq Stock Market (U.S. Companies) comprised of all domestic common
shares traded on The Nasdaq National Market and the Nasdaq Small-Cap
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<PAGE> 87
Market and an index for Nasdaq Bank Stocks comprised of all depository
institutions (SIC Code # 602) and holding and other investment companies (SIC
Code # 671) that are traded on The Nasdaq National Market and the Nasdaq
Small-Cap Market ("Nasdaq Bank Stocks"), for the five-year period from December
31, 1991 to December 31, 1996. The "Nasdaq Bank Stocks" index is comprised of
stocks of banks and other depository institutions and their holding companies, a
number of which Park considers to be within its peer group. The "AMEX Financial
Stocks" index includes the stocks of banks, thrifts, finance companies and
securities broker-dealers. Park believes that the Nasdaq Bank Stocks index is,
therefore, the most appropriate index available to compare to the cumulative
total returns of the Park Common Shares. In light of this preference for the
Nasdaq Bank Stocks index, Park believes that it is more appropriate to use the
Nasdaq Stock Market (U.S. Companies) index than the American Stock Exchange
index as the broad equity market index for comparative purposes.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
As of 12/31/96
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
MAX-DATE 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
<S> <C> <C> <C> <C> <C> <C> <C>
Park National Corporation 242.4 - 12/31/96 100.0 167.3 162.3 183.9 212.3 242.4
NASDAQ Stock Market (U.S. Companies) 227.4 - 11/29/96 100.0 116.4 133.6 130.6 184.7 227.2
NASDAQ Bank Stocks 325.6 - 12/31/96 100.0 145.6 166.0 165.4 246.3 325.6
NOTES:
A. The lines represent monthly index levels derived from compounded daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding day is used.
D. The index level for all series was set to $100.0 on 12/31/91.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
81
<PAGE> 88
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William T. McConnell, who serves as Chairman of the Board and Chief
Executive Officer of Park and of PNB, serves as a member of the Executive
Committee of the Park Board, which performs the functions of a compensation
committee. Mr. McConnell sits on the Board of Directors of Freight Service, Inc.
but not on its compensation committee. Howard E. LeFevre, Chairman of the Board
and a director of Freight Service, Inc., serves as a member of the Executive
Committee of the Park Board. J. Gilbert Reese, who is a partner in the law firm
of Reese, Pyle, Drake & Meyer which rendered legal services to Park's
subsidiaries during Park's 1996 fiscal year and continues to render legal
services to Park's subsidiaries during Park's 1997 fiscal year, is also a member
of the Executive Committee. C. Daniel DeLawder, who is President of Park and of
PNB, also serves as a member of the Executive Committee.
REPORT OF THE EXECUTIVE COMMITTEE OF THE PARK BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF PARK'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OR THE EXCHANGE ACT THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS JOINT PROXY STATEMENT/PROSPECTUS, IN
WHOLE OR IN PART, THIS REPORT AND THE PERFORMANCE GRAPH SET FORTH ABOVE UNDER
"ELECTION OF PARK DIRECTORS--PERFORMANCE GRAPH" SHALL NOT BE INCORPORATED BY
REFERENCE INTO ANY SUCH FILINGS.
Overall Philosophy and Administration
The executive officers of Park receive no compensation from Park.
Instead, they are paid by PNB for services rendered in their capacities as
executive officers of Park and PNB. The Board of Directors of Park has a
five-member Executive Committee, composed of three outside directors and Messrs.
McConnell and DeLawder. One function of the Executive Committee is to review and
recommend officer compensation levels and Park benefit plans and to forecast
future personnel needs of Park. During 1996, no decisions of the Executive
Committee were modified or rejected in any material way by the Boards of
Directors of PNB or of Park. Messrs. DeLawder and McConnell do not vote on any
matters with respect to their compensation.
Park's compensation philosophy reflects a commitment to pay for
performance. The compensation program for all officers, including executive
officers, consists of three primary elements -- a base salary component, an
incentive bonus component and a stock option component. The combination of base
salary and incentive bonus is designed to relate total cash compensation levels
to overall performance by Park and its subsidiaries and individual performance
of the executive officers. Park's cash compensation philosophy reflects a
significant part of total executive cash compensation to be "at risk" in the
form of an incentive bonus based on Park's performance, ranging from 63.4% to
74.4% for 1996, from 60.9% to 74.6% for 1995, and from 61.0% to 75.3% for 1994,
for the three executive officers of Park named in the Summary Compensation Table
included in "ELECTION OF PARK DIRECTORS -- EXECUTIVE COMPENSATION -- Summary of
Cash and Certain Other Compensation."
Park believes that it is also important to provide compensation which
serves to incentivize long-term corporate financial performance. In that regard,
the Board of Directors of Park adopted, and the shareholders of Park approved,
the Park 1995 Plan. Under the Park 1995 Plan, officers and other key employees
of Park and its subsidiaries are selected by the Executive Committee to receive
incentive stock options, each of which has an option exercise price equal to
100% of the fair market value of Park Common Shares on the date of grant. If
there is no appreciation in the market value of Park Common Shares, the
incentive stock options will be valueless. Thus, in contrast to base salary and
incentive bonus, option grants are tied directly to the price performance of
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Park Common Shares. At the time of exercise of an incentive stock option (other
than an exercise following death, disability or normal retirement), the option
holder must enter into an agreement with Park providing that the Park Common
Shares acquired upon such exercise may not be sold or otherwise disposed of to
any person other than Park for a period of five years after the date of
exercise. This provides a further shared interest by the option holders and the
shareholders of Park in the price performance of Park Common Shares.
Section 162(m) of the Code prohibits the deduction by a publicly-held
corporation, such as Park, of compensation paid to a "covered employee" in
excess of $1,000,000 per year, unless certain requirements (relating primarily
to "performance-based compensation") are met. Generally, Park's covered
employees are those executive officers named in the Summary Compensation Table
included in "ELECTION OF PARK DIRECTORS -- EXECUTIVE COMPENSATION -- Summary of
Cash and Certain Other Compensation." None of Park's executive officers received
more than $1,000,000 of compensation from Park and its subsidiaries in 1996, and
the Executive Committee does not anticipate that any of Park's executive
officers will receive more than $1,000,000 in compensation from Park and its
subsidiaries in 1997. Accordingly, the Executive Committee does not believe that
Section 162(m) will limit the deductibility of the executive compensation that
Park and its subsidiaries will pay in 1997.
Base Salary
Base salaries for the 1996 fiscal year reported in this Joint Proxy
Statement/Prospectus were determined by the Executive Committee in December,
1995. The actual salary received by each executive officer was determined by the
Executive Committee based upon a subjective evaluation of the individual
responsibilities and contributions of the executive officer and Park's strong
1995 financial results. While these factors have a general influence on the
determination of the amount of base salary to be paid to each executive officer,
no specific weighting is given to any of these factors. Mr. McConnell's salary
for 1996 was determined by the Executive Committee using these criteria and
represented 25.7% of his total annual cash compensation.
Incentive Bonus
The Executive Committee administers Park's Incentive Bonus Plan which
enables the officers of PNB, Richland and Mutual to share in any above-average
return on equity (net income divided by average equity) which Park may generate
during a fiscal year. In 1996, all officers of PNB, Richland and Mutual,
including Messrs. McConnell, DeLawder and Bowers, were eligible to participate
in the Incentive Bonus Plan.
Above-average return on equity is defined as the amount by which the
net income to average equity ratio of Park exceeds the median net income to
average equity ratio of all U.S. bank holding companies of similar asset size
($1 billion to $3 billion). A formula determines the amount, if any, by which
Park's return on equity ratio exceeds the median return on equity ratio of these
peer bank holding companies. Twenty percent (20%) of that amount on a before-tax
equivalent basis is available for incentive compensation. If Park's return on
equity ratio is equal to or less than that of the peer group, no incentive
compensation will be available with respect to that year. The Chairman of the
Board and the President of Park each receive a fixed percentage of the amount
available for incentive compensation as determined by the Park Board. After
deducting those amounts, the remaining amount is distributed to the officers of
PNB, Richland and Mutual on the basis of their respective contributions to
Park's meeting its short-term and long-term financial goals during the year in
question, which contributions are subjectively determined by the Chairman of the
Board and the President of Park and approved by the Executive Committee of the
Park Board. Recommendations of the Presidents of Park's subsidiaries are
considered when determining incentive bonus amounts for officers of those
subsidiaries. The time period over which the determination is made of the
amounts, if any, of incentive compensation to be paid is the fiscal year of
Park. The determination of the amounts of incentive bonus to be paid and the
payment of such amounts are made
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during the first two quarters of the next fiscal year. Park's return on equity
ratio for the 1996 fiscal year exceeded the median return on equity ratio of its
peer bank holding companies. As of the date of this Joint Proxy
Statement/Prospectus, Mr. McConnell, as Chairman of the Board and Chief
Executive Officer of Park, has been paid $468,000 under the Incentive Bonus Plan
with respect to the 1996 fiscal year as shown in the Summary Compensation Table
included under "ELECTION OF PARK DIRECTORS -- EXECUTIVE COMPENSATION -- Summary
of Cash and Certain Other Compensation." Any additional incentive bonus paid to
Mr. McConnell with respect to the 1996 fiscal year will be disclosed as earned
in 1996 in next year's proxy statement.
Stock Options
In proposing the Park 1995 Plan to the Board of Directors for approval
in 1995, Mr. McConnell voluntarily elected not to participate in the Park 1995
Plan. Mr. McConnell holds a substantial number of Park Common Shares and
believes the Park 1995 Plan would be more effective in achieving its goal of
long-term ownership among the officers and other key employees of Park and its
subsidiaries if the grants made under the Park 1995 Plan were directed toward
high-performing, younger officers who have not yet acquired a significant
ownership interest in Park.
In 1995 and 1996, the Executive Committee approved the grant of
incentive stock options covering an aggregate of 58,600 common shares to 141 key
employees of Park and its subsidiaries, including Messrs. DeLawder and Bowers.
Upon the exercise of an option (the "Original Option") in full, the Executive
Committee automatically grants a new option (the "Reload Option") covering the
same number of Park Common Shares as were subject to the Original Option so
exercised; provided, however, that an optionee (a) may not be granted Reload
Options in any one year of the term of the Original Option as established on the
date of grant of such Original Option covering, with respect to all Reload
Options granted in such one year, more than the number of Park Common Shares
which were subject to the Original Option on the date of grant of such Original
Option; and (b) will only be granted a Reload Option covering the number of Park
Common Shares as will permit the Reload Option to qualify as an incentive stock
option under Section 422 of the Code. During 1995 and 1996, Reload Options
covering an aggregate of 13,531 Park Common Shares were granted as a result of
the exercise of Original Options. Each incentive stock option (whether an
Original Option or a Reload Option) was granted with an exercise price equal to
the fair market value of the Park Common Shares on the date of grant and became
fully exercisable six months after the grant date. The Executive Committee
granted the Original Options based on its subjective determination of the
relative current and future contributions each prospective option holder has and
may make to the long-term welfare of Park and its subsidiaries.
Other Compensation
Park's officers and officers and employees of PNB, Richland and Mutual
are encouraged individually and collectively to maintain a significant long-term
stock ownership position in Park. This is fostered not only through the grant of
incentive stock options under the Park 1995 Plan, but also by the Park 401(k)
Plan which affords a participant the ability to receive matching contributions
representing a greater percentage of such participant's contributions if such
contributions are invested in Park Common Shares. Since Mr. McConnell already
holds a substantial number of Park Common Shares, he has elected not to accept
the increased match if he invests his contributions in the Park 401(k) Plan in
Park Common Shares thereby making more funds available for Company matching
contributions for the benefit of other participants.
The Executive Committee adopted a Supplemental Executive Retirement
Plan (the "Park SERP") in December, 1996. The Park SERP benefits twenty officers
of Park and its subsidiaries. Effective October 1, 1994, Park changed the
benefits formula under the Park National Corporation Defined Benefit Pension
Plan (the "Park Pension Plan") to comply with the applicable limits under the
Code. This change resulted in a reduced
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projected pension benefit to fifteen officers of Park and its subsidiaries.
Additionally, the IRS reduced the amount of compensation available in
calculating pension benefits to $150,000 annually. This change resulted in a
reduced projected pension benefit for six officers of Park and its subsidiaries.
One officer was impacted by both changes. The Park SERP, a non-qualified benefit
plan, is designed to restore benefits lost due to these two changes. Park
purchased life insurance contracts to fund the Park SERP. The Park SERP is
designed to provide a monthly retirement benefit of $4,433, $10,662, and $4,686
for Messrs. McConnell, DeLawder and Bowers, respectively. The Park SERP also
provides a life insurance benefit for officers of Park and its subsidiaries
participating in the Park SERP that die before age 86. These additional benefits
will only be achieved if the investment from the insurance contracts on funds
invested in the contracts exceed a base level return to Park during the life of
each officer.
SUBMITTED BY THE EXECUTIVE COMMITTEE OF PARK'S BOARD OF DIRECTORS:
C. Daniel DeLawder, Howard E. LeFevre, William T. McConnell,
John J. O'Neill, and J. Gilbert Reese
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the last three fiscal years, the cash
compensation paid by Park and its subsidiaries, as well as certain other
compensation paid or accrued for those years, to each of Park's executive
officers whose total annual salary and bonus for the 1996 fiscal year exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
-------------------------- ------
Securities
Name and Underlying Options/ All Other
Principal Position Year Salary ($) Bonus($)(1) SARs(#)(2) Compensation ($)
- ------------------ ---- ---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
William T. McConnell, Chairman of the 1996 $166,400 $480,000 0 $4,175(3)
Board and Chief Executive Officer of 1995 $166,400 $438,130 0 $3,708
Park and of PNB 1994 $166,400 $428,302 0 $5,576
C. Daniel DeLawder, 1996 $110,006 $320,000 2,056 $5,223(3)
President of Park and of PNB 1995 $ 99,996 $294,067 2,075 $4,977
1994 $ 93,600 $285,523 0 $5,130
David C. Bowers, Chief Financial Officer 1996 $ 97,006 $168,171 1,750 $5,524(3)
and Secretary of Park and Senior Vice 1995 $ 93,600 $145,748 1,000 $5,305
President of PNB 1994 $ 93,600 $146,101 0 $5,806
</TABLE>
- --------------------
(1) All bonuses reported were earned pursuant to Park's Incentive Bonus
Plan. The amount of the bonus reported for each executive officer for 1996
reflects the amount of bonus determined and paid with respect to the 1996 fiscal
year as of the date of this Joint Proxy Statement/Prospectus. Any additional
bonus determined
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to have been earned by the named executive officers with respect to the 1996
fiscal year will be disclosed as earned in 1996 in next year's proxy statement.
(2) These numbers represent options for Park Common Shares granted
pursuant to the Park 1995 Plan. See table under "Grants of Options" for more
detailed information on such options.
(3) "All Other Compensation" for 1996 for Messrs. McConnell, DeLawder
and Bowers includes (a) the amounts of $3,175, $473 and $774, respectively,
which represents the amount of the premium deemed to have been paid on behalf of
each executive officer under a "split-dollar" life insurance policy which has a
death benefit payable thereunder in an amount equal to approximately two times
the named executive officer's highest annual total compensation during his
employment with PNB; and (b) the amounts of $1,000, $4,750 and $4,750,
respectively, representing contributions to the Park 401(k) Plan on their behalf
to match 1996 pre-tax elective deferral contributions (included under "Salary")
made by each executive officer to the Park 401(k) Plan.
Grants of Options
The following table sets forth information concerning individual grants
of options made during the 1996 fiscal year to each of the executive officers
named in the Summary Compensation Table. Park has never granted stock
appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Potential Realizable
Number of Total Value at Assumed
Securities Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation
Options Employees in Price Expiration for Option Term(1)
Name Granted(#) Fiscal Year ($/Share) Date 5%($) 10%($)
---- ---------- ----------- --------- ---- ---------------------
<S> <C> <C> <C> <C> <C> <C>
William T. McConnell 0 -- -- -- -- --
C. Daniel DeLawder 2,056(2)(3) 7.2% $48.63 3/19/01 $27,626 $61,041
David C. Bowers 1,000(2)(3) 3.5% $47.25 4/18/01 $13,056 $28,847
750(3)(4) 2.6% $47.75 5/10/01 $ 9,895 $21,865
</TABLE>
- -----------------
(1) The amounts reflected in this table represent certain assumed rates of
appreciation only and have been rounded to the nearest whole dollar.
Actual realized values, if any, on option exercises will be dependent
on the actual appreciation of the Park Common Shares over the term of
the options. There can be no assurances that the Potential Realizable
Values reflected in this table will be achieved.
(2) These options were granted under the Park 1995 Plan as Reload Options
upon exercise of the related Original Option. See Note (3) below. These
Reload Options become exercisable six months after the grant date.
(3) Upon the exercise of an Original Option in full, the Executive
Committee will automatically grant a new Reload Option covering the
same number of Park Common Shares as were subject to the Original
Option so exercised; provided, however, that the named executive
officer (a) may not be granted Reload Options in any one year of the
term of the Original Option as established on the date of grant of such
Original Option covering, with respect to all Reload Options granted in
such one year, more than the
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number of Park Common Shares which were subject to the Original Option
on the date of grant of such Original Option; and (b) will only be
granted a Reload Option covering that number of Park Common Shares as
will permit the Reload Option to qualify as an incentive stock option
under Section 422 of the Code. If an option is exercised on or after
the named executive officer's termination of employment, no Reload
Options will be granted in connection with such exercise. In the event
of termination of employment of a named executive officer by reason of
normal retirement, his options may thereafter be exercised in full for
a period of three months, subject to the stated term of the options. In
the event of termination of employment of a named executive officer by
reason of death or long-term disability, his options may thereafter be
exercised in full for a period of one year, subject to the stated term
of the options. If a named executive officer's employment is terminated
for any other reason, his options are forfeited.
(4) This option was granted under the Park 1995 Plan as an Original Option
and became exercisable six months after the grant date.
Option Exercises and Holdings
The following table sets forth information with respect to options
exercised during, and unexercised options held as of the end of, the 1996 fiscal
year by each of the executive officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Number of Securities Value of Unexercised
Securities Underlying Unexercised In-the-Money
Underlying Options at FY-End(#) Options at FY-End($)(1)
Options Value --------------------------- ----------------------------
Name Exercised Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William T. McConnell 0 -- 0 0 -- --
C. Daniel DeLawder 2,075 $1,826 2,056 0 $ 8,985 --
David C. Bowers 1,000 $ 0 1,750 0 $10,063 --
</TABLE>
- ----------------------
(1) "Value of Unexercised In-the-Money Options at FY-End" is based upon the
closing sale price of the Park Common Shares on December 31, 1996
($53.00) less the exercise price of in-the-money options at the end of
the 1996 fiscal year.
Pension Plan; Supplemental Executive Retirement Plan
The following table shows the estimated pension benefits payable to a
covered participant assuming retirement at a "normal retirement age" of 65 on
October 1, 1996 under the Park Pension Plan based on compensation that is
covered under the Park Pension Plan, years of service with Park and its
subsidiaries and payment in the form of a 10-year certain and life annuity:
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PENSION PLAN TABLE
<TABLE>
<CAPTION>
Estimated Annual Pension Benefits (rounded to nearest $100)(1)
--------------------------------------------------------------
Based on Years of Credited Service Indicated
--------------------------------------------
Annualized Years of Credited Service
Average Monthly --------------------------------------------------------------------------------------------
Compensation 10 15 20 25 30 35 or more
- ------------------- --------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$100,000 $11,600 $17,400 $23,200 $29,000 $34,800 $40,600
125,000 14,800 22,200 29,700 37,100 44,500 51,900
150,000 18,000 27,000 36,100 45,100 54,100 63,100
and more
</TABLE>
- --------------------
(1) Applicable provisions of the Code currently limit the amount of
annual compensation used to determine plan benefits under a defined benefit
pension plan, such as the Park Pension Plan, and the amount of plan benefits
payable annually under such a plan. The Park Pension Plan is operated in
compliance with such provisions.
The Park Pension Plan covers employees of Park, PNB, Richland and
Mutual who have attained age 21 and completed one year of credited service. The
Park Pension Plan is funded and noncontributory.
A participant's "average monthly compensation" for purposes of the Park
Pension Plan is based upon an amount equal to the total compensation paid by
Park or one of its subsidiaries, including elective deferral contributions, for
the five consecutive years of credited service which produce the highest annual
compensation within the last ten years preceding retirement, divided by sixty.
The "annualized average monthly compensation" as of the October 1, 1996
anniversary of the Park Pension Plan was $150,000 for each of Messrs. McConnell,
DeLawder and Bowers. Messrs. McConnell, DeLawder and Bowers had approximately
36, 25 and 10 years of credited service, respectively, under the Park Pension
Plan as of October 1, 1996.
Benefits under the Park Pension Plan become fully vested upon five
years of credited service. The Park Pension Plan provides for the payment of
monthly benefits at "normal retirement date" (the later of age 65 or the fifth
anniversary of the time participation in the Park Pension Plan commenced, but no
later than age 70 1/2) based upon 29% of an employee's average monthly
compensation up to "covered compensation" (as determined annually from a table
prepared by the Internal Revenue Service) plus 45% of an employee's average
monthly compensation in excess of covered compensation, with such benefits being
reduced by 1/420th for each month of credited service less than 420 months at
normal retirement date. The Park Pension Plan also provides for the payment of
minimum monthly benefits at normal retirement date based upon 29% of an
employee's average monthly compensation, with such minimum benefits being
reduced 1/300th for each month of credited service less than 300 months at
normal retirement date. Benefits payable under the Park Pension Plan are not
subject to any deduction for Social Security benefits. Benefits payable under
the Park Pension Plan are adjusted for retirement before normal retirement date.
The normal form of payment of retirement benefits under the Park Pension Plan
will be a life annuity with 120 monthly payments guaranteed. Various other
payment options are available under the Park Pension Plan.
Park adopted the Park SERP in December, 1996. The Park SERP benefits
twenty officers of Park and its subsidiaries. Effective October 1, 1994, Park
changed the benefits formula under the Park Pension Plan to comply with the
applicable limits under the Code. This change resulted in a reduced projected
pension benefit to fifteen officers of Park and its subsidiaries. Additionally,
the IRS reduced the amount of compensation available in calculating pension
benefits to $150,000 annually. This change resulted in a reduced projected
pension benefit
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for six officers of Park and its subsidiaries. One officer was impacted by both
changes. The Park SERP, a non-qualified benefit plan, is designed to restore
benefits lost due to these two changes. Park purchased life insurance contracts
to fund the Park SERP. The Park SERP is designed to provide a monthly retirement
benefit of $4,433, $10,662, and $4,686 for Messrs. McConnell, DeLawder and
Bowers, respectively. The Park SERP also provides a life insurance benefit for
officers of Park and its subsidiaries participating in the Park SERP that die
before age 86. These additional benefits will only be achieved if the investment
from the insurance contracts on funds invested in the contracts exceed a base
level return to Park during the life of each officer.
CERTAIN MATTERS PERTAINING TO THE PARK BOARD OF DIRECTORS
Committees and Meetings of the Park Board of Directors
The Park Board of Directors held a total of four meetings during Park's
1996 fiscal year. Each incumbent director attended 75% or more of the aggregate
of the total number of meetings held by the Park Board during the period he or
she served as a director and the total number of meetings held by all committees
of the Park Board on which he or she served during the period he or she served,
other than J. Gilbert Reese who attended 62.5% of such meetings.
The Park Board of Directors has an Audit Committee composed of Howard
E. LeFevre, Chairman, R. William Geyer and John L. Warner. The function of the
Audit Committee is to review the adequacy of Park's system of internal controls,
to investigate the scope and adequacy of the work of Park's independent
auditors, and to recommend to the Park Board a firm of accountants to serve as
Park's independent auditors. The Audit Committee met four times during Park's
1996 fiscal year.
The Park Board of Directors has an Executive Committee composed of C.
Daniel DeLawder, Howard E. LeFevre, William T. McConnell, John J. O'Neill and J.
Gilbert Reese. The Executive Committee performs the functions of a compensation
committee. The Executive Committee reviews and recommends for approval by the
Park Board compensation and benefit plans for officers of Park, supervises the
operation of Park's compensation plans and selects those eligible employees who
may participate in each plan (where selection is required). The Executive
Committee also reviews large loans proposed to be made by PNB, Richland and
Mutual. The Executive Committee met twelve times during Park's 1996 fiscal year.
The Park Board of Directors does not have a standing nominating
committee or committee performing similar functions.
Compensation of Directors
Each director of Park who is not an employee of Park or one of its
subsidiaries receives as fees $5,000 as an annual retainer, $750 for each
meeting of the Park Board of Directors attended and $200 for each meeting of a
committee of the Park Board attended. If the date of a meeting of the Park Board
is changed from that provided for by resolution of the Park Board and a
non-employee director is unable to attend such rescheduled meeting, he or she
receives $750 as though he or she had attended the meeting. Messrs. DeLawder,
McConnell and Phillips receive no compensation for serving as members of the
Park Board since they are employees of Park and/or one of the subsidiaries of
Park.
Park and its subsidiaries maintain a life insurance policy with a death
benefit of $100,000 on behalf of each director of Park who is not an executive
officer of Park. The director has the right to designate the beneficiary to whom
his or her share of the proceeds under the policy is to be paid. A director
becomes fully vested with respect to his or her policy after three years of
service. Park and its subsidiaries maintain on behalf of
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each director who is an executive officer of Park, in his capacity as such
executive officer, a life insurance policy which will have a death benefit
payable thereunder in an amount equal to approximately two times the named
executive officer's highest annual total compensation during his employment with
Park and its subsidiaries. The executive officer has the right to designate the
beneficiary to whom his share of the proceeds under the policy is to be paid. An
executive officer becomes fully vested with respect to his policy if he is fully
vested under the Park Pension Plan.
TRANSACTIONS INVOLVING MANAGEMENT
During Park's 1996 fiscal year, Park and its subsidiaries purchased
insurance through W. A. Wallace Co. John L. Warner, a director of Park, serves
as an agent with W. A. Wallace Co. The aggregate premiums paid to W. A. Wallace
Co. by Park and its subsidiaries during Park's 1996 fiscal year were $401,928.
J. Gilbert Reese, a director of Park, is a partner in the law firm of
Reese, Pyle, Drake & Meyer which rendered legal services to Park's subsidiaries
during Park's 1996 fiscal year and continues to render legal services to Park's
subsidiaries during Park's 1997 fiscal year.
R. William Geyer, a director of Park, is a partner in the law firm of
Kincaid, Taylor and Geyer which rendered legal services to Park's subsidiaries
during Park's 1996 fiscal year and continues to render legal services to Park's
subsidiaries during Park's 1997 fiscal year.
Certain directors and executive officers of Park, members of their
immediate families and corporations or organizations with which they are
affiliated had banking transactions with PNB, Richland and Mutual in the
ordinary course of their respective businesses, during Park's 1996 fiscal year.
It is expected that similar banking transactions will be entered into in the
future. Loans to such persons have been made on substantially the same terms,
including the interest rate charged and collateral required, as those prevailing
at the time for comparable transactions with persons not affiliated with Park or
its subsidiaries. These loans have been subject to and are presently subject to
no more than a normal risk of uncollectibility and present no other unfavorable
features. The aggregate amount of loans to the thirteen directors and executive
officers of Park and their associates as a group totalled $15,985,000 at
December 31, 1996. In addition, loans to the directors and executive officers of
Park's banking subsidiaries, who are also directors or executive officers of
Park, totalled $11,813,000 at December 31, 1996. As of the date hereof, all of
such loans were performing loans.
PROPOSAL TO AMEND ARTICLE SIXTH
OF PARK'S ARTICLES OF INCORPORATION
PROPOSED AMENDMENT TO ARTICLE SIXTH
Pursuant to Article SIXTH of the Park Articles, holders of Park Common
Shares have pre-emptive rights to purchase Park Common Shares in proportion to
their respective holdings of Park Common Shares upon the offering or sale of any
Park Common Shares except for Park Common Shares issued as a share dividend or
distribution; Park Common Shares offered or sold in connection with acquisition
transactions with other business entities; Park Common Shares offered or sold in
connection with stock option plans and other employee benefit, compensation or
incentive plans approved by a three-fourths vote of the shareholders of Park;
and Park Common Shares released from pre-emptive rights by a two-thirds vote of
the holders of Park Common Shares. The Park Board of Directors unanimously
adopted a resolution recommending, and declaring the advisability, that the
shareholders adopt the proposed amendment to Article SIXTH of the Park Articles
to eliminate pre-emptive rights of shareholders with respect to the offering and
sale of Park Common Shares held as treasury shares. The proposed amended Article
SIXTH would read as follows:
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SIXTH: The holders of the shares of any class of the
Corporation shall, upon the offering or sale of any shares of
the Corporation of the same class, have the right, during a
reasonable time and on reasonable terms fixed by the
directors, to purchase such shares in proportion to their
respective holdings of shares of such class at the price fixed
for the sale of the shares, unless (A) the shares offered or
sold are treasury shares; or (B) the shares offered or sold
are issued as a share dividend or distribution; or (C) the
shares are offered or sold in connection with any merger or
consolidation to which the Corporation is a party or any
acquisition of, or investment in, another corporation,
partnership, proprietorship or other business entity or its
assets by the Corporation, whether directly or indirectly, by
any means whatsoever; or (D) the shares are offered or sold
pursuant to the terms of a stock option plan or employee
benefit, compensation or incentive plan, which stock option
plan or employee benefit, compensation or incentive plan is
approved by the holders of three-fourths of the issued and
outstanding shares of the Corporation; or (E) the shares
offered or sold are released from preemptive rights by the
affirmative vote or written consent of the holders of
two-thirds of the shares entitled to such preemptive rights.
EFFECT OF ADOPTION OF AMENDMENT
The proposed amendment to eliminate pre-emptive rights in respect of
the offering or sale of Park Common Shares held as treasury shares will cause
the pre-emptive rights provided for in Article SIXTH to be consistent in this
regard with the statutory exclusion from pre-emptive rights provided in the Ohio
General Corporation Law with respect to treasury shares. The Board of Directors
believes that it is desirable and in the best interests of Park and its
shareholders to eliminate pre-emptive rights in respect of treasury shares
(which have already been outstanding and repurchased by Park) in order to
provide Park with flexibility in meeting its business needs without affecting
shareholders' proportionate interest in the outstanding shares of the Company.
If this proposal is adopted by the shareholders, the treasury shares could be
used for a variety of corporate purposes, including, for example, use in the
financing of expansion or future acquisitions; issuance as additional
compensation for employees and/or directors; and use in other possible future
transactions of a currently undetermined nature. As of February 28, 1997, there
were 114,751 Park Common Shares held in treasury. Although Park shareholders
will not have pre-emptive rights in respect of treasury shares, proposed
issuances of treasury shares will be submitted for their approval when required
under the applicable provisions of the Ohio General Corporation Law or the rules
of the American Stock Exchange.
The adoption or rejection of this proposal will not have any effect on
the implementation of the Merger Agreement assuming that the Merger is approved
by the shareholders. Pursuant to the provision of Article SIXTH as currently in
effect, the Park Common Shares which are offered or sold in connection with the
Merger are not subject to the pre-emptive right of the Park shareholders for
that reason and the Park Common Shares which are sold upon the exercise of
options covering up to 25,000 Park Common Shares which may be granted to former
First-Knox employees under the Park 1995 Plan are not subject to pre-emptive
rights because the Park 1995 Plan was originally approved by the three-fourths
vote of Park shareholders required by Article SIXTH of the Park Articles to
exclude from pre-emptive rights Park Common Shares offered under an employee
benefit plan.
RECOMMENDATION AND VOTE
The affirmative vote of the holders of two-thirds of the outstanding
Park Common Shares is required to adopt the proposed amendment to Article SIXTH
of the Park Articles.
THE PARK BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE
PROPOSED AMENDMENT TO ARTICLE SIXTH OF THE PARK ARTICLES.
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NOTIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS FOR PARK
The Board of Directors of Park has selected Ernst & Young L.L.P. to
serve as independent auditors for Park for the 1997 fiscal year. That firm has
served as Park's independent auditors since July, 1994. Representatives of Ernst
& Young L.L.P. are expected to be present at the Park Annual Meeting, will be
given the opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
PARK
Any qualified Park shareholder who desires to present a proposal for
consideration at the 1998 Annual Meeting of Shareholders must submit the
proposal in writing to Park. If the proposal is received by Park on or before
November 20, 1997, and otherwise meets the requirements of applicable state and
federal law, it will be included in the proxy statement and form of proxy of
Park relating to its 1998 Annual Meeting of Shareholders.
FIRST-KNOX
If the Merger has not been consummated, any proposal which a First-Knox
shareholder wishes to have included in the proxy solicitation materials of
First-Knox to be used in connection with the next annual meeting of shareholders
of First-Knox must be submitted in writing to First-Knox. If such proposal is in
compliance with all of the requirements of Rule 14a-8 of the Exchange Act, it
will be included in the proxy statement and set forth in the form of proxy
issued for the next annual meeting of shareholders.
LEGAL MATTERS
The legality of the Park Common Shares to be issued in connection with
the Merger will be passed upon for Park by Vorys, Sater, Seymour and Pease,
Columbus, Ohio.
The federal income tax consequences and certain other legal matters in
connection with the Merger will be passed upon for Park by Porter, Wright,
Morris & Arthur, Columbus, Ohio.
Certain legal matters in connection with the Merger will be passed upon
for First-Knox by Squire, Sanders & Dempsey, L.L.P., Columbus, Ohio.
EXPERTS
The consolidated financial statements of Park and its subsidiaries as
of December 31, 1996 and December 31, 1995 and for each of the years in the
three-year period ended December 31, 1996, included in the Park Annual Report to
Shareholders delivered herewith as Appendix B and incorporated by reference in
this Joint Proxy Statement/Prospectus and in the Registration Statement, have
been incorporated in this Joint Proxy Statement/Prospectus and in the
Registration Statement in reliance upon the report of Ernst & Young L.L.P.,
independent certified public accountants, given upon the authority of that firm
as experts in accounting and auditing.
92
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The consolidated financial statements of First-Knox and its
subsidiaries as of December 31, 1996 and December 31, 1995 and for each of the
years in the three-year period ended December 31, 1996, included in the
First-Knox Annual Report to Shareholders delivered herewith as Appendix C and
incorporated by reference in this Joint Proxy Statement/Prospectus and in the
Registration Statement, have been incorporated in this Joint Proxy
Statement/Prospectus and in the Registration Statement in reliance upon the
report of Crowe, Chizek and Company LLP, independent certified public
accountants, given upon the authority of that firm as experts in accounting and
auditing.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SHAREHOLDER MEETINGS,
YOU ARE URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY CARD PROMPTLY.
By Order of the Park Board,
/s/ David C. Bowers
March 20, 1997 David C. Bowers
Newark, Ohio Secretary
By Order of the First-Knox Board,
/s/ Ian Watson
March 20, 1997 Ian Watson
Mount Vernon, Ohio Secretary
93
<PAGE> 100
APPENDIX A-1
------------
AGREEMENT AND PLAN OF MERGER,
DATED AS OF OCTOBER 28, 1996,
BETWEEN PARK NATIONAL CORPORATION
AND FIRST-KNOX BANC CORP.
<PAGE> 101
===============================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 28, 1996
BETWEEN
PARK NATIONAL CORPORATION
AND
FIRST-KNOX BANC CORP.
===============================================================================
<PAGE> 102
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
ARTICLE I
THE MERGER............................................................................................. 1
1.1. Effective Time of the Merger......................................................... 1
1.2. Closing.............................................................................. 1
1.3. Effects of the Merger................................................................ 2
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES......................................................... 3
2.1. Conversion of Shares................................................................. 3
(a) Cancellation of Treasury Shares and Park-Owned Shares, etc.................. 3
(b) Conversion of First-Knox Common Shares...................................... 3
(c) Exchange Ratio.............................................................. 4
(d) Termination Below $45.50 But Equal to or Greater Than 90 Percent............ 5
(e) Termination Below 90 Percent................................................ 5
2.2. Exchange of Certificates............................................................. 5
(a) Exchange Agent.............................................................. 5
(b) Exchange Procedures......................................................... 5
(c) Distributions with Respect to Unexchanged Shares; Voting.................... 6
(d) No Further Ownership Rights in Common Shares................................ 6
(e) No Fractional Shares........................................................ 7
(f) Termination of Exchange Fund................................................ 7
(g) No Liability................................................................ 7
(h) First-Knox Stock Transfer Books............................................. 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES......................................................................... 8
3.1. Representations and Warranties of First-Knox......................................... 8
(a) Organization, Standing and Power............................................ 8
(b) Capital Structure........................................................... 8
(c) Authority................................................................... 10
(d) SEC Documents............................................................... 11
(e) Information Supplied........................................................ 11
(f) Compliance with Applicable Laws............................................. 12
(g) Litigation.................................................................. 12
(h) Taxes....................................................................... 12
(i) Certain Agreements.......................................................... 13
(j) Benefit Plans............................................................... 13
(k) Subsidiaries................................................................ 14
(l) Agreements with Bank Regulators............................................. 14
</TABLE>
i
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<TABLE>
<S> <C> <C> <C>
(m) Absence of Certain Changes or Events........................................ 15
(n) Certain Provisions of Articles of Incorporation Not Applicable.............. 15
(o) Vote Required............................................................... 15
(p) Accounting Matters.......................................................... 15
(q) Properties.................................................................. 15
(r) Ownership of Park Common Shares............................................. 16
(s) Brokers or Finders.......................................................... 16
(t) Labor Matters............................................................... 16
(u) Environmental Matters....................................................... 16
(v) CRA Compliance.............................................................. 16
(w) Capital Requirements........................................................ 17
(x) Loan Losses................................................................. 17
3.2. Representations and Warranties of Park............................................... 17
(a) Organization, Standing and Power............................................ 17
(b) Capital Structure........................................................... 17
(c) Authority................................................................... 18
(d) SEC Documents............................................................... 19
(e) Information Supplied........................................................ 19
(f) Compliance with Applicable Laws............................................. 20
(g) Litigation.................................................................. 20
(h) Taxes....................................................................... 20
(i) Certain Agreements.......................................................... 20
(j) Benefit Plans............................................................... 21
(k) Subsidiaries................................................................ 22
(l) Agreements with Bank Regulators............................................. 22
(m) Absence of Certain Changes or Events........................................ 22
(n) Certain Provisions of Articles of Incorporation Not Applicable.............. 22
(o) Vote Required............................................................... 23
(p) Accounting Matters.......................................................... 23
(q) Properties.................................................................. 23
(r) Ownership of First-Knox Common Shares....................................... 23
(s) Brokers or Finders.......................................................... 23
(t) Labor Matters............................................................... 24
(u) Environmental Matters....................................................... 24
(v) CRA Compliance.............................................................. 24
(w) Capital Requirements........................................................ 24
(x) Loan Losses................................................................. 24
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS.............................................................. 25
4.1. Covenants of First-Knox and Park..................................................... 25
(a) Ordinary Course............................................................. 25
(b) Dividends; Changes in Shares................................................ 25
</TABLE>
ii
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<TABLE>
<S> <C> <C> <C>
(c) Issuance of Securities...................................................... 25
(d) Governing Documents......................................................... 26
(e) Exclusivity................................................................. 26
(f) No Acquisitions............................................................. 26
(g) No Dispositions............................................................. 26
(h) Indebtedness................................................................ 26
(i) Other Actions............................................................... 27
(j) Advice of Changes; Government Filings....................................... 27
(k) Accounting Methods.......................................................... 28
(l) Pooling and Tax-Free Reorganization Treatment............................... 28
(m) Compensation and Benefit Plans.............................................. 28
ARTICLE V
ADDITIONAL AGREEMENTS.................................................................................. 28
5.1. Preparation of S-4, and the Proxy Statement.......................................... 28
5.2. Access to Information................................................................ 29
5.3. Shareholder Meetings................................................................. 29
5.4. Legal Conditions to Merger........................................................... 30
5.5. Affiliates........................................................................... 30
5.6. Stock Exchange Listing............................................................... 30
5.7. Employee Benefit Plans............................................................... 30
5.8. Stock Options........................................................................ 30
5.9. Costs and Expenses................................................................... 31
5.10. Governance........................................................................... 31
5.11. Indemnification...................................................................... 31
5.12. Dividends............................................................................ 32
5.13. Title Insurance...................................................................... 33
5.14. Survey............................................................................... 33
5.15. Forms 13D or 13G Filings............................................................. 33
5.16. Tax Representations.................................................................. 33
5.17. Additional Agreements................................................................ 33
ARTICLE VI
CONDITIONS PRECEDENT................................................................................... 34
6.1. Conditions to Each Party's Obligation To Effect the Merger........................... 34
(a) Shareholder Approval........................................................ 34
(b) AMEX Listing................................................................ 34
(c) Other Approvals............................................................. 34
(d) S-4......................................................................... 34
(e) No Injunctions or Restraints; Illegality.................................... 34
(f) Pooling..................................................................... 34
(g) Burdensome Condition........................................................ 35
6.2. Conditions to Obligations of Park.................................................... 35
(a) Representations and Warranties.............................................. 35
(b) Performance of Obligations of First-Knox.................................... 35
</TABLE>
iii
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<TABLE>
<S> <C> <C> <C>
(c) Consents Under Agreements................................................... 35
(d) Tax Opinion................................................................. 35
(e) Legal Opinion............................................................... 36
(f) Fairness Opinion............................................................ 36
6.3. Conditions to Obligations of First-Knox.............................................. 36
(a) Representations and Warranties.............................................. 36
(b) Performance of Obligations of Park.......................................... 36
(c) Consents Under Agreements................................................... 36
(d) Tax Opinion................................................................. 36
(e) Legal Opinion............................................................... 37
(f) Authorization of Shares..................................................... 37
(g) Fairness Opinion............................................................ 37
ARTICLE VII
TERMINATION AND AMENDMENT.............................................................................. 37
7.1. Termination.......................................................................... 37
7.2. Effect of Termination................................................................ 38
7.3. Amendment............................................................................ 39
7.4. Extension; Waiver.................................................................... 39
ARTICLE VIII
GENERAL PROVISIONS..................................................................................... 39
8.1. Nonsurvival of Representations, Warranties and Agreements............................ 39
8.2. Notices.............................................................................. 39
8.3. Interpretation....................................................................... 40
8.4. Counterparts......................................................................... 41
8.5. Entire Agreement; No Third Party Beneficiaries; Rights of Ownership.................. 41
8.6. Governing Law........................................................................ 41
8.7. Severability......................................................................... 41
8.8. Assignment........................................................................... 41
8.9. Press Releases and Public Announcements.............................................. 41
EXHIBITS
Exhibit 5.5 Affiliate Agreement......................................................... 43
Exhibit 6.2(e) Opinion of Counsel for First-Knox........................................... 46
Exhibit 6.3(e) Opinion of Counsel for Park................................................. 47
</TABLE>
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INDEX OF DEFINED TERMS
----------------------
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
AMEX............................................................... 5.6 4
AMEX Listing....................................................... 6.1(b) 34
Agreement.......................................................... Intro 1
Bank Regulators.................................................... 3.1(f) 12
Benefit Plans...................................................... 3.1(j) 13
BHC Act............................................................ 3.1(a) 8
Burdensome Condition............................................... 6.1(g) 35
Certificate of Merger.............................................. 1.1 1
Closing............................................................ 1.2 1
Closing Date....................................................... 1.2 2
Code............................................................... Intro 1
Confidentiality Agreements......................................... 5.2 29
Consents........................................................... 6.1(c) 34
Constituent Corporations........................................... 1.3(b) 2
Costs and Expenses................................................. 5.9 31
CRA................................................................ 3.1(v) 16
Danielson.......................................................... 3.2(s) 16
DPC Shares......................................................... 2.1(a) 3
Effective Time..................................................... 1.1 1
ERISA.............................................................. 3.1(j) 13
Exchange Act....................................................... 3.1(c) 11
Exchange Agent..................................................... 2.2 5
Exchange Fund...................................................... 2.2 5
Exchange Ratio..................................................... 2.1(c) 4
Farmers............................................................ 3.1(a) 8
FDIA............................................................... 3.1(c) 10
Federal Reserve.................................................... 3.1(c) 10
First-Knox......................................................... Intro 1
First-Knox Bank.................................................... 3.1(a) 8
First-Knox Benefit Plans........................................... 3.1(j) 13
First-Knox Certificates............................................ 2.2 5
First-Knox Common Shares........................................... 2.1 3
First-Knox Dividend Reinvestment Plan.............................. 3.1(b) 9
First-Knox Permits................................................. 3.1(f) 12
First-Knox Plan.................................................... 5.8 30
First-Knox SAR..................................................... 5.8 30
First-Knox SEC Documents........................................... 3.1(d) 11
First-Knox Stock Option............................................ 5.8 30
First-Knox Stock Option Plans...................................... 3.1(b) 8
First-Knox Stock Plans............................................. 3.1(b) 9
FRA................................................................ 3.1(c) 10
</TABLE>
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<PAGE> 107
<TABLE>
Section Page
------- ----
<S> <C> <C>
Governmental Entity................................................ 3.1(c) 10
Indemnified Liabilities............................................ 5.11 31
Indemnified Parties................................................ 5.11 31
Injunction......................................................... 6.1(e) 34
Material adverse effect............................................ 3.1(a) 8
McDonald........................................................... 6.2(f) 36
Merger............................................................. Intro 1
OGCL............................................................... 1.1 1
Option Exercise Cash Payment Total................................. 2.1(c) 4
Park............................................................... Intro 1
Park Benefit Plans................................................. 3.2(j) 21
Park Common Shares................................................. 1.3 3
Park Index Price................................................... 2.1(c) 4
Park Option Plan................................................... 3.2(b) 18
Park Permits....................................................... 3.2(f) 20
Park SEC Documents................................................. 3.2(d) 19
Park Stock Plans................................................... 3.2(b) 18
Park Trading Price................................................. 2.1(c) 4
Proxy Statement.................................................... 3.1(c) 10
Real Property...................................................... 5.13 33
Representatives.................................................... 5.2(e) 29
Requisite Regulatory Approvals..................................... 6.1(c) 34
S-4................................................................ 3.1(e) 11
SARs............................................................... 3.1(b) 9
SEC................................................................ 3.1(a) 8
Securities Act..................................................... 3.1(d) 11
Significant Subsidiary............................................. 3.1(a) 8
State Banking Approval............................................. 3.1(c) 11
Subsidiary......................................................... 2.1(a) 3
Surviving Corporation.............................................. 1.3(b) 2
Takeover Proposal.................................................. 4.1(e) 26
Tax, Taxes, Taxable................................................ 3.1(h) 12
Total First-Knox Common Shares Outstanding or
Subject to Options............................................... 2.1(c) 4
Trust account shares............................................... 2.1(a) 3
Violation.......................................................... 3.1(c) 10
Voting Debt........................................................ 3.1(b) 9
</TABLE>
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AGREEMENT AND PLAN OF MERGER dated as of October 28, 1996 (this
"Agreement") between PARK NATIONAL CORPORATION, an Ohio corporation ("Park"),
and FIRST-KNOX BANC CORP., an Ohio corporation ("First-Knox").
WHEREAS, the Boards of Directors of Park and First-Knox have approved,
and deem it advisable and in the best interests of their respective corporations
to consummate, the business combination transaction provided for herein in which
First-Knox would merge with and into Park (the "Merger");
WHEREAS, the Boards of Directors of Park and First-Knox have each
determined that the Merger contemplated hereby is consistent with, and in
furtherance of, their respective business strategies and goals;
WHEREAS, Park and First-Knox desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling of interests";
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. Effective Time of the Merger. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger") shall be
duly prepared, executed and acknowledged by Park and First-Knox, and
thereafter delivered on the Closing Date (as defined in Section 1.2) to the
Secretary of State of the State of Ohio, for filing, as provided in the Ohio
General Corporation Law (the "OGCL"). The Merger shall become effective
upon the filing of the Certificate of Merger with the Secretary of State of the
State of Ohio or at such time thereafter as is agreed to in writing by the
parties hereto and so provided in the Certificate of Merger (the "Effective
Time").
1.2. Closing. The closing of the Merger (the "Closing") shall take
place at 10:00 a.m. on the first day which is (a) the last business day of a
month and (b) at least ten business days after satisfaction or waiver (subject
to applicable law) of the conditions (excluding conditions that, by their terms,
cannot be satisfied until the Closing Date) set forth in Article VI (the
1
<PAGE> 109
"Closing Date"), unless another time or date is agreed to in writing by the
parties hereto. The Closing shall be held at such location in the State of Ohio
as is agreed to in writing by the parties hereto.
1.3. Effects of the Merger. (a) At the Effective Time:
(i) First-Knox shall be merged with and into Park and the separate
existence of First-Knox shall cease;
(ii) the Articles of Incorporation of Park as in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation (as defined in Section 1.3(b));
(iii) the Regulations of Park as in effect immediately prior to the
Effective Time (as amended as provided for in Section 1.3(a)(iv) and to reflect
such other amendments thereto as may be contemplated by this Agreement) shall be
the Regulations of the Surviving Corporation; and
(iv) the maximum allowable number of directors of the Surviving
Corporation, as specified in the Regulations of the Surviving Corporation, shall
be decreased to sixteen and the number of directors shall be fixed at sixteen,
with twelve members to be selected by Park in its sole discretion from the Board
of Directors of Park immediately prior to the Effective Time, of which four such
members will have terms expiring in each of 1998, 1999, and 2000; and with four
members to be selected by Park, after consultation with First-Knox, from the
Board of Directors of First-Knox immediately prior to the Effective Time, of
which one member shall have a term expiring in each of 1998 and 1999 and two
members shall have terms expiring in 2000.
(v) the Surviving Corporation shall, to the extent permitted by
applicable law and Bank Regulators (as defined in Section 3.1(f)), maintain
First-Knox Bank (as defined in Section 3.1(a)) as a separate Subsidiary (as
defined in Section 2.1(a)), using its existing name for at least four years
following the Effective Time, and allow First-Knox Bank's existing directors to
complete their respective terms (or, if longer, an additional term through at
least March, 1998), subject to compelling business reasons, regulatory
considerations, safe banking practices and the fiduciary duties of the Board of
Directors of Park.
(b) As used in this Agreement, "Constituent Corporations" shall mean
Park and First-Knox, and "Surviving Corporation" shall mean Park, at and after
the Effective Time, as the surviving corporation in the Merger.
(c) At and after the Effective Time, the Merger will have the effects
set forth in the OGCL, including that the Surviving Corporation will be
responsible for all obligations of the Constituent Corporations.
2
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ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
2.1. Conversion of Shares. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of common shares, par
value $3.125 per share, of First-Knox ("First-Knox Common Shares"):
(a) Cancellation of Treasury Shares and Park-Owned Shares, etc. All
First-Knox Common Shares that are owned by First-Knox as treasury shares and all
First-Knox Common Shares, if any, that are owned by Park or any wholly-owned
Subsidiary of Park or of First-Knox (other than shares held in trust, managed,
custodial or nominee accounts and the like, or held by mutual funds for which a
Subsidiary of Park or First-Knox acts as investment advisor, that in any such
case are beneficially owned by third parties (any such shares, "trust account
shares") and shares acquired in respect of debts previously contracted (any such
shares, "DPC shares")) shall be canceled and retired and shall cease to exist
and no common shares, without par value, of Park ("Park Common Shares") or other
consideration shall be delivered in exchange therefor. All Park Common Shares,
if any, that are owned by First-Knox (other than trust account shares and DPC
shares) shall become treasury shares. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any corporation or other
organization, whether incorporated or unincorporated, (i) of which such party or
any other Subsidiary of such party is a general partner (excluding partnerships,
the general partnership interests of which held by such party or any Subsidiary
of such party do not have a majority of the voting interests in such
partnership), or (ii) at least a majority of the securities or other interests
of which having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
(b) Conversion of First-Knox Common Shares. Subject to Section 2.2(e),
each First-Knox Common Share issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance with Section
2.1(a)) shall be converted into that number of fully paid and nonassessable Park
Common Shares as is equal to the Exchange Ratio determined in accordance with
Section 2.1(c). All such First-Knox Common Shares shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such shares shall thereafter
represent the Park Common Shares into which such First-Knox Common Shares have
been converted. Certificates previously representing shares of First-Knox Common
Shares shall be exchanged for certificates representing whole Park Common Shares
issued in consideration therefor upon the surrender of such certificates in
accordance with Section 2.2, without interest.
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(c) Exchange Ratio.
(i) If (A) the Park Trading Price (as defined in Section 2.1(c)(iii))
is equal to or greater than 90 percent of the Park Index Price (as defined in
Section 2.1(c)(iv)) and (B) the Option Exercise Cash Payment Total (as defined
in Section 2.1(c)(v)) is equal to or greater than $1,500,000, the Exchange Ratio
shall be equal to:
2,345,000
-------------------------------------------------------------
Total First-Knox Common Shares Outstanding or Subject to Options
(as defined in Section 2.1(c)(vi))
(unless the parties agree to increase the Exchange Ratio or this
Agreement is terminated pursuant to Section 2.1(d)).
(ii) If (A) the Park Trading Price is equal to or greater than 90
percent of the Park Index Price and (B) the Option Exercise Cash Payment Total
is less than $1,500,000, the Exchange Ratio shall be equal to:
2,345,000 - [($1,500,000 - Option Exercise Cash Payment Total)/Park Index Price]
- --------------------------------------------------------------------------------
Total First-Knox Common Shares Outstanding or Subject to Options
(unless the parties agree to increase the Exchange Ratio or this
Agreement is terminated pursuant to Section 2.1(d)).
(iii) "Park Trading Price" shall mean the average closing-sale price
per Park Common Share on the American Stock Exchange ("AMEX") (as reported by
THE WALL STREET JOURNAL or, if not reported thereby, another authoritative
source) for the five trading days (as hereinafter defined in this Section
2.1(c)(iii)) ending on the tenth business day immediately preceding the Closing
Date. As used in this Agreement, "trading days" shall mean days on which actual
trades of Park Common Shares occur.
(iv) "Park Index Price" shall mean $48.75 per Park Common Share.
(v) "Option Exercise Cash Payment Total" shall mean the total of (A)
the cash paid to First-Knox as a result of the exercise of First-Knox Stock
Options (as defined in Section 5.8(a)) prior to or at the Closing and (B) the
exercise price of any First-Knox Stock Options which are not exercised prior to
or at the Closing.
(vi) "Total First-Knox Common Shares Outstanding or Subject to Options"
shall mean the sum of (A) the total number of First-Knox Common Shares issued
and outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 2.1(a)), plus (B) the total number of
First-Knox Common Shares which are subject to a First-Knox Stock Option (as
defined in Section 5.8(a)) immediately prior to the Effective Time.
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<PAGE> 112
(d) Termination Below $45.50 But Equal to or Greater Than 90 Percent.
If (i) the Park Trading Price is less than $45.50 but equal to or greater than
90 percent of the Park Index Price and (ii) the SNL All Bank Index Percentage
(as hereinafter defined in this Section 2.1(d)) is greater than the percentage
determined by dividing the Park Trading Price by the Park Index Price,
First-Knox may elect by giving written notice to Park prior to the third
business day immediately preceding the Closing Date to terminate this Agreement
pursuant to Section 7.1(e) and this Agreement shall terminate on the Closing
Date with the effect thereof being as specified in Section 7.2. "SNL All Bank
Index Percentage" shall be equal to the percentage determined by dividing (y)
the average of the SNL All Bank Index for the five trading days ending on the
tenth business day immediately preceding the Closing Date, by (z) the SNL All
Bank Index as of the close of trading on October 25, 1996.
(e) Termination Below 90 Percent. If the Park Trading Price is less
than 90 percent of the Park Index Price, First-Knox may elect by giving written
notice to Park prior to the third business day immediately preceding the Closing
Date to terminate this Agreement pursuant to Section 7.1(e) and this Agreement
shall terminate on the Closing Date with the effect thereof being as specified
in Section 7.2.
2.2. Exchange of Certificates. (a) Exchange Agent. As of the Effective
Time, Park shall deposit, or shall cause to be deposited, with Registrar and
Transfer Company (the "Exchange Agent"), for the benefit of the holders of
certificates which immediately prior to the Effective Time evidenced First-Knox
Common Shares (the "First-Knox Certificates"), for exchange in accordance with
this Article II, certificates representing the Park Common Shares and an amount
of cash necessary to pay cash in lieu of fractional shares in accordance with
Section 2.2(e) (such certificates for Park Common Shares, together with any
dividends or distributions with respect thereto, and such cash for fractional
share interests being hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 2.1 in exchange for such First-Knox Common Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time (but no later than the fifth business day following the Effective
Time), the Exchange Agent shall mail to each holder of record of First-Knox
Common Shares immediately prior to the Effective Time whose shares were
converted into Park Common Shares pursuant to Section 2.1, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the First-Knox Certificates shall pass, only upon delivery of
the First-Knox Certificates to the Exchange Agent, and which shall be in such
form and have such other provisions as Park may reasonably specify) and (ii)
instructions for use in effecting the surrender of the First-Knox Certificates
in exchange for certificates representing Park Common Shares. Upon surrender by
such holder of a certificate or certificates representing all First-Knox Common
Shares standing in such holder's name for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed, the holder of such
First-Knox Certificate or Certificates shall be entitled to receive in exchange
therefor a certificate representing that number of whole Park Common Shares
which such holder has the right to receive in respect of the First-Knox
Certificate or Certificates surrendered pursuant to the provisions of this
Article II (after taking into account all First-Knox Common Shares then held by
such holder), and the First-Knox
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Certificate or Certificates so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of First-Knox Common Shares which is not
registered in the transfer records of First-Knox, a certificate representing the
proper number of shares of Park Common Shares may be issued to a transferee if
the First-Knox Certificate representing such First-Knox Common Shares is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. With respect to uncertificated First-Knox Common
Shares (including fractional shares), the Exchange Agent shall issue
certificates representing that number of whole Park Common Shares (plus any cash
in lieu of fractional Park Common Shares) into which such uncertificated
First-Knox Common Shares have been converted (after taking into account all
First-Knox Common Shares then held by such holder) upon receipt of evidence of
ownership satisfactory to the Exchange Agent. Until surrendered as contemplated
by this Section 2.2, each First-Knox Certificate shall be deemed at any time
after the Effective Time for all corporate purposes (except as provided in
Section 2.2(c)) to represent only the number of whole Park Common Shares into
which the First-Knox Common Shares represented by such First-Knox Certificate or
Certificates have been converted as provided in this Article II and the right to
receive upon such surrender cash in lieu of any fractional Park Common Shares as
contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares; Voting. (i)
Dividends or other distributions declared or made after the Effective Time with
respect to Park Common Shares with a record date after the Effective Time shall
be paid to the holder of any unsurrendered First-Knox Certificate with respect
to the Park Common Shares represented thereby, and any cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.2(e),
promptly after surrender of such First-Knox Certificate by the holder thereof.
Subject to the effect of applicable laws, following surrender of any such
First-Knox Certificate, there shall be paid to the holder of the certificates
representing whole Park Common Shares issued in exchange therefor, without
interest, (A) as promptly as practicable after the time of such surrender, the
amount of any cash payable with respect to a fractional Park Common Share to
which such holder is entitled pursuant to Section 2.2(e) and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid (but withheld pursuant to the immediately preceding sentence)
with respect to such whole Park Common Shares, and (B) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole Park Common Shares.
(ii) Former holders of record as of the Effective Time of First-Knox
Common Shares shall not be entitled to vote their Park Common Shares into which
their First-Knox Common Shares shall have been converted on matters submitted to
the shareholders of Park until the First-Knox Certificates formerly representing
such shares shall have been surrendered in accordance with this Section 2.2 or
certificates evidencing such Park Common Shares shall have been issued in
exchange therefor.
(d) No Further Ownership Rights in Common Shares.No Further Ownership
Rights in Common Shares. All Park Common Shares issued upon conversion of
First-Knox Common Shares in accordance with the terms hereof (including
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any cash paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such First-Knox Common
Shares, subject, however, to the Surviving Corporation's obligation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by First-Knox on such
First-Knox Common Shares in accordance with the terms of this Agreement on or
prior to the Effective Time and which remain unpaid at the Effective Time, and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the First-Knox Common Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, First-Knox Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article II.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional Park Common Shares shall be issued upon the surrender for exchange of
First-Knox Certificates evidencing First-Knox Common Shares, and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
shareholder of the Surviving Corporation.
(ii) Each holder of First-Knox Common Shares who would otherwise be
entitled to receive a fractional Park Common Share shall receive from the
Exchange Agent an amount in cash equal to the product obtained by multiplying
(a) the fractional share interest to which such holder (after taking into
account all First-Knox Common Shares held at the Effective Time by such holder)
would otherwise be entitled by (b) the Park Trading Price. No interest shall be
payable with respect to such cash payment.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of First-Knox for six months
after the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any shareholders of First-Knox who have not theretofore complied
with this Article II shall thereafter look only to the Surviving Corporation for
payment of their claim for Park Common Shares, any cash in lieu of fractional
Park Common Shares and any dividends or distributions with respect to Park
Common Shares, without interest.
(g) No Liability. Neither Park nor First-Knox nor the Surviving
Corporation shall be liable to any holder of First-Knox Common Shares or Park
Common Shares, as the case may be, for such shares (or dividends or
distributions with respect thereto) or cash in lieu of fractional shares
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(h) First-Knox Stock Transfer Books. The stock transfer books of
First-Knox shall be closed as of the close of business on the day that is two
business days prior to the Closing Date.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of First-Knox. First-Knox
represents and warrants to Park as follows:
(a) Organization, Standing and Power. First-Knox is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). The First-Knox National Bank of Mount Vernon ("First-Knox Bank") is
a wholly-owned Subsidiary of First-Knox and a national banking association
organized under the laws of the United States. The Farmers and Savings Bank of
Loudonville ("Farmers") is a wholly-owned Subsidiary of First-Knox and a state
chartered savings bank organized under the laws of the State of Ohio. First-Knox
Bank and Farmers are Significant Subsidiaries (as defined below) of First-Knox.
There are no other Significant Subsidiaries of First-Knox. Each of First-Knox
and its Significant Subsidiaries (as defined below) is a bank or corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and is duly qualified and in good standing to do business
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify would not, either individually or
in the aggregate, have a material adverse effect on First-Knox. The Articles of
Incorporation and Regulations of First-Knox and its Significant Subsidiaries,
copies of which were previously furnished to Park, are true, complete and
correct copies of such documents as in effect on the date of this Agreement. As
used in this Agreement, (i) a "Significant Subsidiary" means any Subsidiary of
First-Knox or Park, as the case may be, that would constitute a Significant
Subsidiary of such party within the meaning of Rule 1-02 of Regulation S-X of
the Securities and Exchange Commission (the "SEC"), (ii) any reference to any
event, change or effect being "material" with respect to any entity means an
event, change or effect which is material in relation to the condition
(financial or otherwise), properties, assets, liabilities, businesses or results
of operations of such entity and its Subsidiaries taken as a whole and (iii) the
term "material adverse effect" (other than as set forth in Section 6.1(g))
means, with respect to any entity, a material adverse effect on the condition
(financial or otherwise), properties, assets, liabilities, businesses or results
of operations of such entity and its Subsidiaries taken as a whole or on the
ability of such entity to perform its obligations hereunder on a timely basis.
(b) Capital Structure. (i) As of the date hereof, the authorized
capital shares of First-Knox consists of 6,000,000 First-Knox Common Shares. As
of October 1, 1996, 3,755,618 First-Knox Common Shares were outstanding, 209,327
First-Knox Common Shares were reserved for issuance upon the exercise of
outstanding stock options or pursuant to the First-Knox Banc Corp. 1990
Non-Qualified Stock Option and Stock Appreciation Rights Plan and the 1995
First-Knox Banc Corp. Stock Option and Stock Appreciation Rights Plan (such
stock options and plans collectively, the "First-Knox Stock Option Plans"),
268,419 First-Knox Common Shares were reserved for issuance, if necessary,
pursuant to the First-Knox Banc Corp.
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Dividend Reinvestment Plan ("First-Knox Dividend Reinvestment Plan" and together
with the First-Knox Stock Option Plans, the "First-Knox Stock Plans"), and no
First-Knox Common Shares were held by First-Knox in its treasury or by its
Subsidiaries (other than as trust account shares or as DPC shares). First-Knox
has furnished to Park a true, complete and correct copy of each of the
First-Knox Stock Plans and, with respect to each First-Knox Stock Plan that is a
stock option and/or stock appreciation rights ("SARs") plan, a list of all
participants, the number of First-Knox Common Shares subject to options held by
each, the number of SARs held by each, the exercise price or prices of such
options and the strike price of such SARs, and the dates each option or SAR was
granted, becomes exercisable, and expires. All outstanding First-Knox Common
Shares have been duly authorized and validly issued and are fully paid and
non-assessable and not subject to preemptive rights.
(ii) No bonds, debentures, notes or other indebtedness having the right
to vote on any matters on which shareholders may vote ("Voting Debt") of
First-Knox are issued or outstanding.
(iii) As of the date of this Agreement, except for this Agreement and
the First-Knox Stock Options (as defined in Section 5.8), there are no options,
warrants, calls, rights, commitments or agreements of any character to which
First-Knox or any Subsidiary of First-Knox is a party or by which it is bound
obligating First-Knox or any Subsidiary of First-Knox to issue, deliver or sell,
or cause to be issued, delivered or sold, additional capital shares or any
Voting Debt of First-Knox or of any Subsidiary of First-Knox or obligating
First-Knox or any Subsidiary of First-Knox to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. Assuming compliance
by Park (and the Surviving Corporation) with Section 5.8, after the Effective
Time, there will be no option, warrant, call, right, commitments or agreement
obligating First-Knox or any Subsidiary of First-Knox to issue, deliver or sell,
or cause to be issued, delivered or sold, any capital shares or any Voting Debt
of First-Knox or any Subsidiary of First-Knox, or obligating First-Knox or any
Subsidiary of First-Knox to grant, extend or enter into any such option,
warrant, call, right, commitments or agreement. As of the date hereof, there are
no outstanding contractual obligations of First-Knox or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any capital shares of First-Knox or
any of its Subsidiaries.
(iv) Since September 30, 1996, First-Knox has not (A) issued or
permitted to be issued any capital shares, or securities exercisable for or
convertible into capital shares of First-Knox or any of its Subsidiaries, other
than pursuant to and as required by the terms of the First-Knox Dividend
Reinvestment Plan, and any employee stock options issued prior to the date
hereof under the First-Knox Stock Plans and outstanding on such date (or in the
ordinary course of business as permitted under such plans and consistent with
past practice); (B) repurchased, redeemed or otherwise acquired, directly or
indirectly through one or more First-Knox Subsidiaries, any capital shares of
First-Knox or any of its Subsidiaries (other than the acquisition of trust
account shares and DPC shares); or (C) declared, set aside, made or paid to the
shareholders of First-Knox dividends or other distributions on the outstanding
capital shares of First-Knox, other than regular quarterly cash dividends on the
First-Knox Common Shares
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at a rate not in excess of the regular quarterly cash dividends most recently
declared by First-Knox prior to the date of this Agreement.
(v) First-Knox has terminated the First-Knox Dividend Reinvestment Plan
effective as of the date of this Agreement.
(c) Authority. (i) First-Knox has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of this
Agreement by the requisite vote of the holders of First-Knox Common Shares, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
First-Knox, subject in the case of the consummation of the Merger contemplated
hereby to the approval of this Agreement by the holders of First-Knox Common
Shares. This Agreement has been duly executed and delivered by First-Knox and
constitutes a valid and binding obligation of First-Knox, enforceable in
accordance with its terms.
(ii) The execution and delivery of this Agreement does not or will not,
as the case may be, and subject to the approval of this Agreement by the holders
of First-Knox Common Shares the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or constitute a
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on any assets (any such conflict,
violation, default, right of termination, cancellation or acceleration, loss or
creation, a "Violation") pursuant to, any provision of the Articles of
Incorporation or Regulations of First-Knox or any Subsidiary of First-Knox or,
except as disclosed in writing to the other party prior to the date hereof and
subject to obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii) below,
result in any Violation of any loan or credit agreement, note, mortgage,
indenture, lease, Benefit Plan (as defined in Section 3.1(j)) or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to First-Knox or any Subsidiary of First-Knox or their respective properties or
assets, which Violation, individually or in the aggregate, would have a material
adverse effect on First-Knox.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to First-Knox or any
Subsidiary of First-Knox in connection with the execution and delivery of this
Agreement by First-Knox or the consummation by First-Knox of the transactions
contemplated hereby, the failure to make or obtain which would have a material
adverse effect on First-Knox, except for (A) the filing of applications and
notices with the Board of Governors of the Federal Reserve System (the "Federal
Reserve") under the BHC Act, the Federal Reserve Act (the "FRA") and the Federal
Deposit Insurance Act ("FDIA") and approval of same, (B) the filing with the SEC
of (1) a joint proxy statement in definitive form relating to the meetings of
First-Knox's and Park' shareholders to be held in connection with the Merger
(the "Proxy
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Statement") and (2) such reports under Sections 13(a), 13(d), 13(g) and 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions contemplated
hereby and the obtaining from the SEC of such orders as may be required in
connection therewith, (C) the filing of the Certificate of Merger with the
Secretary of State of the State of Ohio, (D) if necessary, the filing of an
application with the Ohio Department of Commerce, Division of Financial
Institutions, Office of Banks and Savings & Loans (collectively, the "State
Banking Approval"), and (E) any notice required under the rules of the NASDAQ
National Market System.
(d) SEC Documents. First-Knox has furnished to Park a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by First-Knox with the SEC since December 31, 1994 (as such
documents have since the time of their filing been amended, the "First-Knox SEC
Documents"), which are all the documents that First-Knox was required to file
with the SEC since such date. As of their respective dates of filing with the
SEC, the First-Knox SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such First-Knox SEC Documents, and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of First-Knox included in the First-Knox SEC Documents
complied as to form, as of their respective dates of filing with the SEC, in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form 10-Q
of the SEC) and fairly present in all material respects the consolidated
financial position of First-Knox and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of operations, changes in
shareholders' equity and cash flows of such companies for the periods then
ended. All material agreements, contracts and other documents required to be
filed as exhibits to any of the First-Knox SEC Documents have been so filed.
(e) Information Supplied. None of the information supplied or to be
supplied by First-Knox for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Park in
connection with the issuance of Park Common Shares in the Merger (the "S-4")
will, at the time the S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (ii) the Proxy Statement will, at the
date of mailing to shareholders and at the times of the meetings of shareholders
to be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
(except for such portions thereof that relate only to Park) will comply as to
form in all material respects with the requirements of the Exchange Act and the
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rules and regulations of the SEC thereunder. All information about First-Knox
and its Subsidiaries included in the S-4 and Proxy Statement will be deemed to
have been supplied by First-Knox.
(f) Compliance with Applicable Laws. First-Knox and its Subsidiaries
hold all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses of
First-Knox and its Subsidiaries, individually and taken as a whole (the
"First-Knox Permits"). First-Knox and its Subsidiaries are in compliance with
the terms of the First-Knox Permits, except where the failure so to comply,
individually or in the aggregate, would not have a material adverse effect on
First-Knox. Except as disclosed in the First-Knox SEC Documents filed prior to
the date of this Agreement, the businesses of First-Knox and its Subsidiaries
are not being conducted in violation of any law, ordinance or regulation of any
Governmental Entity, except for possible violations which, individually or in
the aggregate, do not, and, insofar as reasonably can be foreseen, in the future
will not, have a material adverse effect on First-Knox or any Significant
Subsidiary, individually or in the aggregate. Except for routine examinations by
Federal or state Governmental Entities charged with the supervision or
regulation of banks or bank holding companies or engaged in the insurance of
bank deposits ("Bank Regulators"), as of the date of this Agreement, to the
knowledge of First-Knox, no investigation by any Governmental Entity with
respect to First-Knox or any of its Subsidiaries is pending or threatened, other
than, in each case, those the outcome of which, individually or in the
aggregate, as far as reasonably can be foreseen, will not have a material
adverse effect on First-Knox or any Significant Subsidiary, individually or in
the aggregate.
(g) Litigation. As of the date of this Agreement, except as disclosed
in the First-Knox SEC Documents filed prior to the date of this Agreement, there
is no suit, action or proceeding pending or, to the knowledge of First-Knox,
threatened, against or affecting First-Knox, any Subsidiary of First-Knox any
officer, director or employee of First-Knox in his or her capacity as an
officer, director or employee of First-Knox as to which there is a substantial
possibility of an outcome which would, individually or in the aggregate, have a
material adverse effect on First-Knox or any Subsidiary of First-Knox, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against First-Knox or any Subsidiary of First-Knox
having, or which, insofar as reasonably can be foreseen, in the future could
have, individually or in the aggregate, any such effect. First-Knox has
furnished to Park a true, complete and accurate list of all litigation currently
pending against First-Knox, any of its Subsidiaries or any officer, director or
employee of First-Knox in his or her capacity as an officer, director or
employee of First-Knox, together with the most recent audit response letters
related thereto.
(h) Taxes. First-Knox and each of its Subsidiaries have filed all tax
returns required to be filed by any of them and have paid (or First-Knox has
paid on their behalf), or have set up an adequate reserve for the payment of,
all taxes required to be paid as shown on such returns, and the most recent
financial statements contained in the First-Knox SEC Documents reflect an
adequate reserve for all taxes payable by First-Knox and its Subsidiaries
accrued through the date of such financial statements. No material deficiencies
for any taxes have been proposed,
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asserted or assessed against First-Knox or any of its Subsidiaries. All back-up
withholding requirements imposed on First-Knox or any Subsidiary of First-Knox
have been met. The federal income tax returns of First-Knox or any Subsidiary of
First-Knox are not currently being audited and have not been audited by the
Internal Revenue Service since 1991. For the purpose of this Agreement, the term
"tax" (including, with correlative meaning, the terms "taxes" and "taxable")
shall include, except where the context otherwise requires, all Federal, state,
local and foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts.
(i) Certain Agreements. Except as disclosed in the First-Knox SEC
Documents filed prior to the date of this Agreement or as disclosed in writing
to Park prior to the date hereof and except for this Agreement, as of the date
of this Agreement, neither First-Knox nor any of its Subsidiaries is a party to
any oral or written (i) consulting agreement not terminable on six months or
less notice involving the payment of more than $25,000 per annum, (ii) agreement
with any director, officer or employee of First-Knox or any Subsidiary of
First-Knox the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving First-Knox or
any Subsidiary of First-Knox of the nature contemplated by this Agreement, (iii)
agreement with respect to any officer or employee of First-Knox or any
Subsidiary of First-Knox providing any term of employment or compensation
guarantee or (iv) agreement or plan, including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(j) Benefit Plans. (i) With respect to each employee benefit plan
(including, without limitation, any "employee benefit plan", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) (all the foregoing being herein called "Benefit Plans"), maintained
or contributed to by First-Knox or any Subsidiary of First-Knox (the "First-Knox
Benefit Plans"), First-Knox has made available to Park a true and correct copy
of (A) the most recent annual report (Form 5500) filed with the IRS, (B) such
First-Knox Benefit Plan, (C) each trust agreement relating to such First-Knox
Benefit Plan, (D) the most recent summary plan description for each First-Knox
Benefit Plan for which a summary plan description is required, (E) the most
recent actuarial report or valuation relating to a First-Knox Benefit Plan
subject to Title IV of ERISA and (F) the most recent determination letter issued
by the IRS with respect to any First-Knox Benefit Plan qualified under Section
401 (a) of the Code.
(ii) With respect to the First-Knox Benefit Plans, individually and in
the aggregate, no event has occurred and, to the knowledge of First-Knox, there
exists no condition or set of circumstances, in connection with which First-Knox
or any of its Subsidiaries could be subject to any liability that is reasonably
likely to have a material adverse effect on First-Knox (except liability for
benefits claims and funding obligations payable in the ordinary course) under
ERISA, the Code or any other applicable law.
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(iii) Each First-Knox Benefit Plan complies in all material respects,
and has been administered to date in material compliance, with the requirements
of ERISA and the Code, to the extent applicable. All reporting and disclosure
requirements of ERISA and the Code have been met in all respects by each such
First-Knox Benefit Plan, to the extent applicable. Each First-Knox Benefit Plan
that is an employee pension benefit plan (as defined in Section 3(2) of ERISA)
that is intended to be a qualified plan under Section 401(a) of the Code has
been amended to comply in all material respects with the current law and
First-Knox has obtained favorable determination letters with respect to all such
plans. Neither First-Knox nor any Subsidiary of First-Knox has any liability on
account of any accumulated funding deficiency (as defined in Section 412 of the
Code) or on account of any failure to make contributions to or pay benefits
under any such First-Knox Benefit Plan nor is First-Knox aware of any claim
pending or threatened to be brought by any party regarding such matters, other
than routine claims for benefits. No prohibited transaction has occurred with
respect to any First-Knox Benefit Plan that would result, directly or
indirectly, in the imposition of any excise tax under ERISA or the Code and no
reportable event under ERISA has occurred with respect to any First-Knox Benefit
Plan. Neither First-Knox nor any Subsidiary of First-Knox is (A) a defendant in
any lawsuit or criminal action concerning such entity's conduct as a fiduciary,
party-in-interest, or disqualified person with respect to any First-Knox Benefit
Plan; (B) under investigation or examination by the Department of Labor,
Internal Revenue Service, Justice Department, or Pension Benefit Guaranty
Corporation involving compliance with ERISA or the provisions of the Code
relating to employee benefit plans; and (C) required to contribute to a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(k) Subsidiaries. Exhibit 21 to First-Knox's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 includes all the Subsidiaries of
First-Knox as of the date of this Agreement which are Significant Subsidiaries.
First-Knox owns, directly or indirectly, beneficially and of record 100% of the
issued and outstanding voting securities of each such Significant Subsidiary.
Each of First-Knox's Subsidiaries that is a bank (as defined in the BHC Act) is
an "insured bank" as defined in the FDIA and applicable regulations thereunder.
Except as provided in 12 U.S.C. ss.55 in the case of First-Knox Bank, and any
comparable provision of applicable state law in the case of First-Knox
Subsidiaries that are state-chartered banks, all of the capital shares of each
of the Subsidiaries held by First-Knox or by another First-Knox Subsidiary are
fully paid and nonassessable and are owned by First-Knox or a Subsidiary of
First-Knox free and clear of any claim, lien or encumbrance.
(l) Agreements with Bank Regulators. Except as disclosed in writing to
the other party prior to the date hereof, neither First-Knox nor any Subsidiary
of it is a party to any written agreement or memorandum of understanding with,
or a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any supervisory letter from, or
has adopted any board resolutions at the request of, any Bank Regulator which
restricts the conduct of its business, or in any manner relates to its capital
adequacy, its credit policies or its management, nor has First-Knox been advised
by any Bank Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, supervisory letter, commitment
letter or similar submission, or any such board resolutions.
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(m) Absence of Certain Changes or Events. Except as disclosed in the
First-Knox SEC Documents filed prior to the date of this Agreement, since June
30, 1995, First-Knox and its Subsidiaries have not incurred any material
liability, except in the ordinary course of their businesses consistent with
their past practices, nor has there been any change, or any event involving a
prospective change, in the business, financial condition or results of
operations of First-Knox or any of its Subsidiaries which has had, or is
reasonably likely to have, a material adverse effect on First-Knox, and
First-Knox and its Subsidiaries have conducted their respective businesses in
the ordinary course consistent with their past practices.
(n) Certain Provisions of Articles of Incorporation Not Applicable. The
provisions of Article Twelfth of First-Knox's Articles of Incorporation do not
and will not apply to this Agreement, the Merger or the transactions
contemplated hereby.
(o) Vote Required. The affirmative vote of the holders of two-thirds of
the outstanding First-Knox Common Shares is the only vote of the holders of any
First-Knox capital shares necessary to approve this Agreement and the
transactions contemplated hereby (assuming for purposes of this representation
the accuracy of the representations contained in Section 3.2(r), without giving
effect to the knowledge qualification thereof).
(p) Accounting Matters. Neither First-Knox nor, to its best knowledge,
any of its affiliates, has through the date hereof taken or agreed to take any
action that would prevent Park from accounting for the business combination to
be effected by the Merger as a "pooling of interests".
(q) Properties. Except as disclosed in the First-Knox SEC Documents
filed prior to the date of this Agreement or in writing to the other party prior
to the date hereof, First-Knox or one of its Subsidiaries (i) has good and
marketable title to all the properties and assets reflected in the latest
audited balance sheet included in such First-Knox SEC Documents as being owned
by First-Knox or one of its Subsidiaries or acquired after the date thereof
which are material to First-Knox's business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the ordinary
course of business), free and clear of all claims, liens, charges, security
interests or encumbrances of any nature whatsoever except (A) statutory liens
securing payments not yet due, (B) liens on assets of Subsidiaries of First-Knox
which are incurred in the ordinary course of their banking business and (C) such
imperfections or irregularities of title, claims, liens, charges, security
interests, use restrictions or encumbrances as do not materially affect the use
of the properties or assets subject thereto or affected thereby or otherwise
materially impair business operations at such properties and (ii) is the lessee
of all leasehold estates reflected in the latest audited financial statements
included in such First-Knox SEC Documents or acquired after the date thereof
which are material to its business on a consolidated basis (except for leases
that have expired by their terms since the date thereof) and is in possession of
the properties purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee or, to First-Knox's knowledge, as of
the date hereof, the lessor. First-Knox has furnished true and correct copies of
all deeds and leases relating to the real property owned or leased by First-Knox
or any Subsidiary of First-Knox.
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(r) Ownership of Park Common Shares. As of the date hereof, neither
First-Knox nor, to its best knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially owns, directly
or indirectly, or (ii) is party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case,
capital shares of Park, which in the aggregate represent 10% or more of the
outstanding Park Common Shares (other than trust account shares).
(s) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any brokers or finders
fee or any other similar commission or fee in connection with any of the
transactions contemplated by this Agreement, except Danielson Associates Inc.
("Danielson"), whose fees and expenses will be paid by First-Knox in accordance
with First-Knox's agreements with such firm (copies of which agreement have been
delivered by First-Knox to Park prior to the date of this Agreement), and
First-Knox agrees to indemnify Park and to hold Park harmless from and against
any and all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any such person on the basis of any act or
statement alleged to have been made by First-Knox or its affiliate.
(t) Labor Matters. Neither First-Knox nor any Subsidiary of First-Knox
is a party to any collective bargaining or other union agreement with any of its
employees, or is involved in any labor dispute.
(u) Environmental Matters. To the best knowledge of First-Knox,
First-Knox and the Subsidiaries of First-Knox are and have been at all times in
substantial compliance with all applicable federal and state environmental laws
other than such non-compliance, where the failure to so comply would not have a
material adverse effect on First Knox or any Subsidiary of First Knox. To the
best knowledge of First-Knox, no investigations, inquiries, orders, hearings or
other proceedings by or before any court or governmental agency are pending or,
to the best knowledge of First-Knox, threatened in connection with any alleged
violation of any applicable environmental law by First-Knox or any Subsidiary of
First-Knox which could have a material adverse effect on First-Knox or any
subsidiary of First Knox. To the best knowledge of First-Knox, neither
First-Knox nor any Subsidiary of First-Knox has caused or permitted any
substances or materials which are classified or considered to be hazardous or
toxic under any applicable environmental law to be integrated into any real
property owned or leased by them in such manner or quantity as may reasonably be
expected to or in fact would pose a threat to human health or the value of such
real property.
(v) CRA Compliance. Neither First-Knox nor any Subsidiaries of
First-Knox have received any notice of non-compliance with the applicable
provisions of the Community Reinvestment Act of 1977, as amended ("CRA"), and
the regulations promulgated thereunder, and First-Knox Bank and Farmers have
received a CRA rating of satisfactory or better from the Office of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation,
respectively. First-Knox knows of no fact or circumstance or set of facts or
circumstances which would cause First-Knox or any Subsidiary of First-Knox to
receive any notice of non-compliance with such provisions or to cause the CRA
rating of any such entity to fall below satisfactory.
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(w) Capital Requirements. First-Knox and the Subsidiaries of First-Knox
which are banks are in compliance with all currently applicable capital
requirements and guidelines prescribed by all appropriate Bank Regulators.
(x) Loan Losses. Since December 31, 1995, neither First-Knox Bank nor
Farmers have incurred any unusual or extraordinary loan losses. The allowance
for loan losses reflected on the financial statements of First-Knox Bank and
Farmers have been determined in accordance with generally accepted accounting
principles and in accordance with all applicable regulations of all Bank
Regulators and are adequate in all respects. First-Knox has considered all
potential losses known to First-Knox to the best of its knowledge in
establishing the current allowance for loan losses for First-Knox Bank and
Farmers, other than such losses that if incurred would not have a material
adverse effect on First-Knox or any Subsidiary of First-Knox.
3.2. Representations and Warranties of Park. Park represents and
warrants to First-Knox as follows:
(a) Organization, Standing and Power. Park is both a bank holding
company registered under the BHC Act and a savings and loan holding company
registered under the Home Owners' Loan Act of 1933, as amended. The Park
National Bank, Newark, Ohio is a wholly-owned Subsidiary of Park and a national
banking association organized under the laws of the United States. Each of Park
and its Significant Subsidiaries is a bank or corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify would not, either individually or
in the aggregate, have a material adverse effect on Park. The Articles of
Incorporation and Regulations of Park, copies of which were previously furnished
to First-Knox, are true, complete and correct copies of such documents as in
effect on the date of this Agreement.
(b) Capital Structure. (i) As of the date hereof, the authorized
capital shares of Park consists of 20,000,000 Park Common Shares. At the close
of business on September 30, 1996, 7,222,610 Park Common Shares were
outstanding, 200,000 Park Common Shares were reserved for issuance upon the
exercise of stock options, out of which 60,000 of such Park Common Shares are
subject to currently outstanding stock options (which options reload at the time
they are exercised), and 91,613 Park Common Shares were held by Park in its
treasury or by its Subsidiaries (other than trust account shares or DPC shares).
All outstanding Park Common Shares have been duly authorized and validly issued
and are fully paid and non-assessable. The Park Common Shares to be issued
pursuant to or as specifically contemplated by this Agreement (including without
limitation as contemplated by Section 5.8 hereof) will be, if and when issued in
accordance with the terms hereof or as contemplated hereby, and subject to
approval by the shareholders of Park of this Agreement, duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights.
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(ii) No Voting Debt of Park is issued or outstanding.
(iii) As of the date of this Agreement, except for this Agreement and
the Park National Corporation 1995 Incentive Stock Option Plan (the "Park Option
Plan") or dividend reinvestment and stock purchase plan (such plans
collectively, the "Park Stock Plans") and except as disclosed to First-Knox
prior to the date of this Agreement, there are no options, warrants, calls,
rights, commitments or agreements of any character to which Park or any
Subsidiary of Park is a party or by which it is bound obligating Park or any
Subsidiary of Park to issue, deliver or sell, or cause to be issued, delivered
or sold, additional capital shares or any Voting Debt of Park or of any
Subsidiary of Park or obligating Park or any Subsidiary of Park to grant, extend
or enter into any such option, warrant, call, right, commitment or agreement.
True and correct copies of the Park Stock Plans as in effect on the date hereof
have been provided to First-Knox.
(iv) Since September 30, 1996, Park has not (A) issued or permitted to
be issued any capital shares, or securities exercisable for or convertible into
capital shares, of Park or any of its Subsidiaries, other than pursuant to and
as required by the terms of the Park Stock Plans (or in the ordinary course of
business as permitted by such plans and consistent with past practice); or (B)
declared, set aside, made or paid to the shareholders of Park dividends or other
distributions on the outstanding capital shares of Park, other than regular
quarterly cash dividends on the Park Common Shares at a rate not in excess of
the regular quarterly cash dividends most recently declared by Park prior to the
date of this Agreement.
(c) Authority. (i) Park has all requisite corporate power and authority
to enter into this Agreement and, subject to approval by the requisite vote of
the holders of Park Common Shares of this Agreement, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Park, subject in the
case of the consummation of the Merger contemplated hereby to the approval of
this Agreement by the holders of Park Common Shares. This Agreement has been
duly executed and delivered by Park and constitutes a valid and binding
obligation of Park, enforceable in accordance with its terms.
(ii) The execution and delivery of this Agreement does not or will not,
as the case may be, and subject to the approval of this Agreement by the holders
of Park Common Shares, the consummation of the transactions contemplated hereby
will not, result in any Violation pursuant to any provision of the Articles of
Incorporation or Regulations of Park or any Subsidiary of Park or, except as
disclosed in writing to the other party prior to the date hereof and subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii) below,
result in any Violation of any loan or credit agreement, note, mortgage,
indenture, lease, Benefit Plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Park or any Subsidiary of Park or
their respective properties or assets which Violation, individually or in the
aggregate, would have a material adverse effect on Park.
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(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Park, or any Subsidiary of Park in connection with the execution and
delivery of this Agreement by Park or the consummation by Park of the
transactions contemplated hereby, the failure to obtain which would have a
material adverse effect on Park, except for (A) the filing of applications and
notices with the Federal Reserve under the BHC Act, the FRA and the FDIA and
approval of same, (B) the filing with the SEC of the Proxy Statement, the S-4
and such reports under Sections 12, 13(a), 13(d), 13(g) and 16(a) of the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated hereby and the obtaining from the SEC of such orders
as may be required in connection therewith, (C) such filings and approvals as
are required to be made or obtained under the securities or blue sky laws of
various states in connection with the transactions contemplated by this
Agreement, (D) the filing of the Certificate of Merger with the Secretary of
State of the State of Ohio, (E) any State Banking Approvals, and (F) any
consents, authorizations, approvals, filings or exemptions pursuant to the rules
of AMEX.
(d) SEC Documents. Park has furnished to First-Knox a true and complete
copy of each report, schedule, registration statement and definitive proxy
statement filed by Park with the SEC since December 31, 1994 (as such documents
have since the time of their filing been amended, the "Park SEC Documents"),
which are all the documents (other than preliminary material) that Park was
required to file with the SEC since such date. As of their respective dates of
filing with the SEC, the Park SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such Park
SEC Documents, and did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Park included in the Park SEC
Documents complied as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present in all material respects the
consolidated financial position of Park and its consolidated Subsidiaries as at
the dates thereof and the consolidated results of operations, changes in
stockholders' equity and cash flows of such companies for the periods then
ended. All material agreements, contracts and other documents required to be
filed as exhibits to any of the Park SEC Documents have been so filed.
(e) Information Supplied. None of the information supplied or to be
supplied by Park for inclusion or incorporation by reference in (i) the S-4
will, at the time the S-4 becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (ii)
the Proxy Statement will, at the date of mailing to shareholders and at the
times of the meetings of shareholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
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statements therein, in light of the circumstances under which they were made,
not misleading. The Proxy Statement (except for such portions thereof that
relate only to First-Knox) will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, and the S-4 (except for such portions thereof that relate only to
First-Knox) will comply as to form in all material respects with the
requirements of the Securities Act and the rules and regulations of the SEC
thereunder. All information about Park and its Subsidiaries included in the S-4
and Proxy Statement will be deemed to have been supplied by Park.
(f) Compliance with Applicable Laws. Park and its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the businesses of
Park and its Subsidiaries, taken as a whole (the "Park Permits"). Park and its
Subsidiaries are in compliance with the terms of the Park Permits and all
applicable laws and regulations, except where the failure so to comply,
individually or in the aggregate, would not have a material adverse effect on
Park. Except as disclosed in the Park SEC Documents filed prior to the date
hereof, the businesses of Park and its Subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity, except
for possible violations which, individually or in the aggregate, do not, and,
insofar as reasonably can be foreseen, in the future will not, have a material
adverse effect on Park. Except for routine examinations by Bank Regulators, as
of the date of this Agreement, to the knowledge of Park, no investigation by any
Governmental Entity with respect to Park or any of its Subsidiaries is pending
or threatened, other than, in each case, those the outcome of which,
individually or in the aggregate, as far as reasonably can be foreseen, will not
have a material adverse effect on Park.
(g) Litigation. As of the date of this Agreement, except as disclosed
in the Park SEC Documents filed prior to the date of this Agreement, there is no
suit, action or proceeding pending or, to the knowledge of Park, threatened,
against or affecting Park or any Subsidiary of Park as to which there is a
substantial possibility of an outcome which would, individually or in the
aggregate, have a material adverse effect on Park or any Subsidiary of Park, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Park or any Subsidiary of Park having,
or which, insofar as reasonably can be foreseen, in the future could have,
individually or in the aggregate, any such effect.
(h) Taxes. Park and each of its Subsidiaries have filed all tax returns
required to be filed by any of them and have paid (or Park has paid on their
behalf), or have set up an adequate reserve for the payment of, all taxes
required to be paid as shown on such returns, and the most recent financial
statements contained in the Park SEC Documents reflect an adequate reserve for
all taxes payable by Park and its Subsidiaries accrued through the date of such
financial statements. No material deficiencies for any taxes have been proposed,
asserted or assessed against Park or any of its Subsidiaries that are not
adequately reserved for.
(i) Certain Agreements. Except as disclosed in the Park SEC Documents
filed prior to the date of this Agreement, or as disclosed in writing to the
other party prior to the date of this Agreement, and except for this Agreement,
as of the date of this Agreement, neither Park nor
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any of its Subsidiaries is a party to any oral or written (i) consulting
agreement not terminable on six months or less notice involving the payment of
more than $100,000 per annum, (ii) agreement with any director, officer or other
key employee of Park or any Subsidiary of Park the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving Park or any Subsidiary of Park of the nature
contemplated by this Agreement and which provides for the payment of in excess
of $100,000, (iii) agreement with respect to any executive officer of Park or
any Subsidiary of Park providing any term of employment or compensation
guarantee extending for a period longer than three years and for the payment of
in excess of $100,000 per annum or (iv) agreement or plan, including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
(j) Benefit Plans. (i) With respect to each Benefit Plan maintained or
contributed to by Park or The Park National Bank, Newark, Ohio (the "Park
Benefit Plans"), Park has made available to First-Knox a true and correct copy
of (A) the most recent annual report (Form 5500) filed with the IRS, (B) such
Park Benefit Plan, (C) each trust agreement relating to such Park Benefit Plan,
(D) the most recent summary plan description for each Park Benefit Plan for
which a summary plan description is required (E) the most recent actuarial
report or valuation relating to a Park Benefit Plan subject to Title IV of ERISA
and (F) the most recent determination letter issued by the IRS with respect to
any Park Benefit Plan qualified under Section 401 (a) of the Code.
(ii) With respect to the Park Benefit Plans, individually and in the
aggregate, no event has occurred and, to the knowledge of Park, there exists no
condition or set of circumstances in connection with which Park or any of its
Subsidiaries could be subject to any liability that is reasonably likely to have
a material adverse effect upon Park (except liability for benefits claims and
funding obligations payable in the ordinary course) under ERISA, the Code or any
other applicable law.
(iii) Each Park Benefit Plan complies in all material respects, and has
been administered to date in material compliance, with the requirements of ERISA
and the Code, to the extent applicable. All reporting and disclosure
requirements of ERISA and the Code have been met in all respects by each such
Park Benefit Plan, to the extent applicable. Each Park Benefit Plan that is an
employee pension benefit plan (as defined in Section 3(2) of ERISA) that is
intended to be a qualified plan under Section 401(a) of the Code has been
amended to comply in all material respects with the current law and Park has
obtained favorable determination letters with respect to all such plans. Neither
Park nor any Subsidiary of Park has any liability on account of any accumulated
funding deficiency (as defined in Section 412 of the Code) or on account of any
failure to make contributions to or pay benefits under any such Park Benefit
Plan nor is Park aware of any claim pending or threatened to be brought by any
party regarding such matters other than routine claims for benefits. No
prohibited transaction has occurred with respect to any Park Benefit Plan that
would result, directly or indirectly, in the imposition of any excise tax
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under ERISA or the Code and no reportable event under ERISA has occurred with
respect to any Park Benefit Plan. Neither Park nor any Subsidiary of Park is (A)
a defendant in any lawsuit or criminal action concerning such entity's conduct
as a fiduciary, party-in-interest, or disqualified person with respect to any
Park Benefit Plan; (B) under investigation or examination by the Department of
Labor, Internal Revenue Service, Justice Department, or Pension Benefit Guaranty
Corporation involving compliance with ERISA or the provisions of the Code
relating to employee benefit plans; and (C) required to contribute to a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(k) Subsidiaries. Exhibit 21 to Park's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995, includes all the Subsidiaries of Park
as of the date of this Agreement which are Significant Subsidiaries. Park owns,
directly or indirectly, beneficially and of record 100% of the issued and
outstanding voting securities of each such significant Subsidiary. Each of
Park's Subsidiaries that is a bank (as defined in the BHC Act) is an "insured
bank" as defined in the FDIA and applicable regulations thereunder. Except as
provided in 12 U.S.C. Section 55 in the case of Subsidiaries of Park that are
national banks and any comparable provision of applicable state law in the case
of Subsidiaries of Park that are state-chartered banks, all of the capital
shares of each of the Subsidiaries held by Park or by another Subsidiary of Park
are fully paid and nonassessable and are owned by Park or a Subsidiary of Park
free and clear of any claim, lien or encumbrance.
(l) Agreements with Bank Regulators. Neither Park nor any Subsidiary of
it is a party to any written agreement or memorandum of understanding with, or a
party to any commitment letter or similar undertaking to, or is subject to any
order or directive by, or is a recipient of any supervisory letter from, or has
adopted any board resolutions at the request of, any Bank Regulator which
restricts the conduct of its business, or in any manner relates to its capital
adequacy, its credit policies or its management, nor has Park been advised by
any Bank Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, supervisory letter, commitment
letter or similar submission, or any such board resolutions.
(m) Absence of Certain Changes or Events. Except as disclosed in the
Park SEC Documents filed prior to the date of this Agreement, since June 30,
1995, Park and its Subsidiaries have not incurred any material liability, except
in the ordinary course of their business consistent with their past practices,
nor has there been any change, or any event involving a prospective change, in
the business, financial condition or results of operations of Park or any of its
Subsidiaries which has had, or is reasonably likely to have, a material adverse
effect on Park, and Park and its Subsidiaries have conducted their respective
businesses in the ordinary course consistent with their past practices.
(n) Certain Provisions of Articles of Incorporation Not Applicable. The
provisions of Articles Sixth and Eighth of the Articles of Incorporation do not
and will not apply or an exemption for the application of these provision will
apply to this Agreement, the Merger or the transactions contemplated hereby.
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(o) Vote Required. The affirmative vote of the holders of two-thirds of
the outstanding Park Common Shares is the only vote of the holders of any Park
capital shares necessary to approve the this Agreement and the transactions
contemplated hereby (assuming for the purposes of this representation the
accuracy of the representations contained in Section 3.1(r) without giving
effect to the knowledge qualification thereof).
(p) Accounting Matters. Neither Park nor, to its best knowledge, any of
its affiliates, has through the date of this Agreement taken or agreed to take
any action that would prevent Park from accounting for the business combination
to be effected by the Merger as a "pooling of interests".
(q) Properties. Except as disclosed in the Park SEC Documents filed
prior to the date of this Agreement or in writing to the other party prior to
the date hereof, Park or one of its Subsidiaries (i) has good and marketable
title to all the properties and assets reflected in the latest audited balance
sheet included in such Park SEC Documents as being owned by Park or one of its
Subsidiaries or acquired after the date thereof which are material to Park's
business on a consolidated basis (except properties sold or otherwise disposed
of since the date thereof in the ordinary course of business), free and clear of
all claims, liens, charges, security interests or encumbrances of any nature
whatsoever except (A) statutory liens securing payments not yet due, (B) liens
on assets of Subsidiaries of Park which are banks incurred in the ordinary
course of their banking business and (C) such imperfections or irregularities of
title, claims, liens, charges, security interests, use restrictions or
encumbrances as do not materially affect the use of the properties or assets
subject thereto or affected thereby or otherwise materially impair business
operations at such properties and (ii) is the lessee of all leasehold estates
reflected in the latest audited financial statements included in such Park SEC
Documents or acquired after the date thereof which are material to its business
on a consolidated basis (except for leases that have expired by their terms
since the date thereof) and is in possession of the properties purported to be
leased thereunder and each such lease is valid without default thereunder by the
lessee or, to Park's knowledge, as of the date hereof, the lessor.
(r) Ownership of First-Knox Common Shares. As of the date hereof,
neither Park nor, to its best knowledge, any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially owns, directly
or indirectly, or (ii) is party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case,
capital shares of First-Knox, which in the aggregate represent 10% or more of
the outstanding First-Knox Common Shares (other than trust account shares).
(s) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, except McDonald & Company
Investments, Inc. ("McDonald"), whose fees and expenses will be paid by Park in
accordance with an agreement to be entered into between Park and McDonald (a
copy of which agreement will be delivered by Park to First-Knox immediately upon
its execution) and Park agrees to indemnify First-Knox and to hold First-Knox
harmless from and against any and all claims, liabilities or obligations with
respect to any fees, commissions or
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expenses asserted by any such person on the basis of any act or statement
alleged to have been made by Park or its affiliates in connection with this
transaction.
(t) Labor Matters. Neither Park nor any Subsidiary of Park is a party
to any collective bargaining or other union agreement with any of its employees,
or is involved in any labor dispute.
(u) Environmental Matters. To the best knowledge of Park, Park and the
Subsidiaries of Park are and have been at all times in substantial compliance
with all applicable federal and state environmental laws, other than such
non-compliance where to the failure to so comply would not have a material
adverse effect on Park or any Subsidiary of Park. To the best knowledge of Park,
no investigations, inquiries, orders, hearings or other proceedings by or before
any court or governmental agency are pending or, to the best knowledge of Park,
threatened in connection with any alleged violation of any applicable
environmental law by Park or any Subsidiary of Park, which would have a material
adverse effect on Park or any Subsidiary of Park. To the best knowledge of Park,
neither Park nor any Subsidiary of Park has caused or permitted any substances
or materials which are classified or considered to be hazardous or toxic under
any applicable environmental law to be integrated into any real property owned
or leased by them in such manner or quantity as may reasonably be expected to or
in fact would pose a threat to human health or the value of such real property.
(v) CRA Compliance. Neither Park nor any Subsidiary of Park have
received a notice of non-compliance with the applicable provisions of the CRA,
and the regulations promulgated thereunder, and The Park National Bank, Newark,
Ohio, has received a CRA rating of satisfactory or better from the Office of the
Comptroller of the Currency. Park knows of no fact or circumstance or set of
facts or circumstances which would cause Park or any Subsidiary of Park to
receive any notice of non-compliance with such provisions or to cause the CRA
rating of any such entity to fall below satisfactory.
(w) Capital Requirements. Park and the Subsidiaries of Park which are
banks are in compliance with all currently applicable capital requirements and
guidelines prescribed by all appropriate Bank Regulators.
(x) Loan Losses. Since December 31, 1995, The Park National Bank,
Newark, Ohio, has not incurred any unusual or extraordinary loan losses. The
allowance for loan losses reflected on the financial statements of The Park
National Bank, Newark, Ohio, have been determined in accordance with generally
accepted accounting principles and in accordance with all applicable regulations
of all Bank Regulators and are adequate in all respects. Park has considered all
potential losses known to Park to the best of its knowledge in establishing the
current allowance for loan losses for The Park National Bank, Newark, Ohio,
other than such losses that if incurred would not have a material adverse effect
on Park or any Subsidiary of Park.
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. Covenants of First-Knox and Park. During the period from the date
of this Agreement and continuing until the Effective Time, First-Knox and Park
each agrees as to itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement or to the extent that the other
party shall otherwise consent in writing):
(a) Ordinary Course. Such party and its Subsidiaries shall carry on
their respective businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and use all reasonable
efforts to preserve intact their present business organizations, maintain their
rights and franchises and preserve their relationships with customers, suppliers
and others having business dealings with them to the end that their goodwill and
ongoing businesses shall not be impaired in any material respect at the
Effective Time. No party shall, or shall permit any of its Subsidiaries to, (i)
enter into any new material line of business, (ii) change its or its
Subsidiaries' lending, investment, liability management and other material
banking policies in any respect which is material to such party, except as
required by law or by policies imposed by a Bank Regulator, or (iii) incur or
commit to any capital expenditures or any obligations or liabilities in
connection therewith other than capital expenditures and obligations or
liabilities incurred or committed to in the ordinary course of business
consistent with past practice.
(b) Dividends; Changes in Shares. No party shall, or shall permit any
of its Subsidiaries to, or shall propose to, (i) declare or pay any dividends on
or make other distributions in respect of any of its capital shares, except (A)
as provided in Section 5.12, and (B) for dividends by a wholly-owned Subsidiary
of such party, (ii) split, combine or reclassify any of its capital shares or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for its capital shares, except, in the case of
Park, the issuance of up to 2,672 Park Common Shares in accordance with its
prior written disclosure. In addition, neither party shall repurchase, redeem or
otherwise acquire, or permit any Subsidiary to purchase or otherwise acquire
(other than as agent for shareholders reinvesting dividends pursuant to a
dividend reinvestment plan in accordance with the terms thereof as in effect on
the date of this Agreement, and except for the acquisition of trust account
shares and DPC shares), any of its capital shares or any securities convertible
into or exercisable for any of its capital shares; provided, however, that Park
shall be entitled to take such action so long as it is in a manner which will
not violate Section 4.1(l).
(c) Issuance of Securities. No party shall, or shall permit any of its
Subsidiaries to, issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any of its capital shares of any class, any Voting Debt or
any securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares or Voting Debt, or enter into any agreement
with respect to any of the foregoing, other than (i) the issuance of Park Common
Shares (A) pursuant to, or pursuant to the exercise of stock options issued
under, the Park Stock Plans in the ordinary course of business and consistent
with past practices and in accordance
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with the terms of the Park Stock Plan as in effect on the date of this
Agreement, or (B) in an amount equal to up to 2,672 Park Common Shares in
accordance with Park's prior written disclosure (ii) the issuance of First-Knox
Common Shares pursuant to the exercise of outstanding stock options issued under
the First-Knox Stock Plans (it being understood and agreed that First-Knox will
not grant any additional options under such plans after the date of this
Agreement), and (iii) issuances by a wholly-owned Subsidiary of its capital
shares to its parent.
(d) Governing Documents. No party shall amend or propose to amend the
Articles of Incorporation or Regulations of such party, except as may be
contemplated by Section 1.3(a)(iii) and (iv).
(e) Exclusivity. No party shall, or shall permit any of its
Subsidiaries, to solicit or encourage the submission of any proposal which
constitutes a Takeover Proposal (as defined below); provided, however, that each
party, its Subsidiaries, and their directors and officers shall remain free to
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt to do or seek any of the foregoing to the
extent their fiduciary duties may require. As used in this Agreement, "Takeover
Proposal" shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving Park or First-Knox or any
Significant Subsidiary of Park or First-Knox or any proposal or offer to acquire
in any manner 20% or more of the outstanding shares of any class of voting
securities, or 15% or more of the consolidated assets, of Park or First-Knox or
any Significant Subsidiary of Park or First-Knox, other than the transactions
contemplated by this Agreement. If a party receives an unsolicited Takeover
Proposal, it shall notify the other party as soon as possible of the receipt of
such Takeover Proposal.
(f) No Acquisitions. Other than acquisitions disclosed in writing to
Park prior to the date of this Agreement, First-Knox shall not, and shall not
permit any of its Subsidiaries to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets, in each
case which are material, individually or in the aggregate, to First-Knox;
provided, however, that the foregoing shall not prohibit (i) foreclosures and
other debt-previously-contracted acquisitions in the ordinary course of
business, or (ii) acquisitions of control by a banking Subsidiary in its
fiduciary capacity.
(g) No Dispositions. Other than dispositions referred to in First-Knox
SEC Documents filed prior to the date of this Agreement or as previously
disclosed in writing to Park, First-Knox shall not, and shall not permit any of
its Subsidiaries to, sell, lease, encumber or otherwise dispose of, or agree to
sell, lease, encumber or otherwise dispose of, any of its assets (including
capital shares of Subsidiaries), which are material, individually or in the
aggregate, to First-Knox.
(h) Indebtedness. First-Knox shall not, and shall not permit any of its
Subsidiaries to, incur any long-term indebtedness for borrowed money or
guarantee any such long-term
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indebtedness or issue or sell any long-term debt securities or warrants or
rights to acquire any long-term debt securities of First-Knox or any of its
Subsidiaries or guarantee any long-term debt securities of others other than (i)
in replacement for existing or maturing debt, (ii) indebtedness of any
Subsidiary of First-Knox to First-Knox or another Subsidiary of First-Knox or
(iii) in the ordinary course of business consistent with prior practice.
(i) Other Actions. No party shall, or shall permit any of its
Subsidiaries to, intentionally take any action that would, or reasonably might
be expected to, result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, subject to such exceptions as do not
have, and would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on such party or on the Surviving
Corporation following the Effective Time, or in any of the conditions to the
Merger set forth in Article VI not being satisfied or (unless such action is
required by applicable law or sound banking practice) which would adversely
affect the ability of any of them to obtain any of the Requisite Regulatory
Approvals without imposition of a condition or restriction of the type referred
to in Section 6.1(g).
(j) Advice of Changes; Government Filings. Each party shall confer on a
regular and frequent basis with the other, report on operational matters and
operating results and promptly advise the other orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen, could
have, a material adverse effect on such party or which would cause or constitute
a material breach of any of the representations, warranties or covenants of such
party contained herein. In addition, First-Knox shall consult with Park
regarding any change in the lending or reserve policies applicable to First-Knox
or any First-Knox Subsidiary, to the extent permitted by law. Park and
First-Knox shall file all reports required to be filed by each of them with the
SEC between the date of this Agreement and the Effective Time and shall deliver
to the other party copies of all such reports promptly after the same are filed.
Park, First-Knox and each Subsidiary of Park or First-Knox that is a bank shall
file all call reports with the appropriate Bank Regulators and all other
reports, applications and other documents required to be filed with the
applicable Governmental Entities between the date hereof and the Effective Time
and shall make available to the other party copies of all such reports promptly
after the same are filed. Each of Park and First-Knox shall have the right to
review in advance, and to the extent practicable each will consult with the
other, in each case subject to applicable laws relating to the exchange of
information, with respect to all the information relating to the other party,
and any of their respective Subsidiaries, which appear in any filing made with,
or written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto agrees to act reasonably and as
promptly as practicable. Each party hereto agrees that to the extent practicable
it will consult with the other party hereto with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other party apprised
of the status of matters relating to completion of the transactions contemplated
hereby.
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(k) Accounting Methods. Except as disclosed in Park SEC Documents or
First-Knox SEC Documents (as the case may be) filed prior to the date of this
Agreement, neither Park nor First-Knox shall change its methods of accounting in
effect at December 31, 1995, except as required by changes in generally accepted
accounting principles as concurred in by such party's independent auditors.
Neither Park nor First-Knox will change its fiscal year.
(l) Pooling and Tax-Free Reorganization Treatment. Neither Park nor
First-Knox shall, or shall permit any of its Subsidiaries to, intentionally take
or cause to be taken any action, whether before or after the Effective Time,
which would disqualify the Merger as a "pooling of interests" for accounting
purposes or as a "reorganization" within the meaning of Section 368(a) of the
Code.
(m) Compensation and Benefit Plans. During the period from the date of
this Agreement and continuing until the Effective Time, (i) each of Park and
First-Knox agrees as to itself and its Subsidiaries that it will not, without
the prior written consent of the other party, enter into, adopt, amend (except
for (A) such amendments as may be required by law and (B) plan documents and
restatements currently being prepared by First-Knox which do not increase
benefits) or terminate any Park Benefit Plan or First-Knox Benefit Plan, as the
case may be, or any other employee benefit plan or any agreement, arrangement,
plan or policy between such party and one or more of its directors or officers,
(ii) First-Knox agrees as to itself and its Subsidiaries that it will not,
without, the prior written consent of Park, (A) increase in any manner the
compensation or fringe benefits of any director, officer or employee or pay any
benefit not required by any plan and arrangement as in effect as of the date
hereof (including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares), except for normal increases in the ordinary course of business
consistent with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to First-Knox, or enter
into any contract, agreement, commitment or arrangement to do any of the
foregoing or (B) enter into or renew any contract, agreement, commitment or
arrangement providing for the payment to any director, officer or employee of
First-Knox of compensation or benefits contingent, or the terms of which are
materially altered, upon the occurrence of any of the transactions contemplated
by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1. Preparation of S-4, and the Proxy Statement. Park and First-Knox
shall cooperate with each other in the preparation of, and shall promptly
prepare and file with the SEC, the Proxy Statement and Park shall prepare and
file with the SEC the S-4, in which the Proxy Statement will be included as a
prospectus. Each of Park and First-Knox shall use all reasonable efforts to have
the S-4 declared effective under the Securities Act as promptly as practicable
after such filing. Park shall also take any action (other than qualifying to do
business in any jurisdiction in which it is now not so qualified) required to be
taken under any applicable state
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securities laws in connection with the issuance of Park Common Shares in
the Merger and First-Knox shall furnish all information concerning First-Knox
and the holders of First-Knox Common Shares as may be reasonably requested in
connection with any such action.
5.2. Access to Information. Upon reasonable notice to the officers of
the other (William T. McConnell, C. Daniel DeLawder, David C. Bowers and John W.
Kozak for Park and Carlos E. Watkins, Gordon E. Yance, Ian Watson and Vickie A.
Sant for First-Knox) and subject to avoidance of unreasonable disruption of the
other's business and operations, First-Knox and Park shall each (and shall cause
each of their respective Subsidiaries to) afford to the directors, officers,
employees and Representatives (as defined below) of the other, access, during
normal business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of First-Knox and Park shall (and shall cause each of their respective
Subsidiaries to) make available to the other (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws or
Federal or state banking laws (other than reports or documents which such party
is not permitted to disclose under applicable law) and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request; provided, however, that the directors, officers, employees
and Representatives of First-Knox shall not have access to Park's payroll
records. The parties will hold any such information which is nonpublic in
confidence to the extent required by, and in accordance with, the provisions of
the letters dated as of August 7, 1996 and August 7, 1996, respectively, between
First-Knox and Park (the "Confidentiality Agreements"). No investigation by
either Park or First-Knox shall affect the representations and warranties of the
other. As used in this Agreement, "Representatives" means any attorneys,
accountants, investment bankers, financial advisors or other representatives or
agents engaged or designated by First-Knox or Park, as the case may be.
5.3. Shareholder Meetings. First-Knox and Park each shall call a
meeting of its respective shareholders to be held as promptly as practicable for
the purpose of voting upon the approval of this Agreement. Subject to the next
succeeding sentence, First-Knox and Park will, through their respective Boards
of Directors, recommend to their respective shareholders approval of such
matters. The Board of Directors of Park or First-Knox, acting on behalf of Park
or First-Knox, respectively, may fail to make such recommendation, or withdraw,
modify or change any such recommendation, if and only if such Board of
Directors, after having consulted with and considered the written advice of
outside counsel, has determined that the making of such recommendation, or the
failure so to withdraw, modify or change such recommendation, would constitute a
breach of the fiduciary duties of such directors to their respective
shareholders under applicable law. First-Knox and Park shall coordinate and
cooperate with respect to the timing of such meetings and shall use their best
efforts to hold such meetings on the same day and as soon as practicable after
the date on which the S-4 becomes effective. This Section 5.3 shall not prohibit
accurate disclosure by a party that is required in any First-Knox SEC Document
or Park SEC Document (including the Proxy Statement and the S-4) or otherwise
under applicable law of the opinion of the Board of Directors of such party as
of the date of such SEC Document or such other required disclosure as to the
transactions contemplated hereby or as to any Takeover Proposal.
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5.4. Legal Conditions to Merger. Each of First-Knox and Park shall, and
shall cause its Subsidiaries to, use all reasonable efforts (i) to take, or
cause to be taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party or its Subsidiaries with respect
to the Merger and to consummate the transactions contemplated by this Agreement
as promptly as practicable, subject to the appropriate vote of shareholders of
First-Knox and Park described in Section 6.1(a), and (ii) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any Governmental Entity or any other public or
private third party which is required to be obtained or made by such party or
any of its Subsidiaries in connection with the Merger and the transactions
contemplated by this Agreement; provided, however, that a party shall not be
obligated to take any action pursuant to the foregoing if the taking of such
action or such compliance or the obtaining of such consent, authorization,
order, approval or exemption is likely, in such party's reasonable opinion, to
result in a condition or restriction on such party or on the Surviving
Corporation having an effect of the type referred to in Section 6.1(g). Each of
First-Knox and Park will promptly cooperate with and furnish information to the
other in connection with any such burden suffered by, or requirement imposed
upon, any of them or any of their Subsidiaries in connection with the foregoing.
5.5. Affiliates. At least 40 days prior to the Closing Date, First-Knox
shall deliver to Park a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the shareholders of First-Knox,
"affiliates" of First-Knox for purposes of Rule 145 under the Securities Act.
First-Knox shall use all reasonable efforts to cause each person named on the
letter delivered by it to deliver to the other party at least 30 days prior to
the Closing Date a written agreement, substantially in the form attached as
Exhibit 5.5.
5.6. Stock Exchange Listing. Park shall use all reasonable efforts to
cause the shares of Park Common Shares to be issued in the Merger and the Park
Common Shares to be reserved for issuance upon exercise of First-Knox Stock
Options (as defined below) to be approved for listing on the AMEX, subject to
official notice of issuance, prior to the Closing Date.
5.7. Employee Benefit Plans. Park agrees to coordinate the conversion
of the First-Knox Benefit Plans into similar plans of Park, to the extent
similar plans are maintained by Park, and to give credit under the Park Benefit
Plans for purposes of eligibility, vesting, benefit accrual and such other
purposes for which such service is taken into account or recognized, to the
extent permissible under all applicable laws to any employee of First-Knox or
its Subsidiaries who becomes an employee of Park or its Subsidiaries following
the consummation of the Merger.
5.8. Stock Options. (a) Prior to the Effective Time, First-Knox shall
take such actions as are reasonably necessary to cause (i) each outstanding
option to purchase First-Knox Common Shares (a "First-Knox Stock Option") issued
pursuant to any incentive or stock option program of First-Knox (the "First-Knox
Plan"), whether vested or unvested, to be exercised and (ii) each outstanding
stock appreciation right (a "First-Knox SAR") issued pursuant to the First-Knox
Plan, whether vested or unvested, to be exercised and "cashed out".
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(b) Upon the Effective Time, Park shall grant, in a manner and on a
basis consistent with an existing Park Stock Plan, options to purchase 25,000
Park Common Shares to such First-Knox employees as First-Knox and Park shall
jointly select (and in such proportions as First-Knox and Park shall jointly
determine).
5.9. Costs and Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby ("Costs and Expenses") shall be paid by the
party incurring such expense, except that expenses incurred in connection with
filing, printing and mailing the Proxy Statement and the S-4 shall be shared
equally by Park and First-Knox.
5.10. Governance. Park's Board of Directors shall take action to cause
the directors comprising the full Board of Directors of the Surviving
Corporation at the Effective Time to be the persons contemplated in Section
1.3(a). If, prior to the Effective Time, any of the persons contemplated in
Section 1.3(a) shall decline or be unable to serve as a director, Park shall
designate another person to serve in such person's stead, which person shall be
reasonably acceptable to First-Knox.
5.11. Indemnification. (a) From and after the Effective Time, the
Surviving Corporation shall indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer, director or employee of First-Knox or any of its
Subsidiaries (the "Indemnified Parties") against (i) all losses, claims,
damages, costs, expenses, liabilities or judgments or amounts that are paid in
settlement of or in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director, officer or employee of
First-Knox or any Subsidiary of First-Knox, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities")
and (ii) all Indemnified Liabilities based in whole or in part on, or arising in
whole or in part out of, or pertaining to this Agreement or the transactions
contemplated hereby, in each case to the full extent First-Knox would have been
permitted under Ohio law and its Articles of Incorporation and Regulations to
indemnify such person (and the Surviving Corporation shall pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the full extent permitted by law upon receipt of any
undertaking required by the OGCL, if any). Without limiting the foregoing, in
the event any such claim, action, suit, proceeding or investigation is brought
against any Indemnified Parties (whether arising before or after the Effective
Time), (i) any counsel retained by Park on behalf of the Indemnified Parties for
any period after the Effective Time shall be reasonably satisfactory to the
Indemnified Party; (ii) after the Effective Time, the Surviving Corporation
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; and (iii) after the
Effective Time, the Surviving Corporation will use all reasonable efforts to
assist in the vigorous defense of any such matter, provided that the Surviving
Corporation shall not be liable for any settlement of any claim effected without
its written consent, which consent however, shall not be unreasonably withheld.
Any Indemnified Party wishing to claim indemnification under this Section 5.11,
upon learning of any such claim, action, suit,
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proceeding or investigation, shall notify the Surviving Corporation (but the
failure so to notify the Surviving Corporation shall not relieve it from any
liability which it may have under this Section 5.11 except to the extent such
failure materially prejudices the Surviving Corporation), and shall deliver to
the Surviving Corporation the undertaking, if any, required by the OGCL. The
Surviving Corporation shall be liable for the fees and expenses hereunder with
respect to only one law firm, in addition to local counsel in each applicable
jurisdiction, to represent the Indemnified Parties as a group with respect to
each such matter unless there is, under applicable standards of professional
conduct, a conflict between the positions of any two or more Indemnified Parties
that would preclude or render inadvisable join or multiple representation of
such parties.
(b) Unless Park and First-Knox otherwise agree, First-Knox shall, prior
to the Effective Time, elect under its existing directors' and officers'
liability insurance policy to obtain extension coverage for the maximum period
allowable thereunder (36 months) and an endorsement providing lifetime coverage
for First-Knox directors and shall pay the premium necessary to obtain such
coverage extension and endorsement (with respect to the coverage extension, 75%
of the annual premium for the first 12 months, 50% of the annual premium for the
second 12 months and 25% of the annual premium for the last 12 months, and with
respect to the endorsement, $1,500 per First-Knox director).
(c) In the event Park or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of Park assume the
obligations set forth in this section.
(d) The provisions of this Section 5.11 (i) are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his heirs and
his representatives and (ii) are in addition to, and not in substitution for,
any other rights to indemnification or contribution that any such person may
have by contract or otherwise.
5.12. Dividends. After the date of this Agreement, each of Park and
First-Knox shall coordinate with the other the payment of dividends with respect
to the Park Common Shares and First-Knox Common Shares and the record dates and
payment dates relating thereto, it being the intention of the parties hereto
that holders of Park Common Shares and First-Knox Common Shares shall not
receive two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to their Park Common Shares and/or First-Knox Common Shares
or any Park Common Shares that any such holder receives in exchange for such
First-Knox Common Shares in the Merger. Park, at the discretion of its Board of
Directors, may increase its quarterly dividend to shareholders after the date of
this Agreement. First-Knox shall increase its quarterly dividend to shareholders
after the date of this Agreement in such amount that, after giving effect to the
increase in the quarterly dividend rate per First-Knox Common Share for such
quarter, its quarterly dividend to shareholders equals the amount that is paid
on a Park Common Share for that quarter, on an adjusted basis according to the
formula provided in
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Section 2.1(c), it being acknowledged and agreed that it is anticipated that
Park shall increase its quarterly dividend to $.40 per share for the fourth
quarter of 1996 and that, based thereon, First-Knox shall declare in December,
1996 a regular quarterly cash dividend of $.17 per First-Knox Common Share and a
special fourth quarter cash dividend of $.07 per First-Knox Common Share,
payable in January, 1997.
5.13 Title Insurance. For each parcel of real estate owned by
First-Knox or a Subsidiary of First-Knox and for each lease for any parcel of
real estate leased by First-Knox or a Subsidiary of First-Knox (collectively,
the "Real Property") as to which Park may specifically request, First-Knox shall
deliver to Park, no later than 30 days after the date hereof, and Park shall pay
for, a title insurance commitment (ALTA 1966 form or its equivalent) for a fee
owner's title insurance policy or leasehold owner's title insurance policy, as
appropriate, each in an amount equal to the carrying cost of the premises or
leasehold interest to be insured (including all improvements thereon), on the
books of First-Knox or the Subsidiary of First-Knox as of December 31, 1995.
Each title insurance commitment shall show that marketable fee simple title to
the owned premises or that valid leasehold title to the leased premises, as
appropriate, is in the name of First-Knox or a Subsidiary of First-Knox, and
that it is free and clear of any liens and encumbrances except taxes and
assessments not delinquent and utility and other easements that do not interfere
with the use of the property for the business being conducted thereon. Each such
commitment shall provide that such fee owners policy committed for therein shall
be an ALTA 1970 form, revised in 1994, and each leasehold-owner's policy shall
be a ALTA 1975 form, or other form acceptable to Park.
5.14 Survey. Within 30 days after the date of this Agreement,
First-Knox shall provide to Park, at Park's cost, current land surveys of those
parcels of the Real Property specifically designated by Park. Each survey shall
be conducted and prepared by a duly licensed land surveyor approved by Park and,
unless otherwise agreed by Park in writing, shall be a duly certified ALTA/ACSM
field survey, which shall comply with such requirements as are typical of
transactions of this type and shall confirm that the Real Property is not
subject to any easements, restrictions, set backs, encroachments, or other
limitations except utility and other easements that do not interfere with the
use of the Real Property for the business then being conducted thereon, and that
the Real Property is not located in any flood hazard area.
5.15 Forms 13D or 13G Filings. First-Knox shall promptly advise Park of
the filing of a Form 13D or 13G under the Exchange Act, if any, with respect to
First-Knox and shall provide Park with a copy of any such form promptly after
receipt thereof.
5.16 Tax Representations. First-Knox and Park will furnish letters to
Porter, Wright, Morris & Arthur in such form as may be reasonably requested by
such counsel containing, to the extent the same are true, the representations
required by such counsel in order to enable such counsel to render the tax
opinion referred to in Sections 6.2(d) and 6.3(d) hereof.
5.17. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and
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franchises of either of the Constituent Corporations, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
ARTICLE VI
CONDITIONS PRECEDENT
6.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of two-thirds of the outstanding
First-Knox Common Shares, and this Agreement shall have been approved and
adopted by the affirmative vote of the holders of two-thirds of the outstanding
Park Common Shares.
(b) AMEX Listing. The Park Common Shares issuable to First-Knox
shareholders pursuant to this Agreement and such other Park Common Shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on AMEX upon official notice of issuance.
(c) Other Approvals. Other than the filing provided for by Section 1.1,
all authorizations, consents, orders or approvals of, or declarations or filings
with, and all expirations of waiting periods imposed by, any Governmental Entity
(all the foregoing, "Consents") which are necessary for the consummation of the
Merger, other than immaterial Consents the failure to obtain which would have no
material adverse effect on the consummation of the Merger or on the Surviving
Corporation, shall have been filed, have occurred or been obtained (all such
permits, approvals, filings and consents and the lapse of all such waiting
periods being referred to as the "Requisite Regulatory Approvals") and all such
Requisite Regulatory Approvals shall be in full force and effect. Park shall
have received all state securities or blue sky permits and other authorizations
necessary to issue the Park Common Shares in exchange for First-Knox Common
Shares and to consummate the Merger.
(d) S-4. The S-4 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order.
(e) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger shall be in effect. There shall not be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger, by any Federal or state
Governmental Entity which makes the consummation of the Merger illegal.
(f) Pooling. Park and First-Knox shall each have received a letter from
Ernst & Young, Park's accounting/audit firm, to the effect that the Merger
qualifies for "pooling of interests"
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accounting treatment if consummated in accordance with this Agreement and such
letters shall not have been withdrawn.
(g) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation, order or decree enacted, entered, enforced or deemed
applicable to the Merger by any Federal or state Governmental Entity which, in
connection with the grant of a Requisite Regulatory Approval or otherwise,
imposes any condition or restriction (a "Burdensome Condition") upon the
Surviving Corporation or its Subsidiaries which would reasonably be expected to
either (i) have a material adverse effect after the Effective Time on the
present or prospective consolidated financial condition, business or operating
results of the Surviving Corporation, or (ii) prevent the parties from realizing
the major portion of the economic benefits of the Merger and the transactions
contemplated thereby that they currently anticipate obtaining.
6.2. Conditions to Obligations of Park. The obligation of Park to
effect the Merger is subject to the satisfaction of the following conditions
unless waived by Park:
(a) Representations and Warranties. The representations and warranties
of First-Knox set forth in this Agreement shall be true and correct as of the
date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, subject to such exceptions as do not have, and would
not reasonably be expected to have, individually or in the aggregate, a material
adverse effect on First-Knox or on the Surviving Corporation following the
Effective Time, and Park shall have received a certificate signed on behalf of
First-Knox by the Vice Chairman of the Board and by the President and Chief
Executive Officer and by the chief Financial Officer of First-Knox to such
effect.
(b) Performance of Obligations of First-Knox. First-Knox shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Park shall have
received a certificate signed on behalf of First-Knox by the Vice Chairman of
the Board and by the President and Chief Executive Officer and by the Chief
Financial Officer of First-Knox to such effect.
(c) Consents Under Agreements. First-Knox shall have obtained the
consent or approval of each person (other than the Governmental Entities
referred to in Section 6.1(c)) whose consent or approval shall be required in
order to permit the succession by the Surviving Corporation pursuant to the
Merger to any obligation, right or interest of First-Knox or any Subsidiary of
First-Knox under any loan or credit agreement, note, mortgage, indenture, lease,
license or other agreement or instrument, except those for which failure to
obtain such consents and approvals would not, individually or in the aggregate,
have a material adverse effect, after the Effective Time, on the Surviving
Corporation.
(d) Tax Opinion. Park shall have received the opinion of Porter,
Wright, Morris & Arthur, counsel to Park, dated the Closing Date, to the effect
that (i) the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368 (a) of the Code, (ii) Park and
First-Knox will each be a party to that reorganization within the meaning
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of Section 368(b) of the Code, (iii) no income, gain or loss will be recognized
for Federal income tax purposes by either First-Knox or Park as a result of the
consummation of the Merger, and (iv) no income, gain or loss will be recognized
for Federal income tax purposes by shareholders of First-Knox upon the exchange
in the Merger of First-Knox Common Shares solely for Park Common Shares (except
to the extent of any cash received in lieu of fractional shares).
(e) Legal Opinion. Park shall have received the opinion of Squire,
Sanders & Dempsey, counsel to First-Knox, dated the Closing Date, with regard to
the matters referred to in Exhibit 6.2(e) to this Agreement.
(f) Fairness Opinion. Park shall have received for inclusion with the
Proxy Statement mailed to the shareholders of Park an opinion of McDonald as to
the fairness of the Merger to the shareholders of Park from a financial point of
view.
6.3. Conditions to Obligations of First-Knox. The obligation of
First-Knox to effect the Merger is subject to the satisfaction of the following
conditions unless waived by First-Knox:
(a) Representations and Warranties. The representations and warranties
of Park set forth in this Agreement shall be true and correct as of the date of
this Agreement and (except to the extent such representations speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date, subject to such exceptions as do not have, and would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
Park or on the Surviving Corporation following the Effective Time, and
First-Knox shall have received a certificate signed on behalf of Park by the
Chairman of the Board, and Chief Executive Officer and by the Chief Financial
Officer of Park to such effect.
(b) Performance of Obligations of Park. Park shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and First-Knox shall have received a
certificate signed on behalf of Park by the Chairman of the Board, and Chief
Executive Officer and by the Chief Financial Officer of Park to such effect.
(c) Consents Under Agreements. Park shall have obtained the consent or
approval of each person (other than the Governmental Entities referred to in
Section 6.1(c)) whose consent or approval shall be required in connection with
the transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a material adverse effect, after the
Effective Time, on the Surviving Corporation.
(d) Tax Opinion. First-Knox shall have received the opinion of Porter,
Wright, Morris & Arthur, counsel to Park, dated the Closing Date, to the effect
that (i) the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, (ii) Park and
First-Knox will each be a party to that reorganization within the meaning
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of Section 368(b) of the Code, (iii) no income, gain or loss will be recognized
for Federal income tax purposes by either First-Knox or Park as a result of the
consummation of the Merger, and (iv) no income, gain or loss will be recognized
for Federal income tax purposes by shareholders of First-Knox upon the exchange
in the Merger of First-Knox Common Shares solely for Park Common Shares (except
to the extent of any cash received in lieu of fractional shares).
(e) Legal Opinion. First-Knox shall have received the opinion of
Porter, Wright, Morris & Arthur, counsel to Park, dated the Closing Date, with
regard to the matters referred to in Exhibit 6.3(e) to this Agreement.
(f) Authorization of Shares. Subject only to the filing of the
Certificate of Merger in accordance with the OGCL, Park shall have duly taken
all corporate action so that, when issued, the Park Common Shares to be issued
pursuant to Article II shall have been duly authorized, validly issued, fully
paid and non-assessable.
(g) Fairness Opinion. First-Knox shall have received for inclusion with
the Proxy Statement mailed to the shareholders of First-Knox an opinion of
Danielson as to the fairness of the Merger to the shareholders of First-Knox
from a financial point of view.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, by action taken or authorized by the Board of Directors of
the terminating party or parties, whether before or after approval of the
matters presented in connection with the Merger by the shareholders of
First-Knox or Park:
(a) by mutual consent of Park and First-Knox;
(b) by either Park or First-Knox if the Federal Reserve shall have
issued an order denying approval of the Merger and the other material aspects of
the transactions contemplated by this Agreement or if any Governmental Entity of
competent jurisdiction shall have issued a final permanent order enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement or imposing a Burdensome Condition, and in any such case the time for
appeal or petition for reconsideration of such order shall have expired without
such appeal or petition being granted;
(c) by either Park or First-Knox if the Merger shall not have been
consummated on or before October 31, 1997 unless extended by mutual consent of
the parties hereto;
(d) by either Park or First-Knox if any approval of the shareholders of
First-Knox or of Park required for the consummation of the Merger shall not have
been obtained by reason of the
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failure to obtain the required vote at a duly held meeting of shareholders or at
any adjournment thereof;
(e) by First-Knox in accordance with Section 2.1(d) or (e);
(f) by First-Knox if the Board of Directors of First-Knox determines in
good faith, after consultation with Danielson with respect to the financial
aspects of any Takeover Proposal for First-Knox and the Merger, and with legal
counsel to First-Knox, that termination of this Agreement and pursuit of a
Takeover Proposal for First-Knox is required by their fiduciary duties;
(g) by First-Knox if Park receives a Takeover Proposal or events have
occurred or actions commenced which are reasonably expected to result in a
Takeover Proposal for Park being submitted or effected; or
(h) by either Park or First-Knox within 18 business days of the
execution of this Agreement if (i) such party determines, in its sole
discretion, that its due diligence review has disclosed one or more material,
adverse facts, problems or conditions, (ii) such party provides written notice
of such defect or defects to the other party before the expiration of ten
business days after the execution of this Agreement, and (iii) the other party
has not cured such defect or defects to the satisfaction of such party within
five business days thereafter.
7.2. Effect of Termination. (a) In the event of termination of this
Agreement by either First-Knox or Park as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Park or First-Knox or their respective officers or
directors except (i) with respect to Sections 3.1(s) and 3.2(s), the penultimate
sentence of Section 5.2, and Section 5.9, (ii) as provided in Section 7.2(b) and
(iii) with respect to any liabilities or damages incurred or suffered by a party
as a result of the wilful breach by the other party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
(b) During the term of this Agreement if:
(i) a Takeover Proposal for First-Knox is submitted to and approved by
the shareholders of First-Knox at any time prior to October 31, 1997; or
(ii) (x) a Takeover Proposal for First-Knox is received by First-Knox
or is made directly to the shareholders of First-Knox at any time prior to
October 31, 1997, (y) the Board of Directors of First-Knox (I) fails to
recommend to the shareholders of First-Knox that they vote their First-Knox
Common Shares in favor of the approval of the Merger, (II) withdraws such
recommendation previously made, or (III) fails to solicit proxies of
shareholders of First-Knox to approve the Merger, and (z) the Merger is not
consummated by October 31, 1997;
then, in either such event First-Knox shall pay to Park, within five business
days after a termination of this Agreement following such an event, a
termination fee in the amount of
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$2,140,000 as liquidated damages, and not as a penalty, and, upon the payment in
full thereof, First-Knox shall have no further liability or obligations under
this Agreement (including under Section 7.2(a)(iii)). The obligations of
First-Knox under this Section 7.2(b) shall survive a termination of this
Agreement.
7.3. Amendment. This Agreement may be amended by the parties hereto by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of First-Knox or of Park, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants, and
agreements, shall survive the Effective Time, except for those covenants and
agreements contained herein that by their terms apply or are to be performed in
whole or in part after the Effective Time.
8.2. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or telefacsimile, upon confirmation of
receipt, (b) on the first business day following the date of dispatch if
delivered by a recognized next-day courier service, or (c) on the third business
day following the date of mailing if delivered by registered or certified mail,
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
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(a) if to Park, to
Park National Corporation
50 North Third Street
Newark, Ohio 43055
Attn: David C. Bowers,
Senior-Vice President
Telecopy No.: 614-349-3787
with a copy to
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
Attn: Richard A. Cheap
Telecopy No.: (614) 227-2100
and
(b) if to First-Knox, to
The First-Knox Banc Corp.
One South Main Street
P.O. Box 871
Mount Vernon, Ohio 43050
Attn: Ian Watson
Telecopy No.: (614) 399-5575
with a copy to
Squire, Sanders & Dempsey L.L.P.
1300 Huntington Center
41 South High Street
Columbus, Ohio 43215
Attn: Patrick J. Dugan
Telecopy No.: (614) 365-2499
8.3. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The
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phrases "the date of this Agreement", "the date hereof" and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
October 28, 1996.
8.4. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5. Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and the instruments referred
to herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, other than the Confidentiality Agreement,
which shall survive the execution and delivery of this Agreement and (b) except
as provided in Section 5.11, is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder. The parties hereby
acknowledge that, except as hereinafter agreed to in writing, no party shall
have the right to acquire or shall be deemed to have acquired common shares of
the other party pursuant to the Merger until consummation thereof.
8.6. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Ohio, without regard to any applicable
conflicts of law provisions thereof.
8.7. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability and, unless the
effect of such invalidity or unenforceability would prevent the parties from
realizing the major portion of the economic benefits of the Merger that they
currently anticipate obtaining therefrom, shall not render invalid or
unenforceable the remaining terms and provisions of this Agreement or affect the
validity or enforceability of any of the terms or provisions of this Agreement
in any other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable. For purposes of this Agreement, the term "major portion" of the
economic benefits of the Merger means two-thirds of such economic benefits.
8.8. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other party, and any attempt to make any such assignment without
such consent shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
8.9. Press Releases and Public Announcements. No party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior approval of the other party; provided, however,
that any party may make any public disclosure it believes in good faith is
required by applicable law or any listing or trading
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agreement concerning its publicly-traded securities (in which case the
disclosing party will use its best efforts to advise the other party prior to
making the disclosure).
IN WITNESS WHEREOF, Park and First-Knox have caused this Agreement to
be signed by their respective officers hereunto duly authorized, all as of
October 28, 1996.
<TABLE>
<S> <C>
PARK NATIONAL CORPORATION FIRST-KNOX BANC CORP.
By: /s/ William T. McConnell By: /s/ Philip H. Jordan, Jr.
--------------------------------------- --------------------------------
William T. McConnell, Chairman of Philip H. Jordan, Jr.,
the Board and Chief Executive Vice Chairman of the Board
Officer
By: /s/ C. Daniel DeLawder By: /s/ Carlos E. Watkins
--------------------------------------- --------------------------------
C. Daniel DeLawder, President Carlos E. Watkins, President
and Chief Executive Officer
</TABLE>
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EXHIBIT 5.5
AFFILIATE AGREEMENT
-------------------
Gentlemen:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of First-Knox Banc Corp., an Ohio corporation ("First-Knox"), as the
term "affiliate" is (i) defined for purposes of paragraphs (c) and (d) of Rule
145 of the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), and/or (ii) used in and for purposes of Accounting Series,
Releases 130 and 135, as amended, of the Commission. Pursuant to the terms of
the Agreement and Plan of Merger, dated as of _________, 1996, by and between
First-Knox and Park National Corporation, an Ohio corporation ("Park") (the
"Agreement"), First-Knox will be merged (the "Merger") into and with Park and
the name of the surviving corporation will be Park National Corporation, an Ohio
corporation (the "Surviving Corporation").
As used herein, "First-Knox Common Stock" means the Common Shares, par
value $3.125 per share, of First-Knox and "Surviving Corporation Common Stock"
means the Common Shares, without a par value, of the Surviving Corporation.
I represent, warrant, and covenant to the Surviving Corporation that in
the event I receive any Surviving Corporation Common Stock as a result of the
Merger:
A. I shall not make any sale, transfer, or other disposition of
any Surviving Corporation Common Stock acquired by me in the Merger in
violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreements and
discussed their requirements and other applicable limitations upon my
ability to sell, transfer, or otherwise dispose of Surviving
Corporation Common Stock to the extent I felt necessary, with my
counsel or counsel for First-Knox.
C. I have been advised that the issuance of Surviving Corporation
Common Stock to me pursuant to the Merger has been or will be
registered with the Commission under the Act on a Registration
Statement on Form S-4. However, I have also been advised that, because
at the time the Merger will be submitted for a vote of the
shareholders of First-Knox, I may be deemed to be an affiliate of
First-Knox, the distribution by me of any Surviving Corporation Common
Stock acquired by me in the Merger will not be registered under the
Act and that I may not sell, transfer, or otherwise dispose of any
Surviving Corporation Common Stock acquired by me in the Merger unless
(i) such sale, transfer, or other disposition has been registered
under the Act, (ii) such sale,
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transfer, or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under
the Act, or (iii) in the opinion of counsel reasonably acceptable to
the Surviving Corporation, such sale, transfer, or other disposition
is otherwise exempt from registration under the Act.
D. I understand that the Surviving Corporation is under no
obligation to register under the Act the sale, transfer, or other
disposition by me or on my behalf of any Surviving Corporation Common
Stock acquired by me in the Merger or to take any other action
necessary in order to make an exemption from such registration
available.
E. I also understand that stop transfer instructions will be
given to the Surviving Corporation's transfer agents with respect to
Surviving Corporation Common Stock and that there will be placed on
the certificates for the Surviving Corporation Common Stock acquired
by me in the Merger, or any substitutions therefor, a legend stating
in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933 applies. The shares represented by this certificate
may only be transferred in accordance with the terms of an
agreement dated ______, 1996 between the registered holder hereof
and the issuer of the certificate, a copy of which agreement will
be mailed to the holder hereof without charge within five days
after receipt of written request therefor."
F. I also understand that unless the transfer by me of my
Surviving Corporation Common Stock has been registered under the Act
or is a sale made in conformity with the provisions of Rule 145, the
Surviving Corporation reserves the right to put the following legend
on the certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired
from a person who received such shares in a transaction to which
Rule 145 promulgated under the Securities Act of 1933 applies.
The shares may not be sold, pledged or otherwise transferred
except in accordance with an exemption from the registration
requirements of the Securities Act of 1933."
It is understood and agreed that the legends set forth in paragraph E
and F above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to the Surviving Corporation a
copy of a letter from the staff of the Commission, or an opinion of counsel in
form and substance reasonably satisfactory to the Surviving Corporation, to the
effect that such legend is not required for purposes of the Act.
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I further represent to and covenant with First-Knox and the Surviving
Corporation that I will not, within the 30 days prior to the Effective Time (as
defined in the Agreements), sell, transfer, or otherwise dispose of any shares
of First-Knox Common Stock and that I will not sell, transfer, or otherwise
dispose of any shares of Surviving Corporation Common Stock (whether or not
acquired by me in the Merger) until after such time as results covering at least
30 days of combined operations of First-Knox and Park have been published by the
Surviving Corporation, in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to the Commission on
Form 10-K, 10-Q, or 8-K, or any other public filing or announcement which
includes the combined results of operations. Furthermore, I understand that
First-Knox and the Surviving Corporation will give stop transfer instructions to
their respective transfer agents in order to prevent the breach of the
representations, warranties, and covenants made by me in this paragraph. I also
understated that the Merger is intended to be treated for accounting purposes as
a "pooling of interests," and I agree that, if First-Knox or the Surviving
Corporation advises me in writing that additional restrictions apply to my
ability to sell, transfer, or otherwise dispose of First-Knox Common Stock or
Surviving Corporation Common Stock in order to be entitled to use the pooling of
interest accounting method, I will abide by such restrictions.
Very truly yours,
-------------------------------
Name:
Accepted this day of
------
, 1996,
- -------------
By:
-----------------------------
Name:
Title:
45
<PAGE> 153
EXHIBIT 6.2(e)
OPINION OF COUNSEL FOR FIRST-KNOX
---------------------------------
Park shall have received a favorable opinion dated as of the Closing
Date from Squire, Sanders & Dempsey, as counsel for First-Knox, reasonably
acceptable to Park, to the effect that:
(a) First-Knox Bank is a national banking association, duly organized,
validly existing, and in good standing under the laws of the United States;
Farmers is a state-chartered bank, duly organized, validly existing, and in good
standing under the laws of the State of Ohio; First-Knox is a corporation duly
organized, validly existing, and in good standing under the laws of Ohio; all
eligible accounts of deposit in First-Knox Bank and Farmers are insured by the
Federal Deposit Insurance Corporation to the fullest extent permitted by law;
First-Knox is a duly and validly registered bank holding company under the BHCA;
all corporate action required to be taken by the directors and shareholders of
First-Knox to authorize the transactions contemplated by the Merger Agreement
have been taken; and First-Knox has the corporate power to effect the Merger in
accordance with the terms of the Merger Agreement;
(b) the execution and delivery of the Merger Agreement did not, and the
consummation of the Merger will not, conflict with any provision of the articles
or certificate of incorporation, regulations, bylaws, or other charter documents
of First-Knox or its Significant Subsidiaries;
(c) the execution and delivery of the Merger Agreement and the
consummation of the Merger have been authorized by all necessary corporate
action of First-Knox; and the Merger Agreement is a valid and binding agreement
of First-Knox in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, or similar laws affecting enforcement of
creditors' rights generally and except that the enforceability of the
obligations of First-Knox may be subject to general principles of equity;
(d) First-Knox and its Significant Subsidiaries have the corporate
power and authority to own all of their properties and assets and to carry on
their businesses as presently conducted in all jurisdictions in which such
ownership exists or such business is conducted; First-Knox and its Significant
Subsidiaries are not required to be qualified to do business in any jurisdiction
other than Ohio; and
(e) such counsel knows of no pending or threatened litigation,
proceeding, or investigation which might result in any material adverse change
in the business, properties, or financial condition of First-Knox or its
Significant Subsidiaries.
Such opinion may be governed by the Accord. In giving such opinion,
such counsel may rely as to matters of fact, without independent investigation,
to the extent such counsel deems such reliance to be customary, reasonable, and
appropriate, on certificates of federal, state, or local government officials
and on certificates of officers and directors of First-Knox and its Significant
Subsidiaries. Such counsel may add such other qualifications and explanations of
the basis of its opinions as are consistent with the Accord.
46
<PAGE> 154
EXHIBIT 6.3(e)
OPINION OF COUNSEL FOR PARK
---------------------------
First-Knox shall have received a favorable opinion dated as of the
Closing Date from Porter, Wright, Morris & Arthur, as counsel for Park,
reasonably acceptable to First-Knox, to the effect that:
(a) The Park National Bank, Newark, Ohio, is a national banking
association, duly organized, validly existing, and in good standing under the
laws of the United States; Park is a corporation duly organized, validly
existing, and in good standing under the laws of Ohio; all eligible accounts of
deposit in The Park National Bank, Newark, Ohio, is insured by the Federal
Deposit Insurance Corporation to the fullest extent permitted by law; Park is a
duly and validly registered bank holding company under the BHCA and a duly and
validly registered savings and loan holding company under the HOLA; all
corporate action required to be taken by the directors and shareholders of Park
to authorize the transactions contemplated by the Merger Agreement have been
taken; and Park has the corporate power to effect the Merger in accordance with
the terms of the Merger Agreement;
(b) the execution and delivery of the Merger Agreement did not, and the
consummation of the Merger will not, conflict with any provision of the articles
or certificate of incorporation, regulations, bylaws, or other charter documents
of Park or its Significant Subsidiaries;
(c) the execution and delivery of the Merger Agreement and the
consummation of the Merger have been authorized by all necessary corporate
action of Park and the Merger Agreement is a valid and binding agreement of Park
in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, or similar laws affecting enforcement of creditors'
rights generally and except that the enforceability of the obligations of Park
may be subject to general principles of equity;
(d) Park and its Significant Subsidiaries have the corporate power and
authority to own all of their properties and assets and to carry on their
businesses as presently conducted in all jurisdictions in which such ownership
exists or such business is conducted; Park and its Significant Subsidiaries are
not required to be qualified to do business in any jurisdiction other than Ohio;
and
(e) such counsel knows of no pending or threatened litigation,
proceeding, or investigation which might result in any material adverse change
in the business, properties, or financial condition of Park or its Significant
Subsidiaries.
Such opinion may be governed by the Accord. In giving such opinion,
such counsel may rely as to matters of fact, without independent investigation,
to the extent such counsel deems such reliance to be customary, reasonable, and
appropriate, on certificates of federal, state, or local government officials
and on certificates of officers and directors of Park and its Significant
Subsidiaries. Such counsel may add such other qualifications and explanations of
the basis of its opinions as are consistent with the Accord.
47
<PAGE> 155
APPENDIX A-2
AMENDMENT TO AGREEMENT AND PLAN OF MERGER,
DATED AS OF JANUARY 10, 1997,
BETWEEN PARK NATIONAL CORPORATION
AND FIRST-KNOX BANC CORP.
<PAGE> 156
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger (the "Amendment") is
made as of this 10 day of January, 1997, between Park National Corporation, an
Ohio Corporation ("Park"), and First-Knox Banc Corp., an Ohio corporation
("First-Knox").
WHEREAS, Park and First-Knox entered into an Agreement and Plan of
Merger, dated as of October 28, 1996 (the "Merger Agreement"), which provides
for the merger of First-Knox into Park (the "Merger") upon the terms and
conditions set forth in the Merger Agreement;
WHEREAS, First-Knox represented in Section 3.1(v) of the Merger
Agreement that it had terminated the First-Knox Bank Corp. Dividend Reinvestment
Plan (the "First-Knox Dividend Reinvestment Plan");
WHEREAS, Section 4.1(m) of the Merger Agreement provides, among other
things, that each of Park and First-Knox will not, without the prior consent of
the other party, adopt an employee benefit plan or any agreement, arrangement,
plan, or policy between such party and one or more of its directors or officers;
and
WHEREAS, the parties hereto desire to (I) amend the Merger Agreement in
order to permit the continuation of the First-Knox Dividend Reinvestment Plan on
the terms and conditions specified in this Amendment, and (ii) provide for the
consent of First-Knox to the Park National Corporation Supplemental Executive
Retirement Plan (the "Park SERP").
NOW, THEREFORE, in consideration of the foregoing, the parties hereto
agree as follows:
1. TERMS. All terms not otherwise defined herein shall have the meaning
ascribed to them in the Merger Agreement.
2. FIRST-KNOX DIVIDEND REINVESTMENT PLAN. Park hereby acknowledges that
the First-Knox Dividend Reinvestment Plan has not been terminated and approves
its continuance so long as all First-Knox Common Shares are purchased for the
Plan on the open market and are not issued directly from First-Knox so that the
total number of First-Knox Common Shares outstanding at the Effective Time will
not be increased from the total number of First-Knox Common Shares outstanding
on October 28, 1996, by operation of the First-Knox Dividend Reinvestment Plan.
<PAGE> 157
3. PARK SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. First-Knox hereby
consents to the adoption by Park of the Park SERP in the form approved by Park's
Executive Committee on December 18, 1996.
4. RATIFICATION. Except as otherwise amended hereby, the Merger
Agreement shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
PARK NATIONAL CORPORATION
By: /s/ William T. McConnell
--------------------------------------
William T. McConnell
Chairman of the Board and Chief
Executive Officer
By: /s/ C. Daniel DeLawder
--------------------------------------
C. Daniel DeLawder
President
FIRST-KNOX BANC CORP.
By: /s/ Philip H. Jordan, Jr.
--------------------------------------
Philip H. Jordan, Jr.
Chairman of the Board
By: /s/ Carlos E. Watkins
--------------------------------------
Carlos E. Watkins
President and Chief Executive Officer
<PAGE> 158
APPENDIX B
ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED
DECEMBER 31, 1996
OF
PARK NATIONAL CORPORATION
[DELIVERED SEPARATELY HEREWITH]
<PAGE> 159
TO OUR STOCKHOLDERS
The headlines in the financial press frequently trumpet the changes occurring in
our industry. Change is rapid and increasing. Sometimes this worries us. Perhaps
we're falling behind; perhaps we're going to be in trouble. For we just seem to
be doing the things we've always done.
In preparing this letter we decided to look closely at last year, and what we
found was that we are not completely out of step with the rest of the band, that
a good deal of change has been occurring around here. Just as it's difficult for
parents who see their children daily to notice growth and change, so we may be
so close that we fail to recognize the cumulative effect of all the individual
changes that occur in Park National Corporation in a year. We aren't going to
cover all the changes that occurred around here last year, but we do want to
mention a few.
Of course the most important change happening at this time is the upcoming
merger between Park and First-Knox Banc Corp. of Mount Vernon. This is a very
big thing for us. As a $575 million institution, it will add about a third to
our size. More important, much more important, is the opportunity this marriage
presents. It makes a great fit. Not just geographically, although the First-Knox
location between the markets of the Richland Bank and Park National Bank could
hardly be improved upon. The great advantage of this merger for the stockholders
and employees of each company, and for the communities we serve, is that it will
allow us to continue and to enhance the style of banking in which both believe,
and to do it while earning well above average returns for our shareholders. Both
companies are trying to accomplish the same thing. We both believe in community
banking where people know your name, where customers are served one at a time,
individually, and with courtesy and concern. And we both understand that we must
assume leadership in the lives of our communities. But we also recognize that
there are economies that come with greater size and that, therefore, if we want
to remain competitive with the large bank holding companies with offices in our
communities, we must be large enough to realize some of these savings. In short
we want to be large enough to be efficient and small enough to be effective.
Although casual conversations about combining the banks go back a number of
years, it wasn't until late in 1995 that we first met with the First-Knox board
and began serious talks. Almost a year was to pass before we entered into a
definitive agreement to merge. Since then we've been spending time and energy
with government regulators, and time and money with lawyers and investment
bankers and advisors -- lots of time, and lots of energy, and particularly lots
of money.
-3-
<PAGE> 160
There is certainly some question regarding the economic benefit to be gained
from all of this regulatory rigmarole. There are, however, quite definite
benefits that we will enjoy as the result of the efforts of Gordy Yance from
First-Knox and David Trautman from Park. They have taken the leadership in
organizing a number of transition teams with representatives from both
institutions who are working to make this wedding as smooth as possible for our
customers and associates. In addition they are searching for ways both of us can
benefit from best practices of each; and finally they are laboring to identify
and realize all possible savings from putting the banks together.
We hope to secure your approval of this transaction at our shareholders' meeting
on April 21. First-Knox shareholders will meet two days later and we will close
as soon after that as possible.
Several other significant things happened in 1996 that changed your company.
Last fall Mutual Federal Savings Bank sent $1.8 million to Washington to
re-capitalize the Savings Association Insurance Fund. This discharged their
obligation to help pay for the debacle in the savings and loan industry which
they neither caused nor contributed to. They will completely divorce themselves
from this era when this spring they adopt a new name and a national bank
charter. Century National Bank will be for the people of southeastern Ohio,
"your bank for the next century."
One of our success stories in 1996 was the purchase by the Richland Bank of five
offices of the Peoples National Bank. This transaction was completed in December
and added almost $100 million in deposits to the bank's totals. Three of the
offices were located in Mansfield, in each instance quite close to an existing
office of the Richland Bank. Of these six, three remain, enabling us to achieve
substantial savings while offering enhanced service and products to our new
customers. The other two offices are in Shelby, a Richland County community not
previously served by the Richland Bank.
If you have read this far you realize that we have not yet made mention of our
financial results for 1996. Please don't conclude that that's because they're
not so hot. Actually they are very good. In total Park National Corporation
earned $25.7 million in 1996, up 16.0 percent from $22.1 million in 1995. In per
share terms that is $3.60 vs. $3.09 the year before, an increase of 16.5
percent. Dividends paid increased by twenty cents from $1.20 to $1.40 per share.
-4-
<PAGE> 161
Two other ratios that we, along with other financial institutions use to measure
performance are Return on Assets and Return on Equity. Both increased last year
and both were well above bank averages. In 1996 our Return on Assets was 1.73%
and Return on Equity was 18.38%. In recent years still another ratio has become
popular as a way to compare banks and to measure progress within an individual
company. It's called the Efficiency Ratio and is designed to gauge how
efficiently the bank is being managed. It is constructed in such a way that less
is better. We finished 1996 with a score below 50 percent for the first time.
This was a noteworthy accomplishment.
In last year's letter we reported the loss of Everett D. Reese, and now we must
report the passing of John W. Alford in 1996. You will find a message describing
John's contributions beginning on the next page of this report.
Finally, a word about next year. We have completed our profit plan for Park
National as it now stands, and every indication is that 1997 will be a good
year. However, we have not finished integrating First-Knox numbers with our own.
This merger will involve earnings dilution for Park National shareholders in
1997. Just how much will depend on how rapidly we can put into place the
extensive savings and increased revenue possibilities we have identified as
being available to us in combination. We have previously resisted any
transaction that diluted our earnings; but the opportunities created by
combining First-Knox and Park National are so great that we continue to be
confident that we have acted in the best interests of us all as shareholders.
We welcome your comments and advice, and particularly any banking business you
can send our way.
/s/ William T. McConnell
WILLIAM T. McCONNELL
Chairman
/s/ C. Daniel DeLawder
C. DANIEL DeLAWDER
President
-5-
<PAGE> 162
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
PERCENT
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 CHANGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS:
Total interest income $ 122,291 $ 113,200 8.03%
- -------------------------------------------------------------------------------------------------------------------
Total interest expense 49,332 46,848 5.30%
- -------------------------------------------------------------------------------------------------------------------
Net interest income 72,959 66,352 9.96%
- -------------------------------------------------------------------------------------------------------------------
Net income 25,664 22,120 16.02%
- -------------------------------------------------------------------------------------------------------------------
PER SHARE:
Net income $ 3.60 $ 3.09 16.50%
- -------------------------------------------------------------------------------------------------------------------
Cash dividends declared 1.45 1.25 16.00%
- -------------------------------------------------------------------------------------------------------------------
Book value (end of period) 20.89 19.12 9.26%
- -------------------------------------------------------------------------------------------------------------------
AT YEAR-END:
Total assets $1,614,767 $1,476,208 9.39%
- -------------------------------------------------------------------------------------------------------------------
Deposits 1,336,617 1,206,540 10.78%
- -------------------------------------------------------------------------------------------------------------------
Loans 1,112,603 1,024,727 8.58%
- -------------------------------------------------------------------------------------------------------------------
Investment securities 396,967 328,730 20.76%
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity 148,986 136,424 9.21%
- -------------------------------------------------------------------------------------------------------------------
RATIOS:
Return on average equity 18.38% 17.69% --
- -------------------------------------------------------------------------------------------------------------------
Return on average assets 1.73% 1.58% --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NET INCOME (millions) EARNINGS PER SHARE
1996 $25.7 1996 $3.60
1995 $22.1 1995 $3.09
1994 $20.0 1994 $2.80
1993 $19.0 1993 $2.69
1992 $16.5 1992 $2.33
RETURN ON AVERAGE EQUITY RETURN ON AVERAGE ASSETS
1996 18.4% 1996 1.73%
1995 17.7% 1995 1.58%
1994 18.1% 1994 1.52%
1993 19.0% 1993 1.53%
1992 18.6% 1992 1.37%
18
<PAGE> 163
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of
financial condition and results of operations for Park National Corporation
("Park" or the "Corporation"). This discussion should be read in conjunction
with the consolidated financial statements and related footnotes and the
five-year summary of selected financial data.
OVERVIEW
Net income for 1996 was $25.7 million, the highest in Park's nine year history
as a bank holding company. This represents a 16.0% increase over net income of
$22.1 million for 1995. Net income per share was $3.60 for 1996, an increase of
16.5% compared to $3.09 for 1995. Net income has increased at an annual
compound growth rate of 11.2% over the last five years, and net income per
share has grown at an annual compound growth rate of 11.1% over the same period.
Effective with the fourth quarter of 1996, the quarterly cash dividend on
common stock was increased to $.40 per share. The new annualized dividend of
$1.60 per share is 14.3% greater than the dividend paid in 1995. The
Corporation has paid quarterly dividends since becoming a holding company in
early 1987. The annual compound growth rate for the Corporation's per share
dividend for the last five years is 13.5% and the dividend payout to net income
ratio has averaged 38.5% over that same period.
The purchase of five Richland County, Ohio offices by Richland Trust Company, a
subsidiary of Park, was completed during December, 1996. The banking business
of the purchased branches has been consolidated into the branch operations of
Richland Trust Company. As a result, the number of banking offices has
increased by only two in a market not previously served by Richland Trust
Company. In addition to the branch real estate and other fixed assets, the
purchase included approximately $98.0 million of deposits and $31.0 million of
loans which are included in the Corporation's year-end totals. See Footnote 2
to the financial statements.
On October 28, 1996, Park entered into an Agreement and Plan of Merger with
First-Knox Banc Corp. ("First-Knox"), a $574 million bank holding company
headquartered in Mount Vernon, Ohio, providing for a merger of First-Knox into
Park. Under the terms of that Agreement, the stockholders of First-Knox are
expected to receive .5914 shares of Park common stock per share of First-Knox
common stock in a tax-free exchange. Park expects to issue an aggregate of
2,345,000 shares of common stock to complete the merger, which will be accounted
for as a pooling-of-interests. Completion of the merger is subject to certain
conditions, including the approval of bank regulators and other governmental
agencies, the approval of the stockholders of First-Knox and Park, and other
conditions to closing customary of a transaction of this type. The merger is
expected to be completed during the second quarter of 1997.
Park's business focus is geared toward maximizing the return to stockholders.
The Corporation's common stock value has appreciated 17.7% annually on a
compounded, total return basis for the last five years. The December 31, 1996
value of a $100 investment on December 31, 1991 would be $226, inclusive of the
reinvestment of dividends in the Corporation's common stock.
ABOUT OUR BUSINESS
Through its banking and thrift subsidiaries, the Corporation is engaged in the
general commercial banking and trust business. Management believes there is a
significant number of consumers and businesses which seek long-term
relationships with community-based financial institutions of quality and
strength. While avoiding activities such as foreign lending, nationally
syndicated loans and investment banking operations, the Corporation attempts to
meet the needs of its customers for commercial, real estate and consumer loans,
and investment and deposit services. Familiarity with the local market, coupled
with conservative loan underwriting standards, has allowed the Corporation to
achieve solid financial results even in periods where there have been changes
in economic conditions and the general level of interest rates.
19
<PAGE> 164
The Corporation has produced performance ratios which compare favorably to
other financial institutions in terms of equity and asset returns, capital
adequacy and asset quality. Continued satisfactory results are contingent upon
economic conditions in Ohio and competitive factors, among other things.
The Corporation's subsidiaries compete for deposits and loans with other banks,
savings associations, credit unions and other types of financial institutions.
The Corporation and its subsidiaries operate forty-one full-service banking
offices and a network of thirty-nine automatic teller machines in eleven
central and southern Ohio counties.
A table of financial data of the Corporation's affiliates for 1996, 1995, and
1994 is shown below:
TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994
Average Net Average Net Average Net
(IN THOUSANDS) Assets Income Assets Income Assets Income
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park National Division $ 672,374 $15,900 $ 637,211 $13,716 $ 608,321 $11,994
-------------------------------------------------------------------------------------------------------------------
Fairfield National Division 187,226 3,564 171,572 3,315 150,565 2,538
-------------------------------------------------------------------------------------------------------------------
Richland Trust Company 275,287 3,747 255,311 3,642 238,968 3,205
-------------------------------------------------------------------------------------------------------------------
Mutual Federal Savings Bank 346,512 3,401 329,848 2,016 318,244 2,652
-------------------------------------------------------------------------------------------------------------------
Parent Company,
including consolidating
entries 4,158 (948) 2,280 (569) 522 (372)
-------------------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTALS $1,485,557 $25,664 $1,396,222 $22,120 $1,316,620 $20,017
-------------------------------------------------------------------------------------------------------------------
</TABLE>
RETURN ON EQUITY
The Corporation's primary financial goal is to achieve a superior, long-term
return on stockholders' equity. The Corporation measures performance in its
attempts to achieve this goal against its peers, defined as all U.S. bank
holding companies between $1 billion and $3 billion in assets. At year-end 1996,
there were approximately 121 peer bank holding companies. The Corporation's net
income to average equity was 18.38%, 17.69% and 18.08% in 1996, 1995, and 1994,
respectively. In the past five years, the Corporation's net income to average
equity exceeded the mean and median return of the peer group by a substantial
margin.
HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY
<GRAPH>
The return on average equity ratio has averaged 18.36% over the past five
years. While net income has increased at an annual compound rate of 11.2% over
this period, average equity has increased at a faster rate at 12.2%. Maximizing
the Corporation's return on an ever increasing equity base is a continual
challenge for management.
BALANCE SHEET COMPOSITION
Park National Corporation functions as a financial intermediary. The following
section discusses the sources of funds and the manner in which management has
invested these funds.
20
<PAGE> 165
SOURCE OF FUNDS
DEPOSITS: The Corporation's major source of funds is provided by core deposits
from individuals, businesses, and local government units. These core deposits
consist of all noninterest-bearing and interest-bearing deposits, excluding
certificates of deposit of $100,000 and over which were less than 8.5% of total
deposits for the last three years. In 1996, year-end total deposits increased by
$130.1 million or 10.8% of which $98.0 million was from the purchase of branches
in Richland County. In 1995, year-end total deposits increased by $128.2 million
or 11.9%. The mix of core deposits shifted toward certificates of deposit,
particularly in 1995, as more aggressive pricing and flexible withdrawal options
were offered. In 1996, 1995, and 1994, core deposits were approximately 75% of
total assets.
Maturity of time certificates of deposit and other time deposits of $100,000
and over as of December 31, 1996 were:
TABLE 2 - OVER $100,000 MATURITY SCHEDULE
<TABLE>
<CAPTION>
TIME CERTIFICATES
DECEMBER 31, 1996 (IN MILLIONS) OF DEPOSIT
------------------------------------------------------------------------------------------------------
<S> <C>
3 months or less $ 55.9
------------------------------------------------------------------------------------------------------
Over 3 months through 6 months 27.8
------------------------------------------------------------------------------------------------------
Over 6 months through 12 months 10.7
------------------------------------------------------------------------------------------------------
Over 12 months 18.3
------------------------------------------------------------------------------------------------------
TOTAL $112.7
------------------------------------------------------------------------------------------------------
</TABLE>
SHORT-TERM BORROWINGS: Short-term borrowings include securities sold under
agreements to repurchase, Federal Home Loan Bank advances and federal funds
purchased. These funds are also used to manage the Corporation's liquidity needs
and interest rate sensitivity risk. They are subject to short-term price swings
as the Corporation's needs change or the overall market rates for short-term
investment funds change. In 1996, average short-term borrowings were $114
million compared to $133 million in 1995 and $122 million in 1994. Average
short-term borrowings were 7.7%, 9.5%, and 9.2% of average assets in 1996, 1995,
and 1994, respectively.
LONG-TERM DEBT: During the past three years, the Corporation incurred no
long-term debt.
STOCKHOLDERS' EQUITY: Average stockholders' equity to average assets increased
to 9.40% in 1996 compared to 8.96% in 1995 and 8.41% in 1994.
In accordance with Statement of Financial Accounting Standards No. 115, the
Corporation reflects any unrealized holding gain/(loss) on available-for-sale
securities, net of federal taxes, as an adjustment to the Corporation's equity.
While the effect of this accounting is not recognized for calculation of
regulatory capital adequacy ratios, it does impact the Corporation's equity as
reported in the audited financial statements. The unrealized holding
gain/(loss) on available-for-sale securities, net of federal taxes,
was $3.3, $5.9, and ($5.7) million in 1996, 1995, and 1994, respectively.
INVESTMENT OF FUNDS
LOANS: Average loans, net of unearned income and the loan loss allowance, were
$1,014 million in 1996 compared to $981 million in 1995 and $901 million in
1994. The average yield on net loans was 9.74% in 1996 compared to 9.50% in
1995 and 8.46% in 1994. Approximately 75% of loan balances mature or reprice
within one year. This results in the yield on the loan portfolio adjusting with
changes in interest rates, but on a delayed basis.
21
<PAGE> 166
Year-end loan balances, net of unearned income, increased by $88 million or
8.6% in 1996 and by $44 million or 4.4% in 1995. The growth in 1996, includes
$31.0 million of loans acquired from the purchase of branches in Richland
County. As a percentage of assets, year-end loan balances were 68.9%, 69.4%,
and 72.0% in 1996, 1995, and 1994, respectively.
Consumer loans increased by $30.5 million or 14.5% in 1996 and were unchanged
in 1995 compared with 1994. The growth in consumer loans was principally due
to an increase in the volume of automobile related installment loans. During
1995, net consumer loan growth was flat due to the Corporation selling $18
million of student loans as a result of anticipated difficulties in complying
with new government servicing and reporting regulations. The Corporation
continues to originate student loans to serve its market and sells them to a
loan servicer.
Table 3 reports year-end loan balances by type of loan for the past five years.
TABLE 3 - LOANS BY TYPE
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994 1993 1992
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agriculture $ 129,269 $ 118,225 $104,559 $109,531 $126,029
-------------------------------------------------------------------------------------------------------------------
Real estate - construction 52,443 40,871 34,880 32,037 23,276
-------------------------------------------------------------------------------------------------------------------
Real estate - residential 466,957 444,005 430,483 373,820 338,832
-------------------------------------------------------------------------------------------------------------------
Real estate - commercial 203,023 191,127 181,703 157,199 122,516
-------------------------------------------------------------------------------------------------------------------
Consumer, net 239,961 209,481 209,141 187,830 170,651
-------------------------------------------------------------------------------------------------------------------
Leases, net 20,950 21,018 20,374 11,971 12,705
-------------------------------------------------------------------------------------------------------------------
TOTAL LOANS $1,112,603 $1,024,727 $981,140 $872,388 $794,009
-------------------------------------------------------------------------------------------------------------------
</TABLE>
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
Over One Over
One Year Through Five
DECEMBER 31, 1996 (IN THOUSANDS) or Less Five Years Years TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and
agriculture $105,927 $18,596 $4,746 $129,269
- ----------------------------------------------------------------------------------------------------------------------
Real Estate - construction 46,725 5,718 -- 52,443
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $152,652 $24,314 $4,746 $181,712
- ----------------------------------------------------------------------------------------------------------------------
Total of these selected loans due
after one year with:
Fixed interest rate $ 23,527
- ----------------------------------------------------------------------------------------------------------------------
Floating interest rate 5,533
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to
provide liquidity and contribute to earnings. The Corporation classifies
approximately 95% of its securities as available-for-sale -- see Footnote 4 to
the financial statements. These securities are carried on the books at the
estimated fair value with the unrealized holding gain or loss, net of taxes,
accounted for as an adjustment to the Corporation's equity. Management
classifies a large portion of the securities portfolio as available-for-sale so
that these securities will be available to be sold in future periods in carrying
out the Corporation's investment strategies. The remaining securities are
classified as held-to-maturity and are accounted for at amortized cost.
22
<PAGE> 167
The Corporation's investment strategy is dynamic. As conditions change over
time, the Corporation's overall interest rate risk, liquidity needs, and
potential return on the investment portfolio will change. The Corporation
regularly re-evaluates the securities in its portfolio based on circumstances as
they evolve. Circumstances that may precipitate a sale of a security would be to
better manage interest rate risk, to meet liquidity needs, or to improve the
overall yield from the investment portfolio. Investment security losses were
$1.3 million, $.6 million, and $3.3 million in 1996, 1995, and 1994,
respectively. The Corporation's strategy has generally been to reinvest the
proceeds from the sale of securities into higher yielding, longer maturity
taxable investment securities.
The Corporation's taxable investment securities portfolio was approximately 97%
of the total investment securities portfolio at year-end 1996, 1995, and 1994.
The average yield on taxable investment securities was 6.77%, 6.80%, and 6.16%
for 1996, 1995, and 1994, respectively. The average maturity or repricing of the
taxable investment portfolio was approximately 2.5 years at year-end 1996
compared to 3 years at year-end 1995 and 2.5 years at year-end 1994.
The average tax-equivalent yield on the tax-exempt securities portfolio was
8.69%, 8.67%, and 9.62% for 1996, 1995, and 1994, respectively. The average
maturity of the tax-exempt portfolio was approximately 3.3 years at year-end
1996 compared to 4.1 years at year-end 1995 and 3.8 years at year-end 1994.
The following table sets forth the book value of investment securities at
year-end:
TABLE 5 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Obligations of U.S. Treasury and other
U.S. Government agencies $164,275 $157,056 $107,509
- ---------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions 9,784 9,566 10,898
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government asset-backed securities 212,464 150,680 146,886
- ---------------------------------------------------------------------------------------------------------------------
Non U.S. Government asset-backed securities 2,510 3,909 5,679
- ---------------------------------------------------------------------------------------------------------------------
Other securities 7,934 7,519 6,846
- ---------------------------------------------------------------------------------------------------------------------
TOTAL $396,967 $328,730 $277,818
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
EARNING RESULTS
The Corporation's principal source of earnings is net interest income, the
difference between total interest income and total interest expense. Net
interest income results from average balances outstanding for interest-earning
assets and interest-bearing liabilities in conjunction with the average rates
earned and paid on them.
The net yield on interest-earning assets improved to 5.35% for 1996 compared to
5.22% for 1995 and 5.01% in 1994. During 1996, the average yield on earning
assets increased to 8.94% compared to 8.87% for 1995 while the average rate paid
on interest-bearing liabilities was unchanged at 4.23%. In 1994 and for part of
1995, the overall level of interest rates increased. During 1995, the average
yield on earning assets increased 95 basis points to 8.87% and the average rate
paid on interest-bearing liabilities increased 89 basis points to 4.23% in 1995.
For both 1996 and 1995, the increase in the net interest spread was the primary
reason for the increase in the net yield on interest-earning assets.
23
<PAGE> 168
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) 1996
Daily Average
Average Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans, net (1) (2) $1,013,719 $ 98,776 9.74%
- ----------------------------------------------------------------------------------------------------------------------
Taxable investment securities 315,036 21,337 6.77%
- ----------------------------------------------------------------------------------------------------------------------
Tax-exempt investment securities (3) 9,985 868 8.69%
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in banks -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Federal funds sold 34,400 1,840 5.35%
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 1,373,140 122,821 8.94%
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 54,122
- ----------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 16,890
- ----------------------------------------------------------------------------------------------------------------------
Other assets 41,405
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $1,485,557
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'EQUITY
INTEREST-BEARING LIABILITIES:
Transaction accounts $ 238,065 $ 5,509 2.31%
- ----------------------------------------------------------------------------------------------------------------------
Savings deposits 243,470 7,028 2.89%
- ----------------------------------------------------------------------------------------------------------------------
Time deposits 571,443 31,696 5.55%
- ----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 114,187 5,099 4.47%
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 1,167,165 49,332 4.23%
- ----------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
Demand deposits 160,173
- ----------------------------------------------------------------------------------------------------------------------
Other 18,581
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 178,754
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 139,638
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $1,485,557
- ----------------------------------------------------------------------------------------------------------------------
Net interest earnings $ 73,489
- ----------------------------------------------------------------------------------------------------------------------
Net interest spread 4.71%
- ----------------------------------------------------------------------------------------------------------------------
Net yield on interest-earning assets 5.35%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan income includes net fee loan income of $1,639 in 1996, $1,327 in
1995 and $976 in 1994. Loan income also includes the effects of taxable
equivalent adjustments using a 35% rate in 1996, 1995 and 1994. The
taxable equivalent adjustment was $265 in 1996, $272 in 1995 and $315
in 1994.
(2) For purposes of this computation, non-accrual loans are included in the
daily average loans outstanding.
(3) Interest income on tax-exempt securities includes the effect of taxable
equivalent adjustments using a 35% rate in 1996, 1995 and 1994. The
taxable equivalent adjustment was $265 in 1996, $282 in 1995 and $459
in 1994.
24
<PAGE> 169
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
(continued)
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 980,828 $ 93,144 9.50% $ 901,029 $76,261 8.46%
- ----------------------------------------------------------------------------------------------------------------------
278,149 18,905 6.80% 283,165 17,434 6.16%
- ----------------------------------------------------------------------------------------------------------------------
10,661 924 8.67% 15,834 1,524 9.62%
- ----------------------------------------------------------------------------------------------------------------------
-- -- -- 2,249 210 9.34%
- ----------------------------------------------------------------------------------------------------------------------
13,257 781 5.89% 3,987 162 4.06%
- ----------------------------------------------------------------------------------------------------------------------
1,282,895 113,754 8.87% 1,206,264 95,591 7.92%
- ----------------------------------------------------------------------------------------------------------------------
56,463 54,704
- ----------------------------------------------------------------------------------------------------------------------
16,933 16,407
- ----------------------------------------------------------------------------------------------------------------------
39,931 39,245
- ----------------------------------------------------------------------------------------------------------------------
$1,396,222 $1,316,620
- ----------------------------------------------------------------------------------------------------------------------
$ 226,352 $ 5,348 2.36% $ 247,354 $ 5,475 2.21%
- ----------------------------------------------------------------------------------------------------------------------
250,611 7,461 2.98% 288,384 8,333 2.89%
- ----------------------------------------------------------------------------------------------------------------------
496,713 27,256 5.49% 395,164 16,969 4.29%
- ----------------------------------------------------------------------------------------------------------------------
132,839 6,783 5.11% 121,678 4,387 3.61%
- ----------------------------------------------------------------------------------------------------------------------
1,106,515 46,848 4.23% 1,052,580 35,164 3.34%
- ----------------------------------------------------------------------------------------------------------------------
149,383 141,786
- ----------------------------------------------------------------------------------------------------------------------
15,282 11,513
- ----------------------------------------------------------------------------------------------------------------------
164,665 153,299
- ----------------------------------------------------------------------------------------------------------------------
125,042 110,741
- ----------------------------------------------------------------------------------------------------------------------
$1,396,222 $1,316,620
- ----------------------------------------------------------------------------------------------------------------------
$ 66,906 $60,427
- ----------------------------------------------------------------------------------------------------------------------
4.64% 4.58%
- ----------------------------------------------------------------------------------------------------------------------
5.22% 5.01%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 170
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
TABLE 7 - VOLUME/RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Change from 1995 to 1996 Change from 1994 to 1995
(IN THOUSANDS) Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Total loans $3,212 $2,420 $5,632 $7,071 $9,812 $16,883
- ----------------------------------------------------------------------------------------------------------------------
Taxable investments 2,515 (83) 2,432 (314) 1,785 1,471
- ----------------------------------------------------------------------------------------------------------------------
Tax-exempt investments (58) 2 (56) (461) (139) (600)
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits
in banks -- -- -- (105) (105) (210)
- ----------------------------------------------------------------------------------------------------------------------
Federal funds sold 1,137 (78) 1,059 519 100 619
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 6,806 2,261 9,067 6,710 11,453 18,163
- ----------------------------------------------------------------------------------------------------------------------
Interest expense:
Transaction accounts 274 (113) 161 (483) 356 (127)
- ----------------------------------------------------------------------------------------------------------------------
Savings accounts (211) (222) (433) (1,124) 252 (872)
- ----------------------------------------------------------------------------------------------------------------------
Time deposits 4,139 301 4,440 4,927 5,360 10,287
- ----------------------------------------------------------------------------------------------------------------------
Short-term borrowings (890) (794) (1,684) 433 1,963 2,396
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 3,312 (828) 2,484 3,753 7,931 11,684
- ----------------------------------------------------------------------------------------------------------------------
Net variance $3,494 $3,089 $6,583 $2,957 $3,522 $6,479
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
OTHER INCOME: Total other income, exclusive of security losses, increased by
6.8% to $14.5 million in 1996 and increased by 9.7% to $13.5 million in 1995
compared to $12.3 million for 1994. Income from fiduciary activities increased
by 15.4% to $3.3 million in 1996 and increased by 21.3% to $2.9 million in 1995
compared to $2.4 million in 1994. This increase in both years was due to fees
related to the growth in assets under management from new Trust Department
customers. The Other subcategory increased in 1995 due to rental income from
operating leases originated by Scope Leasing, Inc., acquired by the Corporation
in May, 1994.
Losses on sale of securities were $1.3 million in 1996 compared to $.6 million
in 1995 and $3.3 million in 1994. The proceeds from the sale of securities were
generally invested in higher yielding, longer maturity securities to take
advantage of an upward sloping yield curve. During 1994, all off-balance sheet
derivative investments either matured or were sold. At year end 1996, 1995, and
1994, the Corporation had no off-balance sheet derivative investments.
OTHER EXPENSE: Total other expense increased by 3.8% to $43.2 million in 1996
and increased by 10% to $41.6 million in 1995 compared to $37.9 million in
1994.
Salaries and employee benefits increased by 6.9% in 1996 and by 8.8% in 1995
compared to the prior years. The increase in both years was due to normal merit
increases and staff increases to accommodate new banking offices, extended
hours in selected banking offices, and annuity/mutual fund sales in order to
provide the Corporation's customers with alternative investment products.
Full-time equivalent employees at year-end were 711 in 1996, 688 in 1995 and
660 in 1994.
Insurance expense decreased in 1996 and 1995 as the FDIC's bank deposit
insurance premium rate was sharply reduced. The FDIC bank deposit insurance
premium paid by the Corporation's bank subsidiaries decreased sharply in both
1996 and 1995 but the Corporation's thrift subsidiary continued to pay the same
26
<PAGE> 171
FDIC thrift deposit rate in 1996 and 1995 and additionally incurred a one-time
recapitalization expense in 1996. As a result, management expects the deposit
insurance premium expense for the Corporation to decrease further in 1997.
Fees and service charges increased by $.8 million during 1996 to $3.0 million.
This increase was primarily due to one-time expenses in connection with the
pending merger with First-Knox.
The subcategory Other expense decreased by $1.1 million in 1996 and increased
by $2.0 million in 1995. The decrease in expense in 1996 was primarily due to a
decrease in depreciation expense from operating leases while the increase in
1995 was primarily due to an increase in depreciation expense from operating
leases compared to the prior year. The operating leases pertain to leases
originated by Scope Leasing, Inc. which was acquired in May, 1994. See Footnote
2 to the financial statements.
INCOME TAXES: Federal income tax expense as a percentage of income before taxes
was 33% in 1996 and 1995 and 31% in 1994. The lower tax percentage rate in 1994
was primarily due to a larger amount of tax-exempt interest income in 1994. The
Corporation's federal tax rate was 35% for all three years.
CREDIT EXPERIENCE
PROVISION FOR LOAN LOSSES: The provision for loan losses is the amount added to
the allowance for loan losses to absorb possible future loan charge-offs. The
amount of the loan loss provision is determined by management after reviewing
the risk characteristics of the loan portfolio, historical loan loss experience
and anticipated future economic conditions.
The following table summarizes the loan loss provision, charge-offs and
recoveries for the last five years:
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
DECEMBER 31, (DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS (NET OF UNEARNED INTEREST) $1,040,237 $1,004,016 $922,172 $829,323 $759,688
- ----------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Beginning balance $ 25,073 $ 21,562 $ 20,178 $ 18,402 $17,037
- ----------------------------------------------------------------------------------------------------------------------
Charge-offs:
Commercial 712 247 949 926 1,145
- ----------------------------------------------------------------------------------------------------------------------
Real estate 185 471 48 336 881
- ----------------------------------------------------------------------------------------------------------------------
Consumer 2,548 1,640 1,330 1,376 1,387
- ----------------------------------------------------------------------------------------------------------------------
Lease financing 414 55 103 92 122
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS 3,859 2,413 2,430 2,730 3,535
- ----------------------------------------------------------------------------------------------------------------------
RECOVERIES:
Commercial 397 144 971 1,050 486
- ----------------------------------------------------------------------------------------------------------------------
Real estate 365 171 164 112 73
- ----------------------------------------------------------------------------------------------------------------------
Consumer 1,243 860 766 473 552
- ----------------------------------------------------------------------------------------------------------------------
Lease financing 63 85 73 61 85
- ----------------------------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 2,068 1,260 1,974 1,696 1,196
- ----------------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 1,791 1,153 456 1,034 2,339
- ----------------------------------------------------------------------------------------------------------------------
Provision charged to earnings 4,520 4,664 1,840 2,810 3,704
- ----------------------------------------------------------------------------------------------------------------------
ENDING BALANCE $ 27,802 $ 25,073 $ 21,562 $ 20,178 $ 18,402
- ----------------------------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS 0.17% 0.11% 0.05% 0.12% 0.31%
- ----------------------------------------------------------------------------------------------------------------------
RATIO OF ALLOWANCE FOR POSSIBLE LOAN
LOSSES TO END OF YEAR LOANS, NET OF
UNEARNED INTEREST 2.50% 2.45% 2.20% 2.31% 2.32%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 172
The following table summarizes the allocation of allowance for possible loan
losses:
TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of
(Dollars in Loans Per Loans Per Loans Per Loans Per
thousands) Allowance Category Allowance Category Allowance Category Allowance Category
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 5,171 11.62% $ 4,729 11.54% $ 3,942 10.66% $ 4,134 12.56%
- ------------------------------------------------------------------------------------------------------------------
Real estate 11,386 64.93% 11,701 65.97% 10,448 65.95% 10,332 64.54%
- ------------------------------------------------------------------------------------------------------------------
Consumer 10,197 21.57% 7,855 20.44% 6,561 21.31% 5,437 21.53%
- ------------------------------------------------------------------------------------------------------------------
Leases 1,048 1.88% 788 2.05% 611 2.08% 275 1.37%
- ------------------------------------------------------------------------------------------------------------------
Total $27,802 100.00% $25,073 100.00% $21,562 100.00% $20,178 100.00%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992
---------------------
Percent of
(Dollars in Loans Per
thousands) Allowance Category
- --------------------------------------
<S> <C> <C>
Commercial $ 4,420 15.87%
- --------------------------------------
Real estate 9,077 61.04%
- --------------------------------------
Consumer 4,622 21.49%
- --------------------------------------
Leases 283 1.60%
- --------------------------------------
Total $18,402 100.00%
- ----------------------------------------
</TABLE>
As of December 31, 1996, the Corporation had no significant concentrations of
loans to borrowers engaged in the same or similar industries nor did the
Corporation have any loans to foreign governments.
NON-PERFORMING ASSETS: Non-performing loans include: 1) loans whose interest is
accounted for on a non-accrual basis; 2) loans whose terms have been
renegotiated; and 3) loans which are contractually past due 90 days or more as
to principal or interest payments but whose interest continues to accrue. Other
real estate owned results from taking title to property used as collateral for a
defaulted loan.
The following is a summary of the non-accrual, past due and renegotiated loans
and other real estate owned for the last five years:
TABLE 10 - NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $1,984 $2,228 $1,872 $2,244 $2,554
- ----------------------------------------------------------------------------------------------------------------------
Renegotiated loans 1,872 1,403 480 351 1,017
- ----------------------------------------------------------------------------------------------------------------------
Loans past due 90 days or more 1,059 778 633 821 691
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 4,915 4,409 2,985 3,416 4,262
- ----------------------------------------------------------------------------------------------------------------------
Other real estate owned 237 91 262 1,386 3,664
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $5,152 $4,500 $3,247 $4,802 $7,926
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING LOANS TO
LOANS, NET OF UNEARNED INTEREST 0.44% 0.43% 0.30% 0.39% 0.54%
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING ASSETS TO
LOANS, NET OF UNEARNED INTEREST 0.46% 0.44% 0.33% 0.55% 1.00%
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING ASSETS TO
TOTAL ASSETS 0.32% 0.30% 0.24% 0.37% 0.64%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Tax-equivalent interest income from loans of $98.8 million for 1996 would have
increased by $54,000 if all loans had been current in accordance with their
original terms. Interest income for the year ended December 31, 1996 in the
approximate amount of $243,000 is included in interest income for those loans in
accordance with their original terms.
The Corporation had $9.2 million of loans included on the Corporation's watch
list of potential problem loans at December 31, 1996 compared to $9.7 million at
year-end 1995 and $13 million at year-end 1994. The existing conditions of these
loans do not warrant classification as non-accrual. Management undertakes
additional surveillance regarding a borrower's ability to comply with payment
terms for watch list loans.
28
<PAGE> 173
CAPITAL RESOURCES
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT: The Corporation's objective
in managing its liquidity is to maintain the ability to continuously meet the
cash flow needs of customers, such as borrowings or deposit withdrawals, while
at the same time seeking higher yields from longer-term lending and investing
activities.
Liquidity is enhanced by assets maturing or repricing within one year. Assets
maturing or repricing within one year were $931.8 million or 61.7% of
interest-earning assets at year-end 1996. Liquidity is also enhanced by a
significant amount of stable core deposits from a variety of customers in
several Ohio markets served by the Corporation.
An asset/liability committee monitors and forecasts rate-sensitive assets and
liabilities and develops strategies and pricing policies to influence the
acquisition of certain assets and liabilities. The purpose of these efforts is
to guard the Corporation from adverse impacts of unforeseen swings in interest
rates and to enhance the net income of the Corporation by accepting a limited
amount of interest rate risk, based on interest rate projections.
The following table shows interest rate sensitivity data for five different
time intervals as of December 31, 1996:
TABLE 11 - INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
0-3 3-12 1-3 3-5 Over 5
(DOLLARS IN THOUSANDS) Months Months Years Years Years TOTAL
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVE ASSETS:
Investment securities $ 57,619 $ 25,983 $179,333 $ 88,250 $ 45,782 $ 396,967
-----------------------------------------------------------------------------------------------------------------
Loans 405,335 442,826 162,217 53,996 48,229 1,112,603
-----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 462,954 468,809 341,550 142,246 94,011 1,509,570
-----------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-bearing checking (1) 38,078 -- 114,234 -- -- 152,312
-----------------------------------------------------------------------------------------------------------------
Savings accounts (1) 125,705 -- 125,705 -- -- 251,410
-----------------------------------------------------------------------------------------------------------------
Money market checking 105,453 -- -- -- -- 105,453
-----------------------------------------------------------------------------------------------------------------
Time deposits 231,516 230,493 150,290 38,272 1,107 651,678
-----------------------------------------------------------------------------------------------------------------
Other 1,606 -- -- -- -- 1,606
-----------------------------------------------------------------------------------------------------------------
Total deposits 502,358 230,493 390,229 38,272 1,107 1,162,459
-----------------------------------------------------------------------------------------------------------------
Short-term borrowings 109,230 -- -- -- -- 109,230
-----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 611,588 230,493 390,229 38,272 1,107 1,271,689
-----------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP (148,634) 238,316 (48,679) 103,974 92,904 237,881
-----------------------------------------------------------------------------------------------------------------
CUMULATIVE RATE SENSITIVITY GAP (148,634) 89,682 41,003 144,977 237,881 --
-----------------------------------------------------------------------------------------------------------------
CUMULATIVE GAP AS A PERCENTAGE
OF TOTAL INTEREST-EARNING ASSETS - 9.85% 5.94% 2.72% 9.60% 15.76% --
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Management considers interest-bearing checking accounts and savings
accounts to be core deposits and, therefore, not as rate sensitive as other
deposit accounts and borrowed money. Accordingly, only 25% of
interest-bearing checking accounts and 50% of savings accounts are
considered to reprice within one year.
For the first three months, there was a cumulative excess of rate-sensitive
liabilities over rate-sensitive assets while in the next period (three to twelve
months), the reverse was true. For the year, rate-sensitive assets are greater
than rate-sensitive liabilities, by 5.94% of interest-earning assets, which
indicates that the Corporation's interest rate risk position is somewhat
balanced. A positive one-year cumulative gap would suggest that the
Corporation's net interest margin would increase, if interest rates were to
rise.
29
<PAGE> 174
The usefulness of the interest sensitivity gap analysis as a forecasting tool
in projecting net interest income is limited. The gap analysis does not
consider the magnitude by which assets or liabilities will reprice during a
period and also contains assumptions as to the repricing of transaction and
savings accounts that may not prove to be correct. Management supplements the
interest sensitivity gap analysis with periodic simulations of balance sheet
sensitivity under various interest rate and what-if scenarios to better
forecast and manage the net interest margin. The interest rate sensitivity gap
analysis does provide a good overall picture of the Corporation's static
interest rate risk position.
The Corporation's current policy is that the one-year cumulative gap should not
exceed fifteen percent of earning assets for three consecutive quarters. Trying
to manage this gap within an acceptable percentage range of earning assets is a
continual challenge in a changing interest rate environment and one of the
objectives of the Corporation's Asset/Liability Committee.
CAPITAL: The Corporation's primary means of maintaining capital adequacy is
through net retained earnings. At December 31, 1996, the Corporation's equity
capital was $149.0 million, an increase of 9.2% over the equity capital at
December 31, 1995. Exclusive of the unrealized gain or loss on available-
for-sale securities, equity capital increased 11.6% in 1996 compared to 1995.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts and bank holding companies. The unrealized gain or
loss on available-for-sale securities is not included in computing regulatory
capital. The capital standard of risk-based capital to risk-based assets is
8.00% at December 31, 1996. At year-end 1996, the Corporation had a risk-based
capital ratio of 14.04% or capital above the minimum required by $63.5 million.
The capital standard of tier 1 capital to risk-based assets is 4% at December
31, 1996. Tier 1 capital includes stockholders' equity net of goodwill and any
other intangible assets. At year-end 1996, the Corporation had a tier 1 capital
to risk-based assets ratio of 12.78% or capital above the minimum required by
$92.2 million. Bank regulators have also established a leverage capital ratio of
4%, consisting of tier 1 capital to total assets, not risk adjusted. At year-end
1996, the Corporation had a leverage capital ratio of 8.82% or capital above the
minimum required by $73.4 million. Regulatory guidelines also establish capital
ratio requirements for "well capitalized" bank holding companies. The capital
ratios are 10% for risk-based capital, 6% for tier 1 capital to risk-based
assets and 5% for tier 1 capital to total assets. The Corporation exceeds these
higher capital standards and, therefore, is classified as "well capitalized."
The financial institution subsidiaries of the Corporation each met the well
capitalized capital ratio guidelines at December 31, 1996. The table below
indicates the capital ratios for each subsidiary and
the Corporation at December 31, 1996:
TABLE 12 - CAPITAL RATIOS
<TABLE>
<CAPTION>
TIER 1 Total
DECEMBER 31, 1996 LEVERAGE RISK-BASED RISK-BASED
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Park National Bank 6.68% 9.59% 10.86%
---------------------------------------------------------------------------------------------------------------
Richland Trust Company 7.22% 10.25% 11.52%
---------------------------------------------------------------------------------------------------------------
Mutual Federal Savings Bank 7.44% 12.50% 13.76%
---------------------------------------------------------------------------------------------------------------
Park National Corporation 8.82% 12.78% 14.04%
---------------------------------------------------------------------------------------------------------------
Minimum Capital Ratio 4.00% 4.00% 8.00%
---------------------------------------------------------------------------------------------------------------
Well Capitalized Ratio 5.00% 6.00% 10.00%
---------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 175
[ BAR-GRAPH OF RISK-BASED CAPITAL RATIOS December 31, 1996]
AVERAGE STOCKHOLDERS' EQUITY (millions)
1996 $139.6
1995 $125.0
1994 $110.7
1993 $100.1
1992 $88.6
EFFECTS OF INFLATION: Balance sheets of financial institutions typically
contain assets and liabilities that are monetary in nature and, therefore,
differ greatly from most commercial and industrial companies which have
significant investments in premises, equipment and inventory. During periods of
inflation, financial institutions that are in a net positive monetary position
will experience a decline in purchasing power, which does have an impact on
growth. Another significant weight on internal equity growth is other expenses,
which tend to rise during periods of inflation.
Management believes the most significant impact on financial results is the
Corporation's ability to align its asset/liability management program to react
to changes in interest rates.
31
<PAGE> 176
The following table summarizes five-year financial information:
TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 1995 1994 1993 1992
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income $ 122,291 $ 113,200 $ 94,817 $ 90,384 $ 95,811
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 49,332 46,848 35,164 33,823 41,627
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 72,959 66,352 59,653 56,561 54,184
- ----------------------------------------------------------------------------------------------------------------------
Noninterest income 13,142 12,922 9,036 10,910 9,636
- ----------------------------------------------------------------------------------------------------------------------
Noninterest expense 43,239 41,643 37,867 39,132 36,697
- ----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 4,520 4,664 1,840 2,810 3,704
- ----------------------------------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of a change in
accounting principle 25,664 22,120 20,017 17,545 16,148
- ----------------------------------------------------------------------------------------------------------------------
Net income 25,664 22,120 20,017 19,045 16,520
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $3.60 $3.09 $2.80 $2.48 $2.28
- ----------------------------------------------------------------------------------------------------------------------
Net income 3.60 3.09 2.80 2.69 2.33
- ----------------------------------------------------------------------------------------------------------------------
Cash dividends declared 1.45 1.25 0.98 1.05 0.88
- ----------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Loans, net $1,013,719 $ 980,828 $ 901,029 $ 809,245 $ 741,954
- ----------------------------------------------------------------------------------------------------------------------
Investment securities 325,021 288,810 298,999 330,736 340,578
- ----------------------------------------------------------------------------------------------------------------------
Money market instruments and other 34,400 13,257 6,236 11,500 34,206
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 1,373,140 1,282,895 1,206,264 1,151,481 1,116,738
- ----------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 160,173 149,383 141,786 129,621 115,751
- ----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits 1,052,978 973,676 930,902 903,886 896,789
- ----------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,213,151 1,123,059 1,072,688 1,033,507 1,012,540
- ----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 114,187 132,839 121,678 102,304 85,139
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt -- -- -- -- 5,160
- ----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 139,638 125,042 110,741 100,081 88,629
- ----------------------------------------------------------------------------------------------------------------------
Total assets 1,485,557 1,396,222 1,316,620 1,246,903 1,202,449
- ----------------------------------------------------------------------------------------------------------------------
RATIOS:
Return on average assets 1.73% 1.58% 1.52% 1.53% 1.37%
- ----------------------------------------------------------------------------------------------------------------------
Return on average equity 18.38% 17.69% 18.08% 19.03% 18.64%
- ----------------------------------------------------------------------------------------------------------------------
Net interest margin (1) 5.35% 5.22% 5.01% 5.00% 4.98%
- ----------------------------------------------------------------------------------------------------------------------
Noninterest expense to
net revenue (1) 49.91% 52.17% 54.51% 57.10% 56.21%
- ----------------------------------------------------------------------------------------------------------------------
Dividend payout ratio 40.34% 40.46% 35.08% 39.03% 37.55%
- ----------------------------------------------------------------------------------------------------------------------
Average stockholders' equity to
average total assets 9.40% 8.96% 8.41% 8.03% 7.37%
- ----------------------------------------------------------------------------------------------------------------------
Leveraged capital 8.82% 8.91% 8.80% 8.08% 7.25%
- ----------------------------------------------------------------------------------------------------------------------
Tier 1 capital 12.78% 13.35% 13.19% 13.24% 12.17%
- ----------------------------------------------------------------------------------------------------------------------
Risk-based capital 14.04% 14.61% 14.45% 14.51% 13.44%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
32
(1) Computed on a fully taxable equivalent basis
<PAGE> 177
The following table is a summary of selected quarterly results of operations
for the years ended December 31, 1996 and 1995. Certain quarterly amounts have
been reclassified to conform to the year-end financial statement presentation.
TABLE 14 - QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
Interest income $29,903 $29,916 $30,660 $31,812
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 12,319 12,087 12,289 12,637
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 17,584 17,829 18,371 19,175
- ----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 1,005 1,005 1,005 1,505
- ----------------------------------------------------------------------------------------------------------------------
Loss on the sale of securities (294) (401) (157) (458)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,982 10,060 10,901 8,399
- ----------------------------------------------------------------------------------------------------------------------
Net income 6,095 6,804 7,343 5,422
- ----------------------------------------------------------------------------------------------------------------------
Per share data:
Net income 0.85 0.96 1.03 0.76
- ----------------------------------------------------------------------------------------------------------------------
Weighted-average
common stock equivalent 7,136,037 7,141,679 7,138,155 7,131,685
- ----------------------------------------------------------------------------------------------------------------------
1995:
Interest income $26,158 $27,816 $29,224 $30,002
- ----------------------------------------------------------------------------------------------------------------------
Interest expense 10,547 11,479 12,306 12,516
- ----------------------------------------------------------------------------------------------------------------------
Net interest income 15,611 16,337 16,918 17,486
- ----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 910 1,000 1,540 1,214
- ----------------------------------------------------------------------------------------------------------------------
Loss on the sale of securities (614) -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,393 8,539 8,987 8,048
- ----------------------------------------------------------------------------------------------------------------------
Net income 5,016 5,713 6,006 5,385
- ----------------------------------------------------------------------------------------------------------------------
Per share data:
Net income 0.70 0.79 0.84 0.76
- ----------------------------------------------------------------------------------------------------------------------
Weighted-average
common stock equivalent 7,189,650 7,178,028 7,151,101 7,144,940
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 178
The Corporation's common stock (symbol:PRK) is traded on the American Stock
Exchange (AMEX). At December 31, 1996, the Corporation had 1,375 stockholders of
record. The following table sets forth the high, low and closing sale prices of,
and dividends declared on, the common stock for each quarterly period for the
years ended December 31, 1996 and 1995, as reported by AMEX.
TABLE 15 - MARKET AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
CASH
DIVIDEND
LAST DECLARED
HIGH LOW PRICE PER SHARE
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
First Quarter $50 1/4 $47 3/8 $48 3/8 $0.35
-----------------------------------------------------------------------------------------------------------------
Second Quarter 49 1/2 46 3/8 49 1/2 0.35
-----------------------------------------------------------------------------------------------------------------
Third Quarter 49 5/8 47 7/8 48 1/4 0.35
-----------------------------------------------------------------------------------------------------------------
Fourth Quarter 53 48 53 0.40
-----------------------------------------------------------------------------------------------------------------
1995:
First Quarter $54 1/4 $43 3/8 $43 3/4 $0.30
-----------------------------------------------------------------------------------------------------------------
Second Quarter 48 3/4 43 7/8 48 5/8 0.30
-----------------------------------------------------------------------------------------------------------------
Third Quarter 49 1/4 44 7/8 45 5/8 0.30
-----------------------------------------------------------------------------------------------------------------
Fourth Quarter 48 45 47 3/4 0.35
-----------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPH OF TEN-YEAR RETURN (December 31, 1986 - December 31, 1996)]
Assumes initial investment of $1,000 with reinvestment of dividends in the comon
stock of Park
34
<PAGE> 179
STOCKHOLDERS' INFORMATION
STOCK LISTING:
AMEX Symbol - PRK
CUSIP #700658107
GENERAL STOCKHOLDER INQUIRIES:
Park National Corporation
David C. Bowers, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
614/349-3708
DIVIDEND REINVESTMENT PLAN:
The Corporation offers a plan whereby participating stockholders can
purchase additional shares of Park National Corporation common stock
through automatic reinvestment of their regular quarterly cash dividends.
All commissions and fees connected with the purchase and safekeeping of
the shares are paid by the Corporation. Details of the Plan and an
enrollment card can be obtained by contacting the Secretary as indicated
above.
STOCK TRANSFER AGENT AND REGISTRAR:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
800/368-5948
FORM 10-K:
Copies of Park National Corporation's Form 10-K for 1996 may be obtained,
without cost, by contacting the Secretary as indicated above.
INTERNET ADDRESS:
http://www.parknationalbank.com
E-MAIL:
[email protected]
35
<PAGE> 180
CONSOLIDATED BALANCE SHEET
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1996 and 1995 (Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 61,454 $ 92,752
- -------------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES:
Securities available-for-sale, at fair value
(amortized cost of $381,117 and $308,298 at
December 31, 1996 and 1995) 386,187 317,414
- -------------------------------------------------------------------------------------------------------------------------
Securities held-to-maturity, at amortized
cost (fair value approximates $11,217 and
$11,917 at December 31, 1996 and 1995) 10,780 11,316
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 396,967 328,730
- -------------------------------------------------------------------------------------------------------------------------
Loans 1,123,615 1,036,274
- -------------------------------------------------------------------------------------------------------------------------
Unearned loan interest (11,012) (11,547)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,112,603 1,024,727
- -------------------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (27,802) (25,073)
- -------------------------------------------------------------------------------------------------------------------------
LOANS, NET 1,084,801 999,654
- -------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Premises and equipment, net 16,812 17,161
- -------------------------------------------------------------------------------------------------------------------------
Accrued interest receivable 8,543 9,114
- -------------------------------------------------------------------------------------------------------------------------
Other 46,190 28,797
- -------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 71,545 55,072
- -------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,614,767 $1,476,208
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE> 181
CONSOLIDATED BALANCE SHEET (continued)
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1996 and 1995 (Dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEPOSITS:
Noninterest-bearing $ 174,158 $ 190,014
- ------------------------------------------------------------------------------------------------------------------------
Interest-bearing 1,162,459 1,016,526
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,336,617 1,206,540
- ------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 109,230 113,992
- ------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITIES:
Accrued interest payable 3,860 3,749
- ------------------------------------------------------------------------------------------------------------------------
Other 16,074 15,503
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 19,934 19,252
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,465,781 1,339,784
- ------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, no par value (authorized shares of 20,000,000
and 10,000,000 at December 31, 1996 and 1995, respectively;
7,222,610 shares issued in 1996 and 1995) 26,857 26,819
- ------------------------------------------------------------------------------------------------------------------------
Unrealized holding gain on
available-for-sale securities, net 3,296 5,926
- ------------------------------------------------------------------------------------------------------------------------
Retained earnings 121,818 106,508
- ------------------------------------------------------------------------------------------------------------------------
Less: Treasury stock (89,426 shares in 1996 and
87,388 shares in 1995) (2,985) (2,829)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 148,986 136,424
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,614,767 $1,476,208
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE> 182
CONSOLIDATED STATEMENT OF INCOME
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands,
except share data)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 98,511 $ 92,872 $75,946
- ------------------------------------------------------------------------------------------------------------------------
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities 21,337 18,905 17,434
- ------------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions 603 642 1,065
- ------------------------------------------------------------------------------------------------------------------------
Other interest income 1,840 781 372
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 122,291 113,200 94,817
- ------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand and savings deposits 12,537 12,809 13,808
- ------------------------------------------------------------------------------------------------------------------------
Time deposits 31,696 27,256 16,969
- ------------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 5,099 6,783 4,387
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 49,332 46,848 35,164
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 72,959 66,352 59,653
- ------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 4,520 4,664 1,840
- ------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 68,439 61,688 57,813
- ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Income from fiduciary activities 3,325 2,881 2,375
- ------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts 4,611 4,188 4,449
- ------------------------------------------------------------------------------------------------------------------------
Loss on sales of securities (1,310) (614) (3,306)
- ------------------------------------------------------------------------------------------------------------------------
Other service income 2,293 2,220 2,129
- ------------------------------------------------------------------------------------------------------------------------
Other 4,223 4,247 3,389
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $ 13,142 $ 12,922 $ 9,036
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE> 183
CONSOLIDATED STATEMENT OF INCOME (continued)
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands,
except share data)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER EXPENSE:
Salaries and employee benefits $21,808 $20,395 $18,745
- ------------------------------------------------------------------------------------------------------------------------
Data processing fees 3,370 3,072 2,636
- ------------------------------------------------------------------------------------------------------------------------
Fees and service charges 3,010 2,242 2,229
- ------------------------------------------------------------------------------------------------------------------------
Net occupancy expense of bank premises 2,195 2,012 1,986
- ------------------------------------------------------------------------------------------------------------------------
Amortization of intangibles 380 363 571
- ------------------------------------------------------------------------------------------------------------------------
Furniture and equipment expense 2,236 2,056 1,838
- ------------------------------------------------------------------------------------------------------------------------
Insurance 1,671 1,882 2,713
- ------------------------------------------------------------------------------------------------------------------------
Marketing 1,518 1,409 1,275
- ------------------------------------------------------------------------------------------------------------------------
Postage and telephone 1,901 1,846 1,643
- ------------------------------------------------------------------------------------------------------------------------
State taxes 1,326 1,468 1,379
- ------------------------------------------------------------------------------------------------------------------------
Other 3,824 4,898 2,852
- ------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE 43,239 41,643 37,867
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 38,342 32,967 28,982
- ------------------------------------------------------------------------------------------------------------------------
Federal income taxes 12,678 10,847 8,965
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $25,664 $22,120 $20,017
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
NET INCOME PER SHARE $3.60 $3.09 $2.80
- ------------------------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding 7,136,889 7,165,930 7,154,796
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE> 184
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands,
except share data)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
GAIN/(LOSS) ON
COMMON STOCK AVAILABLE- TREASURY STOCK
------------------ FOR-SALE -----------------
SHARES SECURITIES, RETAINED
ISSUED AMOUNT NET EARNINGS SHARES AMOUNT TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 7,118,048 $25,420 $3,422 $80,343 32,960 $(255) $108,930
- ------------------------------------------------------------------------------------------------------------------------
Acquisition of
Scope Leasing 104,562 1,370 -- -- -- -- 1,370
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 20,017 -- -- 20,017
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at
$0.98 per share -- -- -- (7,022) -- -- (7,022)
- ------------------------------------------------------------------------------------------------------------------------
Unrealized net holding
loss on available-for-sale
securities -- -- (9,136) -- -- -- (9,136)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 7,222,610 26,790 (5,714) 93,338 32,960 (255) 114,159
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased -- -- -- -- 58,726 (2,749) (2,749)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued
primarily for stock
options exercised -- 29 -- -- (4,298) 175 204
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 22,120 -- -- 22,120
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at
$1.25 per share -- -- -- (8,950) -- -- (8,950)
- ------------------------------------------------------------------------------------------------------------------------
Unrealized net holding
gain on available-for-sale
securities -- -- 11,640 -- -- -- 11,640
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 7,222,610 26,819 5,926 106,508 87,388 (2,829) 136,424
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased -- -- -- -- 13,000 (640) (640)
- ------------------------------------------------------------------------------------------------------------------------
Treasury stock reissued
primarily for stock
options exercised -- 38 -- -- (10,962) 484 522
- ------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 25,664 -- -- 25,664
- ------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at
$1.45 per share -- -- -- (10,354) -- -- (10,354)
- ------------------------------------------------------------------------------------------------------------------------
Unrealized net holding
loss on available-for-sale
securities -- -- (2,630) -- -- -- (2,630)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 7,222,610 $26,857 $3,296 $121,818 89,426 $(2,985) $148,986
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
40
<PAGE> 185
CONSOLIDATED STATEMENT OF CASHFLOWS
for the years ended December 31, 1996, 1995 and 1994 (Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 25,664 $ 22,120 $ 20,017
- -------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,520 4,664 1,840
- -------------------------------------------------------------------------------------------------------------------------
Amortization of loan costs and fees, net (476) (124) 164
- -------------------------------------------------------------------------------------------------------------------------
Provision for depreciation and amortization 2,027 1,925 1,700
- -------------------------------------------------------------------------------------------------------------------------
Amortization of the excess of cost over net assets
of banks purchased 380 363 571
- -------------------------------------------------------------------------------------------------------------------------
Accretion of investment security discounts, net (1,323) (1,083) 541
- -------------------------------------------------------------------------------------------------------------------------
Deferred income taxes (170) (775) 371
- -------------------------------------------------------------------------------------------------------------------------
Realized investment security losses 1,310 614 3,306
- -------------------------------------------------------------------------------------------------------------------------
Changes in assets and liabilities:
Increase in other assets (5,183) (149) (1,328)
- -------------------------------------------------------------------------------------------------------------------------
Increase in other liabilities 326 4,417 2,942
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 27,075 31,972 30,124
- -------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of securities:
Available-for-sale 71,355 31,363 131,314
- -------------------------------------------------------------------------------------------------------------------------
Proceeds from maturities of securities:
Held-to-maturity 2,110 2,923 11,960
- -------------------------------------------------------------------------------------------------------------------------
Available-for-sale 67,594 40,264 107,527
- -------------------------------------------------------------------------------------------------------------------------
Purchase of securities:
Held-to-maturity (1,575) (914) (15,043)
- -------------------------------------------------------------------------------------------------------------------------
Available-for-sale (211,754) (106,172) (201,938)
- -------------------------------------------------------------------------------------------------------------------------
Net decrease in interest-bearing deposits in banks -- -- 4,862
- -------------------------------------------------------------------------------------------------------------------------
Net increase in loans (58,436) (44,616) (100,985)
- -------------------------------------------------------------------------------------------------------------------------
Purchase of loans (30,755) -- --
- -------------------------------------------------------------------------------------------------------------------------
Cash paid for branches (10,857) -- --
- -------------------------------------------------------------------------------------------------------------------------
Purchases of premises and equipment, net (1,254) (1,989) (2,526)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (173,572) (79,141) (64,829)
- -------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Purchase of deposits 97,928 -- --
- -------------------------------------------------------------------------------------------------------------------------
Net increase in deposits 32,149 128,234 19,878
- -------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in short-term borrowings (4,762) (41,274) 37,008
- -------------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (118) (2,545) --
- -------------------------------------------------------------------------------------------------------------------------
Cash dividends paid (9,998) (8,610) (8,054)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 115,199 75,805 48,832
- -------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (31,298) 28,636 14,127
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 92,752 64,116 49,989
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 61,454 $ 92,752 $ 64,116
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
41
<PAGE> 186
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in the
preparation of the consolidated financial statements:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Park National
Corporation (the Corporation) and all of its subsidiaries. Material intercompany
accounts and transactions have been eliminated.
ORGANIZATION
The Corporation is a multi-bank holding company headquartered in Newark, Ohio.
Through its banking subsidiaries, Park National Bank (PNB) and Richland Trust
Company (Richland) and its savings association subsidiary, Mutual Federal
Savings Bank (Mutual), the Corporation is engaged in a general commercial
banking and trust business, primarily in Central Ohio. PNB, Richland, and Mutual
provide the following principal services: the acceptance of deposits for demand,
savings, and time accounts; commercial, industrial, consumer and real estate
lending, including installment loans, credit cards, home equity lines of credit
and commercial and auto leasing; trust services; cash management; safe deposit
operations; electronic funds transfers; and a variety of additional
banking-related services.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
INVESTMENT SECURITIES
Investment securities are classified upon acquisition into one of three
categories: Held-to-maturity, available-for-sale, or trading (see Note 4).
Held-to-maturity securities are those securities that the Corporation has the
positive intent and ability to hold to maturity and are recorded at amortized
cost. Available-for-sale securities are those securities that would be available
to be sold in the future in response to the Corporation's liquidity needs,
changes in market interest rates, and asset-liability management strategies,
among others. Available-for-sale securities are reported at fair value, with
unrealized holding gains and losses excluded from earnings and reported as a
separate component of stockholders' equity, net of applicable taxes. At December
31, 1996 and 1995, the Corporation did not hold any trading securities.
Gains and losses realized on the sale of investment securities have been
accounted for on the completed transaction method in the year of sale on an
"identified certificate" basis.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is generally provided on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lives of the respective leases or the estimated useful lives
of the improvements, whichever are the shorter periods. Upon the sale or other
disposal of the assets, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized.
Maintenance and repairs are charged to expense as incurred while renewals and
improvements are capitalized.
42
<PAGE> 187
OTHER REAL ESTATE OWNED
Other real estate owned is recorded at the lower of cost or fair market value
(which is not in excess of estimated net realizable value) and consists of
property acquired through foreclosure, loans in judgment and subject to
redemption, and real estate held for sale. Subsequent to acquisition, allowances
for losses are established if carrying values exceed fair value less estimated
costs to sell. Costs relating to development and improvement of such properties
are capitalized (not in excess of fair value less estimated costs to sell),
whereas costs relating to holding the properties are charged to expense.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
INVESTMENT SECURITIES: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for certain mortgage loans (e.g., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Corporation's loan
commitments and standby letters of credit are based on the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counter parties' credit standing.
DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, passbook savings, and money market accounts)
are, by definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). The carrying amounts for variable-rate,
fixed-term certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
INCOME RECOGNITION
Income earned by the Corporation and its subsidiaries is recognized principally
on the accrual basis of accounting. Loan origination fees are amortized over the
life of the loans using the interest method on a loan by loan basis, and
origination costs are deferred and amortized if material. Certain fees,
principally service, are recognized as income when billed or collected.
The Corporation's subsidiaries suspend the accrual of interest when, in
management's opinion, the collection of all or a portion of interest has become
doubtful. Generally, when a loan is placed on non-accrual, the Corporation's
subsidiaries charge all previously accrued and unpaid interest against income.
In future periods, interest will be included in income to the extent received
only if complete principal recovery is reasonably assured.
43
<PAGE> 188
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to operating expense is based upon each
subsidiary's past loan loss experience and an evaluation of potential losses in
the current loan portfolios. In management's opinion, the provision is
sufficient to maintain the allowance for possible loan losses at a level that
adequately provides for potential losses.
LEASE FINANCING
Leases of equipment, automobiles, and aircraft to customers generally are direct
leases in which the Corporation's subsidiaries have acquired the equipment,
automobiles, or aircraft with no outside financing.
Such leases are accounted for as direct financing leases for financial reporting
purposes. Under the direct financing method, a receivable is recorded for the
total amount of the lease payments to be received.
Unearned lease income, representing the excess of the sum of the aggregate
rentals of the equipment, automobiles or aircraft over its cost is included in
income over the term of the lease under the interest method.
EXCESS OF COST OVER NET ASSETS OF BANKS PURCHASED
The excess of cost over net assets of the banks purchased is being amortized,
principally on the straight-line method, over periods ranging from seven to
fifteen years.
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash and cash equivalents include cash and cash items, amounts due from banks
and federal funds sold. Generally federal funds are purchased and sold for one
day periods.
Net cash provided by operating activities reflects cash payments as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid on deposits and other borrowings $49,220 $45,443 $35,111
- ----------------------------------------------------------------------------------------------------------------------
Income taxes paid $13,800 $ 8,700 $ 8,415
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
EARNINGS PER SHARE
Per common share amounts have been calculated based upon the weighted average
number of common shares outstanding in each period, as adjusted for the
two-for-one stock split distributed in August 1994. The dilutive effects of
unexercised stock options are not significant.
44
<PAGE> 189
ACCOUNTING CHANGES
Statement of Financial Accounting Standards No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities," was
released in June 1996 and is effective for transactions occurring after December
31, 1996. Early adoption of the Statement is not permitted. Under the provisions
of SFAS No. 125, each party to a transaction recognizes only assets it controls
and liabilities it has incurred, derecognizes assets only when control has been
surrendered and derecognizes liabilities only when they have been extinguished.
Transactions are to be separated into components and separate assets and
liabilities may need to be recorded for the different components. The
Corporation does not expect the adoption of this pronouncement to have a
material impact on the financial statements.
2. ACQUISITIONS
On May 2, 1994, the Corporation acquired all of the outstanding stock of Scope
Leasing, Inc. (Scope) in exchange for 104,562 common shares of the Corporation.
Scope, a Columbus, Ohio based company specializing in aircraft leasing, operates
as a wholly-owned subsidiary of Park National Bank under the Scope name. At the
time of acquisition, Scope had approximately $16 million in assets. The
transaction was accounted for as a pooling-of-interests, but due to the
immateriality of such acquisition, prior year financial statements were not
restated.
On December 6, 1996, Richland Trust Company acquired five branch offices in
Richland County from Peoples National Bank. In addition to the fixed assets, the
purchase included $98 million of deposits and $31 million of loans. The banking
business of the five branches was consolidated into Richland Trust Company's
operations. The excess of the cost over net assets purchased was $10 million and
is being amortized using the straight-line method over seven years.
On October 28, 1996, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with First-Knox Banc Corp. (First-Knox), a bank
holding company headquartered in Mount Vernon, Ohio, providing for a merger of
First-Knox into the Corporation. Under the terms of the Merger Agreement, the
stockholders of First-Knox are expected to receive .5914 shares of the
Corporation's common stock per share of First-Knox common stock in a tax free
exchange. The Corporation expects to issue an aggregate of 2,345,000 shares of
common stock to complete the merger which will be accounted for as a
pooling-of-interests. Completion of the merger is subject to certain conditions,
including the approval of bank regulators and other governmental agencies, the
approval of stockholders of First-Knox and the Corporation, and other conditions
to closing customary of a transaction of this type. The merger is expected to be
completed during the second quarter of 1997.
3. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Corporation's banking subsidiaries are required to maintain average reserve
balances with the Federal Reserve Bank. The average required reserve balance was
approximately $13,745,000 and $17,187,000 at December 31, 1996 and 1995,
respectively. No other compensating balance arrangements were in existence at
year end.
45
<PAGE> 190
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities at
December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED
(IN THOUSANDS) AMORTIZED HOLDING HOLDING ESTIMATED
COST GAINS LOSSES FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Treasury and other
U.S. Government agencies $ 160,803 $ 3,481 $ 9 $ 164,275
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities 210,981 1,754 271 212,464
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 1,863 9 30 1,842
- -------------------------------------------------------------------------------------------------------------------------
Other equity securities 7,470 136 -- 7,606
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES AVAILABLE-FOR-SALE $381,117 $ 5,380 $310 $386,187
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of states and
political subdivisions $ 9,784 $ 453 $ 8 $ 10,229
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 668 3 11 660
- -------------------------------------------------------------------------------------------------------------------------
Other securities 328 -- -- 328
- -------------------------------------------------------------------------------------------------------------------------
TOTAL SECURITIES HELD-TO-MATURITY $ 10,780 $ 456 $ 19 $ 11,217
- -------------------------------------------------------------------------------------------------------------------------
1995:
SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Treasury and other
U.S. Government agencies $ 150,234 $ 6,849 $ 27 $ 157,056
- -------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities 148,492 2,293 105 150,680
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 2,857 9 -- 2,866
- -------------------------------------------------------------------------------------------------------------------------
Other equity securities 6,715 97 -- 6,812
- -------------------------------------------------------------------------------------------------------------------------
Total Securities Available-for-Sale $ 308,298 $ 9,248 $ 132 $ 317,414
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of states and
political subdivisions $ 9,566 $ 622 $ 10 $ 10,178
- -------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities 1,043 5 16 1,032
- -------------------------------------------------------------------------------------------------------------------------
Other securities 707 -- -- 707
- -------------------------------------------------------------------------------------------------------------------------
Total Securities Held-to-Maturity $ 11,316 $ 627 $ 26 $ 11,917
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 191
The amortized cost and estimated fair value of investments in debt securities at
December 31, 1996 are shown below (in thousands) by contractual maturity except
for asset-backed securities which are shown based on expected maturities:
<TABLE>
<CAPTION>
WEIGHTED
AMORTIZED ESTIMATED AVERAGE AVERAGE
COST FAIR VALUE MATURITY YIELD
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE:
U.S. Treasury and agencies' notes:
Within one year $ 44,915 $ 44,906 .1 years 5.36%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 95,888 99,061 2.3 years 7.50%
- ------------------------------------------------------------------------------------------------------------------------
Five through ten years 20,000 20,308 8.4 years 7.37%
- ------------------------------------------------------------------------------------------------------------------------
Total $160,803 $164,275 2.4 years 6.89%
- ------------------------------------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities:
Within one year $ 39,176 $ 39,110 .7 years 5.80%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 168,893 170,376 3.5 years 6.82%
- ------------------------------------------------------------------------------------------------------------------------
Five through ten years 2,912 2,978 5.2 years 7.13%
- ------------------------------------------------------------------------------------------------------------------------
Total $210,981 $212,464 3.0 years 6.63%
- ------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities:
One through five years $ 1,863 $ 1,842 4.1 years 7.07%
- ------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of state and political subdivisions:
Within one year $ 2,313 $ 2,330 .5 years 5.18%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 6,037 6,465 3.2 years 6.31%
- ------------------------------------------------------------------------------------------------------------------------
Five through ten years 1,434 1,434 8.5 years 5.05%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 9,784 $ 10,229 3.3 years 5.86%
- ------------------------------------------------------------------------------------------------------------------------
Other asset-backed securities:
One through five years $ 668 $ 660 2.1 years 6.04%
- ------------------------------------------------------------------------------------------------------------------------
Other securities:
Within one year $ 10 $ 10 .2 years 5.50%
- ------------------------------------------------------------------------------------------------------------------------
One through five years 318 318 4.4 years 6.54%
- ------------------------------------------------------------------------------------------------------------------------
Total $ 328 $ 328 4.3 years 6.51%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment securities having a book value of $282,468,000 and $248,147,000 at
December 31, 1996 and 1995, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold.
47
<PAGE> 192
Gross losses of approximately $1,310,000 and $614,000 were recognized during
1996 and 1995 on sales of available-for-sale securities, respectively. There
were no gross gains from the sale of securities in 1996 or 1995. Gross gains and
losses of approximately $4,000 and $3,310,000, respectively, were recognized
during 1994 on sales of available-for-sale securities. Tax benefits related to
securities losses were $459,000 in 1996, $215,000 in 1995 and $1,157,000 in
1994.
The Corporation transferred $14,476,000 of securities classified as
held-to-maturity to available-for-sale at December 31, 1995. An unrealized gain
of $571,000 was recorded as an adjustment to stockholders' equity at the date of
the transfer. The transfer was made pursuant to the Financial Accounting
Standards Board's November, 1995 Special Report on SFAS No. 115 which permitted
one time transfers of securities. The Corporation transferred all the U.S.
Government agency asset-backed securities that were classified as
held-to-maturity to available-for-sale. All U.S. Government agency securities
are classified as available-for-sale at December 31, 1996 and 1995.
5. LOANS
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 129,269 $ 118,225
- -----------------------------------------------------------------------------------------------------------------------
Real estate - construction 52,443 40,871
- -----------------------------------------------------------------------------------------------------------------------
Real estate - residential 466,957 444,005
- -----------------------------------------------------------------------------------------------------------------------
Real estate - commercial 203,023 191,127
- -----------------------------------------------------------------------------------------------------------------------
Consumer, net 239,961 209,481
- -----------------------------------------------------------------------------------------------------------------------
Leases, net 20,950 21,018
- -----------------------------------------------------------------------------------------------------------------------
TOTAL $1,112,603 $1,024,727
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures" (SFAS No.
114 and 118). SFAS No. 114 and 118 require that impaired loans be measured based
on the present value of expected cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
Under the Corporation's credit policies and practices, all non-accrual and
restructured commercial, financial, agricultural, construction, and commercial
real estate loans meet the definition of impaired loans under SFAS No. 114 and
118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer
loans, residential real estate loans and lease financing classified as
non-accrual.
Non-accrual and restructured loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans:
Non-accrual $ 813 $ 717
- -----------------------------------------------------------------------------------------------------------------------
Restructured 1,872 1,403
- -----------------------------------------------------------------------------------------------------------------------
Total impaired loans 2,685 2,120
- -----------------------------------------------------------------------------------------------------------------------
Other non-accrual loans 1,171 1,511
- -----------------------------------------------------------------------------------------------------------------------
TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $3,856 $3,631
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE> 193
The allowance for credit losses related to impaired loans at December 31, 1996
and 1995 was $403,000 and $318,000, respectively. All impaired loans for both
periods were subject to a related allowance for credit losses.
The average balance of impaired loans was $2,857,000 for 1996 and $2,624,000 for
1995.
Interest income on impaired loans is recognized after all past due and current
principal payments have been made, and collectibility is no longer doubtful. For
the years ended December 31, 1996 and 1995, the Corporation recognized $337,000
and $279,000, respectively, of interest income on impaired loans, which included
$324,000 and $276,000, respectively, of interest income recognized using the
cash basis method of income recognition.
Effective January 1, 1996, the Corporation adopted Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," (SFAS
No. 122), which requires the recognition of rights to service loans for others
as separate assets, however those servicing rights are acquired. The adoption of
SFAS No. 122 did not have a material impact on the Corporation's financial
statements in 1996.
Certain of the Corporation's executive officers, directors and their affiliates
are loan customers of the Corporation's banking subsidiaries. As of December 31,
1996 and 1995, loans aggregating approximately $27,798,000 and $24,805,000,
respectively, were outstanding to such parties.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $25,073 $21,562 $20,178
- -----------------------------------------------------------------------------------------------------------------------
Provision for loan losses 4,520 4,664 1,840
- -----------------------------------------------------------------------------------------------------------------------
Losses charged to the reserve (3,859) (2,413) (2,430)
- -----------------------------------------------------------------------------------------------------------------------
Recoveries 2,068 1,260 1,974
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $27,802 $25,073 $21,562
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
7. INVESTMENT IN FINANCING LEASES
The following is a summary of the components of the Corporation's affiliates'
net investment in direct financing leases:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total minimum payments to be received $25,014 $25,049
- -------------------------------------------------------------------------------------------------------------------------
Estimated unguaranteed residual value of leased property -- 13
- -------------------------------------------------------------------------------------------------------------------------
Less: unearned income (4,064) (4,044)
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $20,950 $21,018
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 194
Minimum lease payments, in thousands, to be received as of December 31, 1996
are:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS)
- ---------------------------------------------------------------------------------
<S> <C>
1997 $ 6,731
- ---------------------------------------------------------------------------------
1998 5,381
- ---------------------------------------------------------------------------------
1999 4,317
- ---------------------------------------------------------------------------------
2000 2,978
- ---------------------------------------------------------------------------------
2001 5,607
- ---------------------------------------------------------------------------------
TOTAL $ 25,014
- ---------------------------------------------------------------------------------
</TABLE>
8. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 4,560 $ 4,543
- ------------------------------------------------------------------------------------------------------------------------
Buildings 15,929 15,639
- ------------------------------------------------------------------------------------------------------------------------
Equipment, furniture and fixtures 14,383 14,106
- ------------------------------------------------------------------------------------------------------------------------
Leasehold improvements 967 780
- ------------------------------------------------------------------------------------------------------------------------
TOTAL 35,839 35,068
- ------------------------------------------------------------------------------------------------------------------------
Less: accumulated depreciation and amortization (19,027) (17,907)
- ------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT, NET $ 16,812 $ 17,161
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense amounted to $2,027,000, $1,925,000 and
$1,700,000 for the three years ended December 31, 1996, 1995 and 1994,
respectively.
The Corporation and its subsidiaries lease certain premises and equipment
accounted for as operating leases. The following is a schedule at December 31,
1996 of the future minimum rental payments required for the next five years
under such leases with initial terms in excess of one year:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS)
- ----------------------------------------------------------------------------------
<S> <C>
1997 $ 353
- ----------------------------------------------------------------------------------
1998 362
- ----------------------------------------------------------------------------------
1999 367
- ----------------------------------------------------------------------------------
2000 273
- ----------------------------------------------------------------------------------
2001 191
- ----------------------------------------------------------------------------------
Thereafter 548
- ----------------------------------------------------------------------------------
TOTAL $2,094
- ----------------------------------------------------------------------------------
</TABLE>
Rent expense amounted to $416,000, $382,000, and $296,000 for the three years
ended December 31, 1996, 1995 and 1994, respectively.
50
<PAGE> 195
9. STOCK OPTION PLAN
The Park National Corporation 1995 Incentive Stock Option Plan (the "Plan") was
adopted April 17, 1995. The Plan is intended as an incentive to encourage stock
ownership by the key employees of the Corporation. The maximum number of common
shares with respect to which incentive stock options may be granted under the
Plan is 200,000. Approximately 128,000 were available for future grants at
December 31, 1996. Incentive stock options may be granted at a price not less
than fair market value at the date of the grant for an option term of up to five
years. No incentive stock options may be granted under the Plan after January
16, 2005.
The Corporation's stock option activity and related information is summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 40,000 $47.67 -- $ --
- ----------------------------------------------------------------------------------------------------------------
Granted 28,581 47.97 43,550 47.68
- ----------------------------------------------------------------------------------------------------------------
Exercised (10,000) 47.71 (3,550) 47.75
- ----------------------------------------------------------------------------------------------------------------
Forfeited/Expired (400) 47.28 -- --
- ----------------------------------------------------------------------------------------------------------------
Outstanding at end of period 58,181 47.82 40,000 47.67
- ----------------------------------------------------------------------------------------------------------------
Exercisable at end of period 56,331 47.75 36,450 47.75
- ----------------------------------------------------------------------------------------------------------------
Weighted-average fair value
of options granted during the year
per option $10.41 -- $10.29 --
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from
$45.50 to $53.00. The weighted-average remaining contractual life of these
options is approximately 3.8 years.
The Corporation has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation," (SFAS
No. 123) requires use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Corporation's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: risk-free interest rates of 6.48%
and 6.41%; a dividend yield of 2.50%, a volatility factor of the expected market
price of the Corporation's common stock of .219, and a weighted-average expected
option life of 4 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
51
<PAGE> 196
Because the effect of applying SFAS No. 123's fair value method to the
Corporation's stock options results in net income and earnings per share that
are not materially different from amounts reported in the consolidated
statements of income, pro forma information has not been provided.
10. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under agreements to
repurchase and federal funds purchased $107,345 $102,651
- ------------------------------------------------------------------------------------------------------------------------
Federal home loan bank advances -- 10,000
- ------------------------------------------------------------------------------------------------------------------------
Other short-term borrowings 1,885 1,341
- ------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings $109,230 $113,992
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The outstanding balances for all short-term borrowings as of December 31, 1996,
1995 and 1994 (in thousands) and the weighted-average interest rates as of and
paid during each of the years then ended are as follows:
<TABLE>
<CAPTION>
REPURCHASE DEMAND
AGREEMENTS FEDERAL NOTES
AND FEDERAL HOME LOAN DUE U.S.
FUNDS BANK TREASURY
DECEMBER 31, (DOLLARS IN THOUSANDS) PURCHASED ADVANCES AND OTHER
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1996:
ENDING BALANCE $107,345 $ -- $1,885
- -----------------------------------------------------------------------------------------------------------------------
HIGHEST MONTH-END BALANCE 131,672 10,000 2,786
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE DAILY BALANCE 111,480 1,066 1,641
- -----------------------------------------------------------------------------------------------------------------------
WEIGHTED-AVERAGE INTEREST RATE:
AS OF YEAR-END 4.42% -- 5.78%
- -----------------------------------------------------------------------------------------------------------------------
PAID DURING THE YEAR 4.41% 6.29% 5.73%
- -----------------------------------------------------------------------------------------------------------------------
1995:
Ending balance $102,651 $10,000 $1,341
- -----------------------------------------------------------------------------------------------------------------------
Highest month-end balance 149,556 10,000 3,144
- -----------------------------------------------------------------------------------------------------------------------
Average daily balance 121,057 9,699 2,083
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate:
As of year-end 4.67% 5.94% 5.23%
- -----------------------------------------------------------------------------------------------------------------------
Paid during the year 4.98% 6.21% 4.95%
- -----------------------------------------------------------------------------------------------------------------------
1994:
Ending balance $141,475 $10,000 $3,791
- -----------------------------------------------------------------------------------------------------------------------
Highest month-end balance 141,475 20,000 3,791
- -----------------------------------------------------------------------------------------------------------------------
Average daily balance 112,956 6,773 1,963
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate:
As of year-end 5.04% 6.31% 6.20%
- -----------------------------------------------------------------------------------------------------------------------
Paid during the year 3.50% 5.07% 4.45%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 197
11. FEDERAL INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Corporation's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 9,731 $ 8,775
- ------------------------------------------------------------------------------------------------------------------------
Deferred loan fees 328 455
- ------------------------------------------------------------------------------------------------------------------------
Deferred compensation 559 494
- ------------------------------------------------------------------------------------------------------------------------
Other 2,085 1,883
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS $ 12,703 $ 11,607
- ------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Lease revenue reporting $ 2,819 $ 2,681
- ------------------------------------------------------------------------------------------------------------------------
Unrealized holding gain on securities 1,775 3,191
- ------------------------------------------------------------------------------------------------------------------------
Fixed assets, principally due to depreciation 657 696
- ------------------------------------------------------------------------------------------------------------------------
Other 3,878 3,051
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES $ 9,129 $ 9,619
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS, NET $ 3,574 $ 1,988
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of the provision for federal income taxes are shown below:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable $12,848 $11,622 $8,594
- ----------------------------------------------------------------------------------------------------------------------
Deferred (170) (775) 371
- ----------------------------------------------------------------------------------------------------------------------
TOTAL $12,678 $10,847 $8,965
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconcilement of federal income tax expense to the amount
computed at the statutory rate of 35% for the years ended December 31, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory corporate tax rate 35.0% 35.0% 35.0%
- ----------------------------------------------------------------------------------------------------------------------
Changes in rate resulting from:
Tax-exempt interest income - 1.0% - 1.2% - 1.8%
- ----------------------------------------------------------------------------------------------------------------------
Other - 0.9% - 0.9% - 2.3%
- ----------------------------------------------------------------------------------------------------------------------
EFFECTIVE TAX RATE 33.1% 32.9% 30.9%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 198
12. BENEFIT PLANS
The Corporation has a noncontributory defined benefit pension plan covering
substantially all of its employees. The plan provides benefits based on an
employee's years of service and compensation. The Corporation's funding policy
is to contribute annually an amount that can be deducted for federal income tax
purposes using a different actuarial cost method and different assumptions from
those used for financial reporting purposes.
Net pension cost included the following components:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 639 $ 599 $ 651
- -----------------------------------------------------------------------------------------------------------------------
Interest cost on projected benefit obligation 654 566 530
- -----------------------------------------------------------------------------------------------------------------------
Actual return on plan assets (1,748) (1,843) (221)
- -----------------------------------------------------------------------------------------------------------------------
Net amortization and deferral 950 1,201 (369)
- -----------------------------------------------------------------------------------------------------------------------
PENSION COST, NET $ 495 $ 523 $ 591
- -----------------------------------------------------------------------------------------------------------------------
The funded status of the plan and the accrued pension cost were as follows:
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 6,393 $ 6,012 $5,370
- -----------------------------------------------------------------------------------------------------------------------
Nonvested benefits 128 118 111
- -----------------------------------------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION 6,521 6,130 5,481
- -----------------------------------------------------------------------------------------------------------------------
Impact of projected future salary increases 2,625 2,603 2,221
- -----------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION 9,146 8,733 7,702
- -----------------------------------------------------------------------------------------------------------------------
Plan assets at fair value 10,670 9,549 7,265
- -----------------------------------------------------------------------------------------------------------------------
PLAN ASSETS IN EXCESS OF/(LESS THAN)
PROJECTED BENEFIT OBLIGATION 1,524 816 (437)
- -----------------------------------------------------------------------------------------------------------------------
Items not yet recognized in income:
Unrecognized net (gain)/loss from past experience
different from that assumed and effects of
changes in assumptions (1,756) (643) 330
- -----------------------------------------------------------------------------------------------------------------------
Unrecognized prior service cost (189) (208) (256)
- -----------------------------------------------------------------------------------------------------------------------
Initial transition asset which is being
amortized over 15.8 years (91) (107) (123)
- -----------------------------------------------------------------------------------------------------------------------
ACCRUED PENSION COST INCLUDED IN
CONSOLIDATED BALANCE SHEET $ (512) $ (142) $ (486)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation contributed approximately $125,000, $867,000, and $0 to the plan
in 1996, 1995 and 1994, respectively.
54
<PAGE> 199
The assumptions used in determining pension expense and funded status
information presented above were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.50% 7.50% 7.50%
- ----------------------------------------------------------------------------------------------------------------------
Rate of future salary increases 5.00% 5.00% 5.00%
- ----------------------------------------------------------------------------------------------------------------------
Long-term rate of return on assets 8.00% 8.00% 8.00%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has a voluntary salary deferral plan covering substantially all
of its employees. Eligible employees may contribute a portion of their
compensation subject to a maximum statutory limitation. The Corporation provides
a matching contribution established annually by the Corporation. Contribution
expense for the Corporation was $400,000, $380,000 and $286,000 for 1996, 1995
and 1994, respectively.
13. DIVIDEND RESTRICTIONS
Bank and thrift regulators limit the amount of dividends a subsidiary bank or
thrift can declare in any calendar year without obtaining prior approval. At
December 31, 1996, approximately $16,371,000 of the total stockholders' equity
of the bank and thrift subsidiaries is available for the payment of dividends to
the Corporation, without approval by the applicable regulatory authorities.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK
The Corporation is party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include loan commitments and standby letters of
credit. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
The Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. Since many of the loan
commitments may expire without being drawn upon, the total commitment amount
does not necessarily represent future cash requirements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan commitments to customers.
The total amounts of off-balance sheet financial instruments with credit risk
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loan commitments $182,573 $151,665
- ------------------------------------------------------------------------------------------------------------------------
Unused credit card limits 79,657 67,668
- ------------------------------------------------------------------------------------------------------------------------
Standby letters of credit 5,666 5,741
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation was party to various interest rate swap agreements, which
matured in 1994, for which it received a six month variable interest rate and
paid a fixed interest rate with a notional amount of $16 million at December 31,
1993. The weighted-average of the variable interest rates was 3.38% at December
31, 1993 compared to weighted-average fixed rates of 12.50% at December 31,
1993. A portion of these swaps was matched to various tax-exempt securities with
$5.4 million matched at December 31, 1993. Net interest expense resulting from
these swaps was $18,000 in 1994 and is shown as a reduction in interest income
on tax-exempt securities in the consolidated statement of income.
55
<PAGE> 200
The Corporation was also party to an interest rate swap agreement for which it
received a fixed rate of interest and paid a six month variable interest rate
with a notional amount of $10 million at December 31, 1993. The fixed interest
rate was 4.32% and the variable interest rate was 3.50% at December 31, 1993.
This swap hedged a portion of the variable rate loan portfolio and was
terminated in 1994. Net interest expense or income from this swap is included in
interest income on loans in the consolidated statement of income. Net interest
expense from this swap was $85,000 in 1994. At December 31, 1994, there were no
deferred gains or losses from swap terminations.
The Corporation grants retail, commercial and commercial real estate loans to
customers primarily located in Central Ohio. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the customer. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the debtors' ability to honor their contracts is dependent upon the economic
conditions in each loan's respective location.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of financial instruments at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
CARRYING FAIR CARRYING FAIR
DECEMBER 31, (IN THOUSANDS) AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and federal funds sold $ 61,454 $ 61,454 $ 92,752 $ 92,752
- ------------------------------------------------------------------------------------------------------------------------
Investment securities 396,967 397,404 328,730 329,331
- ------------------------------------------------------------------------------------------------------------------------
Loans:
Commercial, financial and agricultural 129,269 129,269 118,225 118,225
- ------------------------------------------------------------------------------------------------------------------------
Real estate - construction 52,443 52,443 40,871 40,871
- ------------------------------------------------------------------------------------------------------------------------
Real estate - residential 466,957 476,488 444,005 452,345
- ------------------------------------------------------------------------------------------------------------------------
Real estate - commercial 203,023 202,948 191,127 190,803
- ------------------------------------------------------------------------------------------------------------------------
Consumer, net 239,961 241,462 209,481 211,199
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,091,653 1,102,610 1,003,709 1,013,443
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (27,802) -- (25,073) --
- ------------------------------------------------------------------------------------------------------------------------
LOANS RECEIVABLE, NET $1,063,851 $1,102,610 $ 978,636 $1,013,443
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Noninterest-bearing checking $ 174,158 $ 174,158 $ 190,014 $ 190,014
- ------------------------------------------------------------------------------------------------------------------------
Interest-bearing checking 152,312 152,312 141,214 141,214
- ------------------------------------------------------------------------------------------------------------------------
Savings accounts 251,410 251,410 236,950 236,950
- ------------------------------------------------------------------------------------------------------------------------
Money market accounts 105,453 105,453 83,873 83,873
- ------------------------------------------------------------------------------------------------------------------------
Time deposits 651,678 655,155 552,866 557,308
- ------------------------------------------------------------------------------------------------------------------------
Other 1,606 1,606 1,623 1,623
- ------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $1,336,617 $1,340,094 $1,206,540 $1,210,982
- ------------------------------------------------------------------------------------------------------------------------
Short-term borrowings $ 109,230 $ 109,230 $ 113,992 $ 113,992
- ------------------------------------------------------------------------------------------------------------------------
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Loan commitments -- $ (183) -- $ (152)
- ------------------------------------------------------------------------------------------------------------------------
Standby letters of credit -- (29) -- (29)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 201
16. STOCK SPLIT
The Corporation's Board of Directors declared a two-for-one stock split at the
July 18, 1994 Directors' meeting. The additional shares of 3,594,825 were
distributed on August 12, 1994 to stockholders of record on July 29, 1994. All
shares and per share data have been restated for the two-for-one stock split.
17. CAPITAL RATIOS
The following table reflects various measures of capital at December 31, 1996
and December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total equity (1) $148,986 9.23% $136,424 9.24%
- ----------------------------------------------------------------------------------------------------------------------
Tier 1 capital (2) 134,291 12.78% 128,900 13.35%
- ----------------------------------------------------------------------------------------------------------------------
Total risk-based capital (3) 147,612 14.04% 141,132 14.61%
- ----------------------------------------------------------------------------------------------------------------------
Leverage (4) 134,291 8.82% 128,900 8.91%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Computed in accordance with generally accepted accounting principles,
including unrealized market value adjustment of securities
available-for-sale.
(2) Stockholders' equity less certain intangibles and the unrealized market
value adjustment of securities available-for-sale; computed as a ratio to
risk-adjusted assets as defined.
(3) Tier 1 capital plus qualifying loan loss allowance; computed as a ratio to
risk-adjusted assets, as defined.
(4) Tier 1 capital computed as a ratio to average total assets less certain
intangibles.
The Corporation's Tier 1, total risk-based capital and leverage ratios are well
above both the required minimum levels of 4.00%, 8.00%, and 4.00%, respectively,
and the well-capitalized levels of 6.00%, 10.00%, and 5.00%, respectively.
At December 31, 1996, all of the Corporation's subsidiary financial institutions
met the well-capitalized levels under the capital definitions prescribed in the
FDIC Improvement Act of 1991.
18. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.
Investments in subsidiaries are accounted for using the equity method of
accounting.
The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.
Cash represents noninterest-bearing deposits with a bank subsidiary.
Net cash provided by operating activities reflects cash payments for income
taxes of $627,000, $873,000 and $23,000 in 1996, 1995 and 1994, respectively.
57
<PAGE> 202
18. PARENT COMPANY STATEMENTS (continued)
At December 31, 1996 and 1995, stockholders' equity reflected in the Parent
Company balance sheet includes $47.7 million and $40.6 million, respectively, of
undistributed earnings of the Corporation's subsidiaries which are restricted
from transfer as dividends to the Corporation.
BALANCE SHEET
for the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash $ 15,322 $ 13,224
- ------------------------------------------------------------------------------------------------------------------------
Investment in subsidiaries 123,619 116,388
- ------------------------------------------------------------------------------------------------------------------------
Excess of cost over net assets of banks purchased, net 1,339 1,598
- ------------------------------------------------------------------------------------------------------------------------
Dividends receivable from subsidiaries 8,700 7,500
- ------------------------------------------------------------------------------------------------------------------------
Other assets 3,939 587
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $152,919 $139,297
- ------------------------------------------------------------------------------------------------------------------------
Liabilities:
Other liabilities $ 3,933 $ 2,873
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,933 2,873
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
TOTAL STOCKHOLDERS' EQUITY 148,986 136,424
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $152,919 $139,297
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF INCOME
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
DIVIDENDS FROM SUBSIDIARIES $24,600 $21,500 $ 8,680
- ----------------------------------------------------------------------------------------------------------------------
Expense:
Amortization of intangibles 259 259 259
- ----------------------------------------------------------------------------------------------------------------------
Other, net 1,014 687 363
- ----------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,273 946 622
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 23,327 20,554 8,058
- ----------------------------------------------------------------------------------------------------------------------
Federal income tax benefit 475 525 403
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES 23,802 21,079 8,461
- ----------------------------------------------------------------------------------------------------------------------
Equity in undistributed earnings
of subsidiaries 1,862 1,041 11,556
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME $25,664 $22,120 $20,017
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 203
18. PARENT COMPANY STATEMENTS (continued)
STATEMENT OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
DECEMBER 31, (IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 25,664 $ 22,120 $ 20,017
- ----------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization 259 259 259
- ----------------------------------------------------------------------------------------------------------------------
Undistributed earnings of subsidiaries (1,862) (1,041) (11,556)
- ----------------------------------------------------------------------------------------------------------------------
Increase in dividends receivable
from subsidiaries (1,200) (990) (1,710)
- ----------------------------------------------------------------------------------------------------------------------
(Increase) decrease in other assets (3,298) 105 (272)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in other liabilities 705 411 (631)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,268 20,864 6,107
- ----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital contribution to subsidiary (8,000) -- --
- ----------------------------------------------------------------------------------------------------------------------
Purchase of investment securities (54) (30) --
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (8,054) (30) --
- ----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid (9,998) (8,610) (8,054)
- ----------------------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (118) (2,545) --
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (10,116) (11,155) (8,054)
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 2,098 9,679 (1,947)
- ----------------------------------------------------------------------------------------------------------------------
Cash at beginning of year 13,224 3,545 5,492
- ----------------------------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $ 15,322 $ 13,224 $ 3,545
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 204
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Park National Corporation
We have audited the accompanying consolidated balance sheets of Park National
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Park National
Corporation and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG L.L.P.
Columbus, Ohio
January 21, 1997
<PAGE> 205
APPENDIX C
ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED
DECEMBER 31, 1996
OF
FIRST-KNOX BANC CORP.
[DELIVERED SEPARATELY HEREWITH]
<PAGE> 206
LETTER TO SHAREHOLDERS
To say that 1996 was an exciting year would be an understatement.
Profits reached an all-time high. Total assets exceeded the half billion dollar
mark. Net income, before merger-related expenses, reflected an increase of
15.68%. Assets for the Corporation increased 15.5%, and shareholders' equity
increased 7.1% over 1995. Public awareness of our agreement with Park National
Corporation, also reached record levels of interest. Our success can be
attributed directly to the ability of our employees to maintain their focus on
our customers, while providing enhanced services in a time of both uncertainty
and opportunity. We are justifiably proud of their performance.
[GRAPHIC]
Net income for 1996 exceeded six million dollars for the first time in
corporate history. We also maintained a consecutive string of increased net
income, total assets, earnings per share, and cash dividends, since the
formation of First-Knox Banc Corp in 1985. Loans increased 9.4% while deposits
increased 6.6%. Non-interest income reached a new level of $3.43 million, an
increase of 9.6% as compared to 1995. Non-interest expense rose $720,000,
including $595,000 in professional expenses, attributable mainly to
merger-related matters. Income taxes exceeded two million dollars, another
corporate record. Shareholders received a 5% stock dividend in September,
marking the thirty-first consecutive year that a stock dividend or split has
been issued. Additional analysis of our financial performance can be found
starting on page twenty-five of this report.
Beyond the quantifiable accomplishments of the past year, a number of
other events deserve recognition, especially the proposed merger between
First-Knox and Park. Public announcement was made in October following the
signing of a definitive merger agreement, details and analysis of which are
described in the Joint Proxy Statement Prospectus being sent to all
shareholders. We urge each shareholder to review the proxy materials and vote
at the upcoming special shareholder meeting.
While separate companies in separate markets, our two organizations
share many of the philosophies, values, and commitments associated with the
successful conduct of community banking. We both believe that exceptional
customer service delivered by dedicated employees is essential. We both
acknowledge responsibility for the viability of the communities in which we live
and work. We both recognize that bigger is not always better, but optimum size
must be achieved to afford competitive efficiencies. Perhaps most importantly,
we both believe in the opportunities that such a merger affords our customers,
employees, and shareholders. The heritage and accomplishments of each
organization have been recognized by the other for many years, but rather than
spending time on mutual admiration, we will continue to build on the
fundamentals that have served us well.
Numbers alone do not tell all of our story. Once again, First-Knox was a
leader in introducing new products, all of which met with open customer
acceptance. For our retail customers, a bi-weekly mortgage was introduced, the
first such product in our market area. Over a period of years, bi-weekly
payment benefits the homeowner with significant savings in cumulative interest
cost. Also introduced was a 100% home equity loan allowing customers to take
full advantage of their home equity and tax deductibility of interest. For our
business customers, a new software package, DirectPay, was marketed allowing a
seamless interface with programs using the Automated Clearing House.
Additionally, new programs were developed and implemented for those desiring to
have their funds swept automatically into trust accounts or repurchase
agreements.
Improvements to our physical facilities continued in 1996. The
Operations Center was upgraded and space utilization improved as a
continuation of the Main Office building expansion. New safe deposit boxes were
added at the Centerburg and Main Office locations. The Mount Gilead office was
renovated extensively as part of a downtown revitalization program.
Technology has always played an important role in providing our
customers with more responsive
22
<PAGE> 207
financial products and increased internal efficiencies. Utilization of the very
latest technology continued to benefit the Corporation in 1996. Automated
software in the retail loan area provided increased efficiencies in controlling
delinquencies and enabled early identification of changing customer needs. In
the area of check processing, character recognition equipment was installed
resulting in almost 40% of our document processing taking place without human
intervention. To take advantage of the savings afforded by the post office in
pre-sorting, bar coding was implemented for all statements.
The most visible use of technology from the public's perception was the
unveiling of our Web site on the Internet at www.firstknox.com. Even though
our customers and physical facilities are convenient to one another, we believe
existing and potential customers should be able to access all information
regarding our financial services, at their leisure and convenience, twenty-four
hours a day. Until we are more comfortable with the security of transactions and
sensitive customer data, our Web site will offer information such as locations,
hours, services, loan and deposit rates, ATM locations, E-mail, our stock
performance, and a community bulletin board. The community bulletin board is a
new and unique public service that will list various events in each of the
communities served by First-Knox.
While our branch facilities are convenient in the marketplace, the Web
site gives us an excellent vehicle to reach current and potential customers
without the constraints of time and geography. We believe our Web site is just
the beginning of a new way to provide service to our customers. In time, the
Internet will be an important addition to our existing delivery systems which
now include the mail, branches, telephone, courier, automated clearing house,
and automated teller machines.
Although a very progressive year, 1996 was also a year marked with
sadness. Two of our directors, Russell E. Ramser, Jr. and George T. Culbertson,
Jr. passed away following prolonged illnesses. Mr. Ramser was Chairman of the
Board, and Mr. Culbertson was a founding director of the Corporation.
Additionally, William A. Stroud and Stephen P. Upham, Jr. retired from the
Board as required by the retirement schedule. Mr. Stroud served as President
and Chairman of the Board of
<TABLE>
FULLY-DILUTED
EARNINGS PER SHARE
(in dollars)
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Fully-diluted earnings per share 1.12 1.27 1.34 1.5 1.59
Impact of merger related
legal and professional fees 0 0 0 0 0.15
</TABLE>
<TABLE>
NET INCOME
(in millions of dollars)
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Net Income 3.95 4.67 5.16 5.71 6.04
Impact of merger related
legal and professional fees 0 0 0 0 0.57
</TABLE>
23
<PAGE> 208
both the First-Knox National Bank and the Corporation. Mr. Upham was a founding
director of the Corporation and a First-Knox National Bank director since 1959.
The guidance provided by these four gentlemen has been an immeasurable
contribution to our Corporation's success.
In March of 1996, William B. Levering and R. Dan Snyder joined the
Board of Directors of First-Knox National Bank. Their new perspectives have
been an asset to the Board. In December, Philip H. Jordan, jr. was elected to
replace Mr. Ramser as Chairman of the First-Knox Banc Corp. Board. Also at that
time, James E. McClure, Chairman of the Farmers and Savings Bank, was appointed
to the First-Knox Banc Corp. Board, and Mark R. Ramser was elected to the Board
of First-Knox National Bank.
Each year, in this letter, we discuss items which affect the banking
industry in general and our future in particular. Two major issues exist: one
impacting our ability to serve our customers, and the other affecting our
ability to compete effectively. The issue of serving our customers revolves
around the ability of banks or bank organizations to offer a broad range of
financial products including brokerage services and insurance. Our non-bank
financial service competitors are able to offer bank-type services without the
regulations or geographic constraints placed on commercial banks. We perceive
that the regulatory climate is changing to accommodate a wider range of
products and services. However, we do not see any immediate intention on the
part of congress to address these matters.
The second issue involves fairness and taxation. Today, credit unions
are not subject to taxation, an advantage that impacts both relative
profitability and pricing of services. We understand the role of the credit
union and its "common bond" foundation. It is when the "common bond" definition
is stretched beyond its original intent, and the marketplace broadens beyond
reasonable boundaries that the exemption from sharing the burden of
taxation appears to be unreasonable. Like any operating expense, taxes impact
the structure of rates paid/charged to our customers and the amount of income
available for shareholder dividend payments. The banking industry takes no
exception to honoring its tax obligations, but cannot accept the logic of its
customers and shareholders bearing the cost of a competitor's subsidy.
As we approach the beginning of a new century, it is important that we
retain our focus on those traditional values that have served us so well for
the past century and a half...values that improve the quality of life for our
customers, our employees, our shareholders, and our communities. An overview of
the past 150 years of First-Knox is provided in a timeline of major activities
on the next page. We have undergone changes in name, structure, locations,
size, products, and delivery mechanisms. Yet, during this time we consistently
focused on providing our communities and customers with viable financial
services, our employees with worthwhile careers, and our shareholders with
increased investment value.
In reviewing the timeline of activities, change has been an ever
present component. In the future, that component will continue, but we will
experience it at an accelerated pace. Communications, international trade,
artificial intelligence, cyberspace, and longer lives will place great demands
upon the financial community and its resources. The challenge for management
will be to balance future demands with historic values to benefit our
shareholders, employees, and customers.
Our success has been predicated on the foresight and hard work of the
directors, officers, and, in particular, the employees of the affiliates of
First-Knox. Future accomplishments of even greater proportions will be
possible through this empowerment. With the trust and support of our
shareholders and customers, we look forward to unlimited opportunities beyond
our most optimistic visions.
/s/ Philip H. Jordan, Jr. /s/ Carlos E. Watkins
Chairman of the Board President and
Chief Executive Officer
24
<PAGE> 209
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 and 1995
(In thousands of dollars except per share data) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and deposits with banks (Note 9) .............................................. $ 20,308 $ 16,701
Interest-bearing deposits with banks ............................................... 539 311
Federal funds sold ................................................................. 3,400
--------- ---------
Total cash and cash equivalents ................................................... 20,847 20,412
Securities available for sale (Notes 2 and 8) ...................................... 177,426 131,988
Loans (Notes 3 and 8) .............................................................. 361,840 330,641
Less allowance for loan losses (Note 4) ............................................ (4,545) (4,166)
--------- ---------
Loans, net of allowance for loan losses ........................................... 357,295 326,475
Premises and equipment, net (Note 5) ............................................... 10,791 10,993
Accrued interest receivable and other assets ....................................... 7,404 7,031
--------- ---------
TOTAL ASSETS ...................................................................... $ 573,763 $ 496,899
========= =========
LIABILITIES
Deposits (Note 6) .................................................................. $ 430,763 $ 404,067
Short-term borrowings (Note 7) ..................................................... 24,887 7,986
Long-term debt (Note 8) ............................................................ 62,375 33,415
Accrued interest payable and other liabilities ..................................... 5,763 4,772
--------- ---------
TOTAL LIABILITIES ................................................................. 523,788 450,240
Commitments and Contingencies (Note 9)
SHAREHOLDERS' EQUITY
Common stock, par value $3.125 per share; 6,000,000 shares authorized;
3,755,926 shares issued and outstanding in 1996 and 3,650,225 shares issued in 1995 11,737 11,407
Paid-in capital .................................................................... 26,017 24,042
Retained earnings .................................................................. 10,830 11,187
Net unrealized holding gains on securities available for sale (Note 1) ............. 1,391 1,912
Common stock in treasury, 89,965 shares at cost in 1995 ............................ (1,889)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ........................................................ 49,975 46,659
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................................ $ 573,763 $ 496,899
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 210
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
(In thousands of dollars except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans............................................................................ $ 30,945 $ 28,854 $ 25,238
Taxable securities............................................................... 6,606 5,214 4,477
Tax exempt securities............................................................ 2,897 2,792 2,800
Federal funds sold and interest-bearing deposits with banks...................... 331 228 79
--------- --------- ---------
TOTAL INTEREST INCOME ......................................................... 40,779 37,088 32,594
INTEREST EXPENSE
Deposits......................................................................... 16,426 15,158 11,800
Short-term borrowings............................................................ 585 390 349
Long-term debt................................................................... 2,800 1,951 1,478
--------- --------- ---------
TOTAL INTEREST EXPENSE ........................................................ 19,811 17,499 13,627
--------- --------- ---------
NET INTEREST INCOME .......................................................... 20,968 19,589 18,967
PROVISION FOR LOAN LOSSES (Note 4) ............................................. 774 584 638
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ......................... 20,194 19,005 18,329
OTHER INCOME
Trust department income.......................................................... 774 702 588
Customer service fees and commissions............................................ 2,423 2,315 1,926
Loan sale gains.................................................................. 27 29
Securities gains (losses), net................................................... 171 (20) 11
Other operating income........................................................... 60 103 193
--------- --------- ---------
TOTAL OTHER INCOME ............................................................ 3,428 3,127 2,747
OTHER EXPENSES
Salaries and benefits (Notes 10 and 11) ......................................... 7,226 7,081 6,756
Occupancy expenses............................................................... 2,370 2,121 1,825
Professional fees related to pending merger (Note 20)............................ 595
Other operating expenses (Note 12) .............................................. 5,387 5,656 6,064
--------- --------- ---------
TOTAL OTHER EXPENSES .......................................................... 15,578 14,858 14,645
--------- --------- ---------
INCOME BEFORE INCOME TAXES .................................................... 8,044 7,274 6,431
INCOME TAXES (Note 13) ........................................................ 2,008 1,565 1,267
--------- --------- ---------
NET INCOME ................................................................... $ 6,036 $ 5,709 $ 5,164
========= ========= =========
EARNINGS PER COMMON SHARE (Note 1)
PRIMARY ...................................................................... $ 1.59 $ 1.50 $ 1.34
========= ========= =========
FULLY DILUTED ................................................................ $ 1.59 $ 1.50 $ 1.34
========= ========= =========
WEIGHTED AVERAGE SHARES (Note 1)
PRIMARY ....................................................................... 3,801,519 3,818,759 3,852,941
========= ========= =========
FULLY DILUTED ................................................................. 3,802,449 3,821,589 3,856,009
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 211
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
HOLDING GAIN
NUMBER OF (LOSS) ON TOTAL
For each of the three years COMMON SECURITIES SHARE-
ended December 31, 1996 SHARES COMMON PAID-IN RETAINED AVAILABLE TREASURY HOLDERS'
(In thousands of dollars except per share data) OUTSTANDING STOCK CAPITAL EARNINGS FOR SALE STOCK EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994 ................... 1,718,979 $ 5,372 $20,164 $12,887 $38,423
Net income................................... 5,164 5,164
Issuance of shares under the dividend
reinvestment plan........................... 6,797 21 218 239
Issuance of shares under the employee
retirement savings plan..................... 3,423 11 103 114
Issuance of shares for stock options
exercised................................... 2,499 8 47 55
Cash dividends declared, $.40 per share...... (1,527) (1,527)
Net unrealized holding gain (loss) on
securities available for sale
at January 1, 1994......................... $ 706 706
Change during 1994......................... (2,342) (2,342)
5% stock dividend............................ 86,552 270 3,332 (3,602)
--------- ------- -------- -------- ------- -------- --------
BALANCES AT DECEMBER 31, 1994 ............... 1,818,250 5,682 23,864 12,922 (1,636) 40,832
Net income................................... 5,709 5,709
Treasury stock purchased..................... (45,868) $(1,926) (1,926)
Issuance of shares under the dividend
reinvestment plan .......................... 5,147 16 110 126
Issuance of shares under the employee
retirement savings plan..................... 475 2 10 12
Issuance of shares for stock options
exercised................................... 6,400 16 66 27 109
Cash dividends declared, $.47 per share...... (1,751) (1,751)
Change in unrealized holding gain (loss)
on securities available for sale............ 3,548 3,548
Two-for-one stock split in the form of a
100% stock dividend......................... 1,775,856 5,693 (5,693)
--------- ------- -------- -------- ------- -------- --------
BALANCES AT DECEMBER 31, 1995.................. 3,560,260 11,407 24,042 11,187 1,912 (1,889) 46,659
Net income................................... 6,036 6,036
Issuance of shares under the dividend
reinvestment plan .......................... 7,903 24 166 190
Issuance of shares for stock options
exercised................................... 9,355 5 (24) 166 147
Cash dividends declared, $.68 per share...... (2,536) (2,536)
Change in net unrealized holding gain
on securities available for sale............ (521) (521)
5% stock dividend............................ 178,408 301 1,833 (3,857) 1,723
--------- ------- -------- -------- ------- -------- -------
BALANCES AT DECEMBER 31, 1996 3,755,926 $11,737 $ 26,017 $ 10,830 $ 1,391 $ -0- $ 49,975
========= ======= ======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 212
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
(In thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................................... $ 6,036 $ 5,709 $ 5,164
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan and lease losses............................................. 774 584 638
Depreciation, accretion, and amortization....................................... 978 1,004 1,199
Market loss on loans held for sale.............................................. 59 121
Securities (gains) losses....................................................... (171) 20 (11)
Loan sale gains................................................................. (27) (29)
Deferred income tax expense (benefit)........................................... (43) 5
Increase in interest receivable................................................. (643) (354) (398)
Increase in interest payable.................................................... 490 704 234
Increase in net deferred loan costs............................................. (62) (37) (55)
Change in other assets and liabilities, net..................................... 482 (239) (1,092)
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................... 7,900 7,369 5,771
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities held to maturity......................................... (1,351) (17,135)
Purchases of securities available for sale....................................... (78,826) (27,617) (26,112)
Proceeds from sales of securities available for sale............................. 14,362 17,560
Proceeds from calls, payments, and maturities of securities held to maturity..... 3,109 4,321
Proceeds from calls, payments, and maturities of securities available for sale... 18,740 13,099 15,959
Net increase in loans............................................................ (31,594) (28,318) (16,824)
Proceeds from sale of loans...................................................... 1,578 3,113
Expenditures for premises and equipment.......................................... (873) (1,944) (4,551)
Proceeds from sales of other real estate owned................................... 52
--------- --------- --------
NET CASH APPLIED TO INVESTING ACTIVITIES ...................................... (78,191) (23,832) (41,229)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts...................................... 26,696 26,887 (997)
Net increase (decrease) in short-term borrowings................................. 16,901 (3,466) (2,053)
Proceeds from long-term debt..................................................... 30,000 5,000 30,110
Payment of long-term debt........................................................ (1,040) (6,305) (1,290)
Issuance of common stock......................................................... 337 247 408
Purchase of treasury shares...................................................... (1,926)
Cash dividends paid.............................................................. (2,168) (1,672) (1,468)
--------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES ..................................... 70,726 18,765 24,710
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................... 435 2,302 (10,748)
CASH AND CASH EQUIVALENTS AT JANUARY 1 ....................................... 20,412 18,110 28,858
--------- --------- --------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 ...................................... $ 20,847 $ 20,412 $ 18,110
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 213
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First-Knox Banc Corp. ("the Corporation"), a two-bank holding company,
provides a broad range of banking, financial, and fiduciary services. Its
principal subsidiaries, The First-Knox National Bank ("First-Knox") and The
Farmers and Savings Bank ("Farmers"), operate predominantly in the central Ohio
counties of Knox, Morrow, Holmes, Ashland, and Richland. The banks' primary
services include accepting demand, savings, and time deposits; making
commercial, industrial, real estate, and consumer loans; investing in securities
and providing trust services.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The collectibility of loans,
fair values of financial instruments and status of contingencies are
particularly subject to change.
The following is a summary of the significant accounting policies followed in
the preparation of the consolidated financial statements.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Corporation
and its wholly-owned subsidiaries, First-Knox and Farmers. All significant
intercompany transactions and balances have been eliminated.
INDUSTRY SEGMENT INFORMATION
The Corporation is engaged in the business of banking, which accounts for
substantially all of its revenues and assets.
SECURITIES
Securities are classified as held to maturity and carried at amortized cost
when management has the positive intent and ability to hold them to maturity.
Securities are classified as available for sale when they might be sold before
maturity. Securities available for sale are carried at fair value, with
unrealized holding gains and losses reported separately in shareholders' equity,
net of tax. Securities are classified as trading when held for short-term
periods in anticipation of market gains, and are carried at fair value.
Securities are written down to fair value when a decline in fair value is not
temporary.
Statement of Financial Accounting Standards (SFAS) No. 115 was adopted on
January 1, 1994. Accordingly, securities were classified into the categories
discussed above. Prior to this date, securities were reported at amortized cost
except for securities held for sale, which were reported at the lower of cost or
market. This reclassification increased equity by $706,000 at January 1, 1994,
which is the after-tax effect of the adjustment from amortized cost to fair
value for securities available for sale at that date.
Gains and losses on sales are determined using the amortized cost of the
specific security sold. Interest income includes amortization of purchase
premiums and discounts.
INTEREST AND FEES ON LOANS
Interest on loans is recognized on the interest method. The accrual of
interest on loans is suspended when, in management's opinion, the collection of
all or a portion of the interest has become doubtful. When a loan is placed on
non-accrual status, accrued and unpaid interest at risk is charged against
income. Payments received on non-accrual loans are applied against principal
until recovery of the remaining balance is reasonably assured.
Loan fees and direct costs associated with originating or acquiring loans are
deferred and recognized over the life of the related loan or lease, as an
adjustment of the yield.
CONCENTRATIONS OF CREDIT RISK
The Corporation, through its subsidiary banks, grants residential, consumer,
and commercial loans to customers located primarily in the central Ohio counties
of Knox, Morrow, Holmes, Ashland, and Richland. Commercial loans, residential
real estate loans, and consumer loans comprise 29.9%, 47.1%, and 23.0% of total
loans, respectively, at December 31, 1996.
The Corporation, in the normal course of business, makes commitments to
extend credit which are not reflected in the financial statements. A summary of
these commitments is discussed in Note 9.
LOANS HELD FOR SALE
Real estate loans held for sale in the secondary market are carried at the
lower of cost or estimated market value in the aggregate. Net unrealized losses
are recognized in a valuation allowance by charges to income.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a valuation allowance, increased by the
provision for loan losses and decreased by charge-offs less recoveries.
Management estimates the allowance based on past loan loss experience, known and
inherent risks in the portfolio, information about specific borrower situations
and estimated collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgment, should be
charged-off.
Under SFAS Nos. 114 and 118, "Accounting by Creditors for Impairment of a
Loan," which were adopted January 1, 1995, loan impairment is reported when full
payment under the loan terms is not expected. The adoption of this statement did
not materially impact the financial statements. If a loan is impaired, a portion
of the allowance is allocated so that the loan is reported net, at the present
value of estimated future cash flows using the loan's existing rate, or at the
fair value of collateral if repayment is expected solely from the collateral.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one-to-four family
residences, residential construction loans, and automobile, home equity, and
second mortgage loans. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment. When analysis of borrower
operating results and financial condition indicates that underlying cash flows
of the borrower's business are not adequate to meet its debt service
requirements, the loan is evaluated for impairment. Often this is associated
with a delay or shortfall in payments of 30 days or more. Loans are generally
moved to non-accrual status when 90 days or more past due. These loans are often
also considered impaired. Impaired loans, or portions thereof, are charged off
when deemed uncollectible. The nature of disclosures for impaired loans is
considered generally comparable to prior non-accrual and renegotiated loans and
non-performing and past-due asset disclosures.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
life of the asset. The assets are reviewed for impairment under SFAS No. 121
when events indicate the carrying amount may not be recoverable. Maintenance and
repairs are charged to expense as incurred, and major improvements are
capitalized.
OTHER REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure is
included in other assets at the lower of cost or fair value, less estimated
costs to sell. Any reduction from carrying value of the related
30
<PAGE> 214
loan to fair value at the time of acquisition is accounted for as a loan loss.
Any subsequent reduction in fair value is reflected in a valuation allowance
account through a charge to income. Costs incurred to carry other real estate
are charged to expense.
Other real estate owned totaled $92,000 at December 31, 1996 and 1995.
SERVICING RIGHTS
Prior to adopting SFAS No. 122 at the start of 1996, servicing right assets
were recorded only for purchased rights to service mortgage loans. Subsequent to
adopting this standard, servicing rights represent both purchased rights and the
allocated value of servicing rights retained on loans sold. Servicing rights are
expensed in proportion to, and over the period of, estimated net servicing
revenues. Impairment is evaluated based on the fair value of the rights, using
groupings of the underlying loans as to interest rates and then, secondarily, as
to geographic and prepayment characteristics. Any impairment of a grouping is
reported as a valuation allowance. Adopting this pronouncement did not
materially impact the Corporation's financial condition or net income.
Excess servicing receivable is reported when a loan sale results in servicing
in excess of normal amounts, and is expensed over the life of the servicing on
the interest method.
INTANGIBLES
Intangible assets arising from branch and bank acquisitions, and included
with other assets in the consolidated balance sheet, are summarized as follows
at December 31, 1996, net of accumulated amortization:
<TABLE>
<S> <C>
Goodwill $ 335,000
Core deposit intangibles $ 499,000
</TABLE>
Goodwill is being amortized using the straight-line method over periods of up
to fifteen years. Core deposit intangibles are being amortized using various
methods over periods of up to fifteen years for intangibles arising from
acquisitions prior to 1989, and over ten years for branch acquisitions in 1989.
Goodwill and identified intangibles are assessed for impairment based on
estimated undiscounted cash flow and written down if necessary. Amortization of
goodwill and core deposit intangibles totaled $235,000, $240,000, and $248,000
in 1996, 1995, and 1994.
INCOME TAXES
Income tax expense is the sum of the current year income tax due or
refundable and the change in deferred tax assets and liabilities. Deferred tax
assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
STATEMENT OF CASH FLOWS
For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold, all of which have
original maturities of 90 days or less.
The Corporation paid interest of $19,321,000, $16,795,000, and $13,393,000
for the years ended December 31, 1996, 1995, and 1994, respectively. Cash paid
for income taxes was $2,008,000, $1,477,000, and $1,378,000 for the years ended
December 31, 1996, 1995, and 1994, respectively.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The Corporation adopted stock option and stock appreciation rights plans in
1995 and 1990. Stock options and stock appreciation rights may be granted at a
price not less than the fair market value of the stock at the date of the grant.
Stock options are reflected as common stock and paid-in capital when exercised,
in an amount equal to the option price received. Any benefit associated with the
tax deduction received for the difference between the fair market value at the
date of exercise and the option price is recorded as paid-in capital.
Compensation expense associated with stock appreciation rights granted is
accrued based on the increase in the value of the underlying common shares.
Expense for employee compensation for stock options granted is based on
Opinion 25, with expense reported only if options are granted below market price
at grant date. Pro forma disclosures of net income and earnings per share are
provided as if the fair value method of SFAS No. 123 were used for stock-based
compensation.
EMPLOYEE BENEFITS
A defined-benefit pension plan covers substantially all employees, with
benefits based on years of service and compensation prior to retirement.
Contributions to the plan are based on the maximum amount deductible for income
tax purposes. A retirement savings plan with 401(k) features cover substantially
all employees who are at least age 21 and have completed one year of serA
defined-benefit pension plan covers substantially all employees, with benefits
based on years of service and compensation prior to retirement. Contributions to
the plan are based on the maximum amount deductible for income tax purposes. A
retirement savings plan with 401(k) features cover substantially all employees
who are at least age 21 and have completed one year of service. The plan allows
employee contributions, with contributions up to 6% of employee compensation
matched at 30%.
The expense of the defined-benefit plan is reported by spreading the expected
contributions to the plan less long-term earnings on The expense of the
defined-benefit plan is reported by spreading the expected contributions to the
plan less long-term earnings on plan assets over the employee's service period.
Expense of the retirement savings plan is based on annual contributions.
Health benefits to retirees are provided under a plan. The estimated cost is
recorded during the period of employee service.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed separately. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments and other factors, especially
in the absence of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates. The fair value
estimates of existing on and off balance sheet financial instruments do not
include the value of anticipated future business or the values of assets and
liaFair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed separately. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments and other factors, especially
in the absence of broad markets for particular items. Changes in assumptions or
in market conditions could significantly affect the estimates. The fair value
estimates of existing on and off balance sheet financial instruments do not
include the value of anticipated future business or the values of assets and
liabilities not considered financial instruments.
STOCK DIVIDENDS
Dividends issued in stock are reported by transferring the market value of
the stock issued from retained earnings to common stock and additional paid-in
capital. Stock splits in the form of stock dividends are reported by
transferring the par value of the Dividends issued in stock are reported by
transferring the market value of the stock issued from retained earnings to
common stock and additional paid-in capital. Stock splits in the form of stock
dividends are reported by transferring the par value of the stock issued from
retained earnings to common stock.
EARNINGS AND DIVIDENDS DECLARED PER SHARE
Primary earnings per share is computed based on the weighted average shares
outstanding during the year plus common equivalent shares arising from dilutive
stock options, using the treasury method. Fully-diluted earnings per share
reflects additional dilution related to stock options due to the use of the
market price at the end of the period when higher than the average price for the
period.
The Corporation distributed 5% stock dividends in September, 1996 and
October, 1994. In September, 1995, the Corporation distributed a two-for-one
stock split in the form of a 100% stock dividend. All per share data has been
retroactively adjusted for the stock split and stock dividends.
FINANCIAL STATEMENT PRESENTATION
Certain items in the 1995 and 1994 financial statements have been
reclassified to correspond with the 1996 presentation.
31
<PAGE> 215
]
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities available for sale
are summarized as follows at:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
(In thousands of dollars) AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1996 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ............................... $ 30,621 $ 230 $ (81) $ 30,770
Obligations of states and political subdivisions ....... 56,493 1,337 (257) 57,573
Obligations of U.S. government corporations and agencies 26,777 258 (46) 26,989
Other securities ....................................... 6,866 199 7,065
Mortgage pools ......................................... 53,267 608 (125) 53,750
Collateralized mortgage obligations .................... 1,295 (16) 1,279
-------- -------- -------- --------
TOTAL ................................................. $175,319 $ 2,632 $ (525) $177,426
======== ======== ======== ========
GROSS GROSS ESTIMATED
(In thousands of dollars) AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1995 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------------------------------------
U.S. Treasury securities ............................... $ 27,955 $ 312 $ (51) $ 28,216
Obligations of states and political subdivisions ....... 53,407 1,867 (77) 55,197
Obligations of U.S. government corporations and agencies 6,932 59 6,991
Other securities ....................................... 4,041 249 4,290
Mortgage pools ......................................... 35,335 635 (69) 35,901
Collateralized mortgage obligations .................... 1,421 1 (29) 1,393
-------- -------- -------- --------
TOTAL ................................................. $129,091 $ 3,123 $ (226) $131,988
======== ======== ======== ========
</TABLE>
The amortized cost and estimated fair values of investments in debt
securities available for sale at December 31, 1996, by contractual maturity, are
shown below. Expected maturities will likely differ from contractual maturities
because some issuers have the right to call or prepay obligations with or
without penalty.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
(In thousands of dollars) COST VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less ....................................................... $ 13,465 $ 13,532
Due after one year through five years ......................................... 43,214 43,796
Due after five years through ten years ........................................ 34,613 35,334
Due after 10 years ............................................................ 29,465 29,735
-------- --------
120,757 122,397
Mortgage-backed and related securities ........................................ 54,562 55,029
-------- --------
TOTAL INVESTMENTS IN DEBT SECURITIES ......................................... $175,319 $177,426
======== ========
</TABLE>
Proceeds from the sales of investment and mortgage-backed securities during
1996 were $14,362,000, resulting in gross gains of $234,000 and gross losses of
$63,000. Proceeds from the sales of investment and mortgage-backed securities
during 1995 were $17,560,000 resulting in gross gains of $50,000 and gross
losses of $93,000. There were no sales in 1994. Gross gains from calls of
investment securities were $23,000 in 1995 and $11,000 in 1994.
As of December 31,1996 and 1995, securities having estimated fair values of
$80,586,000 and $60,297,000, respectively, were pledged to collateralize
governmental and trust department deposits and repurchase agreements (See Note
7) in accordance with federal and state requirements.
To provide additional flexibility to meet liquidity and asset/liability
management needs, the Corporation reclassified its obligations of states and
political subdivisions from held to maturity to available for sale. The
securities, with an amortized cost of $53,407,000, were transferred on December
31, 1995, as allowed by the SFAS 115 implementation guide issued by the
Financial Accounting Standards Board. The related unrealized gain of $1.8
million was reflected, net of tax, as an increase to shareholders' equity.
32
<PAGE> 216
NOTE 3 - LOANS
<TABLE>
<CAPTION>
Loans are comprised of the following at December 31:
(In thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate loans held for sale................................................... $ 5,020
Residential real estate loans................................................................. $ 170,449 147,927
Commercial real estate loans.................................................................. 12,349 9,548
Commercial and industrial loans............................................................... 90,739 88,632
Consumer and credit card loans................................................................ 83,399 74,836
Obligations of states and political subdivisions.............................................. 4,904 4,678
--------- --------
TOTAL LOANS ............................................................................... $ 361,840 $330,641
========= ========
</TABLE>
Loans over 90 days past due and still accruing interest approximated
$1,904,000 and $862,000 at December 31, 1996 and 1995, respectively. Loans on
non-accrual status at December 31, 1996 and 1995 approximated $317,000 and
$197,000, respectively. Impaired loans were not material at December 31, 1996,
or in any period presented.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Activity in the allowance for loan losses is summarized as follows:
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year....................................................... $ 4,166 $ 3,876 $ 3,597
Provision for loan losses........................................................ 774 584 638
Losses charged to the allowance.................................................. (579) (539) (641)
Recoveries ...................................................................... 184 245 282
--------- --------- --------
BALANCE, END OF YEAR .......................................................... $ 4,545 $ 4,166 $ 3,876
========= ========= ========
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
Premises and equipment at December 31, are summarized as follows:
(In thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land.......................................................................................... $ 1,708 $ 1,701
Buildings..................................................................................... 9,614 9,229
Equipment..................................................................................... 8,173 7,713
--------- --------
Total premises and equipment.................................................................. 19,495 18,643
Less accumulated depreciation................................................................. (8,704) (7,650)
--------- --------
PREMISES AND EQUIPMENT, NET ................................................................ $ 10,791 $ 10,993
========= ========
</TABLE>
Total depreciation expense was $1,075,000 in 1996, $1,018,000 in 1995, and
$716,000 in 1994.
The Corporation has annual renewable leases for certain office and business
equipment. Total rental expense for renewable and noncancelable operating leases
was $198,000, $211,000, and $202,000 in 1996, 1995, and 1994. Future lease
commitments are not material.
33
<PAGE> 217
NOTE 6 - DEPOSITS
<TABLE>
<CAPTION>
Deposits are comprised of the following categories at December 31:
(In thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non interest-bearing demand................................................................... $ 55,317 $ 54,706
Interest-bearing demand....................................................................... 49,386 39,882
Savings....................................................................................... 88,258 99,133
Time.......................................................................................... 237,802 210,346
--------- ---------
TOTAL DEPOSITS .............................................................................. $ 430,763 $ 404,067
========= =========
</TABLE>
Time deposits of $100,000 or more included above were $50,516,000 in 1996 and
$36,417,000 in 1995.
<TABLE>
<CAPTION>
At year-end 1996, stated maturities of all time deposits were:
<S> <C>
1997................. $ 192,107
1998................. 30,777
1999................. 7,567
2000................. 4,517
2001................. 953
Thereafter........... 1,881
----------
$ 237,802
==========
</TABLE>
NOTE 7 - SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
The outstanding balances for short-term borrowings as of December 31, are as follows:
(In thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements................................................... $ 9,972 $ 7,453
Demand note due to the U. S. Treasury......................................................... 2,215 533
Federal funds purchased....................................................................... 2,700
Federal Home Loan Bank advances............................................................... 10,000
--------- ---------
TOTAL SHORT-TERM BORROWINGS ................................................................ $ 24,887 $ 7,986
========= =========
</TABLE>
Securities sold under repurchase agreements represent borrowings with
maturities from 1 to 89 days and are collateralized by selected Corporation
securities as discussed in Note 2. Physical control is maintained for all
securities sold under repurchase agreements.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average daily balance during the year........................................................ $ 6,619 $ 5,260
Average interest rate during the year........................................................ 4.62% 5.13%
Maximum month-end balance during the year.................................................... $ 9,972 $ 7,453
</TABLE>
34
<PAGE> 218
NOTE 8 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term borrowings as of December 31, are as follows:
(In thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed rate Federal Home Loan Bank advances with monthly principal and interest
payments:
<S> <C> <C>
5.60% Advance due August 1, 2003............................................................. $ 2,179 $ 2,442
6.35% Advance due August 1, 2013............................................................. 2,724 2,812
5.95% Advance due March 1, 2004.............................................................. 586 649
5.70% Advance due May 1, 2004................................................................ 4,760 5,262
5.85% Advance due January 1, 2016............................................................ 4,876 5,000
Fixed rate Federal Home Loan Bank advances with monthly interest payments:
5.35% Advance due February 1, 1999........................................................... 5,000 5,000
5.60% Advance due April 1, 1999.............................................................. 5,000 5,000
5.70% Advance due June 1, 1999............................................................... 7,000 7,000
6.35% Advance due March 1, 2004.............................................................. 250 250
6.15% Advance due July 21, 1997.............................................................. 10,000
6.60% Advance due July 21, 1999.............................................................. 10,000
6.90% Advance due July 21, 2001.............................................................. 10,000
--------- --------
TOTAL LONG-TERM DEBT ....................................................................... $ 62,375 $ 33,415
========= ========
</TABLE>
At December 31, 1996, Federal Home Loan Bank (FHLB) advances were
collateralized by all shares of FHLB stock owned by the Corporation, with a
carrying value of $6,618,000, and by 100% of the Corporation's qualified real
estate-backed investments and qualified mortgage loan portfolio totaling
approximately $219,000,000. Based on the carrying amount of FHLB stock owned by
the Corporation, total FHLB advances were limited to approximately $73,985,000
at December 31, 1996. Future advances to be received by the Corporation above
this limit would require additional purchases of FHLB stock.
The aggregate future minimum annual principal payments on borrowings are
$11,587,000 in 1997, $1,576,000 in 1998, $28,576,000 in 1999, $1,587,000 in
2000, $11,606,000 in 2001, and $7,443,000 thereafter.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The subsidiary banks have various commitments and contingencies arising in
the normal course of business, such as standby letters of credit and commitments
to extend credit, which are not reflected in the consolidated financial
statements. The exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to make loans is
represented by the contractual amount of those instruments. The subsidiary banks
follow the same credit policy in making such commitments as is followed for
loans recorded in the financial statements.
As of December 31, 1996, the Corporation had commitments to make loans and
unused lines of credit approximating $62,175,000, of which $3,046,000 carried
fixed rates ranging from 6.88% to 11.00% and $59,129,000 carried adjustable
rates. At December 31, 1995, the Corporation's commitments and unused lines of
credit totaled approximately $56,334,000, of which $3,320,000 carried fixed
rates ranging from 7.00% to 11.00% and $53,014,000 carried adjustable rates. As
of December 31, 1996 and 1995, commitments under outstanding letters of credit
amounted to approximately $546,000 and $364,000, respectively. Since many
commitments to make loans expire without being used, the amount does not
necessarily represent future cash commitments. Collateral obtained related to
the commitments is determined using management's credit evaluation of the
borrower and may include real estate, vehicles, business assets, deposits, and
other items. In management's opinion, these commitments represent normal banking
transactions, and no material losses are expected to result therefrom.
The Corporation's subsidiary banks are required to maintain cash on hand and
in reserve balances at the Federal Reserve Bank. This requirement as of December
31, 1996, was $5,479,000. These balances do not earn interest.
The Corporation and its subsidiaries have various claims and lawsuits pending
at December 31, 1996, arising in the ordinary course of their business. It is
the opinion of management, after consultation with legal counsel, that such
disputes will not materially affect the Corporation's financial position or
earnings.
In January, 1991, a facilities management agreement was entered into with NCR
Corporation regarding on-site data processing services for First-Knox Banc Corp.
and its subsidiaries. The agreement covers the period through January 31, 1998,
during which time NCR is responsible for upgrading computer hardware and
software, as well as managing the data processing function. All operating
expenses related to the function, including personnel salaries and benefits,
equipment and software maintenance, and depreciation, are the responsibility of
NCR. The agreement calls for payments with limits defined by inflation and
customer account volumes. Payments under this agreement amounted to $1.33
million in 1996, $1.27 million in 1995, and $1.21 million in 1994. The annual
amount of anticipated payments is expected to be $1.39 million in 1997 with a
final payment of $117,000 in January 1998.
The Corporation is party to a merger agreement (See Note 20).
35
<PAGE> 219
NOTE 10 - EMPLOYEE BENEFIT PLANS
PENSION PLAN:
<TABLE>
<CAPTION>
Net pension expense is comprised of the following components:
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned during the year..................................... $ 272 $ 224 $ 262
Interest cost on projected benefit obligation.................................... 371 351 315
Actual return on plan assets..................................................... (505) (460) (413)
Net amortization and deferral of initial transition credit and
subsequent (gains) and losses................................................... (35) (43) (32)
--------- --------- --------
NET PENSION EXPENSE............................................................. $ 103 $ 72 $ 132
========= ========= ========
The funded status of the plan and the prepaid pension cost recognized at
December 31, are as follows:
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits................................................................. $ 3,925 $ 3,798 $ 3,121
Non-vested benefits............................................................. 184 117 79
--------- --------- --------
ACCUMULATED BENEFIT OBLIGATION ............................................... $ 4,109 $ 3,915 $ 3,200
========= ========= ========
Projected benefit obligation..................................................... $ 5,113 $ 5,042 $ 4,182
Plan assets at fair value (primarily U. S. government obligations, listed
stocks, and corporate bonds).................................................... 5,706 5,620 4,646
--------- --------- --------
Plan assets in excess of projected benefit obligation............................ 593 578 464
Items not yet recognized in income:
Unrecognized prior service adjustment........................................... 179 90 96
Unrecognized net loss .......................................................... 219 474 205
Initial transition credit which is being amortized over 15 years................. (194) (242) (291)
--------- --------- --------
PREPAID PENSION COST INCLUDED IN OTHER ASSETS .................................. $ 797 $ 900 $ 474
========= ========= ========
Assumptions used at December 31:
Discount rate................................................................... 8.00% 7.50% 8.50%
Rate of increase in compensation level.......................................... 4.75% 4.75% 5.50%
Long-term rate of return on assets.............................................. 9.00% 9.00% 9.00%
To better reflect the pension obligation at December 31, 1996, the
Corporation changed certain assumptions from those used at December 31, 1995.
These changes were the primary factors in the difference in the unrecognized net
loss reflected in the prepaid pension cost analysis at December 31, 1996.
POSTRETIREMENT HEALTHCARE PLAN:
The following table sets forth the plan's funded status reconciled with the
amount recorded in the Corporation's balance sheet at year-end.
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation.................................... $ 773 $ 821 $ 732
Unrecognized transition asset, net of amortization............................... (760) (808) (855)
Unrecognized net gain............................................................ 216 174 258
--------- --------- --------
ACCRUED POSTRETIREMENT BENEFIT COST INCLUDED IN OTHER LIABILITIES .............. $ 229 $ 187 $ 135
========= ========= ========
Postretirement benefit cost includes the following components:
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Interest cost on accumulated postretirement benefit obligation................... $ 57 $ 63 $ 56
Amortization of transition obligation over 20 years.............................. 39 37 48
--------- --------- --------
POSTRETIREMENT BENEFIT COST ................................................... $ 96 $ 100 $ 104
========= ========= ========
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1996. The rate was assumed to
decrease gradually to 5% in 2001 and remain at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. Increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated benefit obligation as of
December 31, 1996, by $70,000. The weighted average discount rate used in
determining expense, and accumulated postretirement benefit obligation was 8.0%.
36
<PAGE> 220
NOTE 11 - STOCK OPTION PLAN
The Corporation was authorized in 1995 to grant options on 189,000 shares of
common stock and 63,000 stock appreciation rights to key management employees
and directors. Under a plan that expired on March 27, 1995, the Corporation was
authorized to grant options on 183,783 common shares and 91,891 stock
appreciation rights to key management employees. The plans authorize the
issuance of stock options and stock appreciation rights for terms not exceeding
ten years from the date of the grant at a price generally no less than fair
market value at the date of grant. No consideration is paid by participants to
exercise stock appreciation rights. Common shares related to canceled, forfeited
or terminated stock options become available for subsequent grant under the
terms of the 1995 plan. All stock options and stock appreciation rights will
become immediately exercisable upon shareholder approval of the merger discussed
in Note 20.
SFAS No. 123, "Accounting for Stock-Based Compensation," which became
effective for 1996, encourages the use of a fair value-based method to account
for stock-based compensation plans such as the Corporation's stock option plan.
As allowed by SFAS No. 123, however, the Corporation has elected to continue
following prior accounting standards under which no compensation expense is
recognized if the exercise price of the Corporation's stock options is equal to
or greater than the market price of the underlying stock on the date of grant.
If compensation expense is not recorded, pro forma information regarding net
income and earnings per share is required by SFAS No. 123, and has been
determined as if the Corporation had accounted for its stock options under the
fair value method of that Statement. The fair value for these options was
estimated at the date of grant using an option pricing model with the following
assumptions: risk-free interest rates of 6.30% and 6.50% in 1996 and 7.40% in
1995; dividend yields of 3.82% in 1996 and 2.44% in 1995; volatility factors of
the expected market price of the Corporation's common stock of 5.44%; and a
weighted average expected life of the option of 6.5 years. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period of 5 years for non-director employees.
Options granted to directors vest immediately. Using these assumptions, the
weighted average fair value of options granted during the year was $3.21 in 1996
and $4.83 in 1995. The Corporation's pro forma information follows:
<TABLE>
<CAPTION>
(In thousands of dollars
except per share data) 1996 1995
- -------------------------------------------------------------
<S> <C> <C>
Net income as reported.......... $ 6,036 $ 5,709
Pro forma net income............ $ 6,006 $ 5,650
Primary earnings per share
as reported.................... $ 1.59 $ 1.50
Pro forma primary earnings
per share...................... $ 1.58 $ 1.48
Fully diluted earnings per
share as reported.............. $ 1.59 $ 1.50
Pro forma fully diluted
earnings per share............. $ 1.58 $ 1.48
</TABLE>
In future years, the pro forma effect could increase if additional options
would be granted.
<TABLE>
<CAPTION>
STOCK OPTIONS STOCK APPRECIATION RIGHTS
----------------------------------- -----------------------------------
OUTSTANDING OUTSTANDING
---------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
AVAILABLE PRICE PER AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE FOR GRANT NUMBER SHARE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994....................... 21,120 162,652 $ 11.05 51,191 32,533 $ 11.05
Granted............................... (20,948) 20,948 19.90 (12,356) 12,356 19.90
Exercised............................. (5,443) 10.05 (1,085) 10.05
------- ----------- -------- -----------
December 31, 1994..................... 172 178,157 12.12 38,835 43,804 13.57
Authorized............................ 189,000 83,000
Canceled.............................. (1,361) 11.31 (273) 11.31
Expired............................... (172) (38,835)
Granted............................... (16,800) 16,800 20.51
Exercised............................. (10,378) 10.50 (2,068) 10.50
------- ----------- -------- -----------
December 31, 1995..................... 172,200 183,218 12.99 63,000 41,463 13.74
Granted............................... (35,550) 35,550 22.31 (4,400) 4,400 21.89
Exercised............................. (9,749) 15.04 (1,109) 10.91
------- ----------- -------- -----------
DECEMBER 31, 1996 ................... 136,650 209,019 14.48 58,600 44,754 14.61
======= =========== ======== ===========
Range of exercise prices.............. $10.04 - 23.18 $10.04 - 21.89
Weighted average remaining
contractual life..................... 6.3 years 6.2 years
Exercisable at year-end............... 125,102 19,784
Weighted average exercise price of
exercisable options.................. $ 13.03 $ 10.72
</TABLE>
Compensation related to stock appreciation rights was $212,000 in 1996,
$150,000 in 1995, and $139,000 in 1994.
37
<PAGE> 221
NOTE 12 - OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
Other operating expenses consist of the following major items:
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Data processing (Note 9) ........................................................ $ 1,753 $ 1,764 $ 1,611
Franchise taxes.................................................................. 696 559 542
FDIC insurance................................................................... 4 443 846
Advertising...................................................................... 399 387 357
Stationery and office supplies................................................... 313 423 358
Professional fees................................................................ 331 358 411
Other............................................................................ 1,891 1,722 1,939
--------- --------- --------
TOTAL OTHER OPERATING EXPENSES ................................................ $ 5,387 $ 5,656 $ 6,064
========= ========= ========
</TABLE>
NOTE 13 - INCOME TAXES
<TABLE>
<CAPTION>
Income taxes consist of the following:
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense............................................................. $ 2,051 $ 1,560 $ 1,267
Deferred tax expense (benefit)................................................... (43) 5
--------- --------- --------
TOTAL INCOME TAXES ............................................................ $ 2,008 $ 1,565 $ 1,267
========= ========= ========
</TABLE>
The difference between the provision for income taxes and amounts computed
by applying the statutory income tax rate of 34% to income before taxes is as
follows:
<TABLE>
<CAPTION>
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at the statutory tax rate on pre-tax income................ $ 2,735 $ 2,473 $ 2,187
Add/(subtract) tax effect of:
Tax exempt income............................................................... (917) (906) (932)
Other .......................................................................... 190 (2) 12
--------- --------- --------
TOTAL INCOME TAXES ............................................................. $ 2,008 $ 1,565 $ 1,267
========= ========= ========
</TABLE>
The income tax expense (benefit) attributable to securities transactions
approximated $58,000 in 1996, $(7,000) in 1995, and $4,000 in 1994.
The tax effects of principal temporary differences and the resulting deferred
tax assets and liabilities that comprise the net deferred tax asset (liability)
included in the balance sheet are as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses..................................................................... $ 1,206 $ 1,040
Other......................................................................................... 366 279
--------- --------
Deferred tax asset........................................................................... 1,572 1,319
--------- --------
Pension....................................................................................... (265) (299)
Depreciation.................................................................................. (296) (306)
Direct financing and leveraged leases......................................................... (307) (185)
Unrealized gains on securities available for sale............................................. (717) (985)
Other......................................................................................... (537) (405)
--------- --------
Deferred tax liability....................................................................... (2,122) (2,180)
--------- --------
NET DEFERRED TAX LIABILITY ................................................................. $ (550) $ (861)
========= ========
</TABLE>
The Corporation has paid sufficient taxes in the current and prior years to
warrant recording full deferred tax assets without a valuation allowance.
38
<PAGE> 222
NOTE 14 - REGULATORY MATTERS
The payment of dividends to the Corporation by its banking subsidiaries is
subject to restriction by various regulatory authorities. These restrictions
generally limit dividends to earnings retained in the current and prior two
years, as defined by regulation. In addition, dividend payments may not reduce
capital levels below minimum regulatory guidelines. As of December 31, 1996,
$4.9 million was available for dividend payments under the more restrictive of
the two limitations.
The Corporation and subsidiary banks are subject to regulatory capital
requirements administered by governmental banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items calculated
under regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators about components, risk
weightings, and other factors, and the regulators can lower classification in
certain cases. Failure to meet various capital requirements can initiate
regulatory action that could have a direct material effect on the financial
statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
CAPITAL TO RISK-WEIGHTED ASSETS TIER 1
------------------------------- CAPITAL TO
TOTAL TIER 1 AVERAGE ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Well capitalized..................................................... 10% 6% 5%
Adequately capitalized............................................... 8% 4% 4%
Undercapitalized..................................................... 6% 3% 3%
</TABLE>
At year-end, actual capital levels (in thousands) and minimum required levels
for the Corporation and its significant subsidiary bank were:
<TABLE>
<CAPTION>
MINIMUM REQUIRED
MINIMUM REQUIRED TO BE WELL-CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION REGULATIONS
---------------------- ----------------------- -----------------------
(In thousands of dollars) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets)
Consolidated................................ $ 52,138 15.69% $ 26,583 8.00% $ 33,228 10.00%
First-Knox National Bank.................... $ 40,265 14.07% $ 22,888 8.00% $ 28,610 10.00%
Tier 1 capital (to risk-weighted assets)
Consolidated................................ $ 48,249 14.52% $ 13,291 4.00% $ 19,937 6.00%
First-Knox National Bank.................... $ 34,954 12.22% $ 11,444 4.00% $ 17,166 6.00%
Tier 1 leverage (to average assets)
Consolidated................................ $ 48,249 8.54% $ 22,597 4.00% $ 28,247 5.00%
First-Knox National Bank.................... $ 34,954 6.91% $ 20,221 4.00% $ 25,276 5.00%
1995
Total capital (to risk-weighted assets)
Consolidated................................ $ 47,231 15.45% $ 24,459 8.00% $ 30,574 10.00%
First-Knox National Bank.................... $ 36,114 13.60% $ 21,249 8.00% $ 26,562 10.00%
Tier 1 capital (to risk-weighted assets)
Consolidated................................ $ 43,678 14.29% $ 12,230 4.00% $ 18,344 6.00%
First-Knox National Bank.................... $ 31,059 11.69% $ 10,625 4.00% $ 15,937 6.00%
Tier 1 leverage (to average assets)
Consolidated................................ $ 43,678 8.84% $ 19,876 4.00% $ 24,845 5.00%
First-Knox National Bank.................... $ 31,059 7.13% $ 17,436 4.00% $ 21,794 5.00%
</TABLE>
At year-end 1996, the Corporation and both subsidiary banks are categorized
as well capitalized.
39
<PAGE> 223
NOTE 15 - RELATED PARTY TRANSACTIONS
In the course of their business, the subsidiary banks have granted loans to
executive officers, directors, and their related business interests. The
following is an analysis of activity of related party loans aggregating $60,000
or more to any one related party for the year ended December 31, 1996:
<TABLE>
<CAPTION>
(In thousands of dollars)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1996................................................................................. $ 11,241
New loans and advances..................................................................................... 3,867
Repayment.................................................................................................. (3,223)
---------
Balance at December 31, 1996.............................................................................. $ 11,885
=========
</TABLE>
Total loans to executive officers included above were $1,518,000 and
$1,359,000 at December 31, 1996 and 1995, respectively.
NOTE 16 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value of the Corporation's
financial instruments and the related carrying values at December 31, 1996 and
1995. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
(In thousands of dollars) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents........................................... $ 20,847 $ 20,847 $ 20,412 $ 20,412
Securities available for sale....................................... 177,426 177,426 131,988 131,988
Loans, net of allowance for loan losses............................. 357,295 357,262 326,475 327,296
Accrued interest receivable......................................... 4,345 4,345 3,702 3,702
Demand and savings deposits......................................... (192,961) (192,961) (193,721) (193,721)
Time deposits....................................................... (237,802) (237,915) (210,346) (214,737)
Short-term borrowings............................................... (24,887) (24,887) (7,986) (7,986)
Long-term debt...................................................... (62,375) (62,036) (33,415) (29,218)
Accrued interest payable............................................ (2,762) (2,762) (2,272) (2,272)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of December 31, 1996 and 1995. The estimated fair value
for cash and cash equivalents is considered to approximate cost. The estimated
fair value for securities is based on quoted market values for the individual
securities or for equivalent securities. Carrying value is considered to
approximate fair value for loans that contractually reprice at intervals of less
than six months, for short-term borrowings, and for deposit liabilities subject
to immediate withdrawal. The fair values of fixed-rate loans, loans that reprice
less frequently than each six months, time deposits, and long-term debt are
approximated by a discount rate value technique utilizing estimated market
interest rates as of December 31, 1996 and 1995. The fair values of unrecorded
commitments at December 31, 1996 and 1995 are not material.
40
<PAGE> 224
NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS (In thousands of dollars) Years ended December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents..................................................................... $ 7,117 $ 6,654
Interest-bearing deposit in subsidiary bank................................................... 58 57
Securities available for sale................................................................. 364
Debenture receivable from subsidiary bank..................................................... 2,000 2,000
Investment in subsidiaries.................................................................... 41,757 38,152
Other assets.................................................................................. 14 14
--------- --------
TOTAL ASSETS ............................................................................... $ 50,946 $ 47,241
========= ========
LIABILITIES
Dividends payable............................................................................. $ 902 $ 534
Other liabilities............................................................................. 69 48
--------- --------
TOTAL LIABILITIES ........................................................................... 971 582
--------- --------
EQUITY
Common stock.................................................................................. 11,737 11,407
Paid-in capital............................................................................... 26,017 24,042
Retained earnings............................................................................. 10,830 11,187
Common stock in treasury...................................................................... (1,889)
Unrealized gain on securities available for sale.............................................. 1,391 1,912
--------- --------
TOTAL EQUITY ............................................................................... 49,975 46,659
--------- --------
TOTAL LIABILITIES AND EQUITY .............................................................. $ 50,946 $ 47,241
========= ========
CONDENSED STATEMENTS OF INCOME (In thousands of dollars) Years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from subsidiaries...................................................... $ 2,365 $ 3,401 $ 6,933
Interest and dividend income..................................................... 185 193 196
Security gains, net.............................................................. 181
Total expenses .................................................................. (721) (150) (125)
--------- --------- --------
Income before taxes and equity in undistributed earnings of subsidiaries......... 2,010 3,444 7,004
Income tax expense............................................................... (26) (9) (20)
Equity in undistributed earnings of subsidiaries................................. 4,052 2,274 (1,820)
--------- --------- --------
NET INCOME ..................................................................... $ 6,036 $ 5,709 $ 5,164
========= ========= ========
CONDENSED STATEMENTS OF CASH FLOWS (In thousands of dollars) Years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................................... $ 6,036 $ 5,709 $ 5,164
Adjustments to reconcile net income to cash provided by operations
Equity in undistributed earnings of subsidiaries................................ (4,052) (2,274) 1,820
Gain on sale of securities available for sale................................... (181)
Changes in other, net........................................................... 61 5 8
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................... 1,864 3,440 6,992
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposit in subsidiary bank ....................... (1) 48 142
Proceeds from sale of securities available for sale.............................. 431
--------- --------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES ..................................... 430 48 142
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid.............................................................. (2,168) (1,672) (1,468)
Issuance of common stock......................................................... 337 247 408
Purchase of treasury shares..................................................... (1,926)
--------- --------- --------
NET CASH USED IN FINANCING ACTIVITIES ......................................... (1,831) (3,351) (1,060)
--------- --------- --------
Net change in cash.............................................................. 463 137 6,074
Beginning cash.................................................................. 6,654 6,517 443
--------- --------- --------
ENDING CASH .................................................................. $ 7,117 $ 6,654 $ 6,517
========= ========= ========
</TABLE>
41
<PAGE> 225
NOTE 18 - QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of consolidated quarterly financial data:
<TABLE>
<CAPTION>
QUARTER ENDED:
-----------------------------------------------------------
(In thousands of dollars except per share data) DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- ------------------------------------------------------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C>
Interest income..................................................... $ 11,009 $ 10,439 $ 9,728 $ 9,603
Net interest income................................................. 5,535 5,249 5,194 4,990
Provision for loan losses........................................... 231 211 251 81
Net income.......................................................... 1,320 1,604 1,618 1,494
Fully-diluted earnings per share.................................... 0.35 0.42 0.43 0.39
1995
Interest income..................................................... $ 9,733 $ 9,465 $ 9,214 $ 8,676
Net interest income................................................. 5,108 4,924 4,887 4,670
Provision for loan losses........................................... 182 166 158 78
Net income.......................................................... 1,563 1,488 1,390 1,268
Fully-diluted earnings per share.................................... 0.42 0.40 0.36 0.32
</TABLE>
Fully-diluted earnings per share have been restated to reflect the 5% stock
dividend distributed in September, 1996.
NOTE 19 - PENDING ACCOUNTING CHANGES
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," was issued by the Financial Accounting Standards
Board in 1996. It revises the accounting for transfers of financial assets, such
as loans and securities, and for distinguishing between sales and secured
borrowings. It is effective for some transactions in 1997 and others in 1998.
The effect on the financial statements is not expected to be material.
NOTE 20 - PENDING MERGER AGREEMENT
On October 28, 1996 the Corporation entered into an Agreement and Plan of
Merger ("Agreement") with Park National Corporation ("Park National"), a bank
holding company headquartered in Newark, Ohio, whereby Park National will
acquire First-Knox Banc Corp. Under the terms of the Agreement, Park National
will exchange approximately 0.5914 shares of Park National common stock for each
share of First-Knox Banc Corp. outstanding in a tax-free exchange. Park National
expects to issue an aggregate of 2,345,000 shares of common stock to complete
the merger, which is expected to be accounted for as a pooling-of-interests. The
exact exchange ratio will be determined by a formula that is based upon, among
other things, the market price of Park National common stock and the number of
shares of First-Knox Banc Corp. common stock outstanding or subject to options
prior to closing. The transaction is subject to certain conditions including
regulatory approval and the approval of the shareholders of First-Knox Banc
Corp. and Park National.
42
<PAGE> 226
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
First-Knox Banc Corp.
Mount Vernon, Ohio
We have audited the accompanying consolidated balance sheets of FIRST-KNOX
BANC CORP. as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FIRST-KNOX BANC CORP. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation changed its methods of accounting for impaired loans in 1995 and for
certain investment and mortgage-backed securities in 1994 to conform with new
accounting guidance.
/s/ CROWE, CHIZEK AND COMPANY LLP
CROWE, CHIZEK AND COMPANY LLP
Columbus, Ohio
January 22, 1997
43
<PAGE> 227
FINANCIAL REVIEW
INTRODUCTION
The following discussion and financial information are presented to aid in
understanding the consolidated financial condition and results of operations of
First-Knox Banc Corp. and its bank subsidiaries, The First-Knox National Bank
("First-Knox") and the Farmers and Savings Bank ("Farmers"). Both banks are
insured by the Federal Deposit Corporation (FDIC) and provide banking services
to individual and commercial customers in the central Ohio area. The Corporation
is subject to supervision, examination, and regulation by the Federal Reserve
System. First-Knox is a member of the Federal Reserve System and is subject to
supervision, examination, and regulation by the Comptroller of the Currency and
the FDIC. Farmers is chartered by the State of Ohio and is subject to
supervision, examination and regulation by the FDIC and the Ohio Division of
Financial Institutions.
Emphasis in this analysis is placed on comparisons of the years 1996 to 1995
and 1995 to 1994, with further discussion of historical data where appropriate.
The purpose of this discussion is to provide a better understanding of the
consolidated financial statements. This discussion should be read in conjunction
with the audited consolidated financial statements and footnotes and with the
ratios, statistics, and discussions. Forward looking statements contained in
this review involve risks and uncertainties and are subject to change based on
various important factors. The factors discussed in these forward looking
statements, as well as other factors, could cause actual results to differ
materially from those expressed or implied. Market or institutional trends,
events or uncertainties are not expected to have a material effect on liquidity,
capital resources or operations except as discussed herein. Other than as
discussed herein, there are no current recommendations by regulatory authorities
which would have such effect if implemented.
RESULTS OF OPERATIONS
Net income of $6,036,000 for 1996 represented a 5.7% increase over 1995.
1995's net income represented a 10.6% increase over 1994. The return on average
assets was 1.14% for 1996, compared to 1.20% for 1995 and 1.13% for 1994. The
return on average shareholders' equity was 12.67% for 1996, compared to 13.16%
for 1995 and 12.94% for 1994. As discussed in more detail below, the increase in
net income for 1996 resulted primarily from higher net interest income offset by
a 4.8% increase in non-interest expenses. Non-interest income recorded growth of
$301,000 or 9.6% compared to 1995. 1995 non-interest income and non-interest
expense increased 13.8% and 1.5%, respectively, over 1994.
NET INTEREST INCOME
Net interest income, the amount by which interest and fees from earning
assets exceeds the interest cost of liabilities, is the most important component
of consolidated earnings. Net interest income is affected by volumes, interest
rates, and composition of earning assets and interest bearing liabilities, as
well as by levels of non-interest bearing demand deposits and shareholders'
equity. The accompanying tables contain a ten-year comparison of net interest
income as well as detailed ratios regarding its components during the past three
years.
On a fully-taxable equivalent (FTE) basis (tax exempt income restated to a
pre-tax equivalent based on the statutory federal income tax rate), Table II
shows net interest income was $22.65 million in 1996, $21.21 million in 1995 and
$20.58 million in 1994. The net interest spread declined 13 basis points while
average earning assets increased 10.4% and average interest bearing liabilities
increased 11.7% over 1995. The 1995 net interest spread declined 21 basis points
while average earning assets increased
TABLE I - FINANCIAL RATIOS FOR FIVE YEARS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PROFITABILITY
Rate of return on:
Average assets....................................... 1.14% 1.20% 1.13% 1.12% .99%
Average equity....................................... 12.67 13.16 12.94 13.50 13.84
Beginning equity..................................... 12.94 13.98 13.44 15.49 14.56
As a percent of average assets:
Net interest income (fully-taxable equivalent basis). 4.29% 4.45% 4.51% 4.74% 4.40%
Non-interest income.................................. .65 .66 .60 .59 .61
Provision for loan losses............................ .15 .12 .14 .27 .35
Non-interest expense................................. 2.95 3.12 3.21 3.33 3.14
Cash dividends per share (1).......................... $.68 $.47 $.40 $.35 $.32
Cash dividends as a percentage of net income.......... 42.0% 30.7% 29.6% 27.9% 26.6%
OTHER
Average loans to average deposits..................... 81.5% 80.4% 78.7% 77.5% 75.9%
Net loan charge-offs to average loans................. .12 .09 .12 .24 .42
Allowance to year-end loans........................... 1.26 1.26 1.27 1.24 1.14
Average shareholders' equity to average assets........ 9.03 9.10 8.75 8.32 7.12
Changes in average balances:
Total assets......................................... 10.7% 4.5% 9.8% 3.7% 3.6%
Shareholders' equity................................. 9.8 8.7 15.4 21.1 10.5
Loans................................................ 8.0 5.4 5.2 4.5 6.5
Deposits ............................................ 6.6 3.2 3.5 2.3 3.3
<FN>
(1) Restated for stock dividends and stock splits.
</TABLE>
44
<PAGE> 228
4.3% and average interest bearing liabilities increased 3.5% over 1994. A rate
and volume analysis of interest income and interest expense changes for 1996 and
1995 is provided in Table III.
As noted in Table II , average earning assets yields (FTE) were 8.52% in
1996, 8.59% in 1995 and 7.91% in 1994. Average interest bearing liability costs
were 4.63% in 1996, 4.57% in 1995 and 3.68% in 1994. The net interest margin
(FTE net interest income divided by average earning assets) was 4.54%, 4.71% and
4.76% for the same respective years. The decline in 1996 resulted primarily from
earning asset rates declining and interest rates paid on interest bearing
liabilities increasing. A shift in the composition of customer deposits during
1996 contributed to the margin decline over 1995, as average balances for
savings and interest-bearing demand deposits declined by 4.2% or $6.27 million
while higher cost time deposits increased by 16.01% or $31.0 million. This shift
continued a trend from the previous year. The addition of FHLB advances during
the third quarter of 1996 to fund securities purchases, also contributed to the
margin decline. A total of $40.0 million was added to both borrowed funds and
the security portfolio which raised the total cost of funds and lowered the
earning asset yield for 1996. This investment program produced approximately
$200,000 during 1996, although it did lower the net interest margin. This
program was initiated to leverage existing capital. The decline in net interest
margin during 1995 was largely due to earning asset rates increasing slower than
interest rates paid on interest-bearing liabilities. The principal effort to
maintain interest spreads, and to offset the anticipated effect of increased
dependence on interest-bearing liabilities, has been to focus on opportunities
to enhance earning asset yields through loan growth.
The difference between a financial institution's interest-sensitive assets
(i.e., assets which will mature or reprice within a specified time period) and
interest-sensitive liabilities (i.e. liabilities which will mature or reprice
within the same time period) is commonly referred to as its "gap" or "interest
rate sensitivity gap." An institution having more interest rate sensitive
liabilities than interest rate sensitive assets repricing within a given time
period is said to have a "negative" gap. At December 31, 1996, the Corporation's
gap position was negative within one year with $119.2 million of interest
bearing liabilities repricing in excess of earning assets. This represents 22.1%
of total earning assets. Approximately 45.9% of earning assets and 79.2% of
interest-bearing liabilities reprice within one year of December 31, 1996.
Generally, this gap position will improve net interest income in a declining
interest rate environment. Management committees of the subsidiary banks
regularly monitor the maturity structures of interest-sensitive assets and
liabilities to stabilize net interest earnings during periods of changing
interest rates. Based on the current structure, net interest income is projected
to decline approximately 2.6% over a twelve month period if interest rates were
to immediately rise 2%. Conversely, net interest income is projected to improve
by approximately 2.1% over a twelve month period if interest rates were to
immediately fall by 2%. The current goal of these committees is to limit
fluctuations in net interest earnings over a twelve month period to plus or
minus 10% for an immediate 2% change in interest rates. Expectations are for
stable interest rates for 1997. Management intends to maintain a negative one
year gap position because it believes this is an optimum structure to attain
long-term profit. An analysis of interest rate sensitive assets and liabilities
at December 31, 1996 can be found in Table V.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The provision for loan losses is an operating expense recorded to maintain
the related balance sheet allowance at a level adequate to provide for credit
losses. Economic conditions, loss experience, levels of non-performing assets,
credit portfolio mix, delinquency statistics, and analysis of selected loans are
factors affecting management's evaluation of the adequacy of the allowance. The
expense provision for 1996 was 32.5% higher than 1995 as a result of higher net
loan charge-offs and loan growth. As percentages of loans, the expense
provisions were .23%, .19% and .21% in 1996, 1995 and 1994, respectively. Net
loan charge-offs represented .12%, .09% and .12% of average outstanding loans
during 1996, 1995 and 1994, respectively. Approximately 33.7% of net charge-offs
in 1996 resulted from commercial related loans, with consumer loans accounting
for 66.3% of the balance. Over the past five years consumer related loans
accounted for approximately 52.1% of net charge-offs, commercial loans
approximately 46.7% and mortgage loans approximately 1.2%.
As a percentage of year-end loan balances, the allowance for possible losses
was 1.26% in 1996, 1.26% in 1995 and 1.27% in 1994. At the end of 1996,
approximately 60% of the allowance is unallocated; i.e., not allocated to
specific loans or portfolios based on historical portfolio losses, compared to
70% at the previous year end. Management anticipates that as a percentage of
loan balances, 1997 net loan charge-offs should approximate 1996 levels.
Non-performing loans of $2.22 million represented .61% of 1996 year-end balances
compared to $1.06 million and .32% at December 31, 1995.
NON-INTEREST INCOME
This income represents non-interest sources of revenue such as customer
service fees, trust income, and other income. Total non-interest income of $3.43
million was $301,000 or 9.6% higher than 1995. Customer service fees and
commissions increased $108,000 compared to 1995. Trust department income
increased $72,000 or 10.3%.
Net security gains were $171,000 in 1996. The Corporation had minimal net
gains and losses in 1995 and 1994. The majority of the gain in 1996 was the
result of the sale of an equity security by the Corporation which resulted in a
gain of $180,000.
Total non-interest income of $3.13 million in 1995 was $380,000 or 13.8%
higher than 1994. Customer service fees and commissions increased $389,000
compared to 1994. Trust department income increased $114,000 or 19.4% compared
to 1994. Non-interest income was enhanced in 1995 as a result of deposit service
charge pricing changes made during the third quarter of 1994, and as a result of
mutual fund and annuity products which were introduced during the fourth quarter
of 1994.
NON-INTEREST EXPENSE
Non-interest expenses include employee salaries and benefits as well as
occupancy, FDIC insurance, advertising, state franchise taxes, and other
operating expenses. Total non-interest expenses increased by $720,000 or 4.8% in
1996 after increasing $213,000 or 1.5% in 1995.
A reduction in FDIC expense in 1996 of $439,000 contributed significantly to
minimizing the 1996 increase. The Corporation incurred legal and professional
expenses totaling $595,000 related to the pending merger with Park National
Corporation as discussed in Note 20. Occupancy expenses increased in 1996 by
$249,000 or 11.7%, attributed largely to increased occupancy costs at the Main
Office branch of First-Knox. Salaries and employee benefits were higher in 1996
by $145,000 or 2.0%, while on a net basis, all other expenses were down $269,000
or 4.8%.
A reduction in FDIC insurance expense of $403,000 in 1995 contributed
significantly to the small total increase in non-interest expenses over 1994.
Occupancy expenses increased in 1995 by $296,000 or 16.22% principally related
to the Main Office expan-
45
<PAGE> 229
TABLE II - AVERAGE BALANCES AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ----------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(In thousands of dollars) BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
- -------------------------------- ---------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES:
Taxable....................... $ 99,143 $ 6,606 6.66% $ 82,390 $ 5,214 6.33% $ 81,549 $ 4,477 5.49%
Non-taxable (1)............... 51,782 4,390 8.48 49,889 4,288 8.60 50,024 4,242 8.48
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total ....................... 150,925 10,996 7.29 132,279 9,502 7.18 131,573 8,719 6.63
-------- -------- ---- -------- -------- ---- -------- -------- ----
LOANS (2):
Commercial (1)................ 103,486 10,031 9.69 95,629 9,411 9.84 94,468 8,021 8.49
Real estate................... 161,505 13,201 8.17 146,803 11,941 8.13 137,409 10,947 7.97
Consumer (3).................. 74,560 7,814 10.48 71,827 7,625 10.62 66,284 6,444 9.72
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total ....................... 339,551 31,046 9.14 314,259 28,977 9.22 298,161 25,412 8.52
-------- -------- ---- -------- -------- ---- -------- -------- ----
MONEY MARKET INVESTMENTS:
Federal funds sold............ 5,625 265 4.71 3,911 220 5.63 2,316 77 3.32
Interest-bearing deposits
with banks................... 1,336 66 4.94 157 8 5.10 60 2 3.33
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total ....................... 6,961 331 4.76 4,068 228 5.60 2,376 79 3.31
-------- -------- ---- -------- -------- ---- -------- -------- ----
TOTAL EARNING ASSETS ........ 497,437 42,373 8.52% 450,606 38,707 8.59% 432,110 34,210 7.91%
-------- -------- --------
Loan allowance .............. (4,298) (3,983) (3,784)
Other assets.................. 34,590 30,154 27,902
-------- -------- --------
TOTAL ASSETS .............. $527,729 $476,777 $456,228
======== ======== ========
INTEREST-BEARING DEPOSITS:
Savings and interest-bearing
demand deposits............... $143,825 3,502 2.43% $150,095 4,029 2.68% $161,812 4,072 2.52%
Time deposits................. 224,541 12,924 5.76 193,554 11,129 5.75 172,148 7,728 4.49
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total ....................... 368,366 16,426 4.46 343,649 15,158 4.41 333,960 11,800 3.53
-------- -------- ---- -------- -------- ---- -------- -------- ----
BORROWED FUNDS:
Short-term.................... 13,043 585 4.49 6,196 390 6.29 9,153 349 3.81
Long-term..................... 46,497 2,800 6.02 33,413 1,951 5.84 27,246 1,478 5.42
-------- -------- ---- -------- -------- ---- -------- -------- ----
Total ....................... 59,540 3,385 5.69 39,609 2,341 5.91 36,399 1,827 5.02
-------- -------- ---- -------- -------- ---- -------- -------- ----
TOTAL INTEREST-BEARING
LIABILITIES ............... 427,906 19,811 4.63 383,258 17,499 4.57 370,359 13,627 3.68
-------- -------- --------
Non-interest bearing
demand deposits.............. 48,041 47,023 44,722
-------- -------- --------
Total Interest-Bearing
Liabilities and Demand
Deposits .................... 475,947 19,811 4.16 430,281 17,499 4.07 415,081 13,627 3.28
-------- -------- --------
Other liabilities............. 4,146 3,106 1,248
-------- -------- --------
Total Liabilities ........... 480,093 433,387 416,329
Shareholders' equity.......... 47,636 43,390 39,899
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........ $527,729 $476,777 $456,228
======== ======== ========
INTEREST SPREAD ............. $ 22,562 3.89% $ 21,208 4.02% $ 20,583 4.23%
======== ======== ========
AS A PERCENTAGE OF EARNING ASSETS:
INTEREST INCOME ............. 8.52% 8.59% 7.91%
INTEREST EXPENSE ............ 3.98 3.88 3.15
---- ---- ----
NET INTEREST INCOME ......... 4.54% 4.71% 4.76%
==== ==== ====
<FN>
(1) Income is computed on a fully-taxable equivalent basis utilizing a 34% tax
rate. The amount of such adjustment was:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Non-taxable securities..... $1,493 $1,496 $1,442
Commercial loans........... 101 123 174
------ ------ ------
$1,594 $1,619 $1,616
====== ====== ======
<FN>
(2) Non-accruing loans are included in the average balances presented.
(3) Includes balances outstanding under home equity lines of credit.
</TABLE>
46
<PAGE> 230
sion of First-Knox. Salaries and employee benefits were higher in 1995 compared
to 1994 by $325,000 or 4.81%, while on a net basis all other expenses were down
$8,000 or 0.16%.
INCOME TAXES
Income tax expenses of $2,008,000, $1,565,000 and $1,267,000 were recorded in
1996, 1995 and 1994, respectively, representing 25.0%, 21.5% and 19.7% of income
before taxes for each of the respective years. The effective tax rates are all
lower than the statutory rate of 34%. Tax-exempt income from obligations of
states and political subdivisions and non-taxable loans is the primary cause of
these deviations from statutory rates. The Corporation does not plan to
significantly increase its holdings of tax-exempt obligations during 1997. Tax
exempt income from securities and loans represented 39.6%, 41.7% and 48.7% of
income before income taxes in 1996, 1995 and 1994, respectively. As a percentage
of average earning assets, average non-taxable balances were approximately
11.3%, in 1996, 12.9% in 1995, and 8.0% in 1994.
FINANCIAL CONDITION
Consolidated total assets were $573.8 million at the end of 1996 after
recording growth of $76.9 million or 15.5% during 1996. This growth was funded
primarily by FHLB advances which increased by $39.3 million and deposits which
grew by $26.7 million. These new FHLB advances were used to purchase securities
during the third quarter of 1996. Loans increased by $31.2 million, and
securities increased by $45.4 million during 1996. Short-term borrowings
increased by $16.9 million which included the addition of a $10 million FHLB
advance.
SECURITIES
The consolidated securities portfolio increased by $45.4 million or 34.4%
during 1996. Most of this growth was fueled by an investment program initiated
during the third quarter of 1996 which utilized $40 million of FHLB advances as
a funding source for purchasing mortgage-backed securities. Mortgage-backed
securities represented 31.0% and 28.3% of the total securities portfolio at year
end 1996 and 1995, respectively. Treasury securities decreased from 21.4% of
total securities at the end of 1995 to 17.3% at the end of 1996.
TABLE III - RATE AND VOLUME ANALYSIS OF CHANGES
IN INTEREST INCOME AND INTEREST EXPENSE
<TABLE>
<CAPTION>
1996-1995 1995-1994
----------------------------- ------------------------------
CHANGE IN CHANGE IN
INCOME/ RATE VOLUME INCOME/ RATE VOLUME
(In thousands of dollars) EXPENSE EFFECT EFFECT EXPENSE EFFECT EFFECT
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN INTEREST INCOME
SECURITIES:
<S> <C> <C> <C> <C> <C> <C>
Taxable................................................ $ 1,392 $ 284 $ 1,108 $ 737 $ 688 $ 49
Non-taxable (1)........................................ 102 (59) 161 46 58 (12)
-------- ------- ------- ------- -------- -------
Total................................................. 1,494 225 1,269 783 746 37
-------- ------- ------- ------- -------- -------
LOANS:
Commercial (1)......................................... 620 (141) 761 1,390 1,295 95
Real estate (2)........................................ 1,260 59 1,201 994 213 781
Consumer............................................... 189 (100) 289 1,181 595 586
-------- ------- ------- ------- -------- -------
Total................................................. 2,069 (182) 2,251 3,565 2,103 1,462
-------- ------- ------- ------- -------- -------
Money market investments (3)............................ 103 (28) 131 149 77 72
-------- ------- ------- ------- -------- -------
Total interest income................................. 3,666 15 3,651 4,497 2,926 1,571
-------- ------- ------- ------- -------- -------
CHANGE IN INTEREST EXPENSE
Savings and interest-bearing demand deposits............ (527) (364) (163) (43) 186 (229)
Time deposits........................................... 1,795 19 1,776 3,401 2,338 1,063
-------- ------- ------- ------- -------- -------
Total deposits......................................... 1,268 (345) 1,613 3,358 2,524 834
Short-term borrowings................................... 195 (68) 263 41 85 (44)
Long-term borrowings.................................... 849 62 787 473 101 372
-------- ------- ------- ------- -------- -------
Total interest expense................................. 2,312 (351) 2,663 3,872 2,710 1,162
-------- ------- ------- ------- -------- -------
NET INTEREST INCOME ................................. $ 1,354 $ 366 $ 988 $ 625 $ 216 $ 409
======== ======= ======= ======= ======== =======
<FN>
(1)Non-taxable income is adjusted to a fully-taxable equivalent basis utilizing
a 34% tax rate. The effect of this adjustment is disclosed in Table II.
(2)Real-estate construction loans are included in this amount and represent less
than 5% of total real estate loans and less than 2% of total loans for the
periods presented. These are principally loans to construct
one-to-four-family residential housing.
(3)Primarily related to federal funds sold balances.
For purposes of this table, changes attributable to both rate and volume
which cannot be segregated, have been allocated proportionately to the change
due to volume and the change due to rate.
Non-accruing loan balances are included for purposes of computing the rate
and volume effects, although interest on these balances has been excluded.
Table II contains the average balances and related interest amounts.
</TABLE>
47
<PAGE> 231
As a percentage of the total securities portfolio, municipal securities
represented 32.4% at year end 1996 and 41.8% at year end 1995. To provide
additional flexibility to meet liquidity and asset/liability management needs,
the Corporation reclassified its municipal securities from held to maturity to
available for sale. These securities with an amortized cost of $53,407,000 were
transferred on December 31, 1995, as allowed by the SFAS 115 implementation
guide issued by the Financial Accounting Standards Board. The related unrealized
gain of $1.8 million was reflected net of tax as an increase to shareholders'
equity.
The average balances of securities represented 30.3% of average earning
assets in 1996, 30.3% in 1995 and 31.0% in 1994. At the end of 1996, the
estimated fair value of all securities exceeded amortized cost by $2.1 million
or 1.2%. At the end of 1995, the estimated fair value of all securities exceeded
amortized cost by $2.9 million or 2.2%. Approximately 9.0% of the total
portfolio will mature in 1997. The average maturity of the security portfolio
was 5.5 years in both 1994 and 1995 compared to 6.2 years in 1996. The
Corporation's security portfolio contained no derivatives during any period
covered by this report. Additional detail regarding securities is included in
Table IV.
LOANS
Loans represented 68.3% of average earning assets in 1996, 69.7% in 1995, and
69.0% in 1994. In terms of full year average balances, loans have grown by 8.0%,
5.4% and 5.2% in 1996, 1995 and 1994, respectively. Residential real estate
loans grew by $17.5 million, or 11.4% in 1996, while commercial loans increased
by $5.1 million, or 5.0%. Consumer loan balances increased $8.6 million, or
11.4% during 1996.
While the loan portfolio is the Corporation's highest yielding asset, it also
contains the highest risk of loss. The real estate loan portfolio is primarily
residential in the north central Ohio area. Real estate construction loans are
not a material component of this portfolio. The commercial loan portfolio
represents loans to business interests in the north central Ohio area. There is
no significant industry concentration with these loans. The consumer loans are
composed principally of financing to individuals for vehicles and consumer
assets. All of these portfolios could be negatively impacted by an economic
downturn in this north central Ohio market area. To mitigate risks associated
with the borrower's ability to repay, the Corporation generally requires
collateral on loans. To reduce the risk of fluctuating collateral values, the
Corporation generally requires down payments on its real estate and consumer
loans and scheduled periodic payments on most types of financing. As of December
31, 1996, only 2.2% of total loans were unsecured.
DEPOSITS
Customer deposits from local markets are the Corporation's primary source of
funds. Deposits totaled $430.8 million at the end of 1996, 6.6% higher than a
year ago. Based on full year average balances, deposits grew by 6.6% in 1996,
3.2% in 1995 and 3.5% in 1994.
TABLE IV - SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
TAX
U.S. FEDERAL STATE AND MORTGAGE- EQUIVALENT
(In thousands of dollars) TREASURY AGENCIES POLITICAL BACKED (2) OTHER TOTAL YIELD (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 (At fair value)
Maturity:
Within one year.................... $ 9,028 $ 4,504 $ 2,393 $ 15,925 7.15%
After one year through five years.. 21,742 $11,060 10,995 19,830 63,627 7.27%
After five years through ten years. 15,929 19,405 32,806 68,140 7.94%
After ten years.................... 22,669 $ 7,065 29,734 7.83%
-------- ------- ------- ------- -------- --------- -----
Total carrying value.................. $ 30,770 $26,989 $57,573 $55,029 $ 7,065 $ 177,426
Taxable equivalent purchase yield (1). 6.13% 7.57% 8.46% 7.65% 7.00% 7.61%
Average maturity (in years)........... 1.7 6.5 7.7 5.3 20.0 6.2
U.S. FEDERAL STATE AND MORTGAGE-
(In thousands of dollars) TREASURY AGENCIES POLITICAL BACKED (2) OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 (At fair value)
Total carrying value.................. $ 28,216 $ 6,991 $55,197 $37,294 $ 4,290 $ 131,988
Taxable equivalent purchase yield (1). 5.70% 6.66% 8.58% 7.03% 6.95% 7.36%
Average maturity (in years)........... 1.3 5.3 8.2 3.0 20.0 5.5
U.S. FEDERAL STATE AND MORTGAGE-
(In thousands of dollars) TREASURY AGENCIES POLITICAL BACKED (2) OTHER TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
Total carrying value.................. $ 27,420 $ 2,393 $54,750 $42,657 $ 3,991 $ 131,211
Estimated fair value.................. $ 27,420 $ 2,393 $51,847 $42,657 $ 3,991 $ 128,308
Taxable equivalent purchase yield (1). 5.19% 6.89% 8.64% 6.00% 6.42% 6.94%
Average maturity (in years)........... 1.7 1.1 7.4 2.8 20.0 5.5
<FN>
(1) Yields are based on historical cost and computed on a fully tax-equivalent
basis assuming a tax rate of 34%.
(2) Mortgage-backed securities are reported by expected average maturities.
Actual maturities will differ due to scheduled payments and the rights
of borrowers to prepay.
</TABLE>
48
<PAGE> 232
The Corporation experienced a shift in the composition of its deposits during
1996. Non-interest bearing demand deposits increased by $0.6 million or 1.1%
during 1996 and represented 12.8% of all deposits at year end. Interest bearing
demand deposits increased by $9.5 million or 23.8% during 1996 and represented
11.4% of all deposits compared to 9.9% in 1995. Savings deposits declined by
$10.9 million or 11.00% during 1996 and represented 20.5% of all deposits
compared to 24.5% in 1995. Time deposits increased by $27.5 million or 13.1%
during 1996 and represented 55.2% of all deposits compared to 52.1% of deposits
in 1995.
BORROWINGS
The Corporation and its subsidiaries incur short-term borrowings through
customer related repurchase agreements, amounts due to the U.S. Treasury and
through correspondent banks including the FHLB. These amounts are subject to
rapid rate fluctuation and, as described in Note 7, are collateralized by
selected securities. Short-term advances with FHLB are collateralized under the
same terms, collateral and limitations as the long-term advances which are
disclosed in Note 8. Short-term borrowings averaged $13.0 million, $6.2 million,
and $9.2 million for 1996, 1995 and 1994, respectively.
Long-term borrowings at the end of 1996 are comprised of FHLB advances. The
amounts and terms of these advances are disclosed in Note 8, along with the
collateral required and limitations imposed by the FHLB. These long-term
advances increased by $29.3 million in 1996 largely as a part of funding the
investment program initiated during the third quarter of 1996 which was designed
to leverage more of the Corporation's capital. These long-term advances
declined $1.3 million or 3.9% during 1995.
SHAREHOLDERS' EQUITY
Shareholders' equity totaled $50.0 million at December 31, 1996, compared to
$46.7 million at December 31, 1995. At December 31, 1996 and December 31, 1995
the ratio of shareholders' equity to assets was 8.71% and 9.39%, respectively.
The Corporation complied with the capital requirements established by the
Federal Reserve System at each of those dates. Under the "Prompt Corrective
Action" regulations, the FDIC has defined five categories of capitalization
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized). The Corporation meets the
"well capitalized" definition which requires a total risk-based capital ratio of
at least 10%, a Tier 1 risk-based ratio of at least 6%, and a leverage ratio of
at least 5%, and the absence of any written agreement, order, or directive from
a regulatory agency. "Well capitalized" status affords the Corporation the
ability to operate with the greatest flexibility under current laws and
regulations.
Cash dividends declared to shareholders of the Corporation in 1996 amounted
to $2,536,000, representing an increase of 44.8%
TABLE V - INTEREST RATE SENSITIVITY ANALYSIS
Interest rate sensitivity measures the exposure of net interest income to
possible changes in interest rates. The following interest rate sensitivity
table presents the traditional static gap position of First-Knox Banc Corp. at
December 31, 1996. The table depicts the time periods in which certain
interest-earning assets and certain interest-bearing liabilities will mature or
reprice in accordance with their contractual terms. This table does not,
however, necessarily indicate the impact of general interest rate movements on
the Corporation's net interest yield because the repricing of various categories
of assets and liabilities is subject to competitive factors and customer
preferences. As a result, various assets and liabilities indicated as repricing
within the same period may in fact reprice at different times and at different
rate levels.
<TABLE>
<CAPTION>
AFTER 1 AFTER 3 AFTER 6
MONTH MONTHS MONTHS
WITHIN BUT BUT BUT TOTAL TOTAL
ONE WITHIN WITHIN WITHIN WITHIN AFTER
(In thousands of dollars) MONTH 3 MONTHS 6 MONTHS 1 YEAR 1 YEAR 1 YEAR TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVE ASSETS
Loans ....................................... $ 128,944 $ 17,861 $ 27,629 $ 48,628 $223,062 $138,778 $ 361,840
Investment securities and federal funds sold. 823 1,836 2,075 9,154 13,888 108,509 122,397
Mortgage-backed securities (1)............... 8,509 241 96 1,605 10,451 44,578 55,029
--------- --------- --------- --------- --------- -------- ---------
TOTAL ...................................... 138,276 19,938 29,800 59,387 247,401 291,865 539,266
--------- --------- --------- --------- --------- -------- ---------
INTEREST RATE SENSITIVE LIABILITIES
Interest-bearing deposits (2)................ 62,094 64,173 75,136 128,348 329,751 45,695 375,446
Borrowings................................... 25,869 180 272 10,558 36,879 50,383 87,262
--------- --------- --------- --------- --------- -------- ---------
TOTAL ..................................... 87,963 64,353 75,408 138,906 366,630 96,078 462,708
--------- --------- --------- --------- --------- -------- ---------
INTEREST RATE SENSITIVITY GAP ................. $ 50,313 $ (44,415) $ (45,608) $ (79,519) $(119,229) $195,787 $ 76,558
========= ========= ========= ========= ========= ======== =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP ..... $ 50,313 $ 5,898 $ (39,710) $(119,229) $(119,229) $ 76,558
========= ========= ========= ========= ========= ========
INTEREST RATE SENSITIVITY GAP RATIO ........... 1.57x .31x .40x .43x .67x 3.04x 1.17x
========= ========= ========= ========= ========= ======== =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP
AS A PERCENTAGE OF
TOTAL INTEREST-EARNING ASSETS ............... 9.33% 1.09% (7.36)% (22.11)% (22.11)% 14.20% 14.20%
========= ========= ========= ========= ========= ======== =========
<FN>
(1) Mortgage-backed securities are included at the earlier date of repricing or
average maturity, such maturity giving effect to prepayment estimates.
(2) Interest-bearing demand deposits and savings accounts are included in the
total amount to be repriced within one year.
</TABLE>
49
<PAGE> 233
over 1995 and 42.0% of 1996 net income. This payout ratio in 1996 was higher
than the average payout ratio during the previous five years which ranged from
26% to 31%. Dividends paid to the Corporation by the subsidiary banks are the
primary source of funds for payment of dividends to the Corporation's
shareholders. Regulatory restrictions on the dividends from the subsidiary banks
are described in Note 14 of the consolidated financial statements.
LIQUIDITY
Liquidity refers to the ability to meet cash flow needs which, in the banking
industry, refers to the ability to fund customer borrowing needs as well as
deposit withdrawals. Assets such as cash and non-interest bearing deposits with
banks, federal funds sold, maturing securities, and loan repayments are the
Corporation's principal sources of liquidity. Access to FHLB advances, described
elsewhere in this report, is a supplemental source to meet liquidity needs.
Operating activities provided cash of $7.9 million, $7.4 million and $5.8
million in 1996, 1995 and 1994, respectively. Cash and cash equivalents
increased from $20.4 million at December 31, 1995 to $20.8 million at December
31, 1996. Refer to the consolidated statements of cash flows for a summary of
the sources and uses of cash in 1996, 1995 and 1994. Taking into account the
capital adequacy, profitability, and reputation maintained by the Corporation,
the available liquidity sources are considered adequate to meet the current and
projected needs.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Corporation disclosed the estimated fair value and related carrying
values of its financial instruments at December 31, 1996 and 1995 in Note 16 of
the consolidated financial statements.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that, were the Corporation to
have liquidated such items, the estimated fair values would necessarily have
been realized. The methodologies utilized in evaluating the estimated fair
values at December 31, 1996 and 1995 were consistently applied. The estimated
fair values at December 31, 1996 and 1995, should not be considered to apply at
subsequent dates.
Other assets and liabilities of the Corporation that are not defined as
financial instruments under SFAS 107 "Fair Values of Financial Instruments," are
not included in this disclosure. These would include, among others, such items
as property and equipment, financing leases, and the intangible value of the
Corporation's customer base and profit potential.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related notes presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results primarily in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Corporation's operations. Nearly all the
assets and liabilities of the Corporation are financial, unlike most industrial
companies. As a result, the Corporation's performance is directly impacted by
changes in interest rates, which are indirectly influenced by inflationary
expectations. The Corporation's ability to match the interest sensitivity of its
financial assets to the interest sensitivity of its financial liabilities in its
asset/liability management may tend to minimize the effect of changes in
interest rates on the Corporation's performance. Changes in interest rates do
not necessarily fluctuate in the same manner and to the same extent as changes
in the price of goods and services.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," was issued by the Financial Accounting Standards
Board in 1996. It revises the accounting for transfers of financial assets, such
as loans and securities, and for distinguishing between sales and secured
borrowings. It is effective for some transactions in 1997 and others in 1998.
The effect on the financial statements has not yet been determined.
PENDING MERGER
As discussed in Note 20, on October 28, 1996, the Corporation entered into an
Agreement and Plan of Merger ("Agreement") with Park National Corporation ("Park
National"), a bank holding company headquartered in Newark, Ohio, whereby Park
National will acquire First-Knox Banc Corp. Under the terms of the Agreement,
Park National will exchange approximately 0.5914 shares of Park National common
stock for each outstanding share of First-Knox Banc Corp. in a tax free
exchange. Park National expects to issue an aggregate of 2,345,000 shares of
common stock to complete the merger which is expected to be accounted for as a
pooling-of-interests. The exact exchange ratio will be determined by a formula
that is based upon, among other things, the market price of Park National common
stock and the number of shares of First-Knox Banc Corp. common stock outstanding
or subject to options prior to closing. The transaction is valued at
approximately $31.34 per share of First-Knox Banc. Corp common stock, or
approximately $124.3 million based on the $53.00 closing price of Park National
common stock on December 31, 1996. The transaction is subject to certain
conditions including regulatory approval and the approval of the shareholders of
First-Knox Banc Corp. and Park National.
50
<PAGE> 234
TABLE VI - TEN YEARS OF PROGRESS STATEMENT SUMMARY
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholders' Equity ($000)....... $ 49,975 $ 46,659 $ 40,832 $ 38,423 $ 30,115 $ 27,144 $ 24,586 $ 22,290 $ 20,198 $ 18,298
Book Value Per Share.............. 13.31 12.49 10.70 10.14 9.20 8.31 7.53 6.83 6.19 5.60
Fully-Diluted Earnings Per Share . 1.59 1.50 1.34 1.27 1.12 1.01 .93 .88 .82 .73
Cash Dividends ($000)............. 2,536 1,751 1,527 1,302 1,051 973 927 856 786 721
Stock Dividend/Split.............. 5% 100% 5% 5% 5% 5% 60% 5% 5% 5%
Banking Offices................... 12 12 12 12 12 12 12 12 9 8
Total Staff....................... 250 256 264 251 245 239 250 243 230 210
CONSOLIDATED BALANCE SHEET SUMMARY
(In thousands of dollars) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash & Due from Banks............. $ 20,847 $ 17,012 $ 18,110 $ 16,158 $ 14,687 $ 11,824 $ 12,628 $ 13,538 $ 11,389 $ 8,489
Investments....................... 177,426 131,988 131,211 110,947 106,268 100,953 94,434 100,020 86,747 86,494
Federal Funds Sold................ 3,400 12,700 3,850 7,800 8,050 4,950 1,900 2,400
Total Loans....................... 361,840 330,641 304,168 290,908 276,437 261,554 248,110 223,076 195,182 166,276
Less Allowance for Loan Losses.... (4,545) (4,166) (3,876) (3,597) (3,162) (2,905) (2,715) (2,338) (1,980) (1,748)
Net Loans......................... 357,295 326,475 300,292 287,311 273,275 258,649 245,395 220,738 193,202 164,528
Bank Premises and Equipment....... 10,791 10,993 10,035 6,200 4,939 5,073 5,300 5,387 4,351 3,807
Other Assets...................... 7,404 7,031 7,543 6,098 6,586 7,445 8,264 9,084 7,084 7,208
TOTAL ........................... $573,763 $496,899 $467,191 $439,414 $409,605 $391,744 $374,071 $353,717 $304,673 $272,926
LIABILITIES
Demand Deposits................... $104,703 $ 94,588 $ 93,709 $ 91,384 $ 86,394 $ 68,162 $ 66,222 $ 64,169 $ 58,170 $ 53,930
Savings Deposits.................. 88,258 99,133 109,675 115,587 112,619 100,093 80,285 80,430 68,838 69,419
Other Time Deposits............... 237,802 210,346 173,796 171,206 163,281 178,665 186,122 172,258 144,160 119,321
Total Deposits.................... 430,763 404,067 377,180 378,177 362,294 346,920 332,629 316,857 271,168 242,670
Long-Term Debt.................... 62,375 33,415 34,720 5,900 5,159 5,300 5,370 5,440 2,510 2,580
Other Liabilities................. 30,650 12,758 14,459 16,914 12,037 12,380 11,486 9,130 10,797 9,378
Total Deposits and Other
Liabilities....................... 523,788 450,240 426,359 400,991 379,490 364,600 349,485 331,427 284,475 254,628
Shareholders' Equity.............. 49,975 46,659 40,832 38,423 30,115 27,144 24,586 22,290 20,198 18,298
TOTAL ........................... $573,763 $496,899 $467,191 $439,414 $409,605 $391,744 $374,071 $353,717 $304,673 $272,926
CONSOLIDATED STATEMENT OF INCOME SUMMARY
(In thousands of dollars) 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and Fees on Loans........ $ 30,945 $ 28,854 $ 25,238 $ 24,960 $ 25,448 $ 27,214 $ 26,414 $ 23,775 $ 19,422 $ 16,636
Interest and Dividends Earned
on Total Securities.............. 9,503 8,006 7,277 6,124 6,960 8,021 8,012 7,295 6,400 6,363
Federal Funds Sold................ 331 228 79 208 301 646 860 550 326 363
TOTAL INTEREST INCOME ........... 40,779 37,088 32,594 31,292 32,709 35,881 35,286 31,620 26,148 23,362
INTEREST EXPENSE
Interest on Deposits.............. 16,426 15,158 11,800 12,023 15,157 19,720 20,735 18,539 14,651 12,959
Interest on Borrowed Money........ 3,385 2,341 1,827 674 904 1,016 914 973 715 657
TOTAL INTEREST EXPENSE .......... 19,811 17,499 13,627 12,697 16,061 20,736 21,649 19,512 15,366 13,616
NET INTEREST INCOME .............. 20,968 19,589 18,967 18,595 16,648 15,145 13,637 12,108 10,782 9,746
Provision for Credit Losses....... (774) (584) (638) (1,124) (1,394) (1,066) (957) (911) (785) (400)
Other Income...................... 3,428 3,127 2,747 2,465 2,452 2,389 2,005 1,716 1,685 1,777
Other Expenses.................... (15,578) (14,858) (14,645) (13,827) (12,584) (12,022) (10,649) (9,427) (8,379) (8,268)
INCOME BEFORE FEDERAL INCOME TAXES 8,044 7,274 6,431 6,109 5,122 4,446 4,036 3,486 3,303 2,855
Federal Income Taxes.............. (2,008) (1,565) (1,267) ( 1,443) (1,171) (915) (813) (537) (616) (451)
NET INCOME ...................... $ 6,036 $ 5,709 $ 5,164 $ 4,666 $ 3,951 $ 3,531 $ 3,223 $ 2,949 $ 2,687 $ 2,404
</TABLE>
Per share data is restated for stock dividends and stock splits.
51
<PAGE> 235
APPENDIX D
ADDITIONAL STATISTICAL FINANCIAL
DISCLOSURES WITH RESPECT TO FIRST KNOX
BANC CORP.
D-1
<PAGE> 236
ADDITIONAL STATISTICAL FINANCIAL DISCLOSURES
WITH RESPECT TO FIRST-KNOX BANC CORP.
The following tables contain financial disclosures with respect to
First-Knox Banc Corp. ("First-Knox") and its subsidiaries as required
under Securities Act Industry Guide 3, "Statistical Disclosure by Bank
Holding Companies" ("Guide 3"). The information provided in this
Appendix D should be read in conjunction with the narrative analysis
presented in the section of First-Knox's Annual Report to Shareholders
for the fiscal year ended December 31, 1996 (the "First-Knox Annual
Report") entitled "Financial Review" and the consolidated financial
statements of First-Knox and its subsidiaries included in the
First-Knox Annual Report, which First-Knox Annual Report is delivered
herewith as Appendix C to the Joint Proxy Statement/Prospectus.
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
The average balance sheet information and the related analysis of net
interest income for the years ended December 31, 1996, 1995 and 1994,
as required by Items I(A) and I(B) of Guide 3, is included in Table
II--"Average Balances and Analysis of Net Interest Income" in the
Financial Review section of the First-Knox Annual Report.
The analysis of the changes in interest income and expense from 1995 to
1996 and from 1994 to 1995 required by Item I(C) of Guide 3, is
included in Table III--"Rate and Volume Analysis of Changes in
Interest Income and Interest Expense" in the Financial Review section
of the First-Knox Annual Report.
II. Investment Portfolio
A schedule of the carrying value of securities available for sale and
related information on fair values, maturities and average yields as
required by Items II(A) and II(B) of Guide 3, is included in Table
IV--"Securities Available for Sale" in the Financial Review section in
the First-Knox Annual Report.
Excluding obligations of the U.S. Treasury and other agencies and
corporations of the U.S. government, there were no investment or
mortgage-backed securities of any one issuer which exceeded 10% of
consolidated shareholders' equity at December 31, 1996.
VI. Return on Equity and Assets
The return on assets, return on equity, dividend payout ratio and
equity to assets ratio for the years ended December 31, 1996, 1995 and
1994, required by Item VI of Guide 3, are included in Table
I--"Financial Ratios For Five Years" in the Financial Review section of
the First-Knox Annual Report.
VII. Short-Term Borrowings
The information in Item VII of Guide 3 is not required to be given
because the average balance for any category of short-term borrowings
for 1996, 1995 and 1994 did not exceed 30% of stockholders' equity at
the end of those respective years.
See the following pages for the information required by Item III--Loan
Portfolio; Item IV--Summary of Loan Loss Experience; and Item V--
Deposits, of Guide 3.
D-2
<PAGE> 237
III. LOAN PORTFOLIO (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------- ------------------ -------------------- --------------------- ------------------
Year End Balances: Balance % of Total Balance % of Total Balance % of Total Balance % of Total Balance % of Total
- ------------------ ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Other $ 95,643 26.4% $ 93,310 28.3% $ 85,971 28.3% $ 93,474 32.1% $ 90,189 32.6%
Real Estate (1) 182,798 50.5% 162,495 49.1% 149,018 49.0% 135,287 46.5% 116,861 42.3%
Consumer and Credit Cards 83,399 23.1% 74,836 22.6% 69,179 22.7% 62,147 21.4% 69,387 25.1%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total Loans & Leases $361,840 100.0% $330,641 100.0% $304,168 100.0% $290,908 100.0% $276,437 100.0%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Non-Performing Loans at
December 31: (2), (3) 1996 1995 1994 1993 1992
- ----------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-Accrual $ 317 $ 197 $ 805 $ 474 $ 913
90 Day and Over Past Due 1,904 862 457 1,214 884
Restructured 476 1,122 885 934 0
------ ------ ------ ------ ------
Total $2,697 $2,181 $2,147 $2,622 $1,797
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Maturity Schedule: Within 1 to 5 5 Years
December 31, 1996 1 year Years & Over Total
- ----------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
Commercial & Other-
Fixed Rate $ 7,345 $ 5,393 $ 1,610 $14,348
Adjustable Rate 29,139 15,374 36,782 81,295
------ ------ ------ ------
Total $36,484 $20,767 $38,392 $95,643
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Predetermined Adjustable
Commercial & Other Loans Fixed Rates Rates
- ------------------------ ----------- -----
<S> <C> <C>
Maturing After One Year $7,003 $52,156
------ -------
</TABLE>
See page D-5 for footnote explanations.
D-3
<PAGE> 238
IV. SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
A. Analysis of Loan Loss Experience: 1996 1995 1994 1993 1992
--------------------------------- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Average Loans $339,551 $314,259 $298,161 $283,550 $271,345
======== ======== ======== ======== ========
Allowance for Loan Losses, Jan. 1 $4,166 $3,876 $3,597 $3,162 $2,905
Losses Charged Off:
Commercial and Other 156 160 182 448 521
Real Estate (1) 0 0 12 62 53
Consumer and Credit Cards 423 379 447 372 744
--- --- --- --- ---
Total 579 539 641 882 1,318
--- --- --- --- -----
Recoveries:
Commercial and Other 23 31 64 38 26
Real Estate (1) 0 0 0 6 1
Consumer and Credit Cards 161 214 218 149 154
--- --- --- --- ---
Total 184 245 282 193 181
--- --- --- --- ---
Net Loan Charge-Offs 395 294 359 689 1,137
Additions Charged to Operations (11) 774 584 638 1,124 1,394
--- --- --- ----- -----
Allowance for Loan Losses at $4,545 $4,166 $3,876 $3,597 $3,162
====== ====== ====== ====== ======
December 31:
Ratio of Net Charge-Offs to Average 0.12% 0.09% 0.12% 0.24% 0.42%
===== ===== ===== ===== =====
Loan Balances
</TABLE>
See page D-5 for footnote explanations.
D-4
<PAGE> 239
IV. BREAKDOWN OF ALLOWANCE FOR LOAN LOSSES (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------------- ------------------- ------------------ ------------------- -------------------
% of % of % of % of % of
Loans in Loans in Loans in Loans in Loans
Each Each Each Each in Each
Allocation of Allowance Category Category Category Category Category
for Loan Losses as of To Total To Total To Total To Total To Total
Dec. 31: Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans
- ----------------------- ------- ---------- ------- --------- ------- --------- ------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and Other $ 974 26.4% $ 591 28.3% $ 667 28.3% $ 903 32.1% $1,287 32.6%
Real Estate (1) 208 50.5% 151 49.1% 156 49.0% 178 46.5% 261 42.3%
Consumer and Credit Cards 357 23.1% 393 22.6% 472 22.7% 711 21.4% 676 25.1%
Unallocated 3,006 N/A 3,031 N/A 2,581 N/A 1,805 N/A 938 N/A
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $4,545 100.0% $4,166 100.0% $3,876 100.0% $3,597 100.0% $3,162 100.0%
------------ ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
tnotes for Tables under Items III and IV above:
- -------------------------------------------------
<FN>
(1) Real estate construction loans are included in this amount and represent
less than 5% of total real estate loans and less than 3% of total loans and
leases for all years presented. These loans are principally to construct
residential housing.
(2) The accrual of interest on loans is suspended when in management's opinion,
the collection of all or a portion of the interest has become doubtful. When a
loan is placed on nonaccrual status, accrued and unpaid interest is charged
against income. The accrual of interest on loans 90 days past due will continue
until it is determined that collection of all or a portion of the interest has
become doubtful. If all loans were current and interest has been earned on
non-accrual loans, interest income would have increased approximately $30,000 in
1996.
(3) Restructured loans were less than one percent of non-performing loans at
December 31, 1992.
(4) Potential Problem Loans - At December 31, 1996, there were approximately
$11.6 million of loans which management doubts the borrowers' ability to
completely comply with the present payment terms and which are not on
non-accrual status as described in note (2) above. These loans and their
potential loss exposure have been considered in management's analysis of the
adequacy of the allowance for loan losses. Also refer to Note 1 of the
consolidated financial statements of First-Knox included in the First-Knox
Annual Report regarding the allowance for loan losses.
(5) There were no foreign loans in any period presented.
(6) As of December 31, 1996, there were no concentrations of loans greater than
10% of total loans which were not otherwise disclosed as a category of loans in
the above analysis. Also refer to Note 1 of the consolidated financial
statements of First-Knox included in the First-Knox Annual Report regarding
concentrations of credit risk.
(7) No material amount of loans that have been classified by the regulatory
examiners as loss, substandard, doubtful, or specific mention have been excluded
from the amounts disclosed as non-accrual, past due 90 days or more,
restructured or potential problem loans.
(8) For the periods presented, there were no interest bearing assets other than
loans, that were restructured, past due, placed on non-accrual status or which
management had doubts as to repayment.
(9) Impaired loans were not material at December 31, 1996. Also refer to Note 1
of the consolidated financial statements of First-Knox included in the
First-Knox Annual Report regarding allowance for loan losses.
(10) Leases are not material for all years presented.
(11) The primary reasons for the 32.5% increase in the addition charged to
operations in 1996 compared to 1995 were a 34.4% increase in net loan
charge-offs and a $516,000 increase in nonperforming loans, as well as the loan
growth experienced in 1996. The 43.2% decrease in the 1994 addition charged to
operations compared to 1993 resulted primarily from a 47.9% decrease in net
loan charge-offs and a $475,000 decrease in nonperforming loans. Additions
charged to operations were relatively stable in other years.
</TABLE>
D-5
<PAGE> 240
V. DEPOSITS
TIME DEPOSIT MATURITY DISTRIBUTION AS OF DECEMBER 31, 1996: (IN THOUSANDS)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Under 3 Months 3-6 Months 6-12 Months Over 12 Months Total
-------------- ---------- ----------- -------------- -----
<C> <C> <C> <C> <C> <C>
Time Deposits of
$100,000 or More $23,505 $6,341 $15,078 $5,592 $50,516
======= ====== ======= ====== =======
</TABLE>
AVERAGE DEPOSITS AND INTEREST EXPENSE ANALYSIS: (IN THOUSANDS)
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------------------- ----------------------- -----------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
-------- ----- -------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing Demand $ 48,041 -- $ 47,023 -- $ 44,722 --
Interest Bearing Demand 44,829 1.85% 42,216 1.97% 43,249 1.98%
Savings 98,996 2.70% 107,879 2.97% 118,563 2.71%
Time 224,541 5.76% 193,554 5.75% 172,148 4.49%
-------- ----- -------- ----- ------- -----
Total $416,407 $390,672 $378,682
======== ======== ========
</TABLE>
There were no material foreign deposits in any period presented.
D-6
<PAGE> 241
APPENDIX E
OPINION OF MCDONALD & COMPANY SECURITIES, INC.
<PAGE> 242
McDonald & Company Securities, Inc.
Member New York Stock Exchange
McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2603
216-443-2300
March 20, 1997
Board of Directors
Park National Corporation
50 North Third Street
Post Office Box 850
Newark OH 43055-0695
Gentlemen and Madam:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
without par value ("Park Common Shares"), of Park National Corporation ("Park")
of the exchange ratio as set forth in Section 2.1(c) of the Agreement and Plan
of Merger, dated October 28, 1996, as amended by the Amendment to Agreement and
Plan of Merger, dated as of January 10, 1997 (collectively, the "Merger
Agreement"), by and between Park and First-Knox Banc Corp. ("First-Knox").
The Merger Agreement provides for the merger (the "Merger") of
First-Knox with and into Park, pursuant to which, among other things, at the
Effective Time (as defined in the Merger Agreement), outstanding shares of
First-Knox common stock, par value $3.125 per share ("First-Knox Common
Shares"), will be exchanged for 0.5914 shares of Park Common Shares, subject to
adjustment upon the occurrence of certain events, as set forth in Section 2.1(c)
of the Merger Agreement (the "Exchange Ratio"). The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
<PAGE> 243
Board of Directors
March 20, 1997
Page Two
In connection with rendering our opinion set forth herein, we have
among other things:
(i) Reviewed Park's Annual Reports to Shareholders and Annual
Reports on Form 10-K for each of the years ended December 31,
1996, December 31, 1995 and December 31, 1994, including the
audited financial statements contained therein;
(ii) Reviewed First-Knox's Annual Reports to Shareholders and
Annual Reports on Form 10-K for each of the years ended
December 31, 1996, December 31, 1995 and December 31, 1994,
including the audited financial statements contained therein;
(iii) Reviewed certain other public and non-public information,
primarily financial in nature, relating to the respective
businesses, earnings, assets and prospects of Park and
First-Knox provided to us or publicly available;
(iv) Participated in meetings and telephone conferences with
members of senior management of Park and First-Knox concerning
the financial condition, business, assets, financial forecasts
and prospects of the respective companies, as well as other
matters we believed relevant to our inquiry;
(v) Reviewed certain stock market information for Park Common
Shares and First-Knox Common Shares and compared it with
similar information for certain companies, the securities of
which are publicly traded;
(vi) Compared the results of operations and financial condition of
Park and First-Knox with that of certain companies which we
deemed to be relevant for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions which we deemed
to be relevant for purposes of this opinion;
<PAGE> 244
Board of Directors
March 20, 1997
Page Three
(viii) Reviewed the Merger Agreement and its schedules and exhibits
and certain related documents; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have relied upon the accuracy and
completeness of the representations, warranties and covenants of Park and
First-Knox contained in the Merger Agreement. We have not been engaged to
undertake, and have not assumed any responsibility for, nor have we conducted,
an independent investigation or verification of such matters. We have not been
engaged to and we did not conduct a physical inspection of any of the assets,
properties or facilities of either Park or First-Knox, nor have we made or
obtained or been furnished with any independent evaluation or appraisal of any
of such assets, properties or facilities or any of the liabilities of either
Park or First-Knox. With respect to financial forecasts used in our analysis, we
have assumed that such forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Park and First-Knox as to the future performance of Park and
First-Knox, as the case may be. We have not been engaged to assess the
reasonableness or achievability of such financial forecasts or the assumptions
on which they are based and express no view as to such financial forecasts or
assumptions. We have also assumed that all of the conditions to the consummation
of the Merger, as set forth in the Merger Agreement, would be satisfied and that
the Merger would be consummated on a timely basis in the manner contemplated by
the Merger Agreement.
We will receive a fee for rendering this opinion to Park, a portion of
which is contingent upon closing of the Merger.
In the ordinary course of business, we may actively trade securities of
Park and First-Knox for our own account and for the accounts of customers and,
accordingly, we may at any time hold a long or short position in such
securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness to
Park's stockholders, as of the date hereof, from a financial point of view, of
the Exchange Ratio, and does not address Park's underlying business decision to
effect the Merger or any other terms of the Merger. This opinion does not
represent our opinion as to what the value of Park Common Shares or First-Knox
Common Shares may be at the effective date of the Merger or as to the prospects
of Park's and First-Knox's business.
<PAGE> 245
Board of Directors
March 20, 1997
Page Four
This opinion is directed to the Board of Directors of Park and does not
constitute a recommendation to any Park shareholder as to how such shareholder
should vote with respect to the Merger. This opinion shall not be reproduced,
summarized, described or referred to or given to any other person without our
prior written consent. Notwithstanding the foregoing, this opinion may be
included in a proxy statement to be mailed to the holders of Park Common Shares
and First-Knox Common Shares in connection with the Merger, provided that this
opinion will be reproduced in such proxy statement in full, and any description
of or reference to us or our actions, or any summary of the opinion in such
proxy statement will be in a form acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio is fair to the holders of Park Common Shares
from a financial point of view.
Very truly yours,
/s/ McDonald & Company Securities, Inc.
McDONALD & COMPANY SECURITIES, INC.
<PAGE> 246
APPENDIX F
OPINION OF DANIELSON ASSOCIATES INC.
<PAGE> 247
Danielson Associates Inc.
6110 Executive Boulevard
Suite 504
Rockville, Maryland 20852-3903 Pittsburgh Office
Tel: (301) 468-4884 -----------------
Fax: (301) 468-0013 Tel: (412) 262-3207
March 20, 1997
Board of Directors
First-Knox Banc Corp.
One South Main Street
Mount Vernon, Ohio 43050
Dear Members of the Board:
Set forth herein is the updated opinion of Danielson Associates Inc.
("Danielson Associates") as to the "fairness" of the offer by Park National
Corporation ("Park") of Newark, Ohio to acquire all of the common stock of
First-Knox Banc Corp. ("First-Knox") of Mount Vernon, Ohio. The "fair" sale
value is defined as the price at which all of the shares of First-Knox' common
stock would change hands between a willing seller and a willing buyer, each
having reasonable knowledge of the relevant facts. In opining as to the
"fairness" of the offer, it also must be determined if the Park common stock
that is to be exchanged for First-Knox stock is "fairly" valued.
In preparing the original opinion dated October 28, 1996, First-Knox'
market was analyzed; its business and prospects were discussed with its
management; and its financial performance was compared with other Ohio banks.
In addition, any unique characteristics also were considered.
This opinion was partly based on data supplied to Danielson Associates
by First-Knox, but it relied on some public information all of which was
believed to be reliable, but neither the completeness nor accuracy of such
information could be guaranteed. In particular, the opinion assumed, based on
its management's representation, that there were no significant asset quality
problems beyond what was stated in recent reports to regulatory agencies and in
the monthly report to the directors.
<PAGE> 248
Board of Directors
March 20, 1997
Page Two
In determining the "fair" sale value of First-Knox, the primary
emphasis was on prices paid relative to earnings for Midwest banks that had
similar financial, structural and market characteristics. These prices were
then related to assets and equity capital, also referred to as "book."
The "fair" market value of Park's common stock to be exchanged for
First-Knox stock was determined by a comparison with other similar bank holding
companies and included no in person due diligence of Park. This comparison
showed Park stock to be valued similarly to the comparable banks.
Based on this analysis of First-Knox' recent performance and its future
potential, comparisons with similar transactions and unique characteristics, it
was determined that its "fair" sale value was between $103.6 and $109.9
million, of $26.51 to $28.10 per share. Thus, Park's offer of $112.8 million,
or $29.21 per share, was a "fair" offer from a financial point of view for
First-Knox and its shareholders.
There has been no subsequent change in Park's performance and its stock
is trading significantly above where it was at the time of the offer. Since the
value of the offer has increased and there has been no subsequent negative
change to Park, this offer is still fair from a financial point of view to
First-Knox and its shareholders.
Respectfully submitted,
/s/ Arnold G. Danielson
Arnold G. Danielson
Chairman
Danielson Associates Inc.
AGD:ld
Enclosure
<PAGE> 249
APPENDIX G
OHIO REVISED CODE SECTION 1701.85
<PAGE> 250
SECTION 1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF
SHARES.
(A)(1) A shareholder of a domestic corporation is entitled to relief as
a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
<PAGE> 251
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of
the Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
2
<PAGE> 252
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined
or prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
3
<PAGE> 253
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) OHIO REVISED CODE:
Division (E) of Section 1701.13 of the Ohio Revised Code governs
indemnification by an Ohio corporation and provides as follows:
(E) (1) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, other than
an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees,
judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit, or
proceeding, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if
he had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, he had reasonable cause
to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action or suit by or in the right
of the corporation to procure a judgment in its favor, by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
(a) Any claim, issue, or matter as to which such
person is adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation unless, and
only to the extent that, the court of common pleas or the
court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability,
but in view of all the circumstances of the case, such person
is fairly and
II-1
<PAGE> 254
reasonably entitled to indemnity for such expenses as the
court of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability
asserted against a director is pursuant to section 1701.95 of
the Revised Code.
(3) To the extent that a director, trustee, officer, employee,
member, manager, or agent has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in
division (E)(l) or (2) of this section, or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses,
including attorney's fees, actually and reasonably incurred by him in
connection with the action, suit, or proceeding.
(4) Any indemnification under division (E)(l) or (2) of this
section, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(l) or (2) of
this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of
directors of the indemnifying corporation who were not and are
not parties to or threatened with the action, suit, or
proceeding referred to in division (E)(l) or (2) of this
section;
(b) If the quorum described in division (E)(4)(a) of
this section is not obtainable or if a majority vote of a
quorum of disinterested directors so directs, in a written
opinion by independent legal counsel other than an attorney,
or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation
or any person to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in
which the action, suit, or proceeding referred to in division
(E)(l) or (2) of this section was brought
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal counsel under division
(E)(4)(b) of this section shall be promptly communicated to the person
who threatened or brought the action or suit by or in the right of the
corporation under division (E)(2) of this section, and, within ten days
after receipt of such notification, such person shall have the right to
petition the court of common pleas or the court in which such action or
suit was brought to review the reasonableness of such determination.
(5) (a) Unless at the time of a director's act or omission
that is the subject of an action, suit, or proceeding referred to in
division (E)(l) or (2) of this section, the articles or the regulations
of a corporation state, by specific reference to this division, that
the provisions of this division do not apply to the corporation and
unless the only
II-2
<PAGE> 255
liability asserted against a director in an action, suit, or proceeding
referred to in division (E)(l) or (2) of this section is pursuant to
section 1701.95 of the Revised Code, expenses, including attorney's
fees, incurred by a director in defending the action, suit or
proceeding shall be paid by the corporation as they are incurred, in
advance of the final disposition of the action, suit, or proceeding,
upon receipt of an undertaking by or on behalf of the director in which
he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction that
his action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the
corporation or undertaken with reckless disregard for the best
interests of the corporation;
(ii) Reasonably cooperate with the corporation
concerning the action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a
director, trustee, officer, employee, member, manager, or agent in
defending any action, suit, or proceeding referred to in division
(E)(l) or (2) of this section, may be paid by the corporation as they
are incurred, in advance of the final disposition of the action, suit,
or proceeding, as authorized by the directors in the specific case,
upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee, member, manager, or agent to repay such
amount, if it ultimately is determined that he is not entitled to be
indemnified by the corporation.
(6) The indemnification authorized by this section shall not
be exclusive of, and shall be in addition to, any other rights granted
to those seeking indemnification under the articles, the regulations,
any agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions,
and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, member, manager, or agent and shall inure
to the benefit of the heirs, executors, and administrators of such a
person.
(7) A corporation may purchase and maintain insurance or
furnish similar protection, including, but not limited to, trust funds,
letters of credit, or self-insurance, on behalf of or for any person
who is or was a director, officer, employee, or agent of the
corporation, or is or was serving at the request of the corporation as
a director, trustee, officer, employee, member, manager, or agent of
another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify
him against such liability under this section. Insurance may be
purchased from or maintained with a person in which the corporation has
a financial interest.
(8) The authority of a corporation to indemnify persons
pursuant to division (E)(l) or (2) of this section does not limit the
payment of expenses as they are incurred, indemnification, insurance,
or other protection that may be provided pursuant to divisions (E)(5),
(6), and (7) of this section. Divisions (E)(l) and (2) of this section
do not create
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<PAGE> 256
any obligation to repay or return payments made by the corporation
pursuant to division (E)(5), (6) or (7).
(9) As used in division (E) of this section, "corporation"
includes all constituent entities in a consolidation or merger and the
new or surviving corporation, so that any person who is or was a
director, officer, employee, trustee, member, manager, or agent of such
a constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign,
nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving
corporation as he would if he had served the new or surviving
corporation in the same capacity.
(b) REGULATIONS OF PARK NATIONAL CORPORATION:
Article FIVE of the Park Regulations governs indemnification by Park
and provides as follows:
Section 5.01. Mandatory Indemnification. The corporation shall
indemnify any officer or director of the corporation who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any
action threatened or instituted by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit),
partnership, joint venture, trust or other enterprise, against expenses
(including, without limitation, attorneys' fees, filing fees, court
reporters' fees and transcript costs), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal
action or proceeding, he had no reasonable cause to believe his conduct
was unlawful. A person claiming indemnification under this Section 5.01
shall be presumed, in respect of any act or omission giving rise to
such claim for indemnification, to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal matter,
to have had no reasonable cause to believe his conduct was unlawful,
and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, rebut such presumption.
Section 5.02. Court-Approved Indemnification. Anything
contained in the Regulations or elsewhere to the contrary
notwithstanding:
(A) the corporation shall not indemnify any officer or
director of the corporation who was a party to any completed action or
suit instituted by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation (domestic or foreign,
nonprofit or for profit), partnership, joint venture, trust or other
enterprise, in respect of any claim, issue or matter asserted in such
action or suit as to
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<PAGE> 257
which he shall have been adjudged to be liable for acting with reckless
disregard for the best interests of the corporation or misconduct
(other than negligence) in the performance of his duty to the
corporation unless and only to the extent that the Court of Common
Pleas of Licking County, Ohio or the court in which such action or suit
was brought shall determine upon application that, despite such
adjudication of liability, and in view of all the circumstances of the
case, he is fairly and reasonably entitled to such indemnity as such
Court of Common Pleas or such other court shall deem proper; and
(B) the corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as
contemplated by this Section 5.02.
Section 5.03. Indemnification for Expenses. Anything contained
in the Regulations or elsewhere to the contrary notwithstanding, to the
extent that an officer or director of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 5.01, or in defense of any claim,
issue or matter therein, he shall be promptly indemnified by the
corporation against expenses (including, without limitation, attorneys'
fees, filing fees, court reporters' fees and transcript costs) actually
and reasonably incurred by him in connection therewith.
Section 5.04. Determination Required. Any indemnification
required under Section 5.01 and not precluded under Section 5.02 shall
be made by the corporation only upon a determination that such
indemnification of the officer or director is proper in the
circumstances because he has met the applicable standard of conduct set
forth in Section 5.01. Such determination may be made only (A) by a
majority vote of a quorum consisting of directors of the corporation
who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable
or if a majority of the quorum of disinterested directors so directs,
in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation, or any
person to be indemnified, within the past five years, or (C) by the
shareholders, or (D) by the Court of Common Pleas of Licking County,
Ohio or (if the corporation is a party thereto) the court in which such
action, suit or proceeding was brought, if any; any such determination
may be made by a court under division (D) of this Section 5.04 at any
time [including, without limitation, any time before, during or after
the time when any such determination may be requested of, be under
consideration by or have been denied or disregarded by the
disinterested directors under division (A) or by independent legal
counsel under division (B) or by the shareholders under division (C) of
this Section 5.04]; and no failure for any reason to make any such
determination, and no decision for any reason to deny any such
determination, by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders
under division (C) of this Section 5.04 shall be evidence in rebuttal
of the presumption recited in Section 5.01. Any determination made by
the disinterested directors under division (A) or by independent legal
counsel under division (B) of this Section 5.04 to make indemnification
in respect of any claim, issue or matter asserted in an action or suit
threatened or brought by or in the right of the corporation shall be
promptly communicated to the person who threatened or brought such
action or suit, and within ten (10) days after receipt of such
notification such person shall have the right to petition the Court of
Common Pleas of Licking County, Ohio or the court in which such action
or suit was brought, if any, to review the reasonableness of such
determination.
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<PAGE> 258
Section 5.05. Advances for Expenses. Expenses (including,
without limitation, attorneys' fees, filing fees, court reporters' fees
and transcript costs) incurred in defending any action, suit or
proceeding referred to in Section 5.01 shall be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
to or on behalf of the officer or director promptly as such expenses
are incurred by him, but only if such officer or director shall first
agree, in writing, to repay all amounts so paid in respect of any
claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the
merits or otherwise:
(A) if it shall ultimately be determined as provided in
Section 5.04 that he is not entitled to be indemnified by the
corporation as provided under Section 5.01; or
(B) if, in respect of any claim, issue or other matter
asserted by or in the right of the corporation in such action or suit,
he shall have been adjudged to be liable for acting with reckless
disregard for the best interests of the corporation or misconduct
(other than negligence) in the performance of his duty to the
corporation, unless and only to the extent that the Court of Common
Pleas of Licking County, Ohio or the court in which such action or suit
was brought shall determine upon application that, despite such
adjudication of liability, and in view of all the circumstances, he is
fairly and reasonably entitled to all or part of such indemnification.
Section 5.06. Article FIVE Not Exclusive. The indemnification
provided by this Article FIVE shall not be exclusive of, and shall be
in addition to, any other rights to which any person seeking
indemnification may be entitled under the Articles or the Regulations
or any agreement, vote of shareholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office, and shall continue as to
a person who has ceased to be an officer or director of the corporation
and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 5.07. Insurance. The corporation may purchase and
maintain insurance or furnish similar protection, including, but not
limited to, trust funds, letters of credit, or self-insurance, on
behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, or agent of
another corporation (domestic or foreign, nonprofit or for profit),
partnership, joint venture, trust or other enterprise, against any
liability asserted, against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the obligation or the power to indemnify him
against such liability under the provisions of this Article FIVE.
Insurance may be purchased from or maintained with a person in which
the corporation has a financial interest.
Section 5.08. Certain Definitions. For purposes of this
Article FIVE, and as examples and not by way of limitation:
(A) A person claiming indemnification under this Article FIVE
shall be deemed to have been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 5.01,
or in defense of any claim, issue or other matter
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<PAGE> 259
therein, if such action, suit or proceeding shall be terminated as to
such person, with or without prejudice, without the entry of a judgment
or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to
pay any amount in settlement thereof (whether or not any such
termination is based upon a judicial or other determination of the lack
of merit of the claims made against him or otherwise results in a
vindication of him); and
(B) References to an "other enterprise" shall include employee
benefit plans; references to a "fine" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" within the meaning of that phrase as used
in this Article FIVE.
Section 5.09. Venue. Any action, suit or proceeding to
determine a claim for indemnification under this Article FIVE may be
maintained by the person claiming such indemnification, or by the
corporation, in the Court of Common Pleas of Licking County, Ohio. The
corporation and (by claiming such indemnification) each such person
consent to the exercise of jurisdiction over its or his person by the
Court of Common Pleas of Licking County, Ohio in any such action, suit
or proceeding.
(c) DIRECTORS AND OFFICERS LIABILITY INSURANCE COVERAGE:
Park has purchased insurance coverage which insures directors and
officers against certain liabilities which might be incurred by them in such
capacity.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2(a) Agreement and Plan of Merger, dated as of October 28, 1996,
between Park National Corporation ("Park") and First-Knox
Banc Corp. (Included as Appendix A-1 to the Joint Proxy
Statement/Prospectus)
2(b) Amendment to Agreement and Plan of Merger, dated as of
January 10, 1997, between Park and First-Knox Banc Corp.
(Included as Appendix A-2 to the Joint Proxy
Statement/Prospectus)
3(a) Articles of Incorporation of Park as filed with the Ohio
Secretary of State on March 24, 1992 (Incorporated hereby by
reference to Park's Form 8-B, filed May 20, 1992 (File No.
0-18772) ("Park's Form 8-B") [Exhibit 3(a)])
</TABLE>
II-7
<PAGE> 260
<TABLE>
<S> <C>
3(b) Certificate of Amendment to the Articles of Incorporation of
Park as filed with the Ohio Secretary of Ohio on May 6, 1993
(Incorporated herein by reference to Park's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (File
No. 0-18772) ("Park's 1993 Form 10-K") [Exhibit 3(b)])
3(c) Certificate of Amendment to the Articles of Incorporation of
Park as filed with the Ohio Secretary of State on April 16,
1996 (Incorporated herein by reference to Park's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1996 (File No. 1-13006) ("Park's March 1996 Form 10-Q")
[Exhibit 3(a)])
3(d) Articles of Incorporation of Park National Corporation, as
amended (current) (Incorporated herein by reference to Park's
March 1996 Form 10-Q [Exhibit 3(b)])
3(e) Regulations of Park National Corporation (Incorporated
herein by reference to Park's Form 8-B [Exhibit 3(b)])
5 Opinion of Vorys, Sater, Seymour and Pease, regarding
legality of shares (Incorporated herein by reference to
Park's Registration Statement on Form S-4 (Registration No.
333-20417) filed on January 24, 1997 ("Park's Form
S-4")[Exhibit 5])
8 Opinion of Porter, Wright, Morris & Arthur, regarding
tax matters (Incorporated herein by reference to Park's
Pre-Effective Amendment No. 2 to Registration Statement on
Form S-4 (Registration No. 333-20417) filed on March 6, 1997
("Park's Pre-Effective Amendment No.2") [Exhibit 8])
10(a) Certified copy of Resolutions Adopted by Board of Directors
of Park National Corporation on July 17, 1995 Affecting Park
National Corporation Defined Benefit Pension Plan and Trust
(Incorporated herein by reference to Park's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (File
No. 1-13006) ("Park's 1995 Form 10-K") [Exhibit 10(a)])
10(b) Park National Corporation Defined Benefit Pension Plan
(Incorporated herein by reference to Park's 1995 Form 10-K
[Exhibit 10(b)])
10(c) Park National Corporation Employees Voluntary Salary
Deferral Plan and Trust (Incorporated herein by reference to
Park's 1993 Form 10-K [Exhibit 10(d)])
10(d) Summary of Incentive Bonus Plan of Park National Corporation
(Incorporated herein by reference to Park's Form S-4
[Exhibit 10(d)])
10(e) Split-Dollar Agreement, dated May 17, 1993, between William
T. McConnell and The Park National Bank; and Schedule A to
Exhibit 10(f) identifying other identical Split-Dollar
Agreements between The Park National Bank and executive
officers of Park (Incorporated herein by reference to (a)
Park's 1993 Form 10-K [Exhibit 10(f)]); and (b) Park's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994 (File No. 1-13006) ("Park's 1994 Form 10-K") [Exhibit
10(g)])
</TABLE>
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<PAGE> 261
<TABLE>
<S> <C>
10(f) Split-Dollar Agreement, dated September 29, 1993, between
Dominic C. Fanello and The Richland Trust Company; and
Schedule A to Exhibit 10(f) identifying other identical
Split-Dollar Agreements between directors of Park and The
Park National Bank, The Richland Trust Company or Mutual
Federal Savings Bank, as identified in such Schedule A
(Incorporated herein by reference to (a) Park's 1993 Form
10-K [Exhibit 10(g)]; and (b) Park's Form S-4 [Exhibit
10(f)])
10(g) Park National Corporation 1995 Incentive Stock Option Plan
(Incorporated herein by reference to Park's Registration
Statement on Form S-8 filed May 9, 1995 (Registration No.
33-92060) [Exhibit 4(d)])
10(h) Form of Stock Option Agreement executed in connection with
the grant of options under the Park National Corporation
1995 Incentive Stock Option Plan (Incorporated herein by
reference to Park's 1995 Form 10-K [Exhibit 10(i)])
10(i) Description of Park National Corporation Supplemental
Executive Retirement Plan (Incorporated herein by reference
to Park's Form S-4 [Exhibit 10(i)])
10(j) Employment Security Agreement, dated as of July 12, 1996,
between The First-Knox National Bank of Mount Vernon, Ohio
and Carlos E. Watkins (identical agreements were entered
into with Gordon E. Yance and Ian Watson) (Incorporated
herein by reference to Park's Form S-4 [Exhibit 10(j)])
13(a) Annual Report to Shareholders of Park for the fiscal year
ended December 31, 1996 (Not deemed filed except for
portions thereof which are specifically incorporated by
reference into this Registration Statement on Form S-4)
(Included as Appendix B to the Joint Proxy
Statement/Prospectus)
21 Subsidiaries of Park (Incorporated herein by reference to
Park's Form S-4 [Exhibit 21])
23(a) Consent of Ernst & Young L.L.P., independent auditors
23(b) Consent of Vorys, Sater, Seymour and Pease (contained in
Exhibit 5) (Incorporated herein by reference to Park's Form
S-4 [Exhibits 5 and 23(a)]
23(c) Consent of Crowe, Chizek and Company LLP (Incorporated
herein by reference to Park's Pe-Effective Amendment
No. 2 [Exhibit 23(c)])
23(d) Consent of Porter, Wright, Morris & Arthur regarding Exhibit
8 (contained in Exhibit 8) (Incorporated herein by reference
to Park's Pre-Effective Amendment No. 2 [Exhibits 8 and
23(d)]
23(e) Consent of Danielson Associates Inc.
23(f) Consent of McDonald & Company Securities, Inc.
</TABLE>
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<PAGE> 262
<TABLE>
<S> <C>
24 Powers of Attorney (Incorporated herein by reference to
Park's Form S-4 [Exhibit 24])
99(a) Form of proxy for Annual Meeting of Shareholders of Park
National Corporation (Incorporated herein by reference to
Park's Pre-Effective Amendment No. 2 [Exhibit 99(a)])
99(b) Form of proxy for Special Meeting of Shareholders of
First-Knox Banc Corp. (Incorporated herein by reference to
Park's Pre-Effective Amendment No. 2 [Exhibit 99(b)])
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(c)(i) OPINION OF MCDONALD & COMPANY SECURITIES, INC.
The opinion of McDonald & Company Securities, Inc. has been provided as
part of the Joint Proxy Statement/Prospectus as Appendix E.
(ii) OPINION OF DANIELSON ASSOCIATES INC.
The opinion of Danielson Associates Inc. has been provided as part of
the Joint Proxy Statement/Prospectus as Appendix F.
ITEM 22. UNDERTAKINGS
1. Park hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration
Statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
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<PAGE> 263
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
2. Park hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of Park's Annual Report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. Park hereby undertakes to deliver or cause to be delivered with the
Prospectus, to each person to whom the Prospectus is sent or given, the latest
annual report to security holders that is incorporated by reference in the
Prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3
or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation S-X
are not set forth in the Prospectus, to deliver, or cause to be delivered to
each person to whom the Prospectus is sent or given, the latest quarterly report
that is specifically incorporated by reference in the Prospectus to provide such
interim financial information.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Park pursuant to the provisions described in Item 20. Indemnification
of Directors and Officers, or otherwise, Park has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Park of expenses incurred or paid by a director, officer or
controlling person of Park in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Park will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
5. Park hereby undertakes to respond to requests for information that
is incorporated by reference into the Prospectus pursuant to Items 4, 10(b), 11,
or 13 of this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding to
the request.
6. Park hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
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<PAGE> 264
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Park
National Corporation has duly caused this Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newark, State of Ohio, on
the 21st day of March, 1997.
By: /s/ C. Daniel DeLawder
-----------------------------------------------------
C. Daniel DeLawder, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement on Form S-4 has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*William T. McConnell Director, Chairman of the Board and Chief *
Executive Officer (Principal Executive
Officer)
*C. Daniel DeLawder President and Director *
*David C. Bowers Secretary, Chief Financial Officer and Chief *
Accounting Officer
*Dominic C. Fanello Director *
*R. William Geyer Director *
*Tamala Longaberger Kaido Director *
*Howard E. LeFevre Director *
*Phillip T. Leitnaker Director *
*John J. O'Neill Director *
*William A. Phillips Director *
*J. Gilbert Reese Director *
*Rick R. Taylor Director *
*John L. Warner Director *
</TABLE>
*By: C. Daniel DeLawder,
Attorney-in-Fact
Date: March 21, 1997
II-12
<PAGE> 265
PARK NATIONAL CORPORATION
REGISTRATION STATEMENT ON FORM S-4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
2(a) Agreement and Plan of Merger, dated as of October 28, 1996,
between Park National Corporation ("Park") and First-Knox
Banc Corp. (Included as Appendix A-1 to the Joint Proxy
Statement/Prospectus)
2(b) Amendment to Agreement and Plan of Merger, dated as of
January 10, 1997, between Park and First-Knox Banc Corp.
(Included as Appendix A-2 to the Joint Proxy
Statement/Prospectus)
3(a) Articles of Incorporation of Park as filed with the Ohio *
Secretary of State on March 24, 1992 (Incorporated hereby
by reference to Park's Form 8-B, filed May 20, 1992 (File
No. 0-18772) ("Park's Form 8-B") [Exhibit 3(a)])
3(b) Certificate of Amendment to the Articles of Incorporation of *
Park as filed with the Ohio Secretary of Ohio on May 6,
1993 (Incorporated herein by reference to Park's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993 (File No. 0-18772) ("Park's 1993 Form 10-K") [Exhibit
3(b)])
3(c) Certificate of Amendment to the Articles of Incorporation of *
Park as filed with the Ohio Secretary of State on April
16, 1996 (Incorporated herein by reference to Park's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996 (File No. 1-13006) ("Park's March 1996 Form
10-Q") [Exhibit 3(a)])
3(d) Articles of Incorporation of Park National Corporation, as *
amended (current) (Incorporated herein by reference to
Park's March 1996 Form 10-Q [Exhibit 3(b)])
3(e) Regulations of Park National Corporation (Incorporated *
herein by reference to Park's Form 8-B [Exhibit 3(b)])
5 Opinion of Vorys, Sater, Seymour and Pease, regarding *
legality of shares (Incorporated herein by reference to
Park's Registration Statement on Form S-4 (Registration
No. 333-20417) filed on January 24, 1997 ("Park's Form S-4")
[Exhibit 5]
8 Opinion of Porter, Wright, Morris & Arthur, regarding *
tax matters (Incorporated herein by reference to Park's
Pre-Effective Amendment No. 2 to Registration Statement on
Form S-4 (Registration No. 333-20417) filed on March 6, 1997
("Park's Pre-Effective Amendment No. 2") [Exhibit 8])
10(a) Certified copy of Resolutions Adopted by Board of Directors *
of Park National Corporation on July 17, 1995 Affecting Park
National Corporation Defined Benefit Pension Plan and Trust
(Incorporated herein by reference to Park's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (File
No. 1-13006) ("Park's 1995 Form 10-K") [Exhibit 10(a)])
</TABLE>
- ---------------------
* Incorporated herein by reference as noted.
E-1
<PAGE> 266
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
10(b) Park National Corporation Defined Benefit Pension Plan *
(Incorporated herein by reference to Park's 1995 Form 10-K
[Exhibit 10(b)])
10(c) Park National Corporation Employees Voluntary Salary *
Deferral Plan and Trust (Incorporated herein by reference
to Park's 1993 Form 10-K [Exhibit 10(d)])
10(d) Summary of Incentive Bonus Plan of Park National Corporation *
(Incorporated herein by reference to Park's Form S-4
[Exhibit 10(d)])
10(e) Split-Dollar Agreement, dated May 17, 1993, between William *
T. McConnell and The Park National Bank; and Schedule A to
Exhibit 10(f) identifying other identical Split-Dollar
Agreements between The Park National Bank and executive
officers of Park (Incorporated herein by reference to (a)
Park's 1993 Form 10-K [Exhibit 10(f)]); and (b) Park's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-13006) ("Park's 1994 Form
10-K") [Exhibit 10(g)])
10(f) Split-Dollar Agreement, dated September 29, 1993, between *
Dominic C. Fanello and The Richland Trust Company; and
Schedule A to Exhibit 10(f) identifying other identical
Split-Dollar Agreements between directors of Park and The
Park National Bank, The Richland Trust Company or Mutual
Federal Savings Bank, as identified in such Schedule A
(Incorporated herein by reference to Park's 1993 Form 10-K
[Exhibit 10(g)]; and (b) Park's Form S-4 [Exhibit 10(f)])
10(g) Park National Corporation 1995 Incentive Stock Option Plan *
(Incorporated herein by reference to Park's Registration
Statement on Form S-8 filed May 9, 1995 (Registration No.
33-92060) [Exhibit 4(d)])
10(h) Form of Stock Option Agreement executed in connection with *
the grant of options under the Park National Corporation
1995 Incentive Stock Option Plan (Incorporated herein by
reference to Park's 1995 Form 10-K [Exhibit 10(i)])
10(i) Description of Park National Corporation Supplemental *
Executive Retirement Plan (Incorporated herein by reference
to Park's Form S-4 [Exhibit 10(i)])
10(j) Employment Security Agreement, dated as of July 12, 1996, *
between The First-Knox National Bank of Mount Vernon, Ohio
and Carlos E. Watkins (identical agreements were entered
into with Gordon E. Yance and Ian Watson) (Incorporated
herein by reference to Park's Form S-4 [Exhibit 10(j)])
13(a) Annual Report to Shareholders of Park for the fiscal year
ended December 31, 1996 (Not deemed filed except for
portions thereof which are specifically incorporated by
reference into this Registration Statement on Form S-4)
(Included as Appendix B to the Joint Proxy
Statement/Prospectus)
</TABLE>
- ---------------------
* Incorporated herein by reference as noted.
E-2
<PAGE> 267
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
21 Subsidiaries of Park (Incorporated herein by reference *
to Park's Form S-4 [Exhibit 21])
23(a) Consent of Ernst & Young L.L.P., independent auditors
23(b) Consent of Vorys, Sater, Seymour and Pease (contained in *
Exhibit 5) (Incorporated herein by reference to Park's
Form S-4 [Exhibit 5 and 23(b)])
23(c) Consent of Crowe, Chizek and Company LLP (Incorporated herein by reference
to Park's Pre-Effective Amendment No. 2 [Exhibit 23(c)]) *
23(d) Consent of Porter, Wright, Morris & Arthur regarding Exhibit *
8 (contained in Exhibit 8) (Incorporated herein by reference to
Park's Pre-Effective Amendement No. 2 [Exhibits 8 and 23(d)]
23(e) Consent of Danielson Associates Inc.
23(f) Consent of McDonald & Company Securities, Inc.
24 Powers of Attorney (Incorporated herein by reference to *
Park's Form S-4 [Exhibit 24])
99(a) Form of proxy for Annual Meeting of Shareholders of Park *
National Corporation (Incorporated herein by reference to Park's
Pre-Effective Amendment No. 2 [Exhibit 99(a)])
99(b) Form of proxy for Special Meeting of Shareholders of *
First-Knox Banc Corp. (Incorporated herein by reference to Park's
Pre-Effective Amendment No. 2 [Exhibit 99(b)])
</TABLE>
- ---------------------
* Incorporated herein by reference as noted.
E-3
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 21, 1997, in Post-Effective Amendment No. 1 to
the Registration Statement (Form S-4 No. 333-20417) and related Prospectus of
Park National Corporation for the registration of 2,345,000 shares of its common
stock.
/s/ Ernst & Young LLP
March 21, 1997
<PAGE> 1
DANIELSON ASSOCIATES INC.
6110 EXECUTIVE BOULEVARD
SUITE 504
ROCKVILLE, MARYLAND 20852-3903
TEL: (301) 468-4884 PITTSBURGH OFFICE
FAX: (301) 468-0013 -----------------
TEL. (412) 262-3207
Exhibit 23(e)
We hereby consent to the reference to our name appearing herein under
the captions entitled "Summary-Reasons for the Merger-First-Knox and -Opinion of
Danielson" and "The Merger-Opinion of Danielson." We further consent to the
use of our letter to the Board of Directors of First-Knox concerning the
fairness of the financial terms of the proposed merger, appearing as Appendix F
to the Joint Proxy Statement/Prospectus contained herein.
/s/ Arnold G. Danielson
--------------------------
Arnold G. Danielson, Chairman
Rockville, Maryland
March 20, 1997
<PAGE> 1
Exhibit 23(f)
CONSENT OF McDONALD & COMPANY SECURITIES, INC.
We consent to the inclusion in the Joint Proxy Statement/Prospectus of
Park National Corporation and First-Knox Banc Corp. of the use of our opinion
dated as of March 20, 1997, and to the summarization of our opinion in the
Joint Proxy Statement/Prospectus under the caption "Opinion of McDonald &
Company." Further, we consent to all references to our firm in such Joint
Proxy Statement/Prospectus.
/s/ McDONALD & COMPANY SECURITIES, INC.
---------------------------------------
McDonald & Company Securities, Inc.
Cleveland, Ohio
March 20, 1997
