<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 24, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Amount of
Title of each class of Amount to be aggregate registration
securities being registered registered offering price (1) fee (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Shares,
without par value........... 2,345,000 $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
----------------------
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATIONS IN THE PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 CAPTION CAPTION IN PROSPECTUS
---------------- ---------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Forepart of Registration Statement; Cross-
Reference Sheet; Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... AVAILABLE INFORMATION;
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE; TABLE OF
CONTENTS.
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.................. SUMMARY; UNAUDITED PARK
SELECTED FINANCIAL DATA;
UNAUDITED FIRST-KNOX SELECTED
FINANCIAL DATA; UNAUDITED PRO
FORMA COMBINED SELECTED
FINANCIAL DATA.
4. Terms of the Transaction ........................ SUMMARY; THE PARK ANNUAL
MEETING; THE FIRST-KNOX SPECIAL
MEETING; THE MERGER; THE MERGER
AGREEMENT; DISSENTERS' RIGHTS;
DESCRIPTION OF PARK COMMON
SHARES; COMPARISON OF RIGHTS OF
HOLDERS OF PARK COMMON SHARES
AND HOLDERS OF FIRST-KNOX
COMMON SHARES.
5. Pro Forma Financial Information ................. UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION.
6. Material Contacts with the Company Being
Acquired....................................... THE MERGER - Background.
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 CAPTION CAPTION IN PROSPECTUS
---------------- ---------------------
<S> <C>
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to Be
Underwriters.................................... Not applicable.
8. Interests of Named Experts and Counsel ........... LEGAL MATTERS; EXPERTS.
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. Not applicable.
10. Information with Respect to S-3 Registrants Not applicable
11. Incorporation of Certain Information by
Reference....................................... INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.
12. Information with Respect to S-2 or S-3
Registrants..................................... INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
APPENDICES B and C.
13. Incorporation of Certain Information by
Reference....................................... INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants..................... Not applicable.
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3
Companies....................................... INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE;
APPENDICES D AND E.
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies....................... Not applicable.
</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
FORM S-4 CAPTION CAPTION IN PROSPECTUS
---------------- ---------------------
<S> <C>
18. Information if Proxies, Consents or
Authorizations are to be Solicited.............. SUMMARY; THE PARK ANNUAL
MEETING; THE FIRST-KNOX SPECIAL
MEETING; PRINCIPAL SHAREHOLDERS
OF PARK; PRINCIPAL SHAREHOLDERS
OF FIRST-KNOX; THE MERGER; THE
MERGER AGREEMENT; DISSENTERS'
RIGHTS; CERTAIN INFORMATION
CONCERNING FIRST-KNOX; PROPOSED
AMENDMENT TO SUBSECTION 2.02(A) OF
PARK'S REGULATIONS; ELECTION OF
PARK DIRECTORS; PROPOSAL TO
AMEND ARTICLE SIXTH OF PARK'S
ARTICLES OF INCORPORATION;
SHAREHOLDER PROPOSALS.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer.................................. Not applicable.
</TABLE>
3
<PAGE> 5
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 , 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
beneficially 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.
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> 6
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,
David C. Bowers, Secretary
2
<PAGE> 7
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 , 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
beneficially 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.
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,
Ian Watson, Secretary
<PAGE> 8
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 __, 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 shares owned beneficially by Park, by First-Knox or 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> 9
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 ___________, 1997, the last trading day before the printing of this
Joint Proxy Statement/Prospectus, the closing sale price of the Park Common
Shares on the American Stock Exchange was $____________ and the closing sale
price of the First-Knox Common Shares on The Nasdaq National Market was
$___________. 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 DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER STATE OR FEDERAL 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 __, 1997
2
<PAGE> 10
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 ____________, 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 [(a
copy of the Form 10-Q for the fiscal quarter ended September 30, 1996 is
attached hereto as Appendix C (the "Park Form 10-Q"))]; (c) the description of
the Park Common Shares contained in Park's Registration Statement
3
<PAGE> 11
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" included in
Park's Annual Report to Shareholders for the fiscal year ended December 31,
1995, 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 [(a copy of the Form 10-Q for the fiscal quarter ended September 30, 1996
is attached hereto as Appendix E (the "First-Knox Form 10-Q"))]; (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(s) captioned
"FINANCIAL REVIEW" included in First-Knox's Annual Report to Shareholders for
the fiscal year ended December 31, 1995, a copy of which Annual Report to
Shareholders is being delivered herewith as Appendix D (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 filing 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> 12
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..............................................................
Parties to the Merger Agreement...........................................
Park Annual Meeting.......................................................
First-Knox Special Meeting................................................
Reasons for the Merger....................................................
Opinion of McDonald & Company ............................................
Opinion of Danielson......................................................
Terms of Merger...........................................................
Recommendations of the Boards of Directors of Park and of First-Knox......
Comparison of Rights of Holders of Park Common Shares and of First-Knox
Common Shares..........................................................
Exchange of Certificates Evidencing First-Knox Common Shares..............
Resale of Park Common Shares..............................................
Dissenters' Rights........................................................
Market Prices.............................................................
Historical and Pro Forma Comparative Unaudited Per Share Data.............
UNAUDITED PARK SELECTED FINANCIAL DATA........................................
UNAUDITED FIRST-KNOX SELECTED FINANCIAL DATA..................................
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA..........................
THE PARK ANNUAL MEETING.......................................................
General...................................................................
Matters to be Considered at the Park Annual Meeting.......................
Voting at the Park Annual Meeting; Park Record Date.......................
THE FIRST-KNOX SPECIAL MEETING
General...................................................................
Matters to be Considered at the First-Knox Special Meeting................
Voting at the First-Knox Special Meeting; First-Knox Record Date..........
</TABLE>
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<TABLE>
<S> <C>
PRINCIPAL SHAREHOLDERS OF PARK........................................................
Section 16(a) Beneficial Ownership Reporting Compliance...........................
PRINCIPAL SHAREHOLDERS OF FIRST-KNOX..................................................
THE MERGER............................................................................
General...........................................................................
Background........................................................................
Reasons for the Merger............................................................
Opinion of McDonald & Company.....................................................
Opinion of Danielson..............................................................
Effect on Outstanding Park Common Shares and Conversion of First-Knox
Common Shares..................................................................
Accounting Treatment of the Merger................................................
Certain Federal Income Tax Consequences of the Merger.............................
Interests of Certain Persons in the Merger........................................
Board Representation and Management of Park Following Consummation of the Merger..
Resale of Park Common Shares Received in the Merger...............................
Regulatory Approvals..............................................................
THE MERGER AGREEMENT..................................................................
The Merger........................................................................
Conversion of Shares..............................................................
Representations and Warranties....................................................
Conduct of Business Pending the Merger and Certain Other Covenants................
Conditions to the Consummation of the Merger......................................
Effective Time....................................................................
Amendment and Termination.........................................................
Costs and Expenses; Indemnification...............................................
Recommendation and Vote...........................................................
DISSENTERS' RIGHTS....................................................................
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION....................................
BUSINESS OF PARK......................................................................
General...........................................................................
Additional Information............................................................
CERTAIN INFORMATION CONCERNING FIRST-KNOX.............................................
Business..........................................................................
Directors of First-Knox...........................................................
Change-in-Control Arrangements with First-Knox Management to be Assumed by Park...
Director Compensation.............................................................
</TABLE>
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<TABLE>
<S> <C>
Indebtedness of and Transactions with Management................................
Additional Information..........................................................
DESCRIPTION OF PARK COMMON SHARES...................................................
General.........................................................................
Voting Rights...................................................................
Nomination Procedure; Number of Directors; Classified Board of Directors........
Pre-Emptive Rights..............................................................
Repurchase......................................................................
Dividend Rights.................................................................
Liquidation Rights..............................................................
COMPARISON OF RIGHTS OF HOLDERS OF PARK COMMON SHARES
AND HOLDERS OF FIRST-KNOX COMMON SHARES.............................................
General.........................................................................
Board of Directors..............................................................
Voting Rights...................................................................
Antitakeover Provisions.........................................................
Pre-Emptive Rights..............................................................
Antitakeover Statutes...........................................................
Director and Officer Liability and Indemnification..............................
PROPOSED AMENDMENT TO SUBSECTION 2.02(A) OF PARK'S REGULATIONS......................
Proposed Amendment to Subsection 2.02(A)........................................
Effect of Adoption of Amendment.................................................
Recommendation and Vote.........................................................
ELECTION OF PARK DIRECTORS..........................................................
Nominees for Election...........................................................
Nomination Procedure............................................................
Recommendation and Vote.........................................................
Executive Officers of Park......................................................
Performance Graph...............................................................
Compensation Committee Interlocks and Insider Participation.....................
Report of the Executive Committee of the Park Board of Directors on Executive
Compensation.................................................................
Executive Compensation..........................................................
Certain Matters Pertaining to the Park Board of Directors.......................
Transactions Involving Management...............................................
PROPOSAL TO AMEND ARTICLE SIXTH OF PARK'S ARTICLES OF INCORPORATION.................
Proposed Amendment to Article SIXTH.............................................
Effect of Adoption of Amendment.................................................
Recommendation and Vote.........................................................
</TABLE>
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<PAGE> 15
NOTIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS FOR PARK...........
SHAREHOLDER PROPOSALS..................................................
LEGAL MATTERS..........................................................
EXPERTS................................................................
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, 1995 of Park National Corporation
Appendix C - Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996 of Park National Corporation
Appendix D - Annual Report to Shareholders for the fiscal year ended
December 31, 1995 of First-Knox Banc Corp.
Appendix E - Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996 of First-Knox Banc Corp.
Appendix F - Opinion of McDonald & Company Securities, Inc.
Appendix G - Opinion of Danielson Associates Inc.
Appendix H - 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 beneficially owned 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) 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 AND RECOMMENDATIONS OF BOARDS OF DIRECTORS."
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 ______ First-Knox Common Shares had been exercised, as a
result of which there are ______ First-Knox Common Shares issued and outstanding
and ______ First-Knox Common Shares subject to outstanding First-Knox Stock
Options, the average exercise price of which is $__________. 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
9
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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
September 30, 1996, Park had total consolidated assets of approximately $1.5
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 September 30, 1996, First-Knox had total
consolidated assets of approximately $561 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 __________
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 the Article of Park's Articles of Incorporation dealing with
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 and their respective affiliates (____ persons) in the aggregate
beneficially owned _____, or _____%, 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."
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 ______ 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 and their respective affiliates (___ persons)
in the aggregate beneficially owned _____, or _____%, of the outstanding
First-Knox Common Shares. See "PRINCIPAL SHAREHOLDERS OF FIRST-KNOX." As of the
First-Knox Record Date, Park, the directors and executive officers of Park and
their respective affiliates in the aggregate beneficially owned _____, or
_____%, of the outstanding First-Knox Common Shares.
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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."
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 interest 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 F. 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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<PAGE> 20
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 G. 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, _____ First-Knox Stock Options had
been exercised, as a result of which there are _____ First-Knox Common Shares
issued and outstanding and _____ First-Knox Common Shares subject to First-Knox
Stock Options, the average exercise price of which is $__________. 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 stock appreciation right (a "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 ____________, 1997, the last trading day before the printing of this
Joint Proxy Statement/Prospectus, the closing sale price of the Park Common
Shares on the American Stock Exchange was $__________ and the closing sale price
of the First-Knox Common Shares on The Nasdaq National Market was $__________.
The Assumed Exchange Ratio of .5914 is presented for illustrative purposes only
and may not be indicative of the Exchange Ratio at the Effective Time.
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<PAGE> 21
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 is subject to amendment prior to the Effective
Time under certain circumstances, and 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. 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. 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, 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 upon 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> 23
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.
If processing occurs in the normal course, approval from both agencies is
expected in the first quarter of 1997. 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. 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> 24
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
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."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF PARK AND OF 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 "PROPOSED AMENDMENT TO 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; however, 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> 25
The Amended Articles of Incorporation of First-Knox contain no provisions
similar to the "fair price" provision contained in the Park Articles of
Incorporation; however, 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 -- 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 H, will be entitled, if
and when the Merger is consummated, and upon strict compliance with certain
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> 26
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 September 30, 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> 27
BOOK VALUE PER COMMON SHARE:
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995
-------------- -------------
<S> <C> <C>
Park - historical (A) $20.27 $19.12
First-Knox - historical (B) 12.82 12.48
Park and First-Knox pro forma (C) 20.32 19.31
First-Knox pro forma equivalent (D) 12.02 11.42
</TABLE>
PRIMARY EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended -------------------------
September 30, 1996 1995 1994 1993
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Park - historical (E) $2.84 $3.09 $2.80 $2.48
First-Knox - historical (F) 1.24 1.50 1.34 1.31
Park and First-Knox pro forma (G) 2.66 2.95 2.67 2.42
First-Knox pro forma equivalent (D) 1.57 1.74 1.58 1.43
</TABLE>
FULLY DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE:
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended -------------------------
September 30, 1996 1995 1994 1993
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Park - historical (E) $2.84 $3.09 $2.80 $2.48
First-Knox - historical (H) 1.24 1.50 1.34 1.27
Park and First-Knox pro forma (I) 2.66 2.95 2.67 2.40
First-Knox pro forma equivalent (D) 1.57 1.74 1.58 1.42
</TABLE>
DIVIDENDS DECLARED PER COMMON SHARE:
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended -------------------------
September 30, 1996 1995 1994 1993
------------------ ---- ---- ----
<S> <C> <C> <C> <C>
Park - historical $1.05 $1.25 $.98 $1.05
First-Knox - historical .44 .47 .40 .35
Park and First-Knox pro forma (J) 1.05 1.25 .98 1.05
First-Knox pro forma equivalent (D) .62 .74 .58 .62
</TABLE>
- -------------------
(A) Based on 7,130,997 and 7,135,222 Park Common Shares outstanding as of
September 30, 1996 and December 31, 1995, respectively.
(B) Based on 3,747,713 and 3,738,273 First-Knox Common Shares outstanding
as of September 30, 1996 and December 31, 1995, respectively. The
First-Knox Common Shares for 1995, 1994 and 1993 have been adjusted for
the 5% stock dividend distributed in September, 1996.
20
<PAGE> 28
(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 September 30, 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 7,138,623 for the
nine months ended September 30, 1996 and 7,165,930, 7,154,796, and
7,085,088 for the years ended December 31, 1995, 1994, and 1993,
respectively.
(F) Based on the average First-Knox Common Shares and common share
equivalents outstanding of 3,794,909 for the nine months ended
September 30, 1996 and 3,818,760, 3,852,941, and 3,567,056 for the
years ended December 31, 1995, 1994, and 1993, respectively. The
First-Knox Common Shares outstanding for 1995, 1994 and 1993 have been
adjusted for 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) Based on the average First-Knox Common Share and common share
equivalents outstanding on a fully diluted basis of 3,795,591 for the
nine months ended September 30, 1996 and 3,821,589, 3,856,010, and
3,784,362 for the years ended December 31, 1995, 1994, and 1993,
respectively. For 1993, the computation of fully diluted earnings per
share includes adding the after-tax interest cost of approximately
$120,000 for convertible, subordinated debentures that were converted
in 1993. The First-Knox Common Shares outstanding for 1995, 1994 and
1993 have been adjusted for the 5% stock dividend distributed in
September, 1996.
(I) Note (G) on a fully diluted basis.
(J) The pro forma combined dividends declared assume no changes in the
historical dividends declared per Park Common Share.
21
<PAGE> 29
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, 1995 is derived from the
audited consolidated financial statements of Park, including footnotes to those
statements, incorporated by reference in this Joint Proxy Statement/Prospectus.
The selected financial data as of and for the nine months ended September 30,
1996 and 1995 have been derived from Park's unaudited financial statements. The
unaudited financial statements reflect, in the opinion of Park management, all
adjustments of a normal recurring nature necessary for a fair presentation of
financial condition and results of operations. The results for the nine months
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the entire year. 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>
Nine Months
Ended Sept. 30, Year Ended December 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In Thousands Except Per Share Date)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 90,479 $ 83,198 $ 113,200 $ 94,817 $ 90,384 $ 95,811 $ 106,612
Interest Expense 36,695 34,332 46,848 35,164 33,823 41,627 56,411
Net Interest Income 53,784 48,866 66,352 59,653 56,561 54,184 50,201
Provision for Loan Losses 3,015 3,450 4,664 1,840 2,810 3,704 3,895
Noninterest Income 10,011 9,183 12,922 9,036 10,910 9,636 8,284
Noninterest Expense 30,837 29,680 41,643 37,867 39,132 36,697 34,497
Provision for Income 9,701 8,184 10,847 8,965 7,984 7,271 5,479
Taxes
Income Before Extraordinary Items
and Cumulative Effect of a Change
in Accounting Principle 20,242 16,735 22,120 20,017 17,545 16,148 14,614
Extraordinary Item 0 0 0 0 0 372 476
Cumulative Effect of Accounting Change 0 0 0 0 1,500 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 20,242 $ 16,735 $ 22,120 $ 20,017 $ 19,045 $ 16,520 $ 15,090
========== ========== ========== ========== ========== ========== ==========
Earnings Per Share Before
Extraordinary Item and Cumulative
Effect of Accounting Change $ 2.84 $ 2.33 $ 3.09 $ 2.80 $ 2.48 $ 2.28 $ 2.07
Extraordinary Item 0 0 0 0 0 0.05 0.06
Cumulative Effect of Accounting Change 0 0 0 0 0.21 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings Per Share $ 2.84 $ 2.33 $ 3.09 $ 2.80 $ 2.69 $ 2.33 $ 2.13
========== ========== ========== ========== ========== ========== ==========
Cash Dividends Declared Per Common
Share $ 1.05 $ .90 $ 1.25 $ .98 $ 1.05 $ .88 $ .77
Average Balances:
Assets $1,469,218 $1,378,703 $1,396,222 $1,316,620 $1,246,903 $1,202,449 $1,134,898
Earning Assets 1,358,076 1,265,949 1,282,895 1,206,264 1,151,481 1,116,738 1,051,990
Deposits 1,199,823 1,107,805 1,123,059 1,072,688 1,033,507 1,012,540 979,206
Short-Term Borrowings 113,687 133,933 132,839 121,678 102,304 85,139 57,722
Long-Term Debt 0 0 0 0 0 5,160 8,116
Stockholders' Equity 137,281 122,408 125,042 110,741 100,081 88,629 78,700
Average Common Shares Outstanding 7,138,623 7,172,926 7,165,930 7,154,796 7,085,088 7,085,088 7,085,088
</TABLE>
22
<PAGE> 30
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, 1995 is derived
from the audited consolidated financial statements of First-Knox, including
footnotes to those statements, incorporated by reference in this Joint Proxy
Statement/Prospectus. The selected financial data as of and for the nine months
ended September 30, 1996 and 1995 have been derived from First-Knox's unaudited
financial statements. The First-Knox Common Shares have been adjusted for the 5%
stock dividend distributed in September, 1996. The unaudited financial
statements reflect, in the opinion of First-Knox management, all adjustments of
a normal recurring nature necessary for a fair presentation of financial
condition and results of operations. The results for the nine months ended
September 30, 1996 are not necessarily indicative of the results to be expected
for the entire year. 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>
Nine Months
Ended Sept. 30, Year Ended December 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In Thousands Except Per Share Date)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 29,770 $ 27,355 $ 37,088 $ 32,594 $ 31,292 $ 32,709 $ 35,881
Interest Expense 14,337 12,874 17,499 13,627 12,697 16,061 20,736
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 15,433 14,481 19,589 18,967 18,595 16,648 15,145
Provision for Loan Losses 543 402 584 638 1,124 1,394 1,066
Noninterest Income 2,386 2,323 3,127 2,747 2,465 2,452 2,389
Noninterest Expense 11,145 11,159 14,858 14,645 13,827 12,584 12,022
Provision for Income Taxes 1,415 1,097 1,565 1,267 1,443 1,171 915
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 4,716 $ 4,146 $ 5,709 $ 5,164 $ 4,666 $ 3,951 $ 3,531
========== ========== ========== ========== ========== ========== ==========
Primary Earnings Per Share $ 1.24 $ 1.08 $ 1.50 $ 1.34 $ 1.31 $ 1.21 $ 1.08
Fully Diluted Earnings Per Share $ 1.24 $ 1.08 $ 1.50 $ 1.34 $ 1.27 $ 1.12 $ 1.01
Cash Dividends Declared Per
Common Share $ 0.44 $ 0.32 $ 0.47 $ 0.40 $ 0.35 $ 0.32 $ 0.30
Average Balances:
Assets $ 515,215 $ 472,895 $ 476,777 $ 456,228 $ 415,630 $ 400,936 $ 387,096
Earning Assets 482,529 441,691 446,204 427,523 391,198 377,433 362,953
Deposits 412,985 388,272 390,672 378,682 365,849 357,603 346,076
Short-Term Borrowings 8,486 7,125 6,196 9,153 8,669 8,071 7,478
Long-Term Debt 42,596 34,093 33,413 27,246 4,773 5,222 5,305
Stockholders' Equity 47,051 42,574 43,390 39,899 34,561 28,539 25,828
Average Common and Common
Equivalent Shares Outstanding:
Primary 3,794,909 3,827,272 3,818,760 3,852,941 3,567,056 3,268,006 3,265,830
Fully Diluted 3,795,591 3,831,324 3,821,589 3,856,010 3,784,362 3,776,343 3,776,343
</TABLE>
23
<PAGE> 31
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 nine months ended September 30, 1996 and 1995 and the years
ended December 31, 1995, 1994, 1993, 1992, and 1991. 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 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> 32
UNAUDITED PRO FORMA COMBINED
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine Months
Ended Sept. 30, Year Ended December 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In Thousands Except Per Share Date)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income $ 120,249 $ 110,553 $ 150,288 $ 127,411 $ 121,676 $ 128,520 $ 142,493
Interest Expense 51,032 47,206 64,347 48,791 48,520 57,688 77,147
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 69,217 63,347 85,941 78,620 75,156 70,832 65,346
Provision for Loan Losses 3,558 3,852 5,248 2,478 3,934 5,098 4,961
Noninterest Income 12,397 11,506 16,049 11,783 13,375 12,088 10,673
Noninterest Expense 41,982 40,839 56,501 52,512 52,959 49,281 46,519
Provision for Income Taxes 11,116 9,281 12,412 10,232 9,427 8,442 6,394
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Before Extraordinary Item
and Cumulative Effect of a Change
in Accounting Principle 24,958 20,881 27,829 25,181 22,211 20,099 18,145
Extraordinary Item 0 0 0 0 0 372 476
Cumulative Effect of Accounting Change 0 0 0 0 1,500 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 24,958 $ 20,881 $ 27,829 $ 25,181 $ 23,711 $ 20,471 $ 18,621
========== ========== ========== ========== ========== ========== ==========
Primary Earnings Per Share Before
Extraordinary Item and Cumulative
Effect of Accounting Change $ 2.66 $ 2.21 $ 2.95 42.67 $ 2.42 $ 2.23 $ 2.01
Extraordinary Item 0 0 0 0 0 0.04 0.05
Cumulative Effect of Accounting Change 0 0 0 0 0.16 0 0.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
Primary Earnings Per Share $ 2.66 $ 2.21 $ 2.95 $ 2.67 $ 2.58 $ 2.27 $ 2.06
========== ========== ========== ========== ========== ========== ==========
Fully Diluted Earnings Per Share
Before Extraordinary Item and
Cumulative Effect of
Accounting Change $ 2.66 $ 2.21 $ 2.95 $ 2.67 $ 2.40 $ 2.19 $ 1.98
Extraordinary Item 0 0 0 0 0 0.04 0.05
Cumulative Effect of Accounting Change 0 0 0 0 0.16 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Fully Diluted Earnings Per Share $ 2.66 $ 2.21 $ 2.95 $ 2.67 $ 2.56 $ 2.23 $ 2.03
========== ========== ========== ========== ========== ========== ==========
Average Balances:
Assets $1,984,433 $1,851,598 $1,872,999 $1,772,848 $1,662,533 $1,603,385 $1,521,994
Earning Assets 1,840,605 1,707,640 1,729,099 1,633,787 1,542,679 1,494,171 1,414,943
Deposits 1,612,808 1,494,077 1,513,731 1,451,370 1,399,356 1,370,143 1,325,282
Short-Term Borrowings 122,173 141,058 139,035 130,831 110,973 93,210 65,200
Long-Term Debt 42,596 34,093 33,413 27,246 4,773 10,382 13,421
Stockholders' Equity 184,332 164,982 168,432 150,640 134,642 117,168 104,528
Average Common and Common
Equivalent Shares Outstanding:
Primary 9,382,932 9,436,375 9,424,345 9,433,425 9,194,645 9,017,787 9,016,500
Fully Diluted 9,383,336 9,438,771 9,426,018 9,435,240 9,323,160 9,318,417 9,318,417
</TABLE>
25
<PAGE> 33
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 __, 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 ______ 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> 34
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 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 __, 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> 35
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 ______
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 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
28
<PAGE> 36
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 (9) (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> 37
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> 38
(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(s) 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> 39
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 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> 40
(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 terms of the Merger which are more specifically described in the Merger
Agreement which is attached hereto as Appendix A. The following description does
not purport to be complete 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 common shares owned directly by
Park, First-Knox or any wholly-owned subsidiary of Park or of First-Knox and
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> 41
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> 42
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.
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.
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. On the basis of that
offer, First-Knox agreed to negotiate further with Park and a draft of a plan
and agreement 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 plan and agreement 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> 43
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.
RETURN ON AVERAGE ASSETS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------- Nine Months Ended
1993 1994 1995 September 30, 1996
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
Park 1.53% 1.52% 1.58% 1.84%
Park Peer Group .98% 1.05% 1.11% 1.18%
First-Knox 1.12% 1.13% 1.20% 1.16%
</TABLE>
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> 44
First-Knox
The Board of Directors of First-Knox believes that the Merger with Park
is fair and in the best interest 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.
RETURN ON AVERAGE EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------- Nine Months Ended
1993 1994 1995 September 30, 1996
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
Park 19.0% 18.1% 17.7% 19.7%
Park Peer Group 12.4% 12.3% 12.6% 13.6%
First-Knox 13.5% 12.9% 13.2% 13.4%
</TABLE>
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 F TO THIS JOINT PROXY STATEMENT/PROSPECTUS, AND SHOULD
BE READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF
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<PAGE> 45
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.
The following is a summary of selected analyses considered by McDonald
& Company in connection with McDonald & Company's opinion:
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<PAGE> 46
Comparison with Selected Companies
McDonald & Company compared the financial performance and stock market
valuation of Park with corresponding data for the following selected companies:
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. In addition, McDonald & Company
compared such data of First-Knox with corresponding data for the following
selected companies: ANB Corporation, BancFirst Ohio Corp., Belmont Bancorp.,
Cass Commercial Corporation, Capitol 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. At the time, none of the companies listed 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> 47
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 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 different discount rates 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> 48
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 First-Knox's "fair" sale value and 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
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<PAGE> 49
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 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.
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 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 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> 50
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.
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 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.
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 does not purport to be a complete
description of the analyses and procedures performed by Danielson in the course
of arriving at its opinion.
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
Merger Agreement 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 G 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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<PAGE> 51
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 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
cancelled 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.
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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.
The exact formula for determining the Exchange Ratio is set forth in
Section 2.1(c) of the Agreement and Plan of Merger, dated as of October 28,
1996, between Park and First-Knox, which is reprinted as Appendix A-1 to this
Joint Proxy Statement/ Prospectus.
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 ______ 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 "INTEREST 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 shareholder receives 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.
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 (submitted to the Federal Reserve Bank of Cleveland as the
delegate of the Federal Reserve Board) seeks approval, as required by the Bank
Holding Company Act, of the Merger. The Federal Reserve Board will consider 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. If
approved by the Federal Reserve Board, the Merger cannot be consummated before
the end of a statutory waiting period of a minimum of 15 days and a maximum of
30 days, during which time the Department of Justice may challenge the Merger on
antitrust grounds. The commencement of an antitrust action would stay the
effectiveness of the Federal Reserve Board's approval unless a court
specifically ordered otherwise. No separate federal approval for the change of
control of First-Knox's subsidiary banks is required. The application to the
ODFI is in the form of a change of control notice for First-Knox's 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.
The application to the Federal Reserve Board and the notice to the ODFI
were both submitted for filing to the respective agencies on December 31, 1996.
If processing occurs in the normal course, approval from both agencies is
expected in the first quarter of 1997.
No assurance can be given as to when, or if, necessary regulatory
approvals will 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 Merger Agreement is 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 shares
beneficially owned by Park, First-Knox or 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 of 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 to take 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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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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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".
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; and 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> 61
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.
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> 62
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 expense, 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> 63
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 H.
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> 64
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, 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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<PAGE> 65
The unaudited pro forma condensed combined balance sheet assumes that
the Merger was consummated on September 30, 1996, and the unaudited pro forma
condensed combined statement of income assumes that the Merger was consummated
at the beginning of each period.
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 future combined financial position.
CONDENSED PRO FORMA COMBINED BALANCE SHEET
AT SEPTEMBER 30, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma
Park First-Knox Combined
---- ---------- --------
<S> <C> <C> <C>
Cash and Due from Banks $ 55,194 $ 16,038 $ 71,232
Federal Funds Sold and Securities
Purchased Under Agreement to Resell 35,500 0 35,500
Securities Available - For-Sale 313,853 177,543 491,396
Securities Held to Maturity 11,684 0 11,684
Loans, Net of Unearned Income 1,064,022 352,071 1,416,093
Allowance for Loan Losses 27,212 4,438 31,650
----------- -------- -----------
Loans, Net 1,036,810 347,633 1,384,443
Bank Premises and Equipment 16,590 10,712 27,302
Other Assets 41,575 8,737 50,312
----------- -------- -----------
Total Assets $ 1,511,206 $560,663 $ 2,071,869
=========== ======== ===========
Deposits $ 1,228,864 $426,158 $ 1,655,022
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 118,712 6,626 125,338
Other Short-Term Borrowings 2,674 13,222 15,896
Long-Term Debt 0 62,643 62,643
Other Liabilities 16,403 3,975 20,378
----------- -------- -----------
Total Liabilities 1,366,653 512,624 1,879,277
Common Stock 26,819 11,712 38,531
Capital Surplus 0 25,849 25,849
Unrealized Holding Gain/(Loss) on
Available-for-Sale Securities, Net 1,536 67 1,603
Retained Earnings 119,248 10,411 129,659
Treasury Stock (3,050) 0 (3,050)
----------- -------- -----------
Total Stockholders Equity 144,553 48,039 192,592
----------- -------- -----------
Total Liabilities and Stockholders
Equity $ 1,511,206 $560,663 $ 2,071,869
=========== ======== ===========
</TABLE>
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<PAGE> 66
CONDENSED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Park First-Knox Combined
---- ---------- --------
<S> <C> <C> <C>
Interest Income $ 90,479 $ 29,770 $ 120,249
Interest Expense 36,695 14,337 51,032
---------- ---------- ----------
Net Interest Income 53,784 15,433 69,217
Provision for Loan Losses 3,015 543 3,558
---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 50,769 14,890 65,659
Noninterest Income 10,011 2,386 12,397
Noninterest Expense 30,837 11,145 41,982
---------- ---------- ----------
Income Before Federal Income Taxes 29,943 6,131 36,074
Provision for Federal Income Taxes 9,701 1,415 11,116
---------- ---------- ----------
Net Income $ 20,242 $ 4,716 $ 24,958
========== ========== ==========
Earnings Per Common and Common
Equivalent Shares:
Primary $ 2.84 $ 1.24 $ 2.66
Fully Diluted $ 1.24 $ 2.66
Average Common and Common Equivalent
Shares Outstanding:
Primary 7,138,623 3,794,909 9,382,932
Fully Diluted 3,795,591 9,383,336
</TABLE>
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<PAGE> 67
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 58,501
---------- ---------- ----------
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 3,818,760 9,424,345
Fully Diluted 3,821,589 9,426,018
</TABLE>
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<PAGE> 68
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 3,856,010 9,435,240
</TABLE>
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<PAGE> 69
CONDENSED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
Park First-Knox Combined
---- ---------- --------
<S> <C> <C> <C>
Interest Income $ 90,384 $ 31,292 $ 121,676
Interest Expense 33,823 12,697 46,520
---------- ---------- ----------
Net Interest Income 56,561 18,595 75,156
Provision for Loan Losses 2,810 1,124 3,934
---------- ---------- ----------
Net Interest Income After
Provision for Loan Losses 53,751 17,471 71,222
Noninterest Income 10,910 2,465 13,375
Noninterest Expense 39,132 13,827 52,959
---------- ---------- ----------
Income Before Federal Income Taxes 25,529 6,109 31,638
and Cumulative Effect of a Change
in Accounting Principle
Provision for Federal Income Taxes 7,984 1,443 9,427
---------- ---------- ----------
Income Before Cumulative Effect of 17,545 4,666 22,211
a Change in Accounting Principle
Cumulative Effect of a Change in
Accounting Principle-Income Taxes 1,500 0 1,500
---------- ---------- ----------
Net Income $ 19,045 $ 4,666 $ 23,711
========== ========== ==========
Earnings Per Common and Common
Equivalent Shares:
Primary Earnings Per Share before
Cumulative Effect of Accounting Change $ 2.48 $ 1.31 $ 2.42
Cumulative Effect of Accounting Change 0.21 0.00 0.16
---------- ---------- ----------
Primary Earnings Per Share $ 2.69 $ 1.31 $ 2.58
========== ========== ==========
Fully Diluted Earnings Per Share Before
Cumulative Effect of Accounting Change $ 1.27 $ 2.40
Cumulative Effect of Accounting Change 0.00 0.16
---------- ----------
Fully Diluted Earnings Per Share $ 1.27 $ 2.56
========== ==========
Average Common and Common Equivalent
Shares Outstanding:
Primary 7,085,088 3,567,056 9,194,645
Fully Diluted 3,784,362 9,323,160
</TABLE>
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<PAGE> 70
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 two 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 two stand-alone automatic banking center locations.
ADDITIONAL INFORMATION
Additional information concerning Park is included in the Park Annual
Report to Shareholders and the Park Form 10-Q, which are included as Appendix B
and Appendix C, respectively, to the Joint Proxy Statement/Prospectus. Such
documents 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> 71
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.
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> 72
<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 March, 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 January, 1995
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 REPRESENTATIVE 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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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 Option") 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 Option 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> 74
be a member of the Board after having been convicted of, or pled guilty or nolo
contendere to, a felony, his First-Knox Director Option 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 and the First-Knox Form 10-Q, which are
included as Appendix D and Appendix E, respectively, to the Joint Proxy
Statement/Prospectus. Such documents 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
__________________, 1997, the date before the printing of this Joint Proxy
Statement/Prospectus, _________ 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> 75
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 shareholder, 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> 76
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, if 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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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. PNB may not pay a dividend either
in an amount greater than its net profits then on hand, after deducting its
losses and bad debts, or if less than one-tenth of net profits for the preceding
six months, for a quarterly or semi-annual dividend, or the preceding year, for
an annual dividend, was transferred 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.
Earnings appropriated to bad debt reserves and deducted for federal
income tax purposes cannot 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. Thus, any dividends to
Park that would reduce amounts appropriated to Mutual's 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 limit Mutual's bad debt deduction or 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 any wholly-owned subsidiary of Park or
of First-Knox (other than trust account shares and DPC shares) will be cancelled
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
cancelled 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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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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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 includes 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 its Articles of Incorporation.
74
<PAGE> 82
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 provide 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."
75
<PAGE> 83
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."
Adoption of the proposed amendment to Subsection 2.02(A) is a condition
precedent to the Merger. 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.
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> 84
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>
77
<PAGE> 85
<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>
78
<PAGE> 86
<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>
79
<PAGE> 87
<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 the 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> 88
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
81
<PAGE> 89
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.
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>
82
<PAGE> 90
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 62.8% to
73.9% 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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<PAGE> 91
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 26.2% 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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<PAGE> 92
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 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 $468,000 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 $312,000 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 $164,000 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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<PAGE> 94
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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<PAGE> 95
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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<PAGE> 96
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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<PAGE> 97
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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<PAGE> 98
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 directors and executive officers of
Park and their associates as a group at December 31, 1996 was $15,985,213. 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-third 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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<PAGE> 99
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 the date of this Joint
Proxy Statement/Prospectus, there were ______ 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.
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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<PAGE> 100
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 __, 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, 1995 and December 31, 1994 and for each of the years in the
two-year period ended December 31, 1995, 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. The consolidated financial statements of Park and
its subsidiaries as of December 31, 1993 and for the year then ended,
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 Coopers &
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Lybrand LLP, independent certified public accountants, given upon the authority
of that firm as experts in accounting and auditing.
The consolidated financial statements of First-Knox and its
subsidiaries as of December 31, 1995 and December 31, 1994 and for each of the
years in the three-year period ended December 31, 1995, 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,
March __, 1997 David C. Bowers
Newark, Ohio Secretary
By Order of the First-Knox Board,
March __, 1997 Ian Watson
Mount Vernon, Ohio Secretary
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<PAGE> 102
APPENDIX A-1
------------
AGREEMENT AND PLAN OF MERGER,
DATED AS OF OCTOBER 28, 1996,
BETWEEN PARK NATIONAL CORPORATION
AND FIRST-KNOX BANC CORP.
<PAGE> 103
===============================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 28, 1996
BETWEEN
PARK NATIONAL CORPORATION
AND
FIRST-KNOX BANC CORP.
===============================================================================
<PAGE> 104
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
<PAGE> 105
<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>
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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>
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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
------- ----
<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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<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
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"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.
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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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(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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<PAGE> 146
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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<PAGE> 148
$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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<PAGE> 150
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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<PAGE> 152
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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<PAGE> 153
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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<PAGE> 154
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> 155
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.
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<PAGE> 156
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.
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<PAGE> 157
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> 158
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> 159
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> 160
APPENDIX B
ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED
DECEMBER 31, 1995
OF
PARK NATIONAL CORPORATION
<PAGE> 161
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of financial
condition and results of operations. 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 1995 was $22.1 million, the highest in Park National
Corporation's eight year history as a bank holding company. This represented a
10.5% increase over net income of $20.0 million for 1994. Net income per share
was $3.09 for 1995, up by 10.4% over the $2.80 net income per share for 1994.
Net income has increased at an annual compound growth rate of 10.8% over the
last five years, and net income per share has grown at an annual compound growth
rate of 10.5% over the same period.
Effective with the fourth quarter of 1995, the quarterly cash dividend
rate on common stock was increased to $.35 per share. The new annualized rate of
$1.40 per share is 16.7% greater than the annualized rate paid in the fourth
quarter of 1994. 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 12.3% and the
dividend payout ratio has averaged 37.6% over that same period.
Park National Corporation's culture is geared toward maximizing return to
our stockholders. The Corporation's common stock price has appreciated 31%
annually on a compounded, total return basis for the last five years. The
December 31, 1995 value of a $ 100 investment on December 31, 1990 would be
$385, inclusive of the reinvestment of dividends in the Corporation's 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 locally-focused 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,
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 change s in
economic conditions and the general level of interest rates.
The Corporation has and continues to produce 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 thirty-nine
full-service banking offices and a network of thirty-three automatic teller
machines in eleven central and southern Ohio counties.
A table of financial data of the Corporation's affiliates for 1995, 1994,
and 1993 is shown below:
TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
AVERAGE NET Average Net Average Net
(IN THOUSANDS) ASSETS INCOME Assets Income Assets Income
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park National Division $ 637,211 $13,716 $ 608,321 $11,994 $ 565,619 $11,464
- -------------------------------------------------------------------------------------------------------------
Fairfield National Division 171,572 3,315 150,565 2,538 146,446 2,116
- -------------------------------------------------------------------------------------------------------------
Richland Trust Company 255,311 3,642 238,968 3,205 224,526 3,189
- -------------------------------------------------------------------------------------------------------------
Mutual Federal Savings Bank 329,848 2,016 318,244 2,652 309,730 2,530
- -------------------------------------------------------------------------------------------------------------
Parent Company, including
consolidating entries 2,280 (569) 522 (372) 582 (254)
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED TOTALS $ 1,396,222 $22,120 $1,316,620 $20,017 $1,246,903 $19,045
- -------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 162
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 1995,
there were approximately 108 peer bank holding companies. The Corporation's net
income to average equity was 17.69%, 18.08% and 19.03% in 1995, 1994 and 1993,
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
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PARK 19.17% 18.64% 19.03% 18.08% 17.69%
PEER MEDIAN 11.46% 13.16% 13.40% 12.83% 12.58%
</TABLE>
The return on equity ratio trend is generally down over the past five
years. While net income and return on assets have increased over this period,
average equity has increased at a faster rate. The Corporation expects this
trend to continue in 1996 subject to execution of strategies to further leverage
the Corporation's equity such as acquiring assets for cash, increasing the level
of treasury share purchases or increasing dividend payouts.
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.
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 non-interest-bearing and interest-bearing deposits, excluding
certificates of deposit of $100,000 and over which were less than 7% of total
deposits for the last three years. In 1995, year-end total deposits increased by
$128.2 million, or 11.9%, of which $28.8 million was from $100,000 and over
certificates of deposit. In 1994, year-end total deposits increased by $19.9
million, or 1.9%, of which $15.7 million was from $100,000 and over certificates
of deposit. The mix of core deposits shifted toward certificates of deposit,
particularly in 1995, as more aggressive pricing and withdrawal options were
offered. In 1995, 1994 and 1993, core deposits were approximately 75% of total
average assets.
Maturity of time certificates of deposit of $100,000 and over as of
December 31, 1995 were:
TABLE 2 - OVER $100,000 MATURITY SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TIME CERTIFICATES
DECEMBER 31, (IN MILLIONS) OF DEPOSIT
- --------------------------------------------------------------------------------
<S> <C>
3 months or less $31.3
- --------------------------------------------------------------------------------
Over 3 months through 6 months 20.3
- --------------------------------------------------------------------------------
Over 6 months through 12 months 10.8
- --------------------------------------------------------------------------------
Over 12 months 19.9
- --------------------------------------------------------------------------------
TOTAL $82.3
- --------------------------------------------------------------------------------
</TABLE>
SHORT-TERM BORROWINGS: The Corporation's modest growth in average deposit funds
has required management to place emphasis on short-term borrowings to fund the
growth in loans and securities. 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 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 1995, average short-term borrowings were $133 million compared
to $122 million in 1994 and $102 million in 1992. Average short-term borrowings
were 9.5%, 9.2% and 8.2% of average assets in 1995, 1994 and 1993, respectively.
Due to the increase in deposits in late 1995, year-end short-term borrowings
decreased by $41.3 million from year-end 1994.
19
<PAGE> 163
LONG-TERM DEBT: During the past three years, the Corporation incurred no
long-term debt.
STOCKHOLDERS' EQUITY: Average stockholders' equity to average assets has
increased to 8.96% in 1995 compared to 8.41% in 1994 and 8.03% in 1993.
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 $5.9, ($5.7) and $3.4 million in 1995, 1994 and 1993, respectively.
The increase in the equity to assets ratio has been the result of
increases in net income of 10.5% in 1995 and 5% in 1994, a dividend payout ratio
of between 35% and 40% and modest increases in assets in 1994 and 1995.
INVESTMENT OF FUNDS
- --------------------------------------------------------------------------------
LOANS: Average loans, net of unearned income and the loan loss allowance,
increased 8.9% and 11.3% in 1995 and 1994, respectively. The Corporation sold
$18.0 million of student loans which curtailed consumer loan growth in 1995. In
early 1996 approximately $ 4.0 million additional student loans will be sold.
The one-time premium from the sale of student loans was $384 thousand in 1995
and is projected to be $163 thousand in 1996. The sale of these student loans,
which were in an amortizing status, was preci pitated by anticipated
difficulties in complying with new government servicing and reporting
regulations. The Corporation plans to continue originating student loans, for
sale to a loan servicer, in order to continue to serve that market segment.
Consumer loans increased in 1994 and 1995 due to increases in the volume of
automobile related installment loans.
Average residential real estate loan increases in 1994 were due to new
home equity and residential real estate loans and residential real estate loan
refinancing activity, as borrowers took advantage of historically low interest
rates offered on home mortgages. In late 1994, mortgage refinancing activity
slowed as mortgage rates increased. This resulted in originating fewer fixed
rate mortgages in 1995, which the Corporation sells in the secondary market, and
an increase in variable rate mortgages, which the Corporation retains. The
Corporation's management projects that lower mortgage rates in 1996 will
increase residential mortgage loan volumes.
Commercial real estate increased significantly in 1995 and 1994.
Frequently, a commercial borrower's collateral position is strengthened by real
estate assets upon initiation or renewal of a loan which results in
classification of the loan as a real estate loan. The Corporation continues to
look to repayment from a commercial borrower's cash flow from operations and
generally not from real estate collateral. Increases in real estate loans are
also a result of Central Ohio's continued robust economy, permitting increased
emphasis on sourcing new commercial real estate loans.
As a percent of average assets, average loans were 70.3%, 68.4% and 64.9%
in 1995, 1994 and 1993, respectively. During the fourth quarter of 1994 and
1995, the Corporation took steps designed to increase deposits to fund overall,
planned loan growth. These actions, in addition to the sale of student loans,
resulted in reducing the rate of growth in the percent of average loans to
average assets, while allowing the Corporation to meet customer borrowing needs.
TABLE 3 - LOANS BY TYPE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agriculture $ 118,225 $ 104,559 $ 109,531 $ 126,029 $ 151,307
- --------------------------------------------------------------------------------------------------------
Real estate - construction 40,871 34,880 32,037 23,276 14,264
- --------------------------------------------------------------------------------------------------------
Real estate - residential 444,005 430,483 373,820 338,832 311,848
- --------------------------------------------------------------------------------------------------------
Real estate - commercial 191,127 181,703 157,199 122,516 98,172
- --------------------------------------------------------------------------------------------------------
Consumer, net 209,481 209,141 187,830 170,651 160,379
- --------------------------------------------------------------------------------------------------------
Leases, net 21,018 20,374 11,971 12,705 16,142
- --------------------------------------------------------------------------------------------------------
TOTAL LOANS $ 1,024,727 $ 981,140 $ 872,388 $ 794,009 $ 752,112
- --------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 164
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
OVER ONE OVER
DECEMBER 31, 1995 ONE YEAR THROUGH FIVE
(IN THOUSANDS) OR LESS FIVE YEARS YEARS TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agriculture $ 94,873 $ 17,602 $ 5,750 $ 118,225
- ---------------------------------------------------------------------------------------------
Real estate - construction 37,747 3,124 -- 40,871
- ---------------------------------------------------------------------------------------------
TOTAL $132,620 $20,726 $ 5,750 $ 159,096
- ---------------------------------------------------------------------------------------------
Total of these selected loans after
one year with:
Fixed interest rate $ 20,985
- ---------------------------------------------------------------------------------------------
Floating interest rate 5,491
- ---------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to
provide liquidity and to contribute to earnings. Starting at year-end 1993 in
accordance with SFAS No. 115, the Corporation classified approximately 90% 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.
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, meet liquidity needs, or to improve the
overall yield from the investment portfolio. During 1994, the Corporation sold
$131 million of investment securities classified as available-for-sale and
recognized security losses of $3.3 million. During the first quarter of 1995,
the Corporation sold $31 million of investment securities classified as
available-for-sale and recognized security losses of $.6 million. The proceeds
from the sale of securities in 1994 and the first quarter of 1995 were
reinvested into higher yielding, longer maturity taxable investment securities.
A reduction in the overall level of interest rates after the first quarter of
1995 prevented continuation of this investment strategy. Due in large part to
investment sales and reinvestment activity during 1994 and early 1995, the yield
on the taxable investment portfolio increased to 6.86% at December 31, 1995
compared to 6.60% at December 31, 1994. The average maturity or repricing of the
taxable investment portfolio decreased to approximately two and one-half years
at year-end 1995 compared to approximately three years at year-end 1994 due to
the elimination of security sales and reinvestment of the proceeds for longer
maturities early in 1995.
Available funds from maturing and sold securities in 1994 and early 1995
were primarily invested in U.S. Treasury securities and U.S. Agency asset-backed
securities with maturities in the 3-5 year time frame to take advantage of the
relatively steep yie ld curve. Available funds from maturing securities in late
1995 were primarily invested in callable U.S. Agency securities to take
advantage of the interest yield spread from U.S. Treasury securities in a
relatively flat yield curve environment.
The following table sets forth the book value of investment securities at
year end:
TABLE 5 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Obligations of U.S. Treasury and other
U.S. Government agencies $157,056 $107,509 $154,402
- --------------------------------------------------------------------------------------------
Obligations of states and political subdivisions 9,566 10,898 19,222
- --------------------------------------------------------------------------------------------
U.S. Government asset-backed securities 150,680 146,886 137,550
- --------------------------------------------------------------------------------------------
Non U.S. Government asset-backed securities 3,909 5,679 10,611
- --------------------------------------------------------------------------------------------
Other securities 7,519 6,846 7,752
- --------------------------------------------------------------------------------------------
TOTAL $328,730 $277,818 $329,537
- --------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 165
EARNING RESULTS
- --------------------------------------------------------------------------------
The Corporation's principal source of earnings is net interest earnings, the
difference between total interest income and total interest expense. Net
interest earnings result from average balances outstanding for interest-earning
assets and interest-bearing liabilities in conjunction with the average rates
earned and paid on them.
Earning asset yields and interest-bearing liability rates were
approximately equal in 1994 and 1993. In 1994 and for part of 1995, the overall
level of interest rates increased. The average yield on interest-earning assets
increased 95 basis points from 1994 to 8.87% in 1995 and the average rate paid
on interest-bearing liabilities increased 89 basis points to 4.23% in 1995. This
increased the net interest spread to 4.64% and was the primary reason the net
yield on earning assets of 5.22% exceeded the prior two years.
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
DECEMBER 31, (DOLLARS IN THOUSANDS) 1995
- ---------------------------------------------------------------------------------------------------
DAILY AVERAGE
AVERAGE INTEREST RATE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Loans, net (1) (2) $ 980,828 $93,144 9.50%
- ---------------------------------------------------------------------------------------------------
Taxable investment securities 278,149 18,905 6.80%
- ---------------------------------------------------------------------------------------------------
Tax-exempt investment securities (3) 10,661 924 8.67%
- ---------------------------------------------------------------------------------------------------
Interest-bearing deposits in banks -- -- --
- ---------------------------------------------------------------------------------------------------
Federal funds sold 13,257 781 5.89%
- ---------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 1,282,895 113,754 8.87%
- ---------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
Cash and due from banks 56,463
- ---------------------------------------------------------------------------------------------------
Premises and equipment, net 16,933
- ---------------------------------------------------------------------------------------------------
Other assets 39,931
- ---------------------------------------------------------------------------------------------------
TOTAL $1,396,222
- ---------------------------------------------------------------------------------------------------
LIABILITIES ANDSTOCKHOLDERS' EQUITY
INTEREST-BEARING LIABILITIES:
Transaction accounts $ 226,352 $ 5,348 2.36%
- ---------------------------------------------------------------------------------------------------
Savings deposits 250,611 7,461 2.98%
- ---------------------------------------------------------------------------------------------------
Time deposits 496,713 27,256 5.49%
- ---------------------------------------------------------------------------------------------------
Short-term borrowings 132,839 6,783 5.11%
- ---------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES 1,106,515 46,848 4.23%
- ---------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
Demand deposits 149,383
- ---------------------------------------------------------------------------------------------------
Other 15,282
- ---------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 164,665
- ---------------------------------------------------------------------------------------------------
Stockholders' equity 125,042
- ---------------------------------------------------------------------------------------------------
TOTAL $1,396,222
- ---------------------------------------------------------------------------------------------------
Net interest earnings $ 66,906
- ---------------------------------------------------------------------------------------------------
Net interest spread 4.64%
- ---------------------------------------------------------------------------------------------------
Net yield on interest-earning assets 5.22%
- ---------------------------------------------------------------------------------------------------
<FN>
(1) Loan income includes net fee loan income of $1,327 in 1995, $976 in
1994 and $988 in 1993. Loan income also includes the effects of taxable
equivalent adjustments using a 35% rate. The taxable equivalent
adjustment was $272 in 1995, $315 in 1994 and $310 in 1993.
(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. The taxable equivalent was
$282 in 1995, $459 in 1994 and $753 in 1993.
</TABLE>
22
<PAGE> 166
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY -
continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$901,029 $76,261 8.46% $ 809,245 $70,825 8.75%
- ------------------------------------------------------------------------------------------
283,165 17,434 6.16% 309,350 18,881 6.10%
- ------------------------------------------------------------------------------------------
15,834 1,524 9.62% 21,386 1,074 5.02%
- ------------------------------------------------------------------------------------------
2,249 210 9.34% 5,186 471 9.08%
- ------------------------------------------------------------------------------------------
3,987 162 4.06% 6,314 196 3.11%
- ------------------------------------------------------------------------------------------
1,206,264 95,591 7.92% 1,151,481 91,447 7.94%
- ------------------------------------------------------------------------------------------
54,704 51,390
- ------------------------------------------------------------------------------------------
16,407 16,026
- ------------------------------------------------------------------------------------------
39,245 28,006
- ------------------------------------------------------------------------------------------
$1,316,620 $ 1,246,903
- ------------------------------------------------------------------------------------------
$ 247,354 $ 5,475 2.21% $ 235,659 $ 5,435 2.31%
- ------------------------------------------------------------------------------------------
288,384 8,333 2.89% 269,143 7,695 2.86%
- ------------------------------------------------------------------------------------------
395,164 16,969 4.29% 399,084 17,930 4.49%
- ------------------------------------------------------------------------------------------
121,678 4,387 3.61% 102,304 2,763 2.70%
- ------------------------------------------------------------------------------------------
1,052,580 35,164 3.34% 1,006,190 33,823 3.36%
- ------------------------------------------------------------------------------------------
141,786 129,621
- ------------------------------------------------------------------------------------------
11,513 11,011
- ------------------------------------------------------------------------------------------
153,299 140,632
- ------------------------------------------------------------------------------------------
110,741 100,081
- ------------------------------------------------------------------------------------------
$1,316,620 $1,246,903
- ------------------------------------------------------------------------------------------
$60,427 $57,624
- ------------------------------------------------------------------------------------------
4.58% 4.58%
- ------------------------------------------------------------------------------------------
5.01% 5.00%
- ------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 167
TABLE 7 - VOLUME / RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) CHANGE FROM 1994 TO 1995 Change from 1993 to 1994
------------------------ ------------------------
Increase (decrease) in: Volume Rate TOTAL Volume Rate Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Total loans $ 7,071 $ 9,812 $ 16,883 $ 7,903 $ (2,467) $ 5,436
- ----------------------------------------------------------------------------------------------------------------
Taxable investments (314) 1,785 1,471 (1,629) 182 (1,447)
- ----------------------------------------------------------------------------------------------------------------
Tax-exempt investments (461) (139) (600) (336) 786 450
- ----------------------------------------------------------------------------------------------------------------
Interest-bearing deposits
in banks (105) (105) (210) (274) 13 (261)
- ----------------------------------------------------------------------------------------------------------------
Federal funds sold 519 100 619 (72) 38 (34)
- ----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 6,710 11,453 18,163 5,592 (1,448) 4,144
- ----------------------------------------------------------------------------------------------------------------
Interest expense:
Transaction accounts (483) 356 (127) 273 (233) 40
- ----------------------------------------------------------------------------------------------------------------
Savings deposits (1,124) 252 (872) 556 82 638
- ----------------------------------------------------------------------------------------------------------------
Time deposits 4,927 5,360 10,287 (174) (787) (961)
- ----------------------------------------------------------------------------------------------------------------
Short-term borrowings 433 1,963 2,396 591 1,033 1,624
- ----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 3,753 7,931 11,684 1,246 95 1,341
- ----------------------------------------------------------------------------------------------------------------
NET VARIANCE $ 2,957 $ 3,522 $ 4,346 $ 6,479 $ (1,543) $ 2,803
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
OTHER INCOME: Total other income, exclusive of security losses, was $13.5
million in 1995, an increase of 9.7% over the prior year. A 10% increase was
achieved in 1994 compared with 1993. Income from fiduciary activities was $2.9
million in 1995, an increase of 21.3% over 1994. This increase was due to fees
related to the growth in assets under management from new trust department
customers. Other service income decreased in 1994 and 1995 from 1993 levels due
to reduced mortgage loan refinancing volume as a result of higher mortgage
interest rates. The Other subcategory increased in 1994 and 1995 due to rental
income from operating leases originated by Scope Leasing, Inc., acquired by the
Corporation in May of 1994.
Losses on the sale of securities decreased to $.6 million in 1995 from
$3.3 million in 1994. Securities were sold at a loss in 1994 and the proceeds
invested in higher yielding, longer maturity securities to take advantage of an
upward sloping yield cur ve and the desire to extend the average maturity of the
investment portfolio. This investment strategy continued through the first
quarter of 1995. During 1994, all off-balance sheet derivative investments
either matured or were sold. At year end 1994 and all of 1995, the Corporation
had no off-balance sheet derivative investments.
OTHER EXPENSE: Total other expense increased by $3.8 million or 10% in 1995
compared to 1994. Salaries and benefits increased in 1995 due to normal merit
increases and staff increases to accommodate a new branch and extended hours in
selected other branches, operatio ns to facilitate back office consolidations
and annuity/mutual fund sales in order to provide the Corporation's customers
with alternative investment products. Full- time equivalent staffing at year-end
has increased from 656 in 1993 to 660 in 1994 to 6 88 in 1995. The Other
subcategory increased due to increased depreciation from operating leases.
Insurance expense decreased in 1995 from 1994 and 1993 as the FDIC's bank
deposit insurance premium rate was sharply reduced. Bank deposit insurance
premium expense is forecast to decrease further in 1996. However, proposed
federal legislation, requiring a one-time recapitalization of the FDIC's thrift
deposit fund may result in increased 1996 insurance expense. The
recapitalization expense cannot be determined due to the uncertainty of the
timing of the legislation's passage but would only impact Mutual Federal, which
had $303 million of insured thrift deposits at year-end 1995.
Total other expense decreased by $1.3 million or 3.2% in 1994 compared to
1993. This decrease primarily resulted from reductions in 1994 of $1.8 million
of intangible amortization expense, $1.2 million of contributions to the
Corporation's Charitable Foundation and $1 million of other real estate expense.
24
<PAGE> 168
INCOME TAXES: The Federal income tax expense as a percentage of income before
taxes increased to 33% in 1995 compared to 31% in 1994 and 1993. The increase in
1995 is primarily due to a reduction in tax-exempt investment securities
interest income.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 109 and elected not to restate the financial statements
of any prior years -- see Footnote 11 to the financial statements. The
cumulative effect of the ch ange in accounting for income taxes was to increase
net income by $1.5 million or $.21 per share in 1993.
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 portf olio, historical loan loss experience
and 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) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS (NET OF UNEARNED INTEREST) $1,004,016 $ 922,172 $ 829,323 $ 759,688 $ 732,325
- ------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Beginning balance $ 21,562 $ 20,178 $ 18,402 $ 17,037 $ 15,094
- ------------------------------------------------------------------------------------------------------------------------
CHARGE-OFFS:
Commercial 247 949 926 1,145 927
- ------------------------------------------------------------------------------------------------------------------------
Real estate 471 48 336 881 363
- ------------------------------------------------------------------------------------------------------------------------
Consumer 1,640 1,330 1,376 1,387 1,398
- ------------------------------------------------------------------------------------------------------------------------
Lease financing 55 103 92 122 124
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS 2,413 2,430 2,730 3,535 2,812
- ------------------------------------------------------------------------------------------------------------------------
RECOVERIES:
Commercial 144 971 1,050 486 154
- ------------------------------------------------------------------------------------------------------------------------
Real estate 171 164 112 73 83
- ------------------------------------------------------------------------------------------------------------------------
Consumer 860 766 473 552 460
- ------------------------------------------------------------------------------------------------------------------------
Lease financing 85 73 61 85 163
- ------------------------------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 1,260 1,974 1,696 1,196 860
- ------------------------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 1,153 456 1,034 2,339 1,952
- ------------------------------------------------------------------------------------------------------------------------
Provision charged to earnings 4,664 1,840 2,810 3,704 3,895
- ------------------------------------------------------------------------------------------------------------------------
ENDING BALANCE $ 25,073 $ 21,562 $ 20,178 $ 18,402 $ 17,037
- ------------------------------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS 0.11% 0.05% 0.12% 0.31% 0.27%
- ------------------------------------------------------------------------------------------------------------------------
RATIO OF ALLOWANCE FOR POSSIBLE LOAN
LOSSES TO END OF YEAR LOANS, NET OF
UNEARNED INTEREST 2.45% 2.20% 2.31% 2.32% 2.27%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 169
The following table summarizes the allocation of allowance for possible
loan losses:
TABLE 9 - ALLOCATION FOR ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
(DOLLARS IN LOANS PER LOANS PER LOANS PER LOANS PER LOANS PER
THOUSANDS) ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 4,729 11.54% $ 3,942 10.66% $ 4,134 12.56% $ 4,420 15.87% $ 3,975 20.12%
- -----------------------------------------------------------------------------------------------------------------------------------
Real estate 11,701 65.97% 10,448 65.95% 10,332 64.54% 9,077 61.04% 8,985 56.41%
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer 7,855 20.44% 6,561 21.31% 5,437 21.53% 4,622 21.49% 3,757 21.32%
- -----------------------------------------------------------------------------------------------------------------------------------
Leases 788 2.05% 611 2.08% 275 1.37% 283 1.60% 320 2.15%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $25,073 100.00% $21,562 100.00% $20,178 100.00% $18,402 100.00% $17,037 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1995, 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: l) 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 int erest 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) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 2,228 $ 1,872 $ 2,244 $ 2,554 $ 2,603
- -------------------------------------------------------------------------------------------------------
Renegotiated loans 1,403 480 351 1,017 3,052
- -------------------------------------------------------------------------------------------------------
Loans past due 90 days or more 778 633 821 691 721
- -------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 4,409 2,985 3,416 4,262 6,376
- -------------------------------------------------------------------------------------------------------
Other real estate owned 91 262 1,386 3,664 5,923
- -------------------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS $ 4,500 $ 3,247 $ 4,802 $ 7,926 $12,299
- -------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING LOANS TO
LOANS, NET OF UNEARNED INTEREST 0.43% 0.30% 0.39% 0.54% 0.85%
- -------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING ASSETS TO
LOANS, NET OF UNEARNED INTEREST 0.44% 0.33% 0.55% 1.00% 1.64%
- -------------------------------------------------------------------------------------------------------
PERCENTAGE OF NON-PERFORMING ASSETS TO
TOTAL ASSETS 0.30% 0.24% 0.37% 0.64% 1.04%
- -------------------------------------------------------------------------------------------------------
</TABLE>
Tax equivalent interest income from loans of $93.1 million for 1995 would
have increased by $62,000 if all loans had been current in accordance with their
original terms. Interest income for the year ended December 31, 1995 in the
approximate amount of $261,000 is included in interest income for those loans in
accordance with original terms.
The Corporation had $9.7 million of loans included on the Corporation's
watch list of potential problem loans at December 31, 1995 compared to $13
million at year-end 1994 and $12 million at year-end 1993. Existing conditions
on these loans do not warrant classification as non-accrual. Management provides
additional surveillance regarding a borrower's ability to comply with payment
terms for all watch list loans.
26
<PAGE> 170
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 $886 million or 65.5% of
interest-earning assets at year-end 1995. 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 sensitivity data for five different
time intervals as of December 31, 1995:
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 $ 41,387 $ 44,718 $ 121,251 $ 114,280 $ 7,094 $ 328,730
- -----------------------------------------------------------------------------------------------------------------------------------
Loans 358,520 441,280 165,492 26,777 32,658 1,024,727
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 399,907 485,998 286,743 141,057 39,752 1,353,457
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-bearing checking (1) 35,303 -- 105,911 -- -- 141,214
- -----------------------------------------------------------------------------------------------------------------------------------
Savings accounts (1) 118,475 -- 118,475 -- -- 236,950
- -----------------------------------------------------------------------------------------------------------------------------------
Money market checking 83,873 -- -- -- -- 83,873
- -----------------------------------------------------------------------------------------------------------------------------------
Time deposits 117,169 240,449 156,460 37,768 1,020 552,866
- -----------------------------------------------------------------------------------------------------------------------------------
Other 1,623 -- -- -- -- 1,623
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 356,443 240,449 380,846 37,768 1,020 1,016,526
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 113,992 -- -- -- -- 113,992
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES 470,435 240,449 380,846 37,768 1,020 1,130,518
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP (70,528) 245,549 (94,103) 103,289 38,732 222,939
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE RATE SENSITIVITY GAP (70,528) 175,021 80,918 184,207 222,939 --
- -----------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE GAP AS A PERCENTAGE
OF TOTAL INTEREST-EARNING ASSETS -5.21% 12.93% 5.98% 13.61% 16.47% --
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Management considers interest-bearing checking accounts and savings accounts
to be core deposits; 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.
</TABLE>
27
<PAGE> 171
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 12.93% 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.
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 interest-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, 1995, the Corporation's equity
capital was $136.4 million, an increase of 19.5% over the equity capital at
December 31, 1994. Exclusive of the unrealized gain or loss on
available-for-sale securities, equity capital increased 8.9% in 1995 compared to
1994.
Financial institution regulators have established guidelines for minimum
capital ratios for banks, thrifts and bank holding companies. In 1990, the
banking industry began to phase in new capital requirements based on
"risk-based" assets. 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, 1995. At
year-end 1995, the Corporation had a risk-based capital ratio of 14.61% or
capital above the minimum required by $63.9 million. The capital standard of
tier l capital to risk-based assets is 4% at December 31, 1995. Tier l capital
includes stockholders' equity net of goodwill and any other intangible assets.
At year-end 1995, the Corporation had a tier l capital to risk-based assets
ratio of 13.35% or capital above the minimum required by $90.3 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 1995 the
Corporation had a leverage capital ratio of 8.91% or capital above the minimum
required by $71.0 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, 1995. The table below
indicates the capital ratios for each subsidiary at December 31, 1995:
TABLE 12 - CAPITAL RATIOS FOR EACH SUBSIDIARY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TIER I TOTAL
DECEMBER 31 LEVERAGE RISK-BASED RISK-BASED
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Park National Bank 7.39% 10.82% 12.09%
- --------------------------------------------------------------------------------
Richland Trust Company 7.47% 11.40% 12.66%
- --------------------------------------------------------------------------------
Mutual Federal Savings Bank 7.42% 12.17% 13.43%
- --------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 172
<TABLE>
RISK BASED CAPITAL RATIOS
DECEMBER 31, 1995
LEVERAGE TIER 1 TOTAL
-------- ------ -----
<S> <C> <C> <C>
PARK
WELL CAPITALIZED
REGULATORY MINIMUM
</TABLE>
AVERAGE STOCKHOLDERS' EQUITY
(MILLIONS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1991 $ 78.7
1992 $ 88.6
1993 $100.1
1994 $110.7
1995 $125.0
</TABLE>
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 effect on internal equity growth is other expenses, which tend to
rise during periods of inflation.
Management believes the most significant effect of inflation on financial
results is the Corporation's ability to align its asset/liability management
program to react to changes in interest rates.
29
<PAGE> 173
The following table summarizes five year financial information:
TABLE 13 - CONSOLIDATED FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 1994 1993 1992 1991
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income $ 113,200 $ 94,817 $ 90,384 $ 95,811 $ 106,612
- -----------------------------------------------------------------------------------------------------------------------
Interest expense 46,848 35,164 33,823 41,627 56,411
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 66,352 59,653 56,561 54,184 50,201
- -----------------------------------------------------------------------------------------------------------------------
Noninterest income 12,922 9,036 10,910 9,636 8,284
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense 41,643 37,867 39,132 36,697 34,497
- -----------------------------------------------------------------------------------------------------------------------
Provision for losses 4,664 1,840 2,810 3,704 3,895
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary item and
cumulative effect of a change in
accounting principle 22,120 20,017 17,545 16,148 14,614
- -----------------------------------------------------------------------------------------------------------------------
Net income 22,120 20,017 19,045 16,520 15,090
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE:
Income before extraordinary item and
cumulative effect of a change in
accounting principle $ 3.09 $ 2.80 $ 2.48 $ 2.28 $ 2.07
- -----------------------------------------------------------------------------------------------------------------------
Net income 3.09 2.80 2.69 2.33 2.13
- -----------------------------------------------------------------------------------------------------------------------
Cash dividends declared 1.25 0.98 1.05 0.88 0.77
- -----------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Loans, net $ 980,828 $ 901,029 $ 809,245 $ 741,954 $ 716,308
- -----------------------------------------------------------------------------------------------------------------------
Investment securities 288,810 298,999 330,736 340,578 291,774
- -----------------------------------------------------------------------------------------------------------------------
Money market instruments and other 13,257 6,236 11,500 34,206 43,908
- -----------------------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 1,282,895 1,206,264 1,151,481 1,116,738 1,051,990
- -----------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 149,383 141,786 129,621 115,751 102,499
- -----------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits 973,676 930,902 903,866 896,789 876,707
- -----------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,123,059 1,072,688 1,033,507 1,012,540 979,206
- -----------------------------------------------------------------------------------------------------------------------
Short-term borrowings 132,839 121,678 102,304 85,139 57,722
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt -- -- -- 5,160 8,116
- -----------------------------------------------------------------------------------------------------------------------
Stockholders' equity 125,042 110,741 100,081 88,629 78,700
- -----------------------------------------------------------------------------------------------------------------------
Total assets 1,396,222 1,316,620 1,246,903 1,202,449 1,134,898
- -----------------------------------------------------------------------------------------------------------------------
RATIOS:
Return on average assets 1.58% 1.52% 1.53% 1.37% 1.33%
- -----------------------------------------------------------------------------------------------------------------------
Return on average equity 17.69% 18.08% 19.03% 18.64% 19.17%
- -----------------------------------------------------------------------------------------------------------------------
Net interest margin (1) 5.22% 5.01% 5.00% 4.98% 4.89%
- -----------------------------------------------------------------------------------------------------------------------
Noninterest expense to net revenue (1) 52.17% 54.51% 57.10% 56.21% 57.28%
- -----------------------------------------------------------------------------------------------------------------------
Dividend payout ratio 40.46% 35.08% 39.03% 37.55% 36.03%
- -----------------------------------------------------------------------------------------------------------------------
Average stockholders' equity to
average total assets 8.96% 8.41% 8.03% 7.37% 6.93%
- -----------------------------------------------------------------------------------------------------------------------
Leveraged capital 8.91% 8.80% 8.08% 7.25% 6.52%
- -----------------------------------------------------------------------------------------------------------------------
Tier 1 capital 13.35% 13.19% 13.24% 12.17% 11.05%
- -----------------------------------------------------------------------------------------------------------------------
Risk based capital 14.61% 14.45% 14.51% 13.44% 12.55%
- -----------------------------------------------------------------------------------------------------------------------
<FN>
(1)Computed on a fully taxable equivalent basis
</TABLE>
30
<PAGE> 174
The following table is a summary of selected quarterly results of
operations for the years ended December 31, 1995 and 1994. Certain quarterly
amounts have been reclassified to conform to the year-end financial statement
presentation and share data has been restated to reflect the stock
split.
TABLE 14 - QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
- --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- --------------------------------------------------------------------------------------------------------------
1995:
<S> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------------------------
1994:
Interest income $ 22,164 $ 22,990 $ 24,298 $ 25,365
- --------------------------------------------------------------------------------------------------------------
Interest expense 8,194 8,376 9,008 9,586
- --------------------------------------------------------------------------------------------------------------
Net interest income 13,970 14,614 15,290 15,779
- --------------------------------------------------------------------------------------------------------------
Provision for loan losses 400 290 260 890
- --------------------------------------------------------------------------------------------------------------
Loss on the sale of securities (233) (857) (620) (1,596)
- --------------------------------------------------------------------------------------------------------------
Income before income taxes 6,915 7,563 8,028 6,476
- --------------------------------------------------------------------------------------------------------------
Net income 4,702 5,162 5,418 4,735
- --------------------------------------------------------------------------------------------------------------
Per share data:
Net income 0.67 0.72 0.75 0.66
- --------------------------------------------------------------------------------------------------------------
Weighted average common stock equivalent 7,085,088 7,154,796 7,189,650 7,189,650
- --------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 175
The Corporation's common stock (symbol:PRK) is traded on the American
Stock Exchange (AMEX). At December 31, 1995, the Corporation had 1,352
stockholders of record. The following table sets forth the high, low and closing
sale prices of, and dividends d eclared on the common stock for each quarterly
period for the years ended December 31, 1995 and 1994, as reported by AMEX since
May 1994, and by NASDAQ for the remainder of 1994. Per share data has been
restated to reflect the two-for-one stock split in August, 1994.
TABLE 15 - MARKET AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
CASH
DIVIDEND
LAST DECLARED
HIGH LOW PRICE PER SHARE
- --------------------------------------------------------------------
1995:
<S> <C> <C> <C> <C>
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
- --------------------------------------------------------------------
1994:
First Quarter $38 1/2 $35 1/2 $37 1/2 $ 0.225
- --------------------------------------------------------------------
Second Quarter $37 1/2 $34 9/16 $34 9/16 $ 0.225
- --------------------------------------------------------------------
Third Quarter $40 $34 9/16 $40 0.23
- --------------------------------------------------------------------
Fourth Quarter $42 1/2 $38 7/8 $42 1/2 0.30
- --------------------------------------------------------------------
</TABLE>
TEN-YEAR RETURN TO STOCKHOLDERS (DECEMBER 31, 1985 - DECEMBER 31, 1995)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
85 86 87 88 89 90 91 92 93 94 95
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
(ASSUMES INITIAL INVESTMENT OF $ 1,000 WITH NO ACCUMULATION OR REINVESTMENT OF
DIVIDENDS)
32
<PAGE> 176
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 850
Newark, Ohio 43058-0850
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
Cranford, New Jersey 07016
800/368-5948
FORM 10-K:
Copies of Park National Corporation's Form 10-K for 1995, including
financial statements and inserts, may be obtained by contacting the
Secretary as indicated above.
INTERNET ADDRESS:
http://www.parknationalbank.com
E-MAIL:
[email protected]
33
<PAGE> 177
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ASSETS
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 92,752 $ 64,116
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES:
Securities available-for-sale, at fair value
(amortized cost of $308,298 and $258,808 at
December 31, 1995 and 1994) 317,414 250,017
- --------------------------------------------------------------------------------
Securities held-to-maturity, at amortized
cost (fair value approximates $11,917 and
$27,205 at December 31, 1995 and 1994) 11,316 27,801
- --------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 328,730 277,818
- --------------------------------------------------------------------------------
Loans 1,036,274 993,577
- --------------------------------------------------------------------------------
Unearned loan interest (11,547) (12,437)
- --------------------------------------------------------------------------------
TOTAL LOANS 1,024,727 981,140
- --------------------------------------------------------------------------------
Allowance for possible loan losses (25,073) (21,562)
- --------------------------------------------------------------------------------
LOANS, NET 999,654 959,578
- --------------------------------------------------------------------------------
OTHER ASSETS:
Premises and equipment, net 17,161 17,097
- --------------------------------------------------------------------------------
Accrued interest receivable 9,114 8,015
- --------------------------------------------------------------------------------
Other 28,797 35,604
- --------------------------------------------------------------------------------
TOTAL OTHER ASSETS 55,072 60,716
- --------------------------------------------------------------------------------
TOTAL ASSETS $ 1,476,208 $ 1,362,228
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
34
<PAGE> 178
CONSOLIDATED BALANCE SHEET, CONTINUED
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
DEPOSITS:
Non-interest-bearing $ 190,014 $ 154,360
- --------------------------------------------------------------------------------------------
Interest-bearing 1,016,526 923,946
- --------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,206,540 1,078,306
- --------------------------------------------------------------------------------------------
Short-term borrowings 113,992 155,266
- --------------------------------------------------------------------------------------------
OTHER LIABILITIES:
Accrued interest payable 3,749 2,344
- --------------------------------------------------------------------------------------------
Other 15,503 12,153
- --------------------------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 19,252 14,497
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,339,784 1,248,069
- --------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 8 and 14)
STOCKHOLDERS' EQUITY:
Common stock, no par value (10,000,000 shares authorized;
7,222,610 shares issued in 1995 and 1994) 26,819 26,790
- --------------------------------------------------------------------------------------------
Unrealized holding gain/(loss) on
available-for-sale securities, net 5,926 (5,714)
- --------------------------------------------------------------------------------------------
Retained earnings 106,508 93,338
- --------------------------------------------------------------------------------------------
Less: Treasury stock (87,388 shares in 1995 and
32,960 shares in 1994) (2,829) (255)
- --------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 136,424 114,159
- --------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,476,208 $ 1,362,228
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
35
<PAGE> 179
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 92,872 $ 75,946 $ 70,515
- ----------------------------------------------------------------------------------------
Interest and dividends on:
Obligations of U.S. Government,
its agencies and other securities 18,905 17,434 18,881
- ----------------------------------------------------------------------------------------
Obligations of states and political
subdivisions 642 1,065 321
- ----------------------------------------------------------------------------------------
Other interest income 781 372 667
- ----------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 113,200 94,817 90,384
- ----------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand and savings deposits 12,809 13,808 13,130
- ----------------------------------------------------------------------------------------
Time deposits 27,256 16,969 17,930
- ----------------------------------------------------------------------------------------
Interest on short-term borrowings 6,783 4,387 2,763
- ----------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 46,848 35,164 33,823
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME 66,352 59,653 56,561
- ----------------------------------------------------------------------------------------
Provision for loan losses 4,664 1,840 2,810
- ----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 61,688 57,813 53,751
- ----------------------------------------------------------------------------------------
OTHER INCOME:
Income from fiduciary activities 2,881 2,375 2,289
- ----------------------------------------------------------------------------------------
Service charges on deposit accounts 4,188 4,449 4,013
- ----------------------------------------------------------------------------------------
Loss on sales of securities (614) (3,306) (307)
- ----------------------------------------------------------------------------------------
Other service income 2,220 2,129 3,230
- ----------------------------------------------------------------------------------------
Other 4,247 3,389 1,685
- ----------------------------------------------------------------------------------------
TOTAL OTHER INCOME $ 12,922 $ 9,036 $ 10,910
- ----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
36
<PAGE> 180
CONSOLIDATED STATEMENT OF INCOME, continued
- --------------------------------------------------------------------------------
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER EXPENSE:
Salaries and employee benefits $ 20,395 $18,745 $ 17,527
- ----------------------------------------------------------------------------------------------
Data processing 3,072 2,636 2,436
- ----------------------------------------------------------------------------------------------
Fees and service charges 2,242 2,229 2,021
- ----------------------------------------------------------------------------------------------
Net occupancy expense of premises 2,012 1,986 1,917
- ----------------------------------------------------------------------------------------------
Amortization of intangibles 363 571 2,387
- ----------------------------------------------------------------------------------------------
Furniture and equipment expense 2,056 1,838 1,756
- ----------------------------------------------------------------------------------------------
Insurance 1,882 2,713 2,577
- ----------------------------------------------------------------------------------------------
Marketing 1,409 1,275 1,303
- ----------------------------------------------------------------------------------------------
Postage and telephone 1,846 1,643 1,587
- ----------------------------------------------------------------------------------------------
State taxes 1,468 1,379 1,087
- ----------------------------------------------------------------------------------------------
Other 4,898 2,852 4,534
- ----------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE 41,643 37,867 39,132
- ----------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL IN TAXES
AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 32,967 28,982 25,529
- ----------------------------------------------------------------------------------------------
Federal income taxes 10,847 8,965 7,984
- ----------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 22,120 20,017 17,545
- ----------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle - income taxes -- -- 1,500
- ----------------------------------------------------------------------------------------------
NET INCOME $ 22,120 $20,017 $ 19,045
- ----------------------------------------------------------------------------------------------
NET INCOME PER SHARE:
Income before cumulative effect of
a change in accounting principle $ 3.09 $ 2.80 $ 2.69
- ----------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle -- -- 0.21
- ----------------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 3.09 $ 2.80 2.69
- ----------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,165,930 7,154,796 7,085,088
- ----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
37
<PAGE> 181
CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Holding
Gain/(Loss)
Common Stock on Available-
--------------------- for-Sale Treasury Stock
Shares Securities, Retained -------------------
Issued Amount Net Earnings Shares Amount Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1993 7,118,048 $ 25,420 -- $ 68,738 32,960 $ (255) $ 93,903
- ------------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- 19,045 -- -- 19,045
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends:
Corporation at $1.05 per share -- -- -- (7,440) -- -- (7,440)
- ------------------------------------------------------------------------------------------------------------------------------------
Adjustment to reflect
unrealized net
holding gain on
available-for-sale
Securities at
December 31, 1993 -- -- $ 3,422 -- -- -- 3,422
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
38
<PAGE> 182
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
for the years ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 22,120 $20,017 $19,045
- -----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Accretion of discount on loans purchased -- -- (1,806)
- -----------------------------------------------------------------------------------------------------------
Provision for loan losses 4,664 1,840 2,810
- -----------------------------------------------------------------------------------------------------------
Amortization of loan costs and fees, net (124) 164 690
- -----------------------------------------------------------------------------------------------------------
Provision for depreciation and amortization 1,925 1,700 1,478
- -----------------------------------------------------------------------------------------------------------
Amortization of the excess of cost over net
assets of affiliates purchased 363 571 2,385
- -----------------------------------------------------------------------------------------------------------
Accretion of investment security
discounts, net (1,083) 541 357
- -----------------------------------------------------------------------------------------------------------
Deferred income taxes (775) 371 (2,951)
- -----------------------------------------------------------------------------------------------------------
Realized investment security losses 614 3,306 307
- -----------------------------------------------------------------------------------------------------------
Change in assets and liabilities:
Increase in other assets (149) (1,328) (10,842)
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in other liabilities 4,417 2,942 (706)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,972 30,124 10,767
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of securities:
Held-for-sale -- -- 34,905
- -----------------------------------------------------------------------------------------------------------
Available-for-sale 31,363 131,314 --
- -----------------------------------------------------------------------------------------------------------
Proceeds from maturities of securities:
Held-to-maturity 2,923 11,960 87,745
- -----------------------------------------------------------------------------------------------------------
Held-for-sale -- -- 25,375
- -----------------------------------------------------------------------------------------------------------
Available-for-sale 40,264 107,527 --
- -----------------------------------------------------------------------------------------------------------
Purchases of securities:
Held-to-maturity (914) (15,043) (62,295)
- -----------------------------------------------------------------------------------------------------------
Held-for-sale -- -- (70,920)
- -----------------------------------------------------------------------------------------------------------
Available-for-sale (106,172) (201,938) --
- -----------------------------------------------------------------------------------------------------------
Net decrease in interest-bearing deposits
in banks -- 4,862 604
- -----------------------------------------------------------------------------------------------------------
Net increase in loans (44,616) (100,985) (78,298)
- -----------------------------------------------------------------------------------------------------------
Purchases of premises and equipment, net (1,989) (2,526) (1,745)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (79,141) (64,829) (64,629)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 128,234 19,878 26,088
- -----------------------------------------------------------------------------------------------------------
Net (decrease) increase in short-term borrowings (41,274) 37,008 11,823
- -----------------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (2,545) -- --
- -----------------------------------------------------------------------------------------------------------
Cash dividends paid (8,610) (8,054) (6,731)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 75,805 48,832 31,180
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 28,636 14,127 (22,682)
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 64,116 49,989 72,671
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 92,752 $ 64,116 $ 49,989
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
39
<PAGE> 183
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: Effective December 31, 1993, the Corporation adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). Under the provisions
of SFAS No. 115, investment securities should be 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, 1995 and 1994, the Corporation did not hold any trading
securities.
Prior to adoption of SFAS No. 115, securities purchased, where the
Corporation had both the intent and ability to hold for the foreseeable future,
were recorded at cost adjusted for accumulated amortization of premium and
accretion of discount. Securities purchased, which the Corporation intended to
sell prior to maturity, were classified as held for sale and recorded at the
lower of amortized cost or fair value.
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
los s is recognized. Maintenance and repairs are charged to expense as incurred
while renewals and improvements are capitalized.
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.
40
<PAGE> 184
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 carr ying 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 nonaccrual, 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.
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 ten 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. The balances are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------
Cash and due from banks $92,752 $64,116 $49,589
- ----------------------------------------------------------
Federal funds sold -- -- 400
- ----------------------------------------------------------
TOTAL $92,752 $64,116 $49,989
- ----------------------------------------------------------
</TABLE>
41
<PAGE> 185
Net cash provided by operating activities reflects cash payments as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
Interest paid on deposits and other borrowings $45,443 $35,111 $34,833
- ----------------------------------------------------------------------------------
Income taxes paid $ 8,700 $ 8,415 $11,479
- ----------------------------------------------------------------------------------
</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 bases 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.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
to current year financial statement presentation.
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.
ACCOUNTING CHANGES: The Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and For Long-Lived Assets to be Disposed Of" requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairments. The Statement prescribes when assets should be reviewed, how to
determine impairment and what financial disclosures are necessary.
Additionally, Statement of Financial Accounting Standards No. 122
"Accounting for Mortgage Servicing Rights" requires the recognition of rights to
service loans for others as separate assets, however those servicing rights are
acquired.
Both of the Statements are effective for 1996. The Corporation does not
expect the adoption of either of these pronouncements to have a material impact
on the financial statements.
2. ACQUISITION
- --------------------------------------------------------------------------------
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 ye ar financial statements have not
been restated.
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 $17,187,000 and $15,481,000 at December 31, 1995 and 1994,
respectively. No other compensating balance arrangements were in existence at
year end.
42
<PAGE> 186
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
AMORTIZED HOLDING HOLDING ESTIMATED
(IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------------------
1994:
SECURITIES AVAILABLE-FOR-SALE:
Obligations of U.S. Treasury and
other U.S. government agencies $109,330 $ 2 $ 1,823 $107,509
- --------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities 139,517 88 7,129 132,476
- --------------------------------------------------------------------------------------------
Other asset-backed securities 4,136 -- 11 4,125
- --------------------------------------------------------------------------------------------
Other equity securities 5,825 82 -- 5,907
- --------------------------------------------------------------------------------------------
Total Securities Available-for-Sale $258,808 $ 172 $ 8,963 $250,017
- --------------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of states and political
subdivisions $ 10,898 $ 435 $ 99 $ 11,234
- --------------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities 14,410 -- 832 13,578
- --------------------------------------------------------------------------------------------
Other asset-backed securities 1,554 3 103 1,454
- --------------------------------------------------------------------------------------------
Other securities 939 -- -- 939
- --------------------------------------------------------------------------------------------
Total Securities Held-to-Maturity $ 27,801 $ 438 $ 1,034 $ 27,205
- --------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 187
The amortized cost and estimated fair value of investments in debt
securities at Decembero 31, 1995 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:
One through five years $120,234 $126,010 3.2 years 7.27%
- -----------------------------------------------------------------------------------------
Five through ten years 30,000 31,046 9.4 years 7.64%
- -----------------------------------------------------------------------------------------
Total $150,234 $157,056 4.4 years 7.34%
- -----------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities:
Within one year $ 20,197 $ 20,159 0.4 years 5.59%
- -----------------------------------------------------------------------------------------
One through five years 119,815 121,950 2.8 years 6.51%
- -----------------------------------------------------------------------------------------
Five through ten years 8,480 8,571 6.9 years 6.45%
- -----------------------------------------------------------------------------------------
Total $148,492 $150,680 2.7 years 6.38%
- -----------------------------------------------------------------------------------------
Other asset-backed securities:
One through five years $ 2,845 $ 2,854 3.1 years 7.44%
- -----------------------------------------------------------------------------------------
Five through ten years 12 12 8.5 years 6.49%
- -----------------------------------------------------------------------------------------
Total $ 2,857 $ 2,866 3.1 years 7.44%
- -----------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY:
Obligations of state and political
subdivisions:
Within one year $ 1,018 $ 1,021 0.7 years 4.16%
- -----------------------------------------------------------------------------------------
One through five years 5,353 5,656 3.2 years 5.58%
- -----------------------------------------------------------------------------------------
Five through ten years 3,195 3,501 6.6 years 6.83%
- -----------------------------------------------------------------------------------------
Total $ 9,566 $ 10,178 4.1 years 5.85%
- -----------------------------------------------------------------------------------------
Other asset-backed securities:
Within one year $ 154 $ 155 0.3 years 9.72%
- -----------------------------------------------------------------------------------------
One through five years 889 877 3.3 years 6.03%
- -----------------------------------------------------------------------------------------
Total $ 1,043 $ 1,032 2.9 years 6.57%
- -----------------------------------------------------------------------------------------
Other securities:
Within one year $ 697 $ 697 0.2 years 6.53%
- -----------------------------------------------------------------------------------------
One through five years 10 10 1.2 years 5.50%
- -----------------------------------------------------------------------------------------
Total $ 707 $ 707 0.2 years 6.52%
- -----------------------------------------------------------------------------------------
</TABLE>
Investment securities having a book value of $248,147,000 and $195,689,000
at December 31, 1995 and 1994, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold.
44
<PAGE> 188
Gross losses of approximately $614,000 were recognized during 1995 on sales
of available-for-sale securities. There were no gross gains from the sale of
securities in 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. Gross gains and losses of approximately $89,000
and $396,000, respectively, were recognized during 1993 on sales of
held-for-sale securities. Tax benefits related to securities losses were
$215,000 in 1995, $1,157,000 in 1994, and $107,000 in 1993.
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, 1995.
As discussed in Note 1, the Corporation adopted SFAS No. 115 as of December
31, 1993, and investment securities were classified based on the Corporation's
current intent. The impact of adopting the new standard resulted in an increase
in the carrying value of investments by $5,264,000 to reflect the unrealized
holding gain at December 31, 1993 for securities classified as
available-for-sale. Additionally, stockholders' equity was increased by
$3,422,000 to reflect the unrealized holding gain as a separate component of
stockholders' equity, net of taxes. SFAS No. 115 had no impact on earnings for
the year ended December 31, 1993.
5. LOANS
- --------------------------------------------------------------------------------
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 118,225 $ 104,559
- --------------------------------------------------------------------------------
Real estate - construction 40,871 34,880
- --------------------------------------------------------------------------------
Real estate - residential 444,005 430,483
- --------------------------------------------------------------------------------
Real estate - commercial 191,127 181,703
- --------------------------------------------------------------------------------
Consumer, net 209,481 209,141
- --------------------------------------------------------------------------------
Leases, net 21,018 20,374
- --------------------------------------------------------------------------------
TOTAL $ 1,024,727 $ 981,140
- --------------------------------------------------------------------------------
</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 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) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans:
- --------------------------------------------------------------------------------
Non-accrual $ 717 $ 939
- --------------------------------------------------------------------------------
Restructured 1,403 480
- --------------------------------------------------------------------------------
Total impaired loans 2,120 1,419
- --------------------------------------------------------------------------------
Other non-accrual loans 1,511 933
- --------------------------------------------------------------------------------
TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $ 3,631 $ 2,352
- --------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 189
The allowance for credit losses related to impaired loans at December 31,
1995 and 1994 was $318,000 and $213,000, respectively. All impaired loans for
both periods were subject to a related allowance for credit losses.
The average balance of impaired loans was $2,624,000 for 1995 and
$1,329,000 for 1994.
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 year ended December 31, 1995, the Corporation recognized
$279,000 of interest income on impaired loans, which included $276,000 of
interest income recognized using the cash basis method of income recognition.
Certain of the Corporation's executive officers, directors and their
affiliates are loan customers of the Corporation's banking subsidiaries. As of
December 31, 1995 and 1994, loans aggregating approximately $24,805,000 and
$18,437,000, respectively, were outstanding to such parties. During 1995, new
loans aggregating $27,177,000 and amounts collected of $20,809,000 were
transacted with such parties.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
- --------------------------------------------------------------------------------
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 21,562 $20,178 $ 18,402
- --------------------------------------------------------------------------------
Provision for loan losses 4,664 1,840 2,810
- --------------------------------------------------------------------------------
Losses charged to the reserve (2,413) (2,430) (2,730)
- --------------------------------------------------------------------------------
Recoveries 1,260 1,974 1,696
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $ 25,073 $21,562 $ 20,178
- --------------------------------------------------------------------------------
</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) 1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------
Total minimum payments to be received $25,049 $24,503
- --------------------------------------------------------------------------------
Estimated unguaranteed residual value of leased property 13 50
- --------------------------------------------------------------------------------
Less: Unearned income (4,044) (4,179)
- --------------------------------------------------------------------------------
TOTAL $21,018 $20,374
- --------------------------------------------------------------------------------
</TABLE>
Minimum lease payments to be received as of December 31, 1995 are:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 7,078
- --------------------------------------------------------------------------------
1997 6,105
- --------------------------------------------------------------------------------
1998 5,075
- --------------------------------------------------------------------------------
1999 3,283
- --------------------------------------------------------------------------------
2000 3,508
- --------------------------------------------------------------------------------
TOTAL $25,049
- --------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 190
8. PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
The major categories of premises and equipment and accumulated depreciation are
summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 4,543 $ 4,033
- --------------------------------------------------------------------------------
Buildings 15,639 15,172
- --------------------------------------------------------------------------------
Equipment, furniture and fixtures 14,106 13,296
- --------------------------------------------------------------------------------
Leasehold improvements 780 768
- --------------------------------------------------------------------------------
TOTAL 35,068 33,269
- --------------------------------------------------------------------------------
Less: Accumulated depreciation and amortization (17,907) (16,172)
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT, NET $ 17,161 $17,097
- --------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense amounted to $1,925,000, $1,700,000
and $1,478,000 for the three years ended December 31,1995, respectively.
The Corporation and its subsidiaries lease certain premises and equipment
accounted for as operating leases. The following is a schedule of the future
minimum rental payments required for the next five years under such leases with
initial terms in exces s of one year for the year ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS)
- --------------------------------------------------------------------------------
<S> <C>
1996 $ 326
- --------------------------------------------------------------------------------
1997 305
- --------------------------------------------------------------------------------
1998 300
- --------------------------------------------------------------------------------
1999 305
- --------------------------------------------------------------------------------
2000 224
- --------------------------------------------------------------------------------
Thereafter 670
- --------------------------------------------------------------------------------
TOTAL $2,130
- --------------------------------------------------------------------------------
</TABLE>
Rent expense amounted to $382,000, $296,000 and $361,000 for the three
years ended December 31, 1995, respectively.
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. 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
OUTSTANDING
NUMBER -----------
OF SHARES AVERAGE
AVAILABLE NUMBER PRICE PER
FOR GRANT OF SHARES SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
April 17, 1995 200,000 -- --
- --------------------------------------------------------------------------------
Granted (43,550) 43,550 $47.68
- --------------------------------------------------------------------------------
Exercised -- (3,550) $47.75
- --------------------------------------------------------------------------------
DECEMBER 31, 1995 156,450 40,000 $47.67
- --------------------------------------------------------------------------------
EXERCISABLE AT DECEMBER 31, 1995 -- 36,450 $47.75
- --------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 191
The Corporation accounts for stock options in accordance with the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", (APB No. 25). The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 123, " Accounting for
Stock-Based Compensation," (SFAS No. 123). SFAS No. 123 is effective for fiscal
years beginning after December 15, 1995 and establishes a fair value method of
accounting for stock-based compensation plans . SFAS No. 123 allows companies
the choice of either changing their accounting method to SFAS No. 123 or
providing supplemental pro forma disclosures beginning in 1996 and continuing to
account for stock-based compensation plans under the provisions of APB No. 25.
The Corporation will continue to follow the provisions of APB No. 25.
10. SHORT-TERM BORROWINGS
- --------------------------------------------------------------------------------
Short-term borrowings are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
Securities sold under agreements to repurchase
and federal funds purchased $102,651 $141,475
- ------------------------------------------------------------------------
Federal home loan bank advances 10,000 10,000
- ------------------------------------------------------------------------
Other short-term borrowings 1,341 3,791
- ------------------------------------------------------------------------
TOTAL SHORT-TERM BORROWINGS $113,992 $155,266
- ------------------------------------------------------------------------
</TABLE>
The outstanding balances for all short-term borrowings as of December 31,
1995, 1994 and 1993 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 DUE
DECEMBER 31, (IN THOUSANDS) AND FEDERAL HOME LOAN U.S. TREASURY
FUNDS PURCHASED BANK ADVANCES AND OTHER
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
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%
- ----------------------------------------------------------------------------
1993:
Ending balance $102,463 $-- $ 2,695
- ----------------------------------------------------------------------------
Highest month-end balance 116,935 6,500 2,803
- ----------------------------------------------------------------------------
Average daily balance 99,466 1,031 1,807
- ----------------------------------------------------------------------------
Weighted average interest rate:
As of year-end 2.26% -- 2.73%
- ----------------------------------------------------------------------------
Paid during the year 2.71% 3.87% 2.23%
- ----------------------------------------------------------------------------
</TABLE>
48
<PAGE> 192
11 FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
The Corporation adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" as of January 1, 1993. The cumulative effect of
adopting this change in accounting for income taxes was an increase in net
income of $1.5 million or $.21 per share and is reported separately in the
consolidated statement of income for the year ended December 31, 1993. The
effect on income before the cumulative effect of the accounting change for the
year ended December 31, 1993 was not material.
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) 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 8,775 $ 7,547
- ----------------------------------------------------------------------
Unrealized holding loss on securities -- 3,077
- ----------------------------------------------------------------------
Deferred loan fees 455 603
- ----------------------------------------------------------------------
Deferred compensation 494 455
- ----------------------------------------------------------------------
Other 1,883 1,799
- ----------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS $11,607 $13,481
- ----------------------------------------------------------------------
Deferred tax liabilities:
Lease revenue reporting $ 2,681 $ 2,631
- ----------------------------------------------------------------------
Unrealized holding gain on securities 3,191 --
- ----------------------------------------------------------------------
Fixed assets, principally due to depreciation 696 804
- ----------------------------------------------------------------------
Other 3,051 1,995
- ----------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES $ 9,619 $ 5,430
- ----------------------------------------------------------------------
DEFERRED TAX ASSETS, NET $ 1,988 $ 8,051
- ----------------------------------------------------------------------
</TABLE>
The components of the provision for federal income taxes are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable $ 11,622 $ 8,594 $ 9,435
- ------------------------------------------------------------------
Deferred (775) 371 (1,451)
- ------------------------------------------------------------------
TOTAL $ 10,847 $ 8,965 $ 7,984
- ------------------------------------------------------------------
</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,
1995, 1994 and 1993.
<TABLE>
<CAPTION>
- --------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- --------------------------------------------------------------
<S> <C> <C> <C>
Statutory corporate tax rate 35.0% 35.0% 35.0%
- --------------------------------------------------------------
Changes in rate resulting from:
Tax-exempt interest income -1.2% -1.8% -2.8%
- --------------------------------------------------------------
Other -0.9% -2.3% -0.9%
- --------------------------------------------------------------
EFFECTIVE TAX RATE 32.9% 30.9% 31.3%
- --------------------------------------------------------------
</TABLE>
49
<PAGE> 193
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) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 599 $ 651 $ 468
- -------------------------------------------------------------------------------
Interest cost on projected benefit obligation 566 530 450
- -------------------------------------------------------------------------------
Actual return on plan assets (1,843) (221) (200)
- -------------------------------------------------------------------------------
Net amortization and deferral 1,201 (369) (425)
- -------------------------------------------------------------------------------
PENSION COST, NET $ 523 $ 591 $ 293
- -------------------------------------------------------------------------------
</TABLE>
The funded status of the plan and the accrued pension cost were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 6,012 $ 5,370 $ 5,156
- ----------------------------------------------------------------------------------------
Nonvested benefits 118 111 121
- ----------------------------------------------------------------------------------------
ACCUMULATED BENEFIT OBLIGATION 6,130 5,481 5,277
- ----------------------------------------------------------------------------------------
Impact of projected future salary increases 2,603 2,221 2,332
- ----------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION 8,733 7,702 7,609
- ----------------------------------------------------------------------------------------
Plan assets at fair value 9,549 7,265 7,426
- ----------------------------------------------------------------------------------------
PLAN ASSETS IN EXCESS OF/(LESSTHAN PROJECTED
BENEFIT OBLIGATION 816 (437) (183)
- ----------------------------------------------------------------------------------------
Items not yet recognized in income:
Unrecognized net (gain)/loss from past experience
different from that assumed and effects of
changes in assumptions (643) 330 704
- ----------------------------------------------------------------------------------------
Unrecognized prior service cost (208) (256) (278)
- ----------------------------------------------------------------------------------------
Initial transition asset which is being amortized
over 15.8 years (107) (123) (138)
- ----------------------------------------------------------------------------------------
(ACCRUED)/PREPAID PENSION COST INCLUDED
IN CONSOLIDATED BALANCE SHEET $ (142) $ (486) $ 105
- ----------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 194
The Corporation contributed approximately $867,000, $0 and $928,000 to the
plan in 1995, 1994 and 1993, respectively.
The assumptions used in determining pension expense and funded status
information presented above were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- ----------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 7.50% 7.50% 7.00%
- ----------------------------------------------------------------
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 $380,000, $286,000 and $365,000 for 1995, 1994
and 1993, 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, 1995, approximately $21,422,000 of the total stockholders' equity
of the bank and th rift 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) 1995 1994
- ---------------------------------------------------
<S> <C> <C>
Loan commitments $151,665 $137,041
- ---------------------------------------------------
Unused credit card limits 67,668 69,492
- ---------------------------------------------------
Standby letters of credit 5,741 3,844
- ---------------------------------------------------
</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. During 1993 the Corporation recorded
a mark-to-market adjustment of $104,000 on the unmatched portion of the swaps.
Net interest expense resulting from these swaps was $18,000 and $1,302,000 in
1994 and 1993, respectively, and is shown as a reduction in interest income on
tax-exempt securities in the consolidated statement of income.
51
<PAGE> 195
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 and net interest income was $47,000
in 1993. 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 bank 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, 1995 and 1994 is as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1995 1994
-----------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) Carrying Fair Carrying Fair
Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and federal funds sold $ 92,752 $ 92,752 $ 64,116 64,116
- ------------------------------------------------------------------------------------------------------------
Investment securities 328,730 329,331 277,818 277,222
- ------------------------------------------------------------------------------------------------------------
Loans:
Commercial, financial and agricultural 118,225 118,225 104,559 104,559
- ------------------------------------------------------------------------------------------------------------
Real estate - construction 40,871 40,871 34,880 34,880
- ------------------------------------------------------------------------------------------------------------
Real estate - residential 444,005 452,345 430,483 424,585
- ------------------------------------------------------------------------------------------------------------
Real estate - commercial 191,127 190,803 181,703 180,456
- ------------------------------------------------------------------------------------------------------------
Consumer, net 209,481 211,199 209,141 209,566
- ------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,003,709 1,013,443 960,766 954,046
- ------------------------------------------------------------------------------------------------------------
Allowance for loan losses (25,073) -- (21,562) --
- ------------------------------------------------------------------------------------------------------------
LOANS RECEIVABLE, NET $ 978,636 $ 1,013,443 $ 939,204 $ 954,046
- ------------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Non interest-bearing checking $ 190,014 $ 190,014 $ 154,360 154,360
- ------------------------------------------------------------------------------------------------------------
Interest-bearing checking 141,214 141,214 130,335 130,335
- ------------------------------------------------------------------------------------------------------------
Savings accounts 236,950 236,950 271,348 271,348
- ------------------------------------------------------------------------------------------------------------
Money market accounts 83,873 83,873 101,277 101,277
- ------------------------------------------------------------------------------------------------------------
Time deposits 552,866 557,308 419,402 421,764
- ------------------------------------------------------------------------------------------------------------
Other 1,623 1,623 1,584 1,584
- ------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,206,540 1,210,982 1,078,306 1,080,668
- ------------------------------------------------------------------------------------------------------------
Short-term borrowings 113,992 113,992 155,266 155,266
- ------------------------------------------------------------------------------------------------------------
UNRECOGNIZED FINANCIAL INSTRUMENTS:
Loan commitments $ -- $ (152) $ -- $ 137)
- ------------------------------------------------------------------------------------------------------------
Standby letters of credit -- (29) -- (19)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 196
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 to reflect the two-for-one stock
split.
17. 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
interest on long-term debt and income taxes is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
DECEMBER 31, (IN THOUSANDS) 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Interest paid -- -- $ 69
- -----------------------------------------------------------------
Income taxes paid $(873) $ (23) $ (36)
- -----------------------------------------------------------------
</TABLE>
At December 31, 1995 and 1994, stockholders' equity reflected in the Parent
Company balance sheet includes $40.6 million and $37.1 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, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash $ 13,224 $ 3,545
- --------------------------------------------------------------------------------------
Investment in subsidiaries 116,388 103,707
- --------------------------------------------------------------------------------------
Excess of cost over net assets of affiliates purchased, net 1,598 1,858
- --------------------------------------------------------------------------------------
Dividends receivable from subsidiaries 7,500 6,510
- --------------------------------------------------------------------------------------
Other assets 587 661
- --------------------------------------------------------------------------------------
TOTAL ASSETS $139,297 $116,281
- --------------------------------------------------------------------------------------
Liabilities:
Other liabilities $ 2,873 $ 2,122
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,873 2,122
- --------------------------------------------------------------------------------------
Stockholders' equity:
TOTAL STOCKHOLDERS' EQUITY 136,424 114,159
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $139,297 $116,281
- --------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 197
17. PARENT COMPANY STATEMENTS, continued
- --------------------------------------------------------------------------------
STATEMENT OF INCOME
for the years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
DIVIDENDS FROM SUBSIDIARIES $ 21,500 $ 8,680 $ 9,900
- ----------------------------------------------------------------------------------------
Expense:
Amortization of intangibles 259 259 259
- ----------------------------------------------------------------------------------------
Other, net 687 363 162
- ----------------------------------------------------------------------------------------
TOTAL EXPENSES 946 622 421
- ----------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL TAXES, EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARIES
AND CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 20,554 8,058 9,479
- ----------------------------------------------------------------------------------------
Federal income (benefit) tax (525) (403) (105)
- ----------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 21,079 8,461 9,584
- ----------------------------------------------------------------------------------------
Equity in undistributed earnings of subsidiaries 1,041 11,556 9,236
- ----------------------------------------------------------------------------------------
NET INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 22,120 20,017 18,820
- ----------------------------------------------------------------------------------------
Cumulative change in accounting principle -- -- 225
- ----------------------------------------------------------------------------------------
NET INCOME $ 22,120 $20,017 $ 19,045
- ----------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 198
17. PARENT COMPANY STATEMENTS, continued
- --------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 22,120 $20,017 $ 19,045
- --------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization 259 259 259
- --------------------------------------------------------------------------------------------------
Undistributed earnings of subsidiaries (1,041) (11,556) (9,236)
- --------------------------------------------------------------------------------------------------
Increase in dividends receivable from subsidiaries (990) (1,710) (580)
- --------------------------------------------------------------------------------------------------
Decrease (increase) in other assets 105 (272) (278)
- --------------------------------------------------------------------------------------------------
Increase (decrease) in other liabilities 411 (631) (151)
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 20,864 6,107 9,059
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of investment securities (30) -- --
- --------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (30) -- --
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Cash dividends paid (8,610) (8,054) (6,731)
- --------------------------------------------------------------------------------------------------
Purchase of treasury stock, net (2,545) -- --
- --------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (11,155) (8,054) (6,731)
- --------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 9,679 (1,947) 2,328
- --------------------------------------------------------------------------------------------------
Cash at beginning of year 3,545 5,492 3,164
- --------------------------------------------------------------------------------------------------
CASH AT END OF YEAR $13,224 $ 3,545 $ 5,492
- --------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 199
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, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the year s then ended. 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. The consolidated
financial statements of Park National Corpo ration and Subsidiaries for the year
ended December 31, 1993, were audited by other auditors whose report dated
January 18, 1994 expressed an unqualified opinion on those statements.
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 1995 and 1994 financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Park National Corporation and Subsidiaries at December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ ERNST AND YOUNG LLP
Columbus, Ohio
January 16, 1996
56
<PAGE> 200
APPENDIX C
QUARTERLY REPORT ON FORM 10-Q
FOR FISCAL QUARTER ENDED
SEPTEMBER 30, 1996
OF
PARK NATIONAL CORPORATION
<PAGE> 201
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- ----------------------
Commission File Number 1-13006
---------------------------------------------------------
Park National Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1179518
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 North Third Street, Newark, Ohio 43055
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(614) 349-8451
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------- -----------
7,130,997 common shares, no par value per share, outstanding at
October 31, 1996.
Page 1 of 77
Exhibit Index at Page 19
<PAGE> 202
PARK NATIONAL CORPORATION
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION 3-8
Item 1. Financial Statements 3-8
Consolidated Balance Sheet as of
September 30, 1996 and December 31, 1995
(unaudited) 3
Consolidated Condensed Statement of
Income for the Three Months Ended
and for the Nine Months Ended September 30,
1996 and 1995 (unaudited) 4,5
Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 1996
and 1995 (unaudited) 6,7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 9-15
Condition and Results of Operations
PART II. OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
Exhibits 19-77
</TABLE>
2
<PAGE> 203
PARK NATIONAL CORPORATION
Consolidated Balance Sheet (Unaudited)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Sept. 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Assets:
Cash and due from banks $ 55,194 $ 92,752
Money market investments 35,500 0
Securities available-for-sale, at fair
value (amortized cost of $311,489
and $308,298 at September 30, 1996
and December 31, 1995) 313,853 317,414
Securities held-to-maturity, at amortized
cost (fair value approximates $12,116
and $11,917 at September 30, 1996
and December 31, 1995) 11,684 11,316
Loans (net of unearned interest) 1,064,022 1,024,727
Allowance for possible loan losses 27,212 25,073
Net loans 1,036,810 999,654
Bank premises and equipment, net 16,590 17,161
Other assets 41,575 37,911
----------- -----------
Total assets $ 1,511,206 $ 1,476,208
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing $ 160,749 $ 190,014
Interest-bearing 1,068,115 1,016,526
Total deposits 1,228,864 1,206,540
Short-term borrowings 121,386 113,992
Other liabilities 16,403 19,252
Total liabilities 1,366,653 1,339,784
Stockholders' Equity:
Common stock (No par value; 20,000,000
shares authorized in 1996 and
10,000,000 authorized in 1995;
7,222,610 shares issued in 1996
and 1995) 26,819 26,819
Unrealized holding gain on
available-for-sale securities, net 1,536 5,926
Retained earnings 119,248 106,508
Treasury stock (91,613 shares in 1996
and 87,388 shares in 1995) (3,050) (2,829)
Total stockholders' equity 144,553 136,424
----------- -----------
Total liabilities and
stockholders' equity $ 1,511,206 $ 1,476,208
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 204
PARK NATIONAL CORPORATION
Consolidated Condensed Statement of Income (Unaudited)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest Income:
Interest & fees on loans $24,669 $23,899 $72,726 $68,588
Interest on:
Obligations of U.S. Govt.,
its agencies & other
securities 5,378 4,922 15,951 13,724
Obligations of states &
political subdivisions 154 167 451 483
Other interest income 459 236 1,351 403
Total interest income 30,660 29,224 90,479 83,198
Interest expense:
Interest on deposits:
Demand & savings deposits 3,132 3,179 9,241 9,651
Time deposits 7,888 7,395 23,633 19,508
Non-deposit interest 1,269 1,732 3,821 5,173
Total interest expense 12,289 12,306 36,695 34,332
Net interest income 18,371 16,918 53,784 48,866
Provision for loan losses 1,005 1,540 3,015 3,450
Net interest income
after provision 17,366 15,378 50,769 45,416
</TABLE>
4
<PAGE> 205
PARK NATIONAL CORPORATION
Consolidated Condensed Statement of Income (Unaudited) - (Continued)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Other income $ 3,595 $ 3,233 $ 10,863 $ 9,797
Loss on sale of securities (157) 0 (852) (614)
Other expense:
Salaries & employee benefits 5,278 5,071 16,012 15,107
Occupancy 536 496 1,659 1,508
Furniture & equipment 547 519 1,668 1,562
Other expenses 3,542 3,538 11,498 11,503
Total other expense 9,903 9,624 30,837 29,680
Income before federal
income taxes 10,901 8,987 29,943 24,919
Federal income taxes 3,558 2,981 9,701 8,184
Net income $ 7,343 $ 6,006 $ 20,242 $ 16,735
========== ========== =========== ===========
Per Share:
Net income $ 1.03 $ 0.84 $ 2.84 $ 2.33
Weighted average common
shares outstanding 7,138,155 7,151,101 7,138,623 7,172,926
Cash dividends declared $ 0.35 $ 0.30 $ 1.05 $ 0.90
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE> 206
PARK NATIONAL CORPORATION
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 20,242 $ 16,735
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation, amortization & accretion 248 527
Provision for loan losses 3,015 3,450
Amortization of the excess of cost over
net assets of banks purchased 194 298
Realized investment security losses 852 614
Changes in assets & liabilities:
Increase in other assets (1,495) (2,076)
(Decrease) increase in
other liabilities (353) 1,833
Net cash provided by operating
activities 22,703 21,381
Investing activities:
Proceeds from sales of:
Available-for-sale securities 46,813 31,363
Proceeds from maturities of:
Available-for-sale securities 62,113 31,131
Held-to-maturity securities 1,207 1,172
Purchases of:
Available-for-sale securities (112,087) (85,935)
Held-to-maturity securities (1,575) (914)
Net increase in loans (39,778) (37,331)
Purchases of premises & equipment, net (952) (1,135)
Net cash used by investing activities (44,259) (61,649)
</TABLE>
6
<PAGE> 207
PARK NATIONAL CORPORATION
Consolidated Statement of Cash Flows (Unaudited) - (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
1996 1995
------- -------
<S> <C> <C>
Financing activities:
Net increase in deposits $ 22,324 $ 84,428
Increase (decrease) in
short-term borrowings 7,394 (24,769)
Purchase of treasury stock (221) (1,904)
Cash dividends paid (9,999) (8,610)
Net cash provided by
financing activities 19,498 49,145
(Decrease) increase in
cash and cash equivalents (2,058) 8 877
Cash & cash equivalents at beginning of year 92,752 64,116
Cash & cash equivalents
at end of period $ 90,694 $ 72,993
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 36,841 $ 33,160
Income taxes 10,900 5,800
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
7
<PAGE> 208
PARK NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Month Periods Ended September 30, 1996 & 1995.
Note 1 - Basis of Presentation
---------------------
The consolidated financial statements included in this report have been prepared
by Park National Corporation (the "Registrant", "Corporation", or "Park")
without audit. In the opinion of management, all adjustments (consisting solely
of normal recurring accruals) necessary for a fair presentation of results of
operations for the interim periods included herein have been made. The results
of operations for the periods ended September 30, 1996 are not necessarily
indicative of the operating results to be anticipated for the fiscal year ended
December 31, 1996.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q, and therefore, do not
include all information and footnotes necessary for a fair presentation of the
balance sheet, condensed statement of income and statement of cash flows in
conformity with generally accepted accounting principles. These financial
statements should be read in conjunction with the financial statements included
in the Annual Report for the year ended December 31, 1995. Certain amounts in
prior periods have been reclassified to conform to the financial statement
presentation used for current periods.
8
<PAGE> 209
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Results of Operations for the Three and
Nine Month Periods Ended September 30, 1996 and 1995
Net Interest Income
- -------------------
The Corporation's principal source of earnings is net interest income, the
difference between total interest income and total interest expense. Net
interest income increased by $1.5 million or 8.6% to $18.4 million for the three
months ended September 30, 1996 compared to $16.9 million for the third quarter
of 1995. The following table indicates that the tax equivalent net interest
margin (defined as net interest income divided by average earning assets)
increased to 5.35% for the third quarter of 1996 compared to 5.18% for the third
quarter of 1995.
<TABLE>
<CAPTION>
Three Months Ended September 30th
(In Thousands)
1996 1995
--------------------- ---------------------
Tax Tax
Average Equivalent Average Equivalent
Balance % Balance %
--------------------- ---------------------
<S> <C> <C> <C> <C>
Loans, Net $1,016,338 9.68% $ 989,329 9.61%
Taxable
Investments $ 314,955 6.79% $ 291,012 6.71%
Tax-Exempt
Investments $ 10,312 8.54% $ 11,185 8.48%
Money Markets $ 33,893 5.39% $ 16,053 5.84%
---------- ---- ---------- ----
Interest-Earning
Assets $1,375,498 8.90% $1,307,579 8.91%
---------- ---- ---------- ----
Interest-Bearing
Deposits $1,052,867 4.16% $ 991,543 4.24%
Borrowings $ 113,839 4.44% $ 136,881 5.02%
---------- ---- ---------- ----
Interest-Bearing
Liabilities $1,166,706 4.19% $1,128,424 4.33%
---------- ---- ---------- ----
Excess Interest-
Earning Assets $ 208,792 4.71% $ 179,155 4.58%
Net Interest Margin 5.35% 5.18%
</TABLE>
9
<PAGE> 210
Average interest-earning assets increased by 5.2% to $1,375 million for the
quarter ended September 30, 1996 compared to the same quarter in 1995. Net
average loans outstanding increased by 2.7% to $1,016 million for the third
quarter of 1996 compared to the same period in 1995. Average investment
securities including money markets increased by 12.9% to $359 million in 1996
compared to $318 million in 1995. The growth in average net loans outstanding of
2.7% in 1996 is somewhat slower than the 8.0% loan growth rate in the third
quarter of 1995. The primary reason for the slower growth in net average loan
balances has been weaker loan demand. Excess funds generated from the growth of
interest-bearing deposits, and not needed to fund loans, have increased average
investment securities and money markets by 12.9%.
Average interest-bearing liabilities increased by 3.4% to $1,167 million for the
three months ended September 30, 1996 compared to the same quarter in 1995. This
increase was due to a 6.2% increase in average interest-bearing deposits to
$1,053 million in the third quarter of 1996 compared to the same quarter in
1995. The increase in average interest-bearing deposits was primarily due to an
increase in the average balance of certificates of deposit.
For the three months ended September 30, 1996, the net interest spread improved
to 4.71% compared to 4.58% for the same quarter in 1995. The average yield on
interest-earning assets decreased by .01% to 8.90% and the average cost of
interest-bearing liabilities decreased by .14% to 4.19%. The net interest margin
increased to 5.35% for the third quarter of 1996 compared to 5.18% for the same
quarter in 1995. The increase in the net interest margin was due to the increase
in the net interest spread and the increase in the amount of excess
interest-earning assets.
Net interest income increased by $4.9 million or 10.1% to $53.8 million for the
nine months ended September 30, 1996 compared to $48.9 million for the same
period in 1995. The following table indicates that the tax equivalent net
interest margin increased to 5.35% for the first three quarters of 1996 compared
to 5.18% for the same period in 1995.
<TABLE>
<CAPTION>
Nine Months Ended September 30th
(In Thousands)
1996 1995
------------------- ---------------------
Tax Tax
Average Equivalent Average Equivalent
Balance % Balance %
------------------- ---------------------
<S> <C> <C> <C> <C>
Loans, Net $1,000,124 9.74% $ 977,739 9.41%
Taxable $ 314,286 6.78% $ 268,463 6.83%
Investments
</TABLE>
10
<PAGE> 211
<TABLE>
<S> <C> <C> <C> <C>
Tax-Exempt
Investments $ 9,939 8.71% $ 10,667 8.73%
Money Markets $ 33,727 5.35% $ 9,080 5.94%
---------- ---- ---------- ----
Interest-Earning
Assets $1,358,076 8.94% $1,265,949 8.83%
---------- ---- ---------- ----
Interest-Bearing
Deposits $1,042,287 4.21% $ 961,905 4.05%
Borrowings $ 113,687 4.49% $ 133,933 5.16%
---------- ---- ---------- ----
Interest-Bearing
Liabilities $1,155,974 4.24% $1,095,838 4.19%
---------- ---- ---------- ----
Excess Interest-
Earning Assets $ 202,102 4.70% $ 170,111 4.64%
Net Interest Margin 5.33% 5.20%
</TABLE>
Average interest-earning assets increased by 7.3% to $1,358 million for the nine
months ended September 30, 1996 compared to the same period in 1995. Net average
loans outstanding increased by 2.3% to $1,000 million for the first three
quarters of 1996 compared to the same period in 1995. Average investment
securities including money markets increased by 24.2% to $358 million in 1996
compared to $288 million in 1995. The primary reason for the slow growth in net
average loan balances has been weaker loan demand. Excess funds generated from
the growth of interest-bearing deposits, and not needed to fund loans, have
increased average investment securities and money markets by 24.2%.
Average interest-bearing liabilities increased by 5.5% to $1,156 million for the
nine months ended September 30, 1996 compared to the same period in 1995. This
increase was due to a 8.4% increase in average interest-bearing deposits to
$1,042 million for the first nine months of 1996 compared to the same period in
1995. The increase in average interest-bearing deposits was primarily due to an
increase in the average balance of certificates of deposit.
For the nine months ended September 30, 1996, the net interest spread improved
to 4.70% compared to 4.64% for the same period in 1995. The average yield on
interest-earning assets increased by .11% to 8.94% and the average cost of
interest-bearing liabilities increased by .05% to 4.24%. The net interest margin
increased to 5.33% for the first nine months of 1996 compared to 5.20% for the
same period in 1995. This increase was primarily due to both the increase in the
net interest spread and the increase in the amount of excess interest-earning
assets.
11
<PAGE> 212
Provision For Loan Losses
- -------------------------
The provision for loan losses decreased by $535,000 to $1.0 million for the
three months ended September 30, 1996 and by $435,000 to $3.0 million for the
nine months ended September 30, 1996 compared to the same periods in 1995. Net
charge-offs were $358,000 and $876,000, respectively, for the three and nine
month periods ended September 30, 1996 compared to net charge-offs of $429,000
and $675,000, respectively, for the same periods in 1995. Non-performing loans,
defined as loans that are 90 days past due, renegotiated loans and non-accrual
loans, were $5.4 million or .51% of loans at September 30, 1996 compared to $4.5
million or .43% of loans at December 31, 1995 and $5.3 million or .53% of loans
at September 30, 1995. The reserve for loan losses as a percentage of
outstanding loans was 2.56% at September 30, 1996 compared to 2.45% at December
31, 1995 and 2.39% at September 30, 1995.
The provision for loan losses has been approximately $1.0 million for each
quarter in 1996 for a year to date total of $3.0 million which exceeds year to
date net charge-offs by $2.1 million. The reserve for loan losses as a
percentage of outstanding loans has increased to 2.56% at September 30, 1996,
which management believes is adequate.
Non-Interest Income
- -------------------
Non-interest income increased by $362,000 or 11.2% to $3.6 million for the three
months ended September 30, 1996 and increased by $1.1 million or 10.9% to $10.9
million for the nine months ended September 30, 1996 compared to the same
periods in 1995. The increase in non-interest income for the three months ended
September 30, 1996 compared to the same period in 1995 was primarily due to
increases in fees from fiduciary activities and service charges on deposit
accounts. For the nine months ended September 30, 1996, the increase in
non-interest income in 1996 compared to 1995 was primarily due to increases in
fees from fiduciary activities, service charges on deposit accounts, and
non-yield loan fees. The increase in non-yield loan fees resulted from increased
originations and sales into the secondary market of fixed rate mortgage loans
during the first six months of 1996.
Security Losses
- ---------------
Investment security losses were $157,000 for the three month period ended
September 30, 1996 and $852,000 for the nine months ended September 30, 1996
compared to no loss for the third quarter of 1995 and a loss of $614,000 for the
first nine months of 1995. In both 1996 and 1995, taxable investment securities
were sold and the proceeds reinvested into taxable investment securities with
slightly longer maturities. The average life of the taxable investment portfolio
was approximately three years at September 30, 1996 and 1995.
12
<PAGE> 213
During 1996, longer-term taxable investment rates increased which resulted in
the net unrealized holding gain on available-for-sale securities decreasing to
$1.5 million at September 30, 1996 compared to $5.9 million at December 31,
1995. The Corporation could realize additional investment security losses in the
fourth quarter of 1996.
Other Expense
- -------------
Total other expense increased by $279,000 or 2.9% to $9.9 million for
the three month period ended September 30, 1996 compared to $9.6 million for the
same period in 1995. This increase was primarily due to a $207,000 or 4.1%
increase in salaries and employee benefits expense to $5.3 million for the three
months ended September 30, 1996 compared to $5.1 million for the same quarter in
1995. Full time equivalent employees were 689 at September 30, 1996 compared to
681 at September 30, 1995.
For the nine months ended September 30, 1996, total other expense increased by
$1.2 million or 3.9% to $30.8 million compared to the same period in 1995. This
increase was primarily due to a $905,000 or 6.0% increase to $16.0 million in
salaries and employee benefits expense for the first nine months of 1996
compared to $15.1 million for the same period in 1995.
Federal Income Taxes
- --------------------
Federal income tax expense increased by $577,000 to $3.6 million and by $1.5
million to $9.7 million for the three and nine month periods ended September 30,
1996, respectively, compared to the same periods in 1995. The ratio of federal
income tax expense to income before taxes was approximately 32.5% for both
periods in 1996 and approximately 33% for both periods in 1995.
Net Income
- ----------
Net income increased by $1.3 million or 22.3% to $7.3 million for the three
months ended September 30, 1996 compared to $6.0 million for the same quarter in
1995. For the nine months ended September 30, 1996, net income increased by $3.5
million or 21.0% to $20.2 million compared to $16.7 million for the same period
in 1995. The annualized, net income to average asset ratios (ROA) were 1.97% and
1.84%, respectively, for the three and nine month periods ended September 30,
1996 compared to 1.68% and 1.62%, respectively, for the same periods in 1995.
The annualized, net income to average equity ratios (ROE) were 21.0% and 19.7%,
respectively, for the three and nine month periods ended September 30, 1996
compared to 18.7% and 18.3%, respectively, for the same periods in 1995.
13
<PAGE> 214
COMPARISON OF FINANCIAL CONDITION
FOR SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
Changes in Financial Condition and Liquidity
- --------------------------------------------
Total assets increased by $35.0 million to $1,511 million at September 30, 1996
compared to $1,476 million at December 31, 1995. This increase was primarily due
to increases in loans, federal funds sold and investment securities which offset
the decrease in cash and due from banks.
Loan balances increased by $39.3 million or 3.8% to $1,064 million at September
30, 1996 compared to $1,025 million at December 31, 1995. Loan balances were
70.4% of total assets at September 30, 1996 compared to 69.4% at December 31,
1995 and 70.8% at September 30, 1995.
Federal funds sold and investment securities increased by $32.3 million or 9.8%
to $361 million compared to $329 million at December 31, 1995.
Cash and due from banks decreased by $37.6 million to $55 million at September
30, 1996 compared to $93 million at December 31, 1995. This decrease was
primarily due to a decrease in noninterest-bearing deposits of $29.3 million to
$161 million at September 30, 1996 compared to $190 million at December 31,
1995. Noninterest-bearing deposit accounts had temporarily increased at year-end
1995 which caused cash and due from banks to also temporarily increase. The
average balance for cash and due from banks was $54 million for the first nine
months of 1996 and the average 1996 balance for noninterest-bearing deposit
accounts was $158 million.
Total liabilities increased by $26.9 million to $1,367 million at September 30,
1996 compared to $1,340 million at December 31, 1995. This increase was
primarily due to a $51.6 million or a 5.1% increase in interest-bearing deposits
to $1,068 million at September 30, 1996 compared to $1,016 million at December
31, 1995. This increase exceeded the $29.3 million decrease in
noninterest-bearing deposits.
Capital Resources
- -----------------
Stockholders' equity at September 30, 1996 was $144.6 million or 9.57% of total
assets compared to $136.4 or 9.24% of total assets at December 31, 1995 and
$130.9 million or 9.10% of total assets at September 30, 1995.
Financial institution regulators have established guidelines for minimum capital
ratios and well capitalized capital ratios for banks, thrifts, and bank holding
companies. The unrealized net gain on available-for-sale securities is not
included in computing regulatory capital. The minimum leverage capital ratio
(defined as stockholders'
14
<PAGE> 215
equity less intangible assets divided by assets less intangible assets) is 4%
and the well capitalized ratio is greater than or equal to 5%. Park's leverage
capital ratio was 9.54% at September 30, 1996 and 8.91% at December 31, 1995.
The minimum Tier I risk-based capital ratio (defined as leverage capital divided
by risk-adjusted assets) is 4% and the well capitalized ratio is greater than or
equal to 6%. Park's Tier I risk-based capital ratio was 14.18% at September 30,
1996 and 13.35% at December 31, 1995. The minimum total risk-based capital ratio
(defined as leverage capital plus supplemental capital divided by risk-adjusted
assets) is 8% and the well capitalized ratio is greater than or equal to 10%.
Park's total risk-based capital ratio was 15.45% at September 30, 1996 and
14.61% at December 31, 1995.
The financial institution subsidiaries of Park each met the applicable well
capitalized capital ratio guidelines at September 30, 1996. The following table
indicates the capital ratios for each subsidiary at September 30, 1996:
<TABLE>
<CAPTION>
Tier I Tier I
Leverage Risk-Based Risk-Based
-------- ---------- ----------
<S> <C> <C> <C>
Park National Bank 8.82% 12.48% 13.75%
Richland Trust Company 8.35% 12.84% 14.11%
Mutual Federal Savings Bank 7.96% 13.43% 14.70%
</TABLE>
On August 29, 1996, Park announced that its subsidiary, Richland Trust Company
had entered into a definitive agreement to acquire five branch offices in
Richland County from Peoples National Bank.
In addition to the fixed assets, the purchase includes approximately $105
million in deposits and $30 million in loans. The banking business of the five
branches will be integrated into current Richland Trust Company operations,
which consist of nine branches in Richland County.
This acquisition is expected to be completed in December 1996. Park will infuse
approximately $7 million of capital into Richland Trust Company so that it will
continue to meet the well capitalized capital requirements. This transaction
will not have a significant impact on the capital ratios and the operating
results of Park.
15
<PAGE> 216
PARK NATIONAL CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Park National Corporation is not engaged in any legal proceedings of a
material nature at the present time.
Item 2. Changes in Securities
---------------------
Not applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
Item 5. Other Information
-----------------
Park National Corporation ("Park") and First-Knox Banc Corp.
("First-Knox") jointly announced on October 29, 1996, that they had
entered into a definitive Agreement and Plan of Merger (the "Merger
Agreement") providing for a merger of First-Knox into Park. Under the
terms of the Merger Agreement, the stockholders of First-Knox are
expected to receive .5914 shares of Park common stock per share of
First-Knox common stock.
Completion of the merger is subject to certain conditions, including
(i) the approval of the stockholders of First- Knox, (ii) the approval
of the stockholders of Park, (iii) the approval of the appropriate
bank regulators and other governmental agencies, (iv) the receipt by
Park and First-Knox of a letter from Ernst & Young that the
transaction contemplated by the Merger Agreement qualifies for
pooling-of-interests accounting treatment, (v) the receipt by Park and
First-Knox of an opinion by Porter, Wright, Morris & Arthur that the
merger will be treated for federal income tax purposes as a tax free
reorganization and (vi) other conditions to closing customary of a
transaction of this type.
16
<PAGE> 217
Reference is made to the news release, dated October 29, 1996,
a copy of which is filed as Exhibit 99 and the Agreement and
Plan of Merger, dated October 28, 1996, a copy of which is filed as
Exhibit 2 for a complete description of the terms of the merger.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
See Exhibit Index at Page 19
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
17
<PAGE> 218
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARK NATIONAL CORPORATION
DATE: November 8, 1996 BY: /s/ C. Daniel DeLawder
----------------------------------
C. Daniel DeLawder
President
DATE: November 8, 1996 BY: /s/ David C. Bowers
----------------------------------
David C. Bowers
Chief Financial Officer/Secretary
18
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PARK NATIONAL CORPORATION
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
2 Agreement and Plan of Merger, dated
as of October 28, 1996 by and between
Park National Corporation and First-
Knox Banc Corp.
27 Financial Data Schedule
99 Press Release dated October 29, 1996.
19
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Exhibit 2
===============================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 28, 1996
BETWEEN
PARK NATIONAL CORPORATION
AND
FIRST-KNOX BANC CORP.
===============================================================================
<PAGE> 221
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>
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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>
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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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<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
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"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.
3
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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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(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:
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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.
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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> 274
[ARTICLE] 9
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] SEP-30-1996
[CASH] 55,194
[INT-BEARING-DEPOSITS] 0
[FED-FUNDS-SOLD] 35,500
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 313,853
[INVESTMENTS-CARRYING] 11,684
[INVESTMENTS-MARKET] 12,116
[LOANS] 1,064,022
[ALLOWANCE] 27,212
[TOTAL-ASSETS] 1,511,206
[DEPOSITS] 1,228,864
[SHORT-TERM] 121,386
[LIABILITIES-OTHER] 16,403
[LONG-TERM] 0
[COMMON] 26,819
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 117,734
[TOTAL-LIABILITIES-AND-EQUITY] 1,511,206
[INTEREST-LOAN] 72,726
[INTEREST-INVEST] 16,402
[INTEREST-OTHER] 1,351
[INTEREST-TOTAL] 90,479
[INTEREST-DEPOSIT] 32,874
[INTEREST-EXPENSE] 36,695
[INTEREST-INCOME-NET] 53,784
[LOAN-LOSSES] 3,015
[SECURITIES-GAINS] (852)
[EXPENSE-OTHER] 30,837
[INCOME-PRETAX] 29,943
[INCOME-PRE-EXTRAORDINARY] 20,242
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 20,242
[EPS-PRIMARY] 2.84
[EPS-DILUTED] 2.84
[YIELD-ACTUAL] 5.33
[LOANS-NON] 2,011
[LOANS-PAST] 1,314
[LOANS-TROUBLED] 2,110
[LOANS-PROBLEM] 0
[ALLOWANCE-OPEN] 25,073
[CHARGE-OFFS] 2,579
[RECOVERIES] 1,703
[ALLOWANCE-CLOSE] 27,212
[ALLOWANCE-DOMESTIC] 27,212
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 0
</TABLE>
<PAGE> 275
EXHIBIT 99
FOR IMMEDIATE RELEASE
For Further Information Contact:
At Park National Corporation:
William T. McConnell, Chairman 614/349-3725
C. Daniel DeLawder, President 614/349-3746
David C. Bowers, CFO 614/349-3708
At First-Knox Banc Corp.:
Carlos E. Watkins, President 614/399-5581
Gordon E. Yance, CFO 614/399-5500
PARK NATIONAL CORPORATION AND FIRST-KNOX BANC CORP. AGREE TO MERGE
Newark, Ohio, OCTOBER 29, 1996, Park National Corporation
(Park) (AMEX - PRK) and First-Knox Banc Corp. (First-Knox) (NASDAQ - FKBC)
jointly announced today that they have signed a definitive agreement that
provides for First-Knox Banc Corp. to be merged into Park National Corporation.
Under the terms of the agreement, First-Knox stockholders are expected to
receive 0.5914 shares of Park common stock for each share of First-Knox common
stock in a tax-free exchange. Park National Corporation expects to issue an
aggregate of 2,345,000 shares of stock to complete the merger which will be
accounted for as a pooling-of-interests. The exact exchange ratio will be
determined pursuant to a formula that is based upon, among other things, the
market price of Park common stock and the number of shares of First-Knox common
stock outstanding or subject to options prior to closing. Using the market price
of $48.75 at the close of trading on October 25, 1996, the transaction has an
indicated value of $114.3 million. The resulting $2 billion asset bank holding
company will rank twelfth in size in Ohio.
The transaction is currently valued at about $29 per
First-Knox share and is 2.38 times First-Knox' September 30 book value and 17.4
times the trailing twelve months First-Knox' per share earnings. A floor
provision is provided; however, there is no upper limit to the value of the
transaction. The value of the transaction to First-Knox stockholders at the
closing will depend on Park's share price during a specified period prior to
closing.
It is anticipated that the merger will result in annual
pre-tax non-interest expense savings of approximately $900,000 in 1997.
Additional savings of $1 million are expected in 1998, resulting in total
expense reductions in excess of 12 percent. Non-interest expense reductions will
be realized from the elimination of redundant back-office operations. With these
savings, and a lesser amount of revenue enhancements, the transaction is
expected to be accretive to Park's earnings per share in 1998, the first full
<PAGE> 276
year of combined operations. Park expects this transaction to significantly
enhance the combined company's future earnings.
With this merger, Park National Corporation will expand into
four new counties in the attractive central Ohio banking market. Park will have
a total of 51 banking offices in 15 central and southern Ohio counties.
As of September 30, 1996, Park National Corporation had total
assets of $1.511 billion, and stockholders' equity of $145 million. For the nine
months ended September 30, 1996, Park earned $20.2 million, or 1.84 percent on
average assets and 19.70 percent on average equity.
As of September 30, 1996, First-Knox Banc Corp. had total
assets of $561 million, and stockholders' equity of $48 million. For the nine
months ended September 30, 1996, First-Knox earned $4.7 million, or 1.22 percent
on average assets and 13.39 percent on average equity.
On a combined basis, total assets are $2.072 billion, and
equity $193 million.
William T. McConnell, Chairman and CEO of Park, said, "This
transaction makes abundant sense; the geographic fit is perfect. Beyond that,
First-Knox, an outstanding community bank, is similar in many respects to our
other affiliate banks, and the addition of the resources it brings to this
marriage will enable Park to achieve further economies of the sort that have
driven our earnings in recent years."
McConnell added, "First-Knox offers a very high level of
customer service, and we want to be sure that it is not reduced in any way by
this transaction. In fact we anticipate that First Knox customers will have new
products and services available to them while still enjoying the same level of
personal service that has been the trademark of their banks in the past. In
keeping with Park's tradition and past practice, decision making will continue
at the local level at First-Knox National Bank."
Carlos E. Watkins, President and CEO of First-Knox Banc Corp.,
said, "We are very pleased to enter into this agreement with Park. We believe
that this transaction will be beneficial to our shareholders, customers and
employees. Our shareholders have the opportunity to affiliate with one of the
most successful banks in our region, one with a long-term record of superb
profitability and outstanding shareholder returns."
Watkins added, "Park and First-Knox share the same commitment
to community banking. First-Knox National Bank will continue under its own name
<PAGE> 277
as a separately chartered bank committed to the communities that it serves. Our
customers will benefit from a broader range of products and services. We believe
that our affiliation with a larger entity will enable our banks to compete more
effectively in the years ahead. As part of the Park organization, we will have
the resources to compete against the super-regional banks in our market, while
maintaining the highly personalized customer service orientation of a community
bank."
McDonald & Company Securities, Inc. is serving as Park's
financial advisor and has issued a fairness opinion with regard to this
transaction. Danielson Associates, Inc. is serving in a similar capacity for
First-Knox and has also issued a fairness opinion for them. The merger is
subject to regulatory approvals and the approval of both companies'
stockholders. Four members of the First-Knox board of directors will be
appointed to the Park board. Closing of the transaction is expected to take
place during the second quarter of 1997.
PRO FORMA DATA
September 30, 1996
(Dollars in thousands except per share)
<TABLE>
<CAPTION>
PRO
PARK FORMA
NATIONAL PNC
CORPORATION & FKBC
----------- ----------
<S> <C> <C>
Total Assets $1,511,206 $2,071,869
Loans $1,064,022 $1,416,093
Investment Securities $ 325,537 $ 503,080
Deposits $1,228,864 $1,655,022
Borrowings $ 121,386 $ 203,877
Equity $ 144,553 $ 192,592
Equity/Assets 9.57% 9.30%
Reserves $ 27,212 $ 31,650
Reserves/Loans 2.56% 2.24%
Common Shares Outstanding 7,130,997 9,475,997
Book Value Per Share $ 20.27 $ 20.32
Market Capitalization (at $48.75) $ 347,636 $ 461,955
Non-performing Assets $ 5,672 $ 7,777
Non-performing Loans $ 5,435 $ 7,448
Non-performing Loans/Assets 0.38% 0.38%
Reserves/Non-performing Loans 500.68% 424.95%
</TABLE>
<PAGE> 278
APPENDIX D
ANNUAL REPORT TO SHAREHOLDERS
FOR FISCAL YEAR ENDED
DECEMBER 31, 1995
OF
FIRST-KNOX BANC CORP.
<PAGE> 279
1995 ANNUAL REPORT
[LOGO] FIRST-KNOX BANC CORP.
Page 23
<PAGE> 280
[PICTURE 1]
<TABLE>
<CAPTION>
Table of Contents
============================================================
<S> <C>
Financial Highlights 2
Letter to Shareholders 3
Highlights of 1995 6
Consolidated Financial Statements 11
Financial Review 35
Directors/Officers 50
Shareholder Information/Offices 52
</TABLE>
Page 24
<PAGE> 281
First-Knox Banc Corp. 1995 Annual Report
FINANCIAL HIGHLIGHTS
COMPARATIVE BALANCES
<TABLE>
<CAPTION>
Percent
(in thousands of dollars) 1995 1994 Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets........................................ $496,899 $467,191 6.4%
Deposits...................................... 404,067 377,180 7.1%
Loans and Leases.............................. 330,641 304,168 8.7%
Investments................................... 131,988 131,211 0.6%
Borrowings.................................... 41,401 46,172 (10.3)%
Shareholders' Equity.......................... 46,659 40,832 14.3%
Net Income.................................... 5,709 5,164 10.6%
Cash Dividends................................ 1,751 1,527 14.7%
Trust Department Assets....................... 82,696 78,157 5.8%
FACILITIES AND STAFF
Banking Offices............................... 12 12
Total Staff................................... 256 264
</TABLE>
COMPARATIVE STOCK DATA
<TABLE>
<CAPTION>
Per Share Data
------------------------------------------------------------------
1995 1994
---------------------------- -------------------------------
Market Price Cash Market Price Cash
High Low Dividends High Low Dividends
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $21.75 $20.50 $.11 $16.91 $15.48 $.10
Second Quarter 21.88 20.91 .11 21.67 16.67 .10
Third Quarter 25.00 21.00 .12 22.86 20.50 .10
Fourth Quarter 26.50 24.00 .15 23.00 20.50 .12
</TABLE>
<TABLE>
<CAPTION>
Percent
1995 1994 Change
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year-End Market Price......................... $25.00 $21.00 19.0%
Year-End Book Value........................... 13.11 11.23 16.7%
Fully-Diluted Earnings Per Share.............. 1.57 1.41 11.3%
Price Earnings Ratio.......................... 15.9x 15.0x
Cash Dividend Payout Ratio.................... 30.7% 29.6%
Number of Shareholders........................ 1,404 1,327 5.8%
Average Shares Outstanding
Primary..................................... 3,636,914 3,669,468
Fully Diluted............................... 3,639,609 3,672,390
Stock Split/Stock Dividend.................... 100% 5%
</TABLE>
The stock of First-Knox Banc Corp. was traded locally over-the-counter
through registered brokers McDonald & Company and The Ohio Company until March
29, 1994. The range of market price through that date was compiled from data
provided by the brokers based on limited trading. On March 30, 1994, the stock
began trading on the NASDAQ National Market under the symbol "FKBC." The market
prices represent quotations between dealers without adjustment for retail
markups, markdowns, or commissions and may not necessarily represent actual
transactions. All per share data has been restated to give retroactive effect to
the two for one stock split in the form of a 100% stock dividend in 1995 and a
5% stock dividend in 1994.
The ability of the Corporation to pay cash dividends is based upon
receiving dividends from its bank subsidiaries. See Note 14 to the consolidated
financial statements regarding regulatory restrictions.
2 Page 25
<PAGE> 282
First-Knox Banc Corp. 1995 Annual Report
LETTER TO SHAREHOLDERS
As we approach our 150th anniversary in 1997, we are proud of the
accomplishments of First-Knox Banc Corp. and the individuals who made it happen.
The past year economically can be described as one of decreasing interest rates
and margins with uncertain government fiscal responsibility. First-Knox,
however, continued its goal of consistency in performance by posting net
earnings 10.6% higher than the previous year.
Assets of the Corporation increased 6.4% and shareholders' equity increased
14.3% over last year. Shareholders received a two-for-one stock split in the
form of a 100% stock dividend in 1995, marking the thirtieth consecutive year in
which a stock dividend or split has been issued. The market price of the
Corporation's stock appreciated approximately 19% in 1995, following an increase
of 35.7% in 1994. Cash dividends paid by the Corporation increased 14.7%. A
review of our earnings performance is provided in greater detail beginning on
page thirty-five, and the following graphs are provided for a quick overview of
performance in the last five years.
[PHOTO]
Carlos E. Watkins, President and Chief Executive Officer (left), and Willam A.
Stroud, Chairman of the Board.
Many initiatives started earlier in the nineties came to fruition in 1995.
The new and renovated main office in Mount Vernon was completed with June open
houses conducted for employee families, shareholders, customers, and the
community. The new facilities not only provide for better customer access and
enhanced service environment, but also encouragement for other businesses to
invest in the downtown area of Mount Vernon. Five years ago, a major investment
was made in computer technology, and today we are continuing to see the benefits
of that investment.
During the past year, many "firsts" were recorded by First-Knox Banc Corp.
In January, an open house at our Danville Office celebrated the opening of the
new drive-in facility and the first MAC(R) machine in the community. For the
first time, our Annual Shareholders meeting was held in the auditorium of the
R. R. Hodges
3 Page 26
<PAGE> 283
First-Knox Banc Corp. 1995 Annual Report
Chapel/Fine Arts Center at the Mount Vernon Nazarene College. In late spring, a
voice response system was implemented providing our customers with another
24-hour service delivery mechanism. The centralization of loan operations for
First-Knox National Bank began during the summer and late fall, and a portion of
the operations from the Farmers and Savings Bank was consolidated allowing them
to offer check imaging to their customers. The Corporation filed its first
electronic Form 10-Q with the SEC in November. Just as we began the year with a
construction project, we ended the year with the installation of a new drive-in
and ATM at our Edison Office.
NET INCOME
(in millions of dollars)
[CHART 1]
On the cover of the 1995 annual report are photographs depicting the
interface of individuals and the computer chip. Technology and the Internet were
at the forefront of the news in 1995, dominating share and fund performance in
the stock market and changing corporate strategic plan directions. The ability
to collect and distribute information without geographic boundaries or time
limitations changes the way we all do business, and forces us to consider the
implications of cyberspace. It does not help that electronic technology is not
foolproof, more expensive than anticipated, and changes faster than a speeding
bullet. However, we must stay abreast and be involved in new developments. Many
people believe the developments in electronic banking are more significant to
the industry than the current wave of mergers, interstate banking, federal
deposit insurance, or Glass-Steagall reform.
FULLY-DILUTED EARNINGS
PER SHARE (in dollars)
[CHART 2]
First-Knox has always been an innovator and has used technology as an
active ingredient in the process. However, individual to individual service
remains the cornerstone to our success. Technology is a resource to provide
customers with higher quality, lower cost, products and services. Our past
belief in "high tech, high touch" service is still a valid objective in a world
where values change daily. Our customers have indicated that the two most
critical factors in providing service to them are responsiveness and competence.
Upgrading our organization through technological advancements will enable us to
continue providing the convenient and quality service that they have come to
expect.
4 Page 27
<PAGE> 284
First-Knox Banc Corp. 1995 Annual Report
Today, banks are losing customers to non-bank competitors. To thrive in the
future, we must find ways to enhance current revenues and create new sources of
revenue, as well as to control costs. In addition, we must provide value in
product and quality to our customers. The affiliate banks of First-Knox
continually look for new ways to serve our markets and to encourage growth
within the communities we serve. An example of this would be the participation
of James McClure, Chairman of Farmers and Savings Bank, in assisting local
development efforts in attracting a corporation to the Perrysville industrial
park. Knowing our communities and customers well and providing them with the
financial services they need are the primary keys to providing our shareholders
with the greatest potential for continued future earnings growth.
CASH DIVIDENDS
(in thousands of dollars)
[CHART 3]
During 1995, Mr. J. Robert Purdy retired from the Board of First-Knox Banc
Corp. Mr. Purdy was one of the charter Board members of the Corporation and
served both the holding company and First-Knox National Bank for a period
spanning thirty-plus years. We will miss Mr. Purdy's wise counsel and support.
Our success in the past has been a result of the foresight and hard work of
the directors, officers, and staff of First-Knox and its affiliates. Our future
success also lies in their hands and their ability to provide customers with
superior service and shareholders with continued investment value. With your
continued support in the future, the opportunities for First-Knox Banc Corp.
remain unlimited.
/s/ Willam A. Stroud /s/ Carlos E. Watkins
Chairman of the Board President and Chief Executive Officer
5 Page 28
<PAGE> 285
First-Knox Banc Corp. 1995 Annual Report
HIGHLIGHTS OF 1995
It is seemingly paradoxical, but to get a glimpse of our future, we need to
look at our past, see where we have been, and then view our recent
accomplishments as a midpoint in a time line. Only then can we appreciate the
ever-increasing pace of change and create methodologies that will serve us well
into the future.
Even back in 1850, when the bank was just beginning to be recognized as a
financial leader, the simple agrarian life was undergoing a transformation.
Population grew, railroads compressed time and distance, governments grew, and
the economy evolved.
News of events that influence our economy that used to take days to receive
now travels in time measured in nanoseconds. As improved technologies fuel the
fires of change, they also provide the means to create innovative responses to
changing needs.
[PHOTO]
Stephen M. Franko and Michelle R. Winings, LifeLink Investment Representatives,
reviewing product alternatives with James E. McLaughlin, Manager of the
Bellville Office.
Express-Line was introduced to First-Knox and Farmers customers to meet
mounting demands for account information and other routine inquiries by
telephone. Express-Line, a fully automated, computer response system, provides
answers, permits funds transfers, and functions as a message center . . . all in
a confidential manner, anytime of the day or night. In addition to providing the
customer with timely information delivery, Express-Line has allowed our service
representatives to utilize their time more productively. Response to this new
service went beyond our expectations as Express-Line now handles an average of
200 inquiries daily.
TOTAL ASSETS
(in millions of dollars)
[CHART 4]
Another new technology-based service was the offering of the MAC(R) prepaid
long-distance telephone card. This enables individuals and businesses to control
their long distance costs, while enjoying a guaranteed single low rate for all
long distance calls anywhere within the continental USA. It is simple to use,
ends the confusion over rates and conditions, does not require changing
carriers, and can be replenished by telephone.
A variety of new investment opportunities were created in 1995. Timed to
capitalize on market uncertainties, the 9-Month
6 Page 29
<PAGE> 286
First-Knox Banc Corp. 1995 Annual Report
Advantage, the 18-Month Market Plus, and the Super 6 certificates were received
with enthusiasm. First offered in August, the Super 6 certificate generated
deposits of $8 million, of which over $3 million was new money.
Making housing affordable to all, a long term bank objective, came closer
to realization late in the year with approval to offer VA and FHA mortgage
loans. These two federally-guaranteed programs allow us to provide mortgage
loans with no or minimal down payments to the homebuyers in the communities we
serve.
Mortgage loan service also was expanded for commercial borrowers with the
development of a Personal Reserve Account for businesses. We are one of a very
few institutions to create such a program. Similar to our consumer PRA, the
business PRA will allow the business person to borrow up to 70% of the equity in
their commercial real estate.
[PHOTO]
Cuddles, the First-Knox bear mascot.
The "Business Manager," a new service for business and industry, was first
offered in the third quarter of the year. It provides complete management of
accounts receivable, including billing and collections. This enables a company
to improve cash flow for reinvestment, debt reduction, inventory expansion, and
other such purposes. Initial reaction, particularly from small businesses, has
been very positive.
Around the time of the Civil War, a busy day at the bank saw as many as 15
transactions being recorded...all in pen and ink. Today our thirteen
MAC(R)automated teller machines execute almost 1,500 transactions daily.
The volume of information that must be recorded and reported has increased,
and will continue to increase, at a tremendous rate. This is attributable to the
expansion of product offerings, the proliferation of regulatory demands, and
customer desire for "no waiting" service, as well as normal growth.
7 Page 30
<PAGE> 287
First-Knox Banc Corp. 1995 Annual Report
Increased productivity, capacity enlargement, and cost effectiveness were
the main objectives of our information system upgrades in 1995. Our facilities
are now linked with fiber optics which enables the movement of more information
at a faster pace. Check processing has become more efficient with the addition
of enlarged optical storage, amount recognition readers, and the conversion of
Farmers and Savings Bank to check imaging.
Our computerized audit program was enhanced and account coding software
added to fulfill regulatory requirements. All offices now have central computer
connections to standardize and facilitate commercial loan applications. Laptop
computers also are being used to expedite off-site mortgage applications.
[PHOTO]
Ian Watson, Vice President, and Rebecca K. Rodeniser, Operations Officer,
reviewing a research item on one of the high resolution VGA monitors in the
proof department.
The Securities and Exchange Commission has developed an electronic filing
system called EDGAR (Electronic Data Gathering Analysis and Retrieval).
Implementation of the system began with the filing of our first electronic
report in November. EDGAR filings ultimately will result in simultaneous filing
with the SEC, state securities commissions, and self-regulatory organizations,
such as NASDAQ. Once fully implemented, investors will be able to access a
complete database of financial information.
Starting with the creation of the Federal Reserve System in 1915, the need
for greater financial knowledge has increased. Today, with the expansion of
traditional and non-traditional services and legal complexities, the need for
staff education and training has become of paramount importance.
Our "lunch and learn" program presented a variety of topics, including
trusts, pension plans, alternative investments, and stress management. More
formal training sessions were conducted regarding IRA's, the MAC(R) Phone Card,
ramifications of the Bank Secrecy Act, and Fair Lending compliance.
8 Page 31
<PAGE> 288
First-Knox Banc Corp. 1995 Annual Report
American Institute of Banking classes on "Principles of Banking," "Consumer
Lending," and "Check Cashing Guidelines," were offered to all employees. Seven
employees were sent to Ohio Banking Association schools, while numerous others
attended various job-related seminars. W. Douglas Leonard, Vickie A. Sant, and
Kimberly S. Miller who qualified for tuition reimbursement by the bank,
completed their bachelors degree under the Mount Vernon Nazarene College EXCEL
program.
SHAREHOLDERS' EQUITY
(in millions of dollars)
[CHART 6]
With the advent of Windows 95 and other associated software, personal
computer training was accelerated. Also, a number of employees participated in
our 10% reimbursement program for the purchase of personal computer hardware and
software.
Industry leadership and community involvement always have been part of our
founder's vision of the future. Henry B. Curtis, our first president, was very
instrumental in the formation of the Ohio Bankers Association and served as its
first vice president 135 years ago. It was appropriate to our tradition when our
current president, Carlos Watkins, took office as president of that organization
in October. William A. Stroud, Chairman, served as president of the Ohio Bankers
Association in 1977.
Earlier in the year, Mr. Watkins was honored by his appointment to the
Fourth District Community Bank Advisory Council of the Federal Reserve Board.
Cheri L. Butcher, Assistant Vice President, was a graduate of the first class of
the Ohio Bankers Association Leadership School, and was further honored by being
named as Employee of the Year at First-Knox National Bank.
Community outreach efforts took on new dimensions in 1995. LifeLink
investment seminars were held in branch communities. William C. Brunka, Vice
President, Retail Loan and Compliance Officer, was co-chairman of family budget
education sponsored by the Knox County Resource Group. First-Knox National Bank
subsequently became the lead bank in an affordable housing grant application
submitted by the same organization.
[PHOTO]
The 1995-96 Ohio Bankers Association President Carlos E. Watkins and his wife
Bunny on the cover of the Ohio Banker magazine.
9 Page 32
<PAGE> 289
First-Knox Banc Corp. 1995 Annual Report
First-Knox also became the lead bank in financing community projects,
including the Dan Emmett House Hotel and Conference Center in Mount Vernon, and
the Hamilton Hills housing development in Bellville.
Participation in local community events was at an all-time high with the
addition of sponsoring "Business After Hours" for the Mount Vernon/Knox County
Chamber of Commerce. Once again, the First-Knox Classic world-class cycling
event was a highlight of the summer.
First-Knox closed out the year with a public outreach in cyberspace with
its own home page on the Internet through the Knox Net!
From our beginnings in the Curtis home, the bank has grown, both in size
and in the number of services provided. The new Main Office addition, which
officially opened in June, is a reflection of that progress.
[PHOTO]
Carlos E. Watkins, President (right), and David R. Irvin, Vice President (left),
in the trust department's new location on the first floor of the new Main
Office.
Opening celebrations at this five-level, 40,000 square foot facility
attracted crowds of more than 1,500. This tangible representation of our
commitment to customer convenience and service was also reflected in the
complete remodeling of our Fredericktown Office.
BOOK VALUE PER SHARE
(in dollars)
[CHART 7]
Customer convenience was a major consideration at our drive-in facilities
in Danville. The entrance way was relocated to South Market Street to alleviate
traffic congestion, a second window was added, and a MAC(R) teller machine was
installed.
Successful utilization of all of our resources, human and technological,
anticipating the needs of our community, and fulfilling those needs in a
productive, effective, and profitable manner made 1995 a very eventful year.
10 Page 33
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 and 1994
(In thousands of dollars except per share data) 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and deposits with banks (Note 9) ..................... $ 17,012 $ 18,110
Federal funds sold ........................................ 3,400
--------- ---------
Total cash and cash equivalents ............... 20,412 18,110
Investment securities available for sale,
at fair value (Notes 2 and 8) ....................... 94,694 33,804
Mortgage-backed securities available for
sale, at fair value (Notes 2 and 8) ................. 37,294 42,657
Investment securities held to maturity
(fair value approximates $51,847) (Note 2) .......... 54,750
--------- ---------
Total investment and
mortgage-backed securities .............. 131,988 131,211
Loans and lease financing (Notes 3 and 8) ................. 330,641 304,168
Less allowance for loan and
lease losses (Note 4) ............................... (4,166) (3,876)
--------- ---------
Net loans and lease financing ................. 326,475 300,292
Premises and equipment, net (Note 5) ...................... 10,993 10,035
Accrued interest receivable and other assets .............. 7,031 7,543
--------- ---------
TOTAL ASSETS .................................. $ 496,899 $ 467,191
========= =========
LIABILITIES
Deposits (Note 6) ......................................... $ 404,067 $ 377,180
Short-term borrowings (Note 7) ............................ 7,986 11,452
Long-term debt (Note 8) ................................... 33,415 34,720
Accrued interest payable and other liabilities ............ 4,772 3,007
--------- ---------
TOTAL LIABILITIES ............................. 450,240 426,359
--------- ---------
Commitments and Contingencies (Note 9)
SHAREHOLDERS' EQUITY
Common stock, par value $3.125 per share; 6,000,000
shares authorized; 3,650,225 shares issued in 1995 and
1,818,250 shares issued and outstanding in 1994 ..... 11,407 5,682
Paid-in capital ........................................... 24,042 23,864
Retained earnings ......................................... 11,187 12,922
Net unrealized holding gains (losses) on
securities available for sale (Note 1) .............. 1,912 (1,636)
Common stock in treasury, 89,965 shares at cost ........... (1,889)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY .................... 46,659 40,832
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY ........................ $ 496,899 $ 467,191
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three years ended December 31, 1995
(In thousands of dollars except per share data) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and leases . $ 28,854 $ 25,238 $ 24,960
Interest on investment and
mortgage-backed securities
Taxable ................... 5,214 4,477 4,293
Tax exempt ................ 2,792 2,800 1,831
Interest on federal funds sold ........ 228 79 208
----------- ---------- ----------
Total interest income ..... 37,088 32,594 31,292
----------- ---------- ----------
INTEREST EXPENSE
Interest on deposits (Note 6) ......... 15,158 11,800 12,023
Interest on short-term borrowings ..... 390 349 347
Interest on long-term debt ............ 1,951 1,478 327
----------- ---------- ----------
Total interest expense .... 17,499 13,627 12,697
----------- ---------- ----------
NET INTEREST INCOME . 19,589 18,967 18,595
PROVISION FOR LOAN AND
LEASE LOSSES (NOTE 4) ........... 584 638 1,124
----------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES ....... 19,005 18,329 17,471
----------- ---------- ----------
OTHER INCOME
Trust department income ............... 702 588 521
Customer service fees and commissions . 2,315 1,926 1,758
Loan sale gains ....................... 27 29 70
Securities gains (losses), net ........ (20) 11 15
Other operating income ................ 103 193 101
----------- ---------- ----------
Total other income ........ 3,127 2,747 2,465
----------- ---------- ----------
OTHER EXPENSES
Salaries and benefits (Notes 10 and 11) 7,081 6,756 6,378
Occupancy expenses .................... 2,121 1,825 1,636
Other operating expenses (Note 12) .... 5,656 6,064 5,813
----------- ---------- ----------
Total other expenses ...... 14,858 14,645 13,827
----------- ---------- ----------
INCOME BEFORE INCOME TAXES 7,274 6,431 6,109
INCOME TAXES (Note 13) ................ 1,565 1,267 1,443
----------- ---------- ----------
NET INCOME ................ $ 5,709 $ 5,164 $ 4,666
=========== ========== ==========
EARNINGS PER COMMON SHARE (Note 1)
Primary ................... $ 1.57 $ 1.41 $ 1.37
=========== ========== ==========
Fully diluted ............. $ 1.57 $ 1.41 $ 1.33
=========== ========== ==========
WEIGHTED AVERAGE SHARES (Note 1)
Primary ................... 3,636,914 3,669,468 3,397,196
=========== ========== ==========
Fully diluted ............. 3,639,609 3,672,390 3,604,154
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Holding Gain
Number Of (Loss) On Total
For the three years ended Common Securities Share-
December 31, 1995 (In thousands Shares Common Paid-In Retained Available Treasury holders'
of dollars except per share data) Outstanding Stock Capital Earnings For Sale Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1993 ............ 1,413,703 $ 4,418 $ 13,659 $ 12,038 $ 30,115
Net income ............................. 4,666 4,666
Issuance of shares under the
dividend reinvestment plan ....... 11,888 37 315 352
Issuance of shares upon conversion
of 8.5% subordinated debentures .. 209,881 656 3,879 4,535
Issuance of shares under the employee
retirement savings plan .......... 1,734 6 51 57
Cash dividends declared,
$.37 per share ................... (1,302) (1,302)
5% stock dividend ...................... 81,773 255 2,260 (2,515)
--------- -------- -------- -------- ------- ------- --------
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,
$.42 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 JANUARY 1, 1995 ............ 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,
$.49 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
========= ======== ======== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
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First-Knox Banc Corp. 1995 Annual Report
CONSOLIDATED STATEMENTS OF
CASH FLOWS
<TABLE>
<CAPTION>
For the three years ended December 31, 1995
(In thousands of dollars) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................ $ 5,709 $ 5,164 $ 4,666
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan and lease losses ........... 584 638 1,124
Depreciation, accretion, and amortization ..... 1,004 1,199 1,401
Market loss on loans held for sale ............ 121
Securities (gains) losses ..................... 20 (11) (15)
Loan sale gains ............................... (27) (29) (70)
Deferred income tax expense (benefit) ......... 5 (160)
(Increase) decrease in interest receivable .... (354) (398) 259
Increase (decrease) in interest payable ....... 704 234 (133)
Increase in net deferred loan costs ........... (37) (55) (201)
Change in other assets and liabilities, net ... (239) (1,092) (142)
-------- -------- --------
Net cash provided by operating activities 7,369 5,771 6,729
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment and
mortgage-backed securities held to maturity ......... (1,351) (17,135) (37,313)
Purchases of investment and mortgage-backed
securities available for sale ....................... (27,617) (26,112)
Proceeds from sales of investment and
mortgage-backed securities available for sale ....... 17,560
Proceeds from calls, payments, and maturities of
investment and mortgage-backed
securities held to maturity ......................... 3,109 4,321 32,147
Proceeds from calls, payments, and
maturities of investment and mortgage-
backed securities available for sale ................ 13,099 15,959
Net increase in loans and leases .......................... (28,318) (16,824) (22,156)
Proceeds from sale of loans ............................... 1,578 3,113 7,046
Expenditures for premises and equipment ................... (1,944) (4,551) (1,904)
Proceeds from sales of other real estate owned ............ 52 217
-------- -------- --------
Net cash applied to investing activities (23,832) (41,229) (21,963)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts ............... 26,887 (997) 15,883
Net increase (decrease) in short-term borrowings .......... (3,466) (2,053) 4,980
Proceeds from long-term debt .............................. 5,000 30,110 6,000
Payments on long-term debt ................................ (6,305) (1,290) (499)
Issuance of common stock .................................. 247 408 409
Purchase of treasury shares ............................... (1,926)
Cash dividends paid ....................................... (1,672) (1,468) (1,218)
-------- -------- --------
Net cash provided by financing activities 18,765 24,710 25,555
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................ 2,302 (10,748) 10,321
CASH AND CASH EQUIVALENTS AT JANUARY 1 .................... 18,110 28,858 18,537
-------- -------- --------
CASH AND CASH EQUIVALENTS AT DECEMBER 31 .................. $ 20,412 $ 18,110 $ 28,858
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
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<PAGE> 294
First-Knox Banc Corp. 1995 Annual Report
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1995
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; 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 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.
INVESTMENT SECURITIES
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards 115 (SFAS 115), "Accounting for Certain Investments in Debt
and Equity Securities." SFAS 115 requires corporations to classify certain debt
and equity securities as held to maturity, trading or available for sale. The
initial effect of adopting SFAS 115 on January 1, 1994 was an increase in
shareholders' equity of $706,000, representing the net unrealized gains on
securities classified as available for sale, net of the related tax effect.
Securities classified as available for sale are carried at fair value. Net
unrealized gains and losses are reflected as a separate component of
shareholders' equity, net of tax effects. Securities classified as available for
sale are those that management intends to sell or that could be sold for
liquidity, investment management, or similar reasons, even if there is not a
present intention of such a sale. Equity securities that have a readily
determinable fair value are also classified as available for sale.
Securities classified as held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts using the interest method.
Securities classified as held to maturity are those management has the positive
intent and ability to hold to maturity. Trading securities are those purchased
principally to sell in the near term and are carried at fair value,with
unrealized holding gains and losses reflected in earnings. The Corporation does
not have trading securities.
(Continued)
15
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First-Knox Banc Corp. 1995 Annual Report
Prior to the adoption of SFAS 115, the Corporation recorded investment
securities at amortized cost. Marketable equity securities were carried at the
lower of cost or estimated market value in the aggregate.
Realized gains and losses on disposition are based on net proceeds and the
adjusted carrying amount of the security sold, using the specific identification
method.
INTEREST AND FEES ON LOANS AND LEASES
Interest on loans and leases 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
and leases 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. In addition, the
Corporation is in the business of commercial and consumer leasing. Commercial
loans, residential real estate loans, consumer loans, and leases comprise 31.1%,
46.3%, 22.1%, and 0.5% of total loans and leases, respectively, at December 31,
1995.
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 AND LEASE LOSSES
Because some loans and leases may not be repaid in full, an allowance for
loan and lease losses is recorded. Increases to the allowance are recorded by a
provision charged to expense. Estimating the risk of loss and the amount of loss
on any loan or lease is necessarily subjective. Accordingly, the allowance is
maintained by management at a level considered adequate to cover losses that are
currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations including their
financial positions and collateral values, and other factors and estimates which
are subject to change over time. While management may periodically allocate
portions of the allowance for specific problem situations, the entire allowance
is available for any charge-offs that occur. A loan or lease is charged-off by
management as a loss when deemed uncollectible, although collection efforts
continue and future recoveries may occur.
Statements of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" and No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures" became effective
January 1, 1995, and require
(Continued)
16
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First-Knox Banc Corp. 1995 Annual Report
recognition of loan impairment. Loans are considered impaired if full principal
or interest payments are not anticipated. Impaired loans are carried at the
present value of expected cash flows discounted at the loan's effective interest
rate or at the fair value of the collateral if the loan is collateral dependent.
A portion of the allowance for loan losses is allocated to impaired loans.
Changes in the carrying value of impaired loans due to changes in estimates of
future payments or the passage of time are reported as increases or decreases in
the provision for loan losses. The effect of adopting these standards in 1995
was not material.
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 mortgages. 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 nonaccrual 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 nonaccrual 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. 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 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 and $144,000 at December 31, 1995,
and 1994, respectively.
INTANGIBLES
Intangible assets arising from branch and bank acquisitions, and included
with other assets in the accompanying consolidated balance sheet, are summarized
as follows at December 31, 1995, net of accumulated amortization:
<TABLE>
<S> <C>
Goodwill $ 416,000
Core deposit intangibles 653,000
</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.
Amortization of goodwill and core deposit intangibles totaled $240,000,
$248,000, and $256,000 in 1995, 1994, and 1993, respectively.
(Continued)
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First-Knox Banc Corp. 1995 Annual Report
INCOME TAXES
Beginning in 1993, the Corporation adopted SFAS 109, "Accounting for
Income Taxes." The Corporation records income tax expense based upon the amount
of tax due on its tax return plus deferred taxes computed based upon the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities, using enacted tax rates. The
cumulative effect of the adoption of SFAS 109 as of January 1, 1993, was not
material.
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 $16,795,000, $13,393,000, and $12,830,000
for the years ended December 31, 1995, 1994, and 1993, respectively. Cash paid
for income taxes was $1,477,000, $1,378,000, and $1,958,000 for the years ended
December 31, 1995, 1994, and 1993, 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.
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. For 1993, the computation of fully-diluted earnings per share
further assumes adding the after-tax interest cost of the convertible,
subordinated debentures to net income and dividing the result by the
fully-diluted weighted average shares outstanding during the year. Fully-diluted
shares related to the debentures are calculated assuming the conversion of each
$1,000 of debentures outstanding for 97.24 shares of common stock at the
beginning of 1993. All of the outstanding debentures were redeemed or converted
as of June 17, 1993. The calculation of fully-diluted weighted average shares
outstanding is adjusted for the actual debentures converted.
In July, 1995, the Corporation declared a two-for-one stock split in the
form of a 100% stock dividend. The related shares were distributed September 1,
1995, to shareholders of record on August 18, 1995. This was recorded by
transferring the par value of the shares issued from retained earnings to common
stock. The Corporation declared 5% stock dividends in 1994 and 1993. These stock
dividends were recorded by transferring the fair market value of the shares
issued from retained earnings to common stock and paid-in capital. All per share
data has been retroactively adjusted for the stock split and stock dividends
declared.
FINANCIAL STATEMENT PRESENTATION
Certain items in the 1994 and 1993 financial statements have been reclassified
to correspond with the 1995 presentation.
18
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First-Knox Banc Corp. 1995 Annual Report
NOTE 2 - INVESTMENT SECURITIES AND
MORTGAGE-BACKED SECURITIES
The amortized cost and estimated fair values of investment and
mortgage-backed securities available for sale are summarized as follows at
December 31, 1995:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
------- ------ ------- -------
TOTAL ................. $92,335 $2,487 $ (128) $94,694
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE-BACKED SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GNMA certificates ............................... $ 9,357 $ 385 $ 9,742
FHLMC certificates .............................. 12,658 199 $ (23) 12,834
FNMA certificates ............................... 13,320 51 (46) 13,325
Collateralized mortgage obligations ............. 1,421 1 (29) 1,393
------- ------- ------ -------
TOTAL ............................... $36,756 $ 636 $ (98) $37,294
======= ======= ====== =======
</TABLE>
The amortized cost and estimated fair values of investment and
mortgage-backed securities available for sale and held to maturity are
summarized as follows at December 31, 1994:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ...... $28,300 $ 1 $ (881) $27,420
Obligations of U.S. government
corporations and agencies 2,497 (104) 2,393
Other securities .............. 3,864 127 3,991
------- ----- ------- -------
TOTAL ............. $34,661 $ 128 $ (985) $33,804
======= ===== ======= =======
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE-BACKED SECURITIES GROSS GROSS ESTIMATED
AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GNMA certificates .................................. $ 2,946 $ (182) $ 2,764
FHLMC certificates ................................. 15,663 $ 54 (548) 15,169
FNMA certificates .................................. 22,710 17 (922) 21,805
Collateralized mortgage obligations ................ 2,961 1 (43) 2,919
------- -------- -------- -------
TOTAL $44,280 $ 72 $ (1,695) $42,657
======= ======== ======== =======
</TABLE>
(Continued)
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First-Knox Banc Corp. 1995 Annual Report
<TABLE>
<CAPTION>
INVESTMENT SECURITIES GROSS GROSS ESTIMATED
HELD TO MATURITY AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS OF DOLLARS) COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OBLIGATIONS OF STATES AND
POLITICAL SUBDIVISIONS ...... $54,750 $555 $(3,458) $51,847
======= ==== ======= =======
</TABLE>
The amortized cost and estimated fair value of investments in debt
securities available for sale at December 31, 1995, 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>
AMORTIZED ESTIMATED
(IN THOUSANDS OF DOLLARS) COST FAIR VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less ........................ $ 13,807 $ 13,816
Due after one year through five years .......... 31,000 31,785
Due after five years through ten years ......... 22,824 23,743
Due after 10 years ............................. 24,704 25,350
-------- --------
92,335 94,694
Mortgage-backed and related securities ......... 36,756 37,294
-------- --------
TOTAL INVESTMENTS IN DEBT SECURITIES ..... $129,091 $131,988
======== ========
</TABLE>
Proceeds from the sales of investment and mortgage-backed securities
during 1995 were $17,580,000, resulting in gross gains of $50,000 and gross
losses of $93,000. There were no sales in 1994 and 1993. Gross gains from calls
of investment securities were $23,000, $11,000, and $15,000 in 1995, 1994, and
1993, respectively.
As of December 31,1995 and 1994, securities having estimated fair values
of $60,297,000 and $56,093,000, 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 is reflected, net of tax as an increase to shareholders' equity.
20
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<PAGE> 300
First-Knox Banc Corp. 1995 Annual Report
NOTE 3 - LOANS AND LEASE FINANCING
Loans and leases are comprised of the following at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Residential real estate loans held for sale .......... $ 5,020
Residential real estate loans ........................ 147,927 $142,785
Commercial real estate loans ......................... 9,548 6,233
Commercial and industrial loans ...................... 88,632 79,453
Consumer and credit card loans ....................... 73,137 69,286
Obligations of states and political subdivisions ..... 4,678 5,291
Lease financing, net ................................. 1,699 1,120
-------- --------
TOTAL LOANS AND LEASE FINANCING ................ $330,641 $304,168
======== ========
</TABLE>
Loans and leases over 90 days past due and still accruing interest
approximated $862,000 and $457,000 at December 31, 1995 and 1994, respectively.
Loans on non-accrual status at December 31, 1995 and 1994 approximated $197,000
and $805,000, respectively. Impaired loans were not material at December 31,
1995, or during 1995.
Components of the investment in direct financing leases at December 31,
1995 and 1994, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Total minimum lease payments to be received ........ $ 2,012 $ 1,323
Less unearned income on leases ..................... (313) (203)
------- -------
TOTAL LEASE FINANCING, NET ............. $ 1,699 $ 1,120
======= =======
</TABLE>
Future minimum annual rentals under the direct-financing leases are as
follows in thousands of dollars:
<TABLE>
<S> <C> <C>
1996................... $ 421
1997................... 534
1998................... 411
1999................... 452
2000................... 194
------
$2,012
======
</TABLE>
21
Page 44
<PAGE> 301
First-Knox Banc Corp. 1995 Annual Report
NOTE 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES
Activity in the allowance for loan and lease losses is summarized as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year .............. $ 3,876 $ 3,597 $ 3,162
Provision for loan and lease losses ..... 584 638 1,124
Losses charged to the allowance ......... (539) (641) (862)
Recoveries .............................. 245 282 173
------- ------- -------
BALANCE, END OF YEAR .............. $ 4,166 $ 3,876 $ 3,597
======= ======= =======
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment at December 31, are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land ....................................................... $ 1,701 $ 1,629
Construction in progress.................................... 279
Buildings .................................................. 9,229 7,798
Equipment .................................................. 7,713 7,074
------- -------
Total premises and equipment................................ 18,643 16,780
Less accumulated depreciation............................... (7,650) (6,745)
------- -------
PREMISES AND EQUIPMENT, NET .......................... $10,993 $10,035
======= =======
</TABLE>
Total depreciation expense was $1,018,000 in 1995, $716,000 in 1994, and
$643,000 in 1993.
The Corporation has annual renewable leases for certain office and
business equipment. Total rental expense for renewable and noncancelable
operating leases was $211,000, $202,000, and $169,000 in 1995, 1994, and 1993,
respectively. Future lease commitments are not material.
NOTE 6 - DEPOSITS
Deposits are comprised of the following categories at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Non interest-bearing demand ....................... $ 54,706 $ 51,184
Interest-bearing demand ........................... 39,882 42,525
Savings ........................................... 99,133 109,675
Time .............................................. 210,346 173,796
-------- --------
TOTAL DEPOSITS .............................. $404,067 $377,180
======== ========
</TABLE>
Time deposits of $100,000 or more included above were $36,417,000 in 1995
and $32,658,000 in 1994.
22
Page 45
<PAGE> 302
First-Knox Banc Corp. 1995 Annual Report
NOTE 7 - SHORT-TERM BORROWINGS
The outstanding balances for short-term borrowings as of December 31, are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Securities sold under repurchase agreements ............ $7,453 $ 5,700
Demand note due to the U. S. Treasury .................. 533 1,852
Federal funds purchased ................................ 3,900
------ -------
TOTAL SHORT-TERM BORROWINGS ...................... $7,986 $11,452
====== =======
</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.
NOTE 8 - LONG-TERM DEBT
Long-term borrowings as of December 31, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Fixed rate Federal Home Loan Bank advances with
monthly principal and interest payments:
5.60% Advance due August 1, 2003 ................. $ 2,442 $ 2,690
6.35% Advance due August 1, 2013 ................. 2,812 2,896
5.95% Advance due March 1, 2004 .................. 649 708
5.70% Advance due May 1, 2004 .................... 5,262 5,736
5.85% Advance due January 1, 2016 ................ 5,000
Fixed rate Federal Home Loan Bank advances
with monthly interest payments:
5.35% Advance due February 1, 1999 ............... 5,000 5,000
6.60% 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
Variable rate Federal Home Loan Bank advances
with monthly interest payments:
6.11% Advance due May 1, 2004 .................... 4,400
5.68% Advance due June 1, 2004 ................... 1,040
------- -------
TOTAL LONG-TERM DEBT ....................... $33,415 $34,720
======= =======
</TABLE>
At December 31, 1995, Federal Home Loan Bank (FHLB) advances were
collateralized by all shares of FHLB stock owned by the Corporation, with a
carrying value of $3,546,000, and by 100% of the Corporation's qualified real
estate-backed investments and qualified mortgage loan portfolio totaling
approximately $195,000,000. Based on the carrying amount of FHLB stock owned by
the Corporation, total FHLB advances were limited to approximately $40,400,000
at December 31, 1995. 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
$1,540,000 in 1996, $1,527,000 in 1997, $1,524,000 in 1998, $18,530,000 in 1999,
$1,546,000 in 2000, and $8,748,000 thereafter.
23
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<PAGE> 303
First-Knox Banc Corp. 1995 Annual Report
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, 1995 and 1994, unused credit lines amounted to
approximately $56,334,000 and $56,954,000, respectively. As of December 31, 1995
and 1994, commitments under outstanding letters of credit amounted to
approximately $364,000 and $320,000, 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, 1995, was $4,692,000. These balances do not earn interest.
The Corporation and its subsidiaries have various claims and lawsuits
pending at December 31, 1995, arising in the ordinary course of their business.
It is the opinion of management and 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
AT&T 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 AT&T 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
AT&T. The agreement calls for payments with limits defined by inflation and
customer account volumes. Payments under this agreement amounted to $1.27
million in 1995, $1.21 million in 1994, and $1.16 million in 1993. The annual
amount of anticipated payments is expected to range from $1.33 million in 1996
to $1.39 million in 1997 with a final payment of $107,000 in January 1998.
24
Page 47
<PAGE> 304
First-Knox Banc Corp. 1995 Annual Report
NOTE 10 - EMPLOYEE BENEFIT PLANS
PENSION PLAN:
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. For financial reporting
purposes, pension expense is calculated using the projected unit cost method.
Net pension expense for 1995, 1994, and 1993 is comprised of the following
components:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost benefits earned
during the year .......................... $ 224 $ 262 $ 233
Interest cost on projected
benefit obligation ....................... 351 315 303
Actual return on plan assets ................... (460) (413) (381)
Net amortization and deferral
of initial transition credit and
subsequent (gains) and losses ............ (43) (32) (40)
----- ----- -----
NET PENSION EXPENSE .................. $ 72 $ 132 $ 115
===== ===== =====
</TABLE>
The funded status of the plan and the prepaid pension cost recognized at
December 31, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits ............................... $ 3,798 $ 3,121 $ 3,218
Non-vested benefits ........................... 117 79 378
------- ------- -------
ACCUMULATED BENEFIT OBLIGATION .......... $ 3,915 $ 3,200 $ 3,596
======= ======= =======
Projected benefit obligation ........................ $ 5,042 $ 4,182 $ 4,522
Plan assets at fair value
(primarily U. S. government obligations, listed
stocks, and corporate bonds) .................. 5,620 4,646 4,481
------- ------- -------
Plan assets in excess of
(less than) projected benefit obligation ...... 578 464 (41)
Items not yet recognized in income:
Unrecognized prior service adjustment ......... 90 96 136
Unrecognized net loss ......................... 474 205 566
Initial transition credit which is being
amortized over 15 years ....................... (242) (291) (339)
------- ------- -------
PREPAID PENSION COST INCLUDED
IN OTHER ASSETS ................... $ 900 $ 474 $ 322
======= ======= =======
Assumptions used at December 31:
Discount rate ................................. 7.50% 8.50% 7.00%
Rate of increase in compensation level ........ 4.75% 5.50% 5.00%
Long-term rate of return on assets ............ 9.00% 9.00% 9.00%
</TABLE>
To better reflect the pension obligation at December 31, 1995, the
Corporation changed the assumptions from those used at December 31, 1994. These
changes were the primary factors in the change in the unrecognized net loss
reflected in the prepaid pension cost analysis at December 31, 1995.
25
Page 48
<PAGE> 305
First-Knox Banc Corp. 1995 Annual Report
POSTRETIREMENT HEALTHCARE PLAN:
SFAS 106, "Employers Accounting for Postretirement Benefits Other Than
Pensions," was adopted by the Corporation in 1993. This pronouncement requires
employers to accrue the cost of retirees' health and other postretirement
benefits during the working career of active employees. The Corporation sponsors
a postretirement healthcare plan which covers former employees who retired prior
to January 1, 1993.
The following table sets forth the plan's funded status reconciled with
the amount recorded in the Corporation's balance sheet at December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation ................................... $ 821 $ 732
Unrecognized transition asset, net of amortization ......... (808) (855)
Unrecognized net gain ...................................... 174 258
----- -----
ACCRUED POSTRETIREMENT BENEFIT
COST INCLUDED IN OTHER LIABILITIES ................... $ 187 $ 135
===== =====
</TABLE>
Postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest cost on accumulated postretirement benefit obligation ... $ 63 $ 56
Amortization of transition obligation over 20 years .............. 37 48
---- ----
POSTRETIREMENT BENEFIT COST ...................................... $100 $104
==== ====
</TABLE>
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1995. The rate was assumed
to decrease gradually to 5% in 2000 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, 1995, by $81,000. The weighted average discount rate used in
determining expense, and accumulated postretirement benefit obligation was
7.50%.
EMPLOYEE RETIREMENT SAVINGS PLAN:
On January 1, 1993, the Corporation adopted a 401(k) plan which covers all
employees who are at least 21 years of age and who have completed one year of
service. The Corporation contributes a matching 30% of employee contributions up
to a maximum of 6% of the employee's annual salary. All matching contributions
vest immediately. The Corporation's expense related to the matching provisions
of this plan was $78,000 for 1995 and $76,000 for 1994.
26
Page 49
<PAGE> 306
First-Knox Banc Corp. 1995 Annual Report
NOTE 11 - STOCK OPTION PLAN
The Corporation was authorized in 1990 to grant options on 175,032 shares
of common stock and 87,516 stock appreciation rights (adjusted for stock splits
and stock dividends) to key management employees of the Corporation and its
subsidiaries. This plan authorized the issuance of options and stock
appreciation rights at fair market value at the date of the grant and for terms
not exceeding ten years from the date of the grant. No consideration was paid by
the employees to exercise the stock appreciation rights. This plan expired on
March 27, 1995.
The Corporation was authorized in 1995 to grant options on 180,000 shares
of common stock and 60,000 stock appreciation rights to key management employees
and directors of the Corporation and subsidiaries under a new plan. This plan
authorizes the issuance of stock options and stock appreciation rights at fair
market value at the date of the grant and for terms not exceeding ten years from
the date of the grant. No consideration is paid by employees to exercise stock
appreciation rights. Common shares related to cancelled stock options and stock
appreciation rights become available for subsequent grant under terms of the
plan. Stock options and stock appreciation rights may not be granted under this
plan after March 28, 2005.
<TABLE>
<CAPTION>
STOCK OPTIONS
-------------------------
OUTSTANDING
----------------------------
RANGES OF
NUMBER EXERCISE
AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 1, 1993 .................. 55,614 119,418 $10.54 - 12.47
Granted .......................... (35,500) 35,500 13.27 - 13.27
------- -------
December 31, 1993 ................ 20,114 154,918 10.54 - 13.27
Granted .......................... (19,950) 19,950 20.89 - 20.89
Exercised ........................ (5,184) 10.54 - 10.59
------- -------
December 31, 1994 ................ 164 169,684 10.54 - 20.89
Authorized ....................... 180,000
Canceled ......................... (1,296) 11.88 - 11.88
Expired .......................... (164)
Granted .......................... (16,000) 16,000 21.53 - 21.53
Exercised ........................ (9,884) 10.54 - 11.88
------- -------
DECEMBER 31, 1995 ................ 164,000 174,504 10.54 - 21.53
======= =======
</TABLE>
27
Page 50
<PAGE> 307
First-Knox Banc Corp. 1995 Annual Report
<TABLE>
<CAPTION>
STOCK APPRECIATION RIGHTS
-------------------------------
OUTSTANDING
---------------------------
RANGE OF
NUMBER EXERCISE
AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1993 .................. 55,854 23,884 $10.54 - 12.47
Granted .......................... (7,100) 7,100 13.27 - 13.27
------- ------
December 31, 1993 ................ 48,754 30,984 10.54 - 13.27
Granted .......................... (11,768) 11,768 20.89 - 20.89
Exercised ........................ (1,034) 10.54 - 10.59
------- ------
December 31, 1994 ................ 36,986 41,718 10.54 - 20.89
Authorized ....................... 60,000
Canceled ......................... (260) 11.88 - 11.88
Expired .......................... (36,986)
Exercised ........................ (1,970) 10.54 - 11.88
------- ------
DECEMBER 31, 1995 ................ 60,000 39,488 10.54 - 20.89
====== ======
</TABLE>
Compensation related to stock appreciation rights was $150,000 in 1995,
$139,000 in 1994, $68,000 in 1993.
NOTE 12 - OTHER OPERATING EXPENSES
Other operating expenses consist of the following major items:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Data processing (Note 9) ................... $1,764 $1,611 $1,551
Franchise taxes ............................ 559 542 446
FDIC insurance ............................. 580 980 809
Advertising ................................ 387 357 292
Stationery and office supplies ............. 423 358 369
Professional fees .......................... 358 411 291
Other ...................................... 1,585 1,805 2,055
------ ------ ------
TOTAL OTHER OPERATING EXPENSES .... $5,656 $6,064 $5,813
====== ====== ======
</TABLE>
28
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<PAGE> 308
First-Knox Banc Corp. 1995 Annual Report
NOTE 13 - INCOME TAXES
Income taxes consist of the following for the years ended December 31,
1995, 1994, and 1993:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense .................. $1,560 $1,267 $1,603
Deferred tax expense (benefit) ........ 5 (160)
------ ------- ------
TOTAL INCOME TAXES .............. $1,565 $ 1,267 $1,443
====== ======= ======
</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) 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed at the statutory
tax rate on pre-tax income ......... $ 2,473 $ 2,187 $ 2,077
Add/(subtract) tax effect of:
Tax exempt income .................. (906) (932) (659)
Other .............................. (2) 12 25
------- ------- -------
TOTAL INCOME TAXES ......... $ 1,565 $ 1,267 $ 1,443
======= ======= =======
</TABLE>
The income tax expense (benefit) attributable to securities transactions
approximated $(7,000) in 1995, $4,000 in 1994, and $5,000 in 1993.
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, 1995
and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses ............................. $ 1,040 $ 942
Unrealized loss on securities available for sale ...... 843
Other ................................................. 279 220
------- -------
Deferred tax asset ........................... 1,319 2,005
------- -------
Pension ............................................... (299) (154)
Depreciation .......................................... (306) (353)
Direct financing and leveraged leases ................. (185) (206)
Unrealized gains on securities available for sale ..... (985)
Other ................................................. (405) (320)
------- -------
Deferred tax liability ....................... (2,180) (1,033)
------- -------
NET DEFERRED TAX ASSET (LIABILITY) ........... $ (861) $ 972
======= =======
</TABLE>
The Corporation has paid sufficient taxes in the current and prior years
to warrant recording full deferred tax assets without a valuation allowance.
29
Page 52
<PAGE> 309
First-Knox Banc Corp. 1995 Annual Report
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, 1995,
$4.4 million was available for dividend payments under the more restrictive of
the two limitations.
The Corporation complies with the capital requirements established by the
Federal Reserve System, which are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL POSITION
AS OF
REGULATORY DECEMBER 31,
MINIMUM 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I risk-based capital 4.00% 14.29% 14.45%
Total risk-based capital 8.00% 15.45% 15.63%
Tier I leverage 3.00-5.00% 8.84% 8.80%
</TABLE>
Under "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%, a leverage ratio of at least 5%, and the absence of any
written agreement, order, or directive from any regulatory agency. "Well
capitalized" status affords the Corporation the ability to operate with the
greatest flexibility under current laws and regulations.
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, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1995
- ----------------------------------------------------------------------------
<S> <C>
Balance at January 1, 1995 $10,657
New loans and advances 2,686
Repayment (1,972)
-------
BALANCE AT DECEMBER 31, 1995 $11,371
=======
</TABLE>
Total loans to executive officers included above were $1,359,000 and
$1,262,000 at December 31, 1995 and 1994, respectively.
30
Page 53
<PAGE> 310
First-Knox Banc Corp. 1995 Annual Report
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, 1995 and
1994. Items which are not financial instruments are not included.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
CARRYING ESTIMATED CARRYING ESTIMATED
(IN THOUSANDS OF DOLLARS) AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and equivalents ............... $ 20,412 $ 20,412 $ 18,110 $ 18,110
Investment and mortgage-backed
securities available for sale 131,988 131,988 76,461 76,461
Investment and mortgage-backed
securities held to maturity .. 54,750 51,847
Loans, net of allowance for
loan losses .................. 324,776 327,296 299,172 295,337
Accrued interest receivable ........ 3,702 3,702 3,348 3,348
Demand and savings deposits ........ (193,721) (193,721) (203,384) (203,384)
Time deposits ...................... (210,346) (214,737) (173,796) (170,488)
Short-term borrowings .............. (7,986) (7,986) (11,452) (11,452)
Long-term debt ..................... (33,415) (29,218) (34,720) (24,468)
Accrued interest payable ........... (2,272) (2,272) (1,568) (1,568)
</TABLE>
For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 1995 and 1994. 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, 1995 and 1994. The fair values of unrecorded
commitments at December 31, 1995 and 1994 are not material.
While these estimates are based on management's judgment of the
appropriate valuation factors, there is no assurance that were the Corporation
to have liquidated such items the estimated fair values would necessarily have
been realized. The estimated fair values should not be considered to apply at
subsequent dates.
Other assets and liabilities of the Corporation that are not defined as
financial instruments are not included in the above disclosures. 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.
31
Page 54
<PAGE> 311
First-Knox Banc Corp. 1995 Annual Report
NOTE 17 - PARENT COMPANY ONLY CONDENSED
FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994
- ------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents ............................. $ 6,654 $ 6,517
Interest-bearing deposit in subsidiary bank ........... 57 105
Investment security ................................... 364 295
Debenture receivable from subsidiary bank ............. 2,000 2,000
Investment in subsidiaries ............................ 38,152 32,374
Other assets .......................................... 14 14
-------- --------
TOTAL ASSETS .................................... $ 47,241 $ 41,305
======== ========
LIABILITIES
Dividends payable ..................................... $ 534 $ 455
Other liabilities ..................................... 48 18
-------- --------
TOTAL LIABILITIES ............................... 582 473
-------- --------
EQUITY
Common stock .......................................... 11,407 5,682
Paid-in capital ....................................... 24,042 23,864
Retained earnings ..................................... 11,187 12,922
Common stock in treasury .............................. (1,889)
Unrealized gain (loss) on securities available for sale 1,912 (1,636)
-------- --------
TOTAL EQUITY .................................... 46,659 40,832
-------- --------
TOTAL LIABILITIES AND EQUITY .............. $ 47,241 $ 41,305
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries ................. $ 3,401 $ 6,933 $ 1,048
Interest and dividend income ................ 193 196 198
Total expenses .............................. (150) (125) (277)
------- ------- -------
Income before taxes and equity in
undistributed earnings of subsidiaries 3,444 7,004 969
Income tax expense (benefit) ................ 9 20 (31)
Equity in undistributed earnings
of subsidiaries ....................... 2,274 (1,820) 3,666
------- ------- -------
NET INCOME ......................... $ 5,709 $ 5,164 $ 4,666
======= ======= =======
</TABLE>
32
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First-Knox Banc Corp. 1995 Annual Report
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS) 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................... $ 5,709 $ 5,164 $ 4,666
Adjustments to reconcile net income to cash
provided by operations
Amortization ..................... 14
Equity in undistributed earnings
of subsidiaries .............. (2,274) 1,820 (3,666)
Changes in other, net ........................ 5 8 (38)
------- ------- -------
Net cash provided by operating activities .... 3,440 6,992 976
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing deposit
in subsidiary bank ..................... 48 142 90
------- ------- -------
Net cash provided by investing activities .... 48 142 90
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid .......................... (1,672) (1,468) (1,218)
Issuance of common stock ..................... 247 408 409
Purchase of treasury shares .................. (1,926)
Debentures redeemed for cash ................. (169)
------- ------- -------
Net cash used in financing activities ........ (3,351) (1,060) (978)
------- ------- -------
Net change in cash ................................. 137 6,074 88
Beginning cash ..................................... 6,517 443 355
------- ------- -------
ENDING CASH ........................................ $ 6,654 $ 6,517 $ 443
======= ======= =======
</TABLE>
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) DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.... 0.44 0.41 0.38 0.34
1994
Interest income..................... $ 8,553 $ 8,314 $ 8,096 $ 7,631
Net interest income................. 4,772 4,759 4,822 4,614
Provision for loan losses........... 129 154 178 177
Net income.......................... 1,326 1,303 1,355 1,180
Fully-diluted earnings per share.... 0.37 0.35 0.37 0.32
</TABLE>
Fully-diluted earnings per share have been restated to reflect the
two-for-one stock split in the form of a 100% stock dividend distributed in
September, 1995.
33
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First-Knox Banc Corp. 1995 Annual Report
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, 1995 and 1994, 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, 1995. These financial
statements are the responsibility of the Company'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, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 10 to the financial statements, the
Corporation changed its methods of accounting for impaired loans in 1995, for
certain investment and mortgage-backed securities in 1994 and for income taxes
and postretirement benefits in 1993 to conform with new accounting guidance.
/s/ CROWE, CHIZEK AND COMPANY LLP
---------------------------------
CROWE, CHIZEK AND COMPANY LLP
Columbus, Ohio
January 18, 1996
34
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First-Knox Banc Corp. 1995 Annual Report
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 Insurance 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
Banks.
Emphasis in this analysis is placed on comparisons of the years 1995 to
1994 and 1994 to 1993, with further discussion of historic data where
appropriate. This review should be read in conjunction with the audited
consolidated financial statements and footnotes and with the ratios, statistics,
and discussions.
TABLE I FINANCIAL RATIOS FOR FIVE YEARS
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PROFITABILITY
Rate of return on:
Average assets ............................. 1.20% 1.13% 1.12% .99% .91%
Average equity ............................. 13.16 12.94 13.50 13.84 13.67
Beginning equity ........................... 13.98 13.44 15.49 14.56 14.36
As a percent of average assets
Net interest income
(fully-taxable equivalent basis) ........... 4.45% 4.51% 4.74% 4.40% 4.17%
Non-interest income ........................ .66 .60 .59 .61 .62
Provision for loan and lease losses ........ .12 .14 .27 .35 .28
Non-interest expense ....................... 3.12 3.21 3.33 3.14 3.11
Cash dividends per share (1) ................. $.49 $.42 $.37 $.34 $.31
Cash dividends as a percentage
of net income .............................. 30.7% 29.6% 27.9% 26.6% 27.6%
OTHER
Average loans and leases to
average deposits ........................... 80.4% 78.7% 77.5% 75.9% 73.6%
Net loan and lease charge-offs
to average loans and leases ................ .09 .12 .24 .42 .34
Allowance to year-end loans and leases ....... 1.26 1.27 1.24 1.14 1.11
Average shareholders' equity
to average assets .......................... 9.10 8.75 8.32 7.12 6.67
Changes in average balances:
Total assets ............................... 4.5% 9.8% 3.7% 3.6% 6.6%
Shareholders' equity ....................... 8.7 15.4 21.1 10.5 10.4
Loans and leases ........................... 5.4 5.2 4.5 6.5 8.0
Deposits ................................... 3.2 3.5 2.3 3.3 6.2
</TABLE>
(1) Restated for stock dividends and stock splits.
35 Page 58
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First-Knox Banc Corp. 1995 Annual Report
RESULTS OF OPERATIONS
Net income of $5,709,000 for 1995 represented a 10.6% increase over
1994. 1994's net income of $5,164,000 represented a 10.7% increase over 1993.
The return on average assets was 1.20% for 1995 compared to 1.13% for
1994 and 1.12% for 1993. The return on average shareholders' equity was 13.16%
for 1995, compared to 12.94% in 1994 and 13.50% in 1993.
As discussed in more detail below, the increase in net income for 1995
resulted primarily from higher net interest income, higher non-interest income,
and a reduced provision for loan losses. The net income increase was partially
offset by a $213,000 or 1.5% increase in non-interest expenses. Non-interest
income recorded growth of $380,000 or 13.8% compared to 1994. Compared to 1993,
1994 non-interest income and non-interest expense increased 11.4% and 5.9%,
respectively.
NET INTEREST INCOME
Net interest income, the amount by which interest and fees from earning
assets exceed the interest cost of liabilities, is the most important component
of consolidated earnings. Net interest income is affected by the volumes,
interest rates, and composition of earning assets and interest-bearing
liabilities, as well as by the 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), net
interest income was $21.21 million in 1995, $20.58 million in 1994, and $19.72
million in 1993. The 1995 net interest spread declined 21 basis points while
average earning assets increased 4.3% and average interest-bearing liabilities
increased 3.5% over 1994. The 1994 net interest spread declined 24 basis points
while average earning assets increased 9.5% and average interest-bearing
liabilities increased 9.1% over 1993. A rate and volume analysis of interest
income and interest expense changes for 1995 and 1994 is provided in Table III.
As noted in Table II, average earning asset yields (FTE) were 8.59% in
1995, 7.91% in 1994, and 8.21% in 1993. Average interest-bearing liability costs
were 4.57% in 1995, 3.68% in 1994, and 3.74% in 1993. The net interest margin
(FTE net interest income divided by average earning assets) was 4.71%, 4.76%,
and 4.99% for the same respective years.
The decline in net interest margin during 1995 resulted primarily from
earning asset rates increasing slower than interest rates paid on
interest-bearing liabilities. A shift in the composition of customer deposits
during 1995 contributed to the margin decline over 1994, as average balances for
savings and interest-bearing demand deposits declined by 7.2% or $11.7 million
while higher cost time deposits increased by 12.4% or $21.4 million. New lower
yielding non-taxable securities were added during the first quarter of 1994
contributing to the margin decline in 1994 compared to 1993. The
36
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First-Knox Banc Corp. 1995 Annual Report
TABLE II AVERAGE BALANCES AND ANALYSIS OF NET INTEREST INCOME
(In thousands of dollars)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------- ----------------------------- ------------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities:
Taxable .......................... $ 82,390 $ 5,214 6.33% $ 81,549 $ 4,477 5.49% $ 74,730 $ 4,293 5.74%
Non-taxable (1) .................. 49,889 4,288 8.60 50,024 4,242 8.48 29,497 2,800 9.49
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 132,279 9,502 7.18 131,573 8,719 6.63 104,227 7,093 6.81
--------- ------- ----- -------- -------- ----- -------- ------- -----
Loans and leases (2):
Commercial (1) ................... 95,629 9,411 9.84 94,468 8,021 8.49 92,719 7,499 8.09
Real estate ...................... 146,803 11,941 8.13 137,409 10,947 7.97 124,475 10,708 8.60
Consumer (3) ..................... 70,468 7,470 10.60 65,354 6,345 9.71 65,366 6,773 10.36
Leases ........................... 1,359 155 11.41 930 99 10.65 990 135 13.64
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 314,259 28,977 9.22 298,161 25,412 8.52 283,550 25,115 8.86
--------- ------- ----- -------- -------- ----- -------- ------- -----
Money market investments:
Federal funds sold ............... 4,068 228 5.60 2,376 79 3.32 6,973 208 2.98
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 4,068 228 5.60 2,376 79 3.32 6,973 208 2.98
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL EARNING
ASSETS ........................... 450,606 38,707 8.59 432,110 34,210 7.91 394,750 32,416 8.21
------- -------- -------
Loan and lease allowance ......... (3,983) (3,784) (3,552)
Other assets ..................... 30,154 27,902 24,432
--------- --------- --------
TOTAL ASSETS ..................... $ 476,777 $ 456,228 $415,630
========= ========= ========
Interest-bearing deposits:
Savings and interest-bearing
demand deposits .......... $ 150,095 4,029 2.68% $161,812 4,072 2.52% $158,552 4,309 2.72%
Time deposits .................... 193,554 11,129 5.75 172,148 7,728 4.49 167,420 7,714 4.61
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 343,649 15,158 4.41 333,960 11,800 3.53 325,972 12,023 3.69
--------- ------- ----- -------- -------- ----- -------- ------- -----
Borrowed funds:
Short-term ....................... 6,196 390 6.29 9,153 349 3.81 8,669 346 3.99
Long-term ........................ 33,413 1,951 5.84 27,246 1,478 5.42 4,773 328 6.87
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL .................... 39,609 2,341 5.91 36,399 1,827 5.02 13,442 674 5.01
--------- ------- ----- -------- -------- ----- -------- ------- -----
TOTAL INTEREST-
BEARING LIABILITIES ...... 383,258 17,499 4.57 370,359 13,627 3.68 339,414 12,697 3.74
------- -------- -------
Non-interest bearing
demand deposits .......... 47,023 44,722 39,877
--------- -------- --------
TOTAL INTEREST-BEARING
LIABILITIES AND
DEMAND DEPOSITS .......... 430,281 17,499 4.07 415,081 13,627 3.28 379,291 12,697 3.35
------- -------- -------
Other liabilities ................ 3,106 1,248 1,778
--------- -------- --------
TOTAL LIABILITIES ........ 433,387 416,329 381,069
Shareholders' equity ............. 43,390 39,899 34,561
--------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY ................... $ 476,777 $ 456,228 $415,630
========= ========= ========
Interest spread .................. $21,208 4.02% $ 20,583 4.23% $19,719 4.47%
======= ======== =======
As a percentage of earning assets:
Interest income .......... 8.59% 7.91% 8.21%
Interest expense ......... 3.88 3.15 3.22
----- ----- -----
Net interest income....... 4.71% 4.76% 4.99%
===== ===== =====
</TABLE>
(1) Income is computed on a fully-taxable equivalent basis utilizing
a 34% tax rate. The amount of such adjustment was:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Non-taxable securities.. $1,496 $1,442 $ 969
Commercial loans ....... 123 174 155
$1,619 $1,616 $1,124
</TABLE>
(2) Non-accruing loans are included in the
average balances presented.
(3) Includes balances outstanding under home
equity lines of credit.
37
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First-Knox Banc Corp. 1995 Annual Report
TABLE III RATE AND VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND INTEREST
EXPENSE
<TABLE>
<CAPTION>
1995-1994 1994-1993
------------------------------ ---------------------------------
Change In Change In
Income/ Rate Volume Income/ Rate Volume
(In thousands of dollars) Expense Effect Effect Expense Effect Effect
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Change in interest income
Securities:
Taxable .............. $ 737 $ 688 $ 49 $ 184 $ (168) $ 352
Non-taxable (1) ...... 46 58 (12) 1,442 (260) 1,702
------- ------ ------- ------- ------- -------
Total ............. 783 746 37 1,626 (428) 2,054
------- ------ ------- ------- ------- -------
Loans and leases:
Commercial (1) ....... 1,390 1,295 95 522 378 144
Real estate (2) ...... 994 213 781 239 (571) 810
Consumer ............. 1,125 589 536 (428) (426) (2)
Leases ............... 56 6 50 (36) (28) (8)
------- ------ ------- ------- ------- -------
Total ............. 3,565 2,103 1,462 297 (647) 944
------- ------ ------- ------- ------- -------
Money market investments (3).. 149 77 72 (129) 27 (156)
------- ------ ------- ------- ------- -------
Total interest income .. 4,497 2,926 1,571 1,794 (1,048) 2,842
------- ------ ------- ------- ------- -------
Change in interest expense
Savings and interest-
bearing demand deposits .... (43) 186 (229) (237) (329) 92
Time deposits ................ 3,401 2,338 1,063 14 (165) 179
------- ------ ------- ------- ------- -------
Total deposits ......... 3,358 2,524 834 (223) (494) 271
Short-term borrowings ........ 41 85 (44) 3 (13) 16
Long-term borrowings ......... 473 101 372 1,150 (54) 1,204
------- ------ ------- ------- ------- -------
Total interest expense.. 3,872 2,710 1,162 930 (561) 1,491
------- ------ ------- ------- ------- -------
Net interest income .... $ 625 $ 216 $ 409 $ 864 $ (487) $ 1,351
======= ====== ======= ======= ======= =======
</TABLE>
(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 and
leases 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.
38 Page 61
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First-Knox Banc Corp. 1995 Annual Report
portfolio yield on non-taxable securities declined during 1994 by 101
basis points. 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. The
Corporation will face competitive pressure to maintain higher deposit rates in
1996 which could further compress the net interest margin.
The difference between a financial institution's interest-sensitive
assets (i.e., assets which will mature or reprice within a specific 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, 1995, the
Corporation's gap position was negative within one year with $39.2 million of
interest-bearing liabilities repricing in excess of earnings assets. This
represents 8.42% of total earning assets. Approximately 53.4% of earning assets
and 73.7% of interest-bearing liabilities reprice within one year of December
31, 1995. 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 7%
over a twelve month period if interest rates were to immediately rise 2%.
Conversely, net interest income is projected to improve by approximately 7% 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 to modestly falling
interest rates during 1996. Management intends to maintain a negative one year
gap position as it believes this is an optimum structure to attain the
Corporation's long-term profit goals. An analysis of interest rate sensitive
assets and liabilities at December 31, 1995 can be found in Table V.
PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The provision for loan and lease 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 1995 was 8.5% lower than in
1994, principally as a result of reduced loan delinquencies and decreased loan
charge-offs. As percentages of average loans and leases, the expense provisions
were .19%, .21%, and .40% in 1995, 1994, and 1993, respectively.
Net loan and lease charge-offs represented .09%, .12%, and .24% of the
average outstanding balances during 1995, 1994, and 1993, respectively.
Approximately 43.7% of
39 Page 62
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First-Knox Banc Corp. 1995 Annual Report
net charge-offs in 1995 resulted from commercial related loans and leases, with
consumer loans accounting for 56.3% of the balance. Over the past five years,
consumer related loans and leases accounted for approximately 51.4% of net
charge-offs, commercial loans approximately 43.0%, and mortgage loans
approximately 5.6%.
As a percentage of year-end loan and lease balances, the allowance for
possible losses was 1.26% in 1995, 1.27% in 1994, and 1.24% in 1993. During
1995, the allowance was increased through expense provisions that exceeded the
net losses charged against the allowance. At the end of 1995, approximately 70%
of the allowance is unallocated; i.e., not allocated to specific loans or
portfolios based on historical portfolio losses, compared to 67% at the previous
year end.
Management anticipates that, as a percentage of loan and lease
balances, 1996 net loan and lease charge-offs should approximate 1995 levels.
Declines in nonperforming loans (loans on non-accrual status or past due 90 days
or more) and improvements in overall delinquency statistics are the primary
reasons for this expectation. Non-performing loans and leases of $1.06 million
represented .32% of 1995 year-end balances compared to $1.26 million and .41% at
December 31, 1994.
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 $3.13
million was $380,000 or 13.8% higher than in 1994. Customer service fees and
commissions increased $353,000 compared to 1994. Trust department income
increased $114,000 or 19.4%.
Realized security gains and losses were minimal in each of the past
three years. Gains and losses recognized in 1993 and 1994 were principally the
result of calls of municipal securities. In 1995, the Corporation sold $17.6
million of mortgage-backed securities from its available-for-sale portfolio as
part of an asset/liability strategy to improve long-term returns in a period of
declining interest rates.
Loan sale gains of $27,000 in 1995 were down 6.9% or $2,000 from
similar gains in 1994. During 1995 loan sale gains were the result of selling in
the secondary market $1.6 million of the mortgage loans originated during that
year. The gains during 1994 were the results of sales of student loans.
Total non-interest income of $2.75 million in 1994 was 11.4% higher
than 1993 as customer service fees and trust department income increases were
offset by reduced securities gains. Customer service fees increased $168,000
compared to 1993 and trust department income increased 12.9% compared to 1993.
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.
40 Page 63
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First-Knox Banc Corp. 1995 Annual Report
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 $213,000 or 1.5% in
1995 after increasing $818,000 or 5.9% in 1994.
A reduction in FDIC insurance expense of $400,000 in 1995 contributed
significantly to the small increase. The FDIC reduced deposit insurance premiums
from $.23 to $.04 per $100 of deposits as of June 1, 1995. No deposit insurance
expense is expected for the Corporation in 1996, because the FDIC suspended
deposit insurance premiums as of January 1, 1996. Occupancy expenses increased
in 1995 by $296,000 or 16.22% principally related to the Main Office expansion
of First-Knox National Bank. Salaries and employee benefits were higher in 1995
by $325,000 or 4.81%, while on a net basis, other expenses were down $8,000 or
0.16%.
Approximately 46% of 1994's increase in non-interest expenses related
to increases in salaries and benefits of $378,000 or 5.9% compared to 1993.
Legal and professional fees increased by $120,000 or 41.2% during 1994. This
increase was primarily driven by a consulting study to enhance non-interest
income in 1995 and thereafter. The Corporation also recognized an expense of
$121,000 during 1994 relating to a write-down of loans held for sale to the
lower of cost or market.
INCOME TAXES
Income tax expenses of $1,565,000, $1,267,000, and $1,443,000, were
recorded in 1995, 1994, and 1993, respectively, representing 21.5%, 19.7%, and
23.6% of income before income taxes for each of the respective years. These
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 are the primary cause of these deviations from statutory rates. The
Corporation does not plan to significantly increase its holdings of tax-exempt
obligations during 1996. Tax-exempt income from investment securities and loans
represented 41.7%, 48.7%, and 35.7% of income before federal income taxes in
1995, 1994, and 1993, respectively. As a percentage of average earning assets,
average non-taxable balances were approximately 12.0% in 1995, 12.9% in 1994,
and 8.0% in 1993.
FINANCIAL CONDITION
Total assets grew by $29.7 million or 6.4% in 1995 compared to growth
of $27.8 million or 6.3% in 1994. The growth in 1995 was the result of increased
retail customer time deposits. Total deposits grew by $26.8 million or 7.1% in
1995. The growth in 1994 was primarily funded by Federal Home Loan Bank
advances. Total deposits declined by $1.0 million or 0.3% during 1994.
41 Page 64
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First-Knox Banc Corp. 1995 Annual Report
INVESTMENT AND MORTGAGE-BACKED SECURITIES
The consolidated investment and mortgage-backed securities portfolio
increased by $0.8 million or 0.6% during 1995. U.S. Treasury securities
increased from 20.9% of investments at the end of 1994 to 21.4% at the end of
1995. Mortgage-backed securities represented 28.3% and 32.5% of the total
investment portfolio at year-end 1995 and 1994, respectively.
As a percentage of the total investment and mortgage-backed security
portfolio, municipal securities represented 41.8% at year-end 1995 and 41.7% at
year-end 1994. 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 is reflected net of
tax as an increase to shareholders' equity.
The average investment portfolio, including federal funds sold,
represented 30.3% of average earning assets in 1995, 31.0% in 1994, and 28.2% in
1993. At the end of 1995, the estimated fair value of all investment and
mortgage-backed securities exceeded amortized cost by $2.90 million or 2.2%. At
the end of 1994, the amortized cost of investment and mortgage-backed securities
exceeded estimated fair value by $5.38 million or 4.2%. This rise in market
value during 1995 resulted from lower market interest rates at December 31,
1995. Approximately 16.0% of the total portfolio at the end of 1995 will mature
in 1996. The average maturity of the investment portfolio was 4.8 years at the
end of 1993, compared to 5.5 years in both 1994 and 1995. The Corporation's
investment portfolio contained no derivative securities during any period
covered by this report. Additional detail regarding investment securities is
included in Table IV.
LOANS AND LEASES
Loans and lease financing represented 69.7% of average earning assets
in 1995, 69.0% in 1994, and 71.8% in 1993. In terms of full year average
balances, loans and leases have grown by 5.4%, 5.2%, and 4.5% in 1995, 1994, and
1993, respectively. Residential real estate loans grew by $10.2 million, or 7.1%
in 1995, while commercial loan balances increased by $11.9 million, or 13.1%.
Consumer loan balances increased $3.9 million, or 5.6% during 1995.
While the loan and lease portfolios are the highest yielding corporate
assets, they also contain the most risk of loss. The real estate loan portfolio
is principally residential mortgages 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 with no significant industry concentration. The consumer loan
and lease portfolio is composed principally of financing to individuals for
vehicles and consumer assets. All of these loan and lease portfolios could be
negatively impacted by an economic downturn in this north central Ohio market
area. To mitigate
42 Page 65
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First-Knox Banc Corp. 1995 Annual Report
risks associated with changes in the borrowers' future ability to
repay, the Corporation generally requires collateral on loans. To reduce the
risk of fluctuating collateral values, the Corporation generally requests down
payments on its real estate and consumer loans and scheduled periodic payments
on most types of financing. As of December 31, 1995, only 6.1% of total loans
and leases were unsecured.
DEPOSITS
Customer deposits from local markets are the Corporation's primary
source of funds. Deposits totaled $404.1 million at the end of 1995, 7.1% higher
than a year ago. Based on full year average balances, deposits grew by 3.2% in
1995, 3.5% in 1994, and 2.3% in 1993.
The Corporation experienced a shift in the composition of its deposits
during 1995. Non-interest bearing demand deposits increased by $3.5 million or
6.9% during 1995 and represented 13.5% of all deposits at year end.
Interest-bearing demand deposits declined by $2.6 million or 6.2% during 1995
and represented 9.9% of all deposits compared to 11.3% in 1994. Savings deposits
declined by $10.5 million or 9.6% during 1995 and represented 24.5% of all
deposits compared to 29.1% in 1994. Time deposits increased by $36.6 million or
21.0% during 1995 and represented 52.1% of all deposits compared to 46.1% in
1994.
BORROWINGS
The Corporation and its subsidiaries incur short-term borrowings
through customer related repurchase agreements and daily amounts due to the U.S.
Treasury. These amounts are subject to rapid balance and rate fluctuations and,
as described in Note 7, are collateralized by the pledge of selected securities.
Short-term borrowings averaged $6.2 million, $9.2 million, and $8.7 million for
1995, 1994, and 1993, respectively.
Long-term borrowings at the end of 1995 are comprised of FHLB advances,
a source of loan funding made available as a result of both subsidiary banks
becoming members of the FHLB of Cincinnati during 1993. The amounts and terms of
these advances are disclosed in Note 8, along with the collateral required, and
limitations imposed, by the FHLB. Such advances are viewed as an alternative to
deposits for funding certain types of loan growth. These advances declined $1.3
million or 3.9% during 1995.
FHLB advances entirely funded the growth in assets during 1994. These
long-term borrowings increased by $28.8 million or 488.5% over 1993.
SHAREHOLDERS' EQUITY
Shareholders' equity totaled $46.7 million at December 31, 1995,
compared to $40.8 million at December 31, 1994. At December 31, 1995 and
December 31, 1994, the ratio of shareholders' equity to assets was 9.39% and
8.74%, respectively. The Corporation complied with the capital requirements
established by the Federal Reserve System at each of those dates.
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First-Knox Banc Corp. 1995 Annual Report
Under "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.
As discussed in Note 1 to the consolidated financial statements, the
Corporation adopted SFAS 115 on January 1, 1994. The impact of adopting this
pronouncement for the Corporation is to subject shareholders' equity to
fluctuations depending upon the impact of market interest rate changes on the
valuation of securities available for sale. Under the pronouncement, an upward
movement of interest rates will tend to decrease shareholders' equity while a
downward movement will tend to increase shareholders' equity for the
Corporation. The impact of SFAS 115 is disregarded by banking regulators in
determining compliance with capital requirements.
Under a current regulatory proposal, interest rate risk would become an
additional element in measuring risk-based capital. This proposed change is not
expected to significantly impact the Corporation's compliance with capital
guidelines.
Cash dividends declared to shareholders of the Corporation in 1995
totaled $1,751,000, representing an increase of 14.7% over 1994 and 30.7% of
1995 net income. Over the past five years, the payout ratio has consistently
been between 26% and 31% of net income. 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. Shareholders' equity could be enhanced during 1996 through the
issuance of common stock under the stock option, dividend reinvestment, and
employee retirement savings plans.
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 of cash to meet liquidity
needs. Operating activities provided cash of $7.4 million, $5.8 million, and
$6.7 million in 1995, 1994, and 1993, respectively. Cash and cash equivalents
increased from $18.1 million at December 31, 1994 to $20.4 million at December
31, 1995. Refer to the consolidated statement of cash flows for a summary of the
sources and uses of cash in 1995, 1994, and 1993.
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First-Knox Banc Corp. 1995 Annual Report
Taking into account the capital adequacy, profitability, and reputation
maintained by the Corporation, the available liquidity sources are considered
adequate to meet current and projected needs.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Corporation disclosed the estimated fair values and related
carrying values of its financial instruments at December 31, 1995 and 1994 in
Note 16 of the consolidated financial statements.
The estimated fair value of loans, net of the allowance for loan
losses, increased from 98.7% of the carrying value at December 31, 1994 to
100.8% at December 31, 1995. This relative increase in value resulted primarily
from lower market rates at December 31, 1995.
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, 1995 and 1994 were consistently applied.
The estimated fair values at December 31, 1995 and 1994, 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
change 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.
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First-Knox Banc Corp. 1995 Annual Report
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 122, "Accounting for Mortgage Servicing Rights" requires
companies to recognize, as separate assets, rights to service mortgage loans for
others, however those servicing rights are acquired. A company that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to mortgage servicing rights and
to loans (without the mortgage servicing rights) based on their relative fair
values. Mortgage servicing rights recorded as a separate asset will be amortized
in proportion to, and over the period of, estimated net servicing income. This
statement becomes effective for the Corporation in 1996. While the exact impact
of this pronouncement depends on market conditions and loan volume, management
does not anticipate that it will have a material impact on the Corporation's net
income based on historic sales volume.
In 1996, the Corporation is required to adopt SFAS No. 123 "Accounting
for Stock-Based Compensation." SFAS No. 123 encourages but does not require
entities to use a fair value based method to account for stock-based
compensation plans such as the Corporation's stock option plans. If the fair
value accounting encouraged by SFAS No. 123 is not adopted, entities must
disclose the pro forma effect on net income and earnings per share had the
accounting been adopted. Fair value of a stock option is to be estimated using
an option-pricing model that considers exercise price, expected life of the
option, current price of the stock, expected price volatility, expected
dividends on the stock, and the risk-free interest rate. The Corporation will
disclose the pro forma impact of this pronouncement in 1996.
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First-Knox Banc Corp. 1995 Annual Report
TABLE IV INVESTMENT AND MORTGAGE-BACKED SECURITIES
(In thousands of dollars)
<TABLE>
<CAPTION>
State Tax
U.S. Federal and Mortgage- Equivalent
Treasury Agencies Political Backed (2) Other Total Yield (1)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995
(At fair value)
Maturity:
Within one year ......... $10,554 $ 999 $ 2,263 $ 7,341 $ 21,157 5.88%
After one year through
five years ......... 17,662 2,754 11,369 27,948 59,733 7.35%
After five years through
ten years ........... 3,238 20,505 2,005 25,748 8.00%
After ten years ......... 21,060 $4,290 25,350 8.90%
------- ------ ------- ------- ------ -------- -----
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
</TABLE>
<TABLE>
<CAPTION>
State
U.S. Federal and Mortgage-
Treasury Agencies Political Backed (2) Other Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
State
U.S. Federal and Mortgage-
Treasury Agencies Political Backed (2) Other Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1993
Total carrying value .......... $23,974 $500 $41,584 $42,664 $2,225 $110,947
Estimated fair value .......... $24,351 $503 $44,337 $43,173 $2,406 $114,770
Taxable equivalent
purchase yield (1) ........ 5.14% 8.03% 9.02% 5.55% 4.97% 6.76%
Average maturity (in years) ... 2.4 0.7 7.6 2.8 20.0 4.8
</TABLE>
(1) Yields are based on historical cost and computed on a fully tax-equivalent
basis assuming a 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.
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First-Knox Banc Corp. 1995 Annual Report
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, 1995. 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
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE
SENSITIVE ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Loans and leases ............ $ 124,126 $ 15,872 $ 23,347 $ 49,670 $ 213,015 $ 117,626 $330,641
Investment securities and
federal funds sold .. 3,748 2,452 2,554 9,236 17,990 80,104 98,094
Mortgage-backed
securities (1) ...... 13,390 295 830 3,335 17,850 19,444 37,294
--------- -------- -------- -------- --------- --------- --------
TOTAL ....................... 141,264 18,619 26,731 62,241 248,855 217,174 466,029
--------- -------- -------- -------- --------- --------- --------
INTEREST RATE
SENSITIVE LIABILITIES
Interest-bearing deposits (2) 187,443 25,337 27,596 38,678 279,054 70,307 349,361
Borrowings .................. 8,072 172 260 532 9,036 32,365 41,401
--------- -------- -------- -------- --------- --------- --------
TOTAL ....................... 195,515 25,509 27,856 39,210 288,090 102,672 390,762
--------- -------- -------- -------- --------- --------- --------
INTEREST RATE
SENSITIVITY GAP ............. $ (54,251) $ (6,890) $ (1,125) $ 23,031 $ (39,235) $ 114,502 $ 75,267
========= ======== ======== ======== ========= ========= ========
CUMULATIVE INTEREST RATE
SENSITIVITY GAP ............. $ (54,251) $(61,141) $(62,266) $(39,235) $ (39,235) $ 75,267
========= ======== ======== ======== ========= =========
INTEREST RATE
SENSITIVITY GAP RATIO ....... 0.72x 0.73x 0.96x 1.59x 0.86x 2.12x 1.19x
========= ======== ======== ======== ========= ========= ========
CUMULATIVE INTEREST RATE
SENSITIVITY GAP AS A
PERCENTAGE OF TOTAL
INTEREST-EARNING ASSETS...... (11.64)% (13.12)% (13.36)% (8.42)% (8.42)% 16.15% 16.15%
========= ======== ======== ======== ========= ========= ========
</TABLE>
(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
amount to be repriced within one month since the Corporation has the ability
to reprice these accounts at any time.
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First-Knox Banc Corp. 1995 Annual Report
TABLE VI TEN YEARS OF PROGRESS STATEMENT SUMMARY
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholders' Equity ($000) ... $46,659 $40,832 $38,423 $30,115 $27,144 $24,586 $22,290 $20,198 $18,298 $16,615
Book Value Per Share .......... 13.11 11.23 10.65 9.66 8.73 7.91 7.17 6.50 5.88 5.35
Fully-Diluted Earnings
Per Share ............. 1.57 1.41 1.33 1.18 1.06 .98 .92 .86 .77 .69
Cash Dividends ($000) ......... 1,751 1,527 1,302 1,051 973 927 856 786 721 667
Stock Dividend/Split .......... 100% 5% 5% 5% 5% 60% 5% 5% 5% 5%
Banking Offices ............... 12 12 12 12 12 12 12 9 8 8
Total Staff ................... 256 264 251 245 239 250 243 230 210 197
</TABLE>
CONSOLIDATED BALANCE SHEET SUMMARY
<TABLE>
<CAPTION>
(In thousands of dollars) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and Due from Banks ....... $ 17,012 $ 18,110 $ 16,158 $ 14,687 $ 11,824 $ 12,628 $ 13,538 $ 11,389 $ 8,489 $ 8,489
Investments ................... 131,988 131,211 110,947 106,268 100,953 94,434 100,020 86,747 86,494 86,542
Federal Funds Sold ............ 3,400 12,700 3,850 7,800 8,050 4,950 1,900 2,400 9,200
Total Loans and Lease
Financing .............. 330,641 304,168 290,908 276,437 261,554 248,110 223,076 195,182 166,276 142,992
Less Allowance for Loan and
Lease Losses .................. (4,166) (3,876) (3,597) (3,162) (2,905) (2,715) (2,338) (1,980) (1,748) (1,625)
Net Loans and Lease Financing . 326,475 300,292 287,311 273,275 258,649 245,395 220,738 193,202 164,528 141,367
Bank Premises and Equipment ... 10,993 10,035 6,200 4,939 5,073 5,300 5,387 4,351 3,807 3,443
Other Assets .................. 7,031 7,543 6,098 6,586 7,445 8,264 9,084 7,084 7,208 6,963
TOTAL ......................... $496,899 $467,191 $439,414 $409,605 $391,744 $374,071 $353,717 $304,673 $272,926 $256,004
LIABILITIES
Demand Deposits ............... $ 94,588 $ 93,709 $ 91,384 $ 86,394 $ 68,162 $ 66,222 $ 64,169 $ 58,170 $ 53,930 $ 52,239
Savings Deposits .............. 99,133 109,675 115,587 112,619 100,093 80,285 80,430 68,838 69,419 67,923
Other Time Deposits ........... 210,346 173,796 171,206 163,281 178,665 186,122 172,258 144,160 119,321 108,225
Total Deposits ................ 404,067 377,180 378,177 362,294 346,920 332,629 316,857 271,168 242,670 228,387
Long-Term Debt ................ 33,415 34,720 5,900 5,159 5,300 5,370 5,440 2,510 2,580 2,650
Other Liabilities ............. 12,758 14,459 16,914 12,037 12,380 11,486 9,130 10,797 9,378 8,352
Total Deposits and
Other Liabilities ...... 450,240 426,359 400,991 379,490 364,600 349,485 331,427 284,475 254,628 239,389
Shareholders' Equity .......... 46,659 40,832 38,423 30,115 27,144 24,586 22,290 20,198 18,298 16,615
TOTAL ......................... $496,899 $467,191 $439,414 $409,605 $391,744 $374,071 $353,717 $304,673 $272,926 $256,004
</TABLE>
CONSOLIDATED STATEMENT OF INCOME SUMMARY
<TABLE>
<CAPTION>
(In thousands of dollars) 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees
on Loans and Leases .... $ 28,699 $ 25,139 $ 24,825 $ 25,276 $ 26,968 $ 26,214 $ 23,390 $ 19,030 $ 16,143 $ 12,270
Interest and Dividends Earned
on Total Securities .... 8,006 7,277 6,124 6,960 8,021 8,012 7,295 6,400 6,363 5,907
Federal Funds Sold ............ 228 79 208 301 646 860 550 326 363 477
Lease Financing ............... 155 99 135 172 246 200 385 392 493 247
TOTAL INTEREST INCOME ......... 37,088 32,594 31,292 32,709 35,881 35,286 31,620 26,148 23,362 18,901
INTEREST EXPENSE
Interest on Deposits .......... 15,158 11,800 12,023 15,157 19,720 20,735 18,539 14,651 12,959 11,379
Interest on Borrowed Money .... 2,341 1,827 674 904 1,016 914 973 715 657 377
TOTAL INTEREST EXPENSE ........ 17,499 13,627 12,697 16,061 20,736 21,649 19,512 15,366 13,616 11,756
Net Interest Income ........... 19,589 18,967 16,648 15,145 18,595 13,637 12,108 10,782 9,746 7,145
Provision for Credit Losses ... (584) (638) (1,124) (1,394) (1,066) (957) (911) (785) (400) (580)
Other Income .................. 3,127 2,747 2,465 2,452 2,389 2,005 1,716 1,685 1,777 1,848
Other Expenses ................ (14,858) (14,645) (13,827) (12,584) (12,022) (10,649) (9,427) (8,379) (8,268) (6,376)
INCOME BEFORE FEDERAL
INCOME TAXES ........... 7,274 6,431 6,109 5,122 4,446 4,036 3,486 3,303 2,855 2,037
Federal Income Taxes .......... (1,565) (1,267) (1,443) (1,171) (915) (813) (537) (616) (451) 102
NET INCOME .................... $ 5,709 $ 5,164 $ 4,666 $ 3,951 $ 3,531 $ 3,223 $ 2,949 $ 2,687 $ 2,404 $ 2,139
</TABLE>
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First-Knox Banc Corp. 1995 Annual Report
<TABLE>
<CAPTION>
FIRST-KNOX DIRECTORS
<S> <C> <C> <C>
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Maureen Buchwald George T. Culbertson, Jr. James J. Cullers Robert S. Gregg
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Philip H. Jordan James A. McElroy John B. Minor Noel C. Parrish
[PHOTO] [PHOTO] [PHOTO]
Russell E. Ramser, Jr. Alan E. Riedel Kenneth W. Stevenson
[PHOTO] [PHOTO] [PHOTO]
William A. Stroud Stephen P. Upham, Jr. Carlos E. Watkins
FARMERS AND SAVINGS BANK DIRECTORS
[PHOTO] [PHOTO] [PHOTO] [PHOTO]
Patricia A. Byerly L. Eugene Byers Dwight D. Mathias James E. McClure
[PHOTO] [PHOTO] [PHOTO]
Roger E. Stitzlein Chris D. Tuttle Gordon E. Yance
</TABLE>
FIRST-KNOX BANC CORP.
DIRECTORS
William A. Stroud, Chairman of the Board,
Retired President
Russell E. Ramser, Jr., Vice-Chairman of
the Board, President, Maram Energy Company
George T. Culbertson, Jr., Retired
Newspaper Publisher
James J. Cullers, Lawyer,
Zelkowitz, Barry & Cullers
Robert S. Gregg, President,
Phoenix Holding Company
Philip H. Jordan, Jr., Retired President,
Kenyon College
James A. McElroy, Chairman of the Board,
AMG Industries
John B. Minor, Consultant
Noel C. Parrish, President, NOE, Inc.
Alan E. Riedel, Retired Vice Chairman,
Cooper Industries
Stephen P. Upham, Jr., Entrepreneur
Carlos E. Watkins, President and
Chief Executive Officer,
First-Knox National Bank,
President and Chief Executive Officer
FIRST-KNOX NATIONAL BANK
DIRECTORS
Philip H. Jordan, Jr., Chairman of the Board,
Retired President, Kenyon College
Maureen Buchwald, Vice President,
Ariel Corporation
George T. Culbertson, Jr., Retired
Newspaper Publisher
James J. Cullers, Lawyer,
Zelkowitz, Barry & Cullers
Robert S. Gregg, President,
Phoenix Holding Company
James A. McElroy,
Chairman of the Board,
AMG Industries
John B. Minor, Consultant
Noel C. Parrish, President, NOE, Inc.
Russell E. Ramser, Jr., President,
Maram Energy Company
Kenneth W. Stevenson, Retired President,
Cooper Energy Services
Carlos E. Watkins, President and
Chief Executive Officer,
First-Knox National Bank
DIRECTORS EMERITI
Robert B. Lantz
J. Robert Purdy
William A. Stroud
Stephen P. Upham, Jr.
50 Page 73
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First-Knox Banc Corp. 1995 Annual Report
FARMERS AND SAVINGS BANK
DIRECTORS
James E. McClure, Chairman of the Board, Retired President, McClure Motors, Inc.
Patricia A. Byerly, Vice President and Secretary, Byerly Funeral Home, Inc.
L. Eugene Byers, DVM, Owner, Byland Animal Hospital and Farms
Dwight D. Mathias, President and Chief Executive Officer, Farmers and Savings
Bank
Roger E. Stitzlein, General Manager, Loudonville Farmers Equity
Chris D. Tuttle, President, Amish Oak Furniture Company, Inc.
Gordon E. Yance, Vice President and Treasurer, First-Knox Banc Corp.
FIRST-KNOX BANC CORP.
OFFICERS
Carlos E. Watkins, President and Chief Executive Officer
Gordon E. Yance, Vice President and Treasurer
Ian Watson, Vice President and Secretary
Vickie A. Sant, Auditor
OFFICERS
Carlos E. Watkins, President and Chief Executive Officer
FINANCE, HUMAN RESOURCES, AND BRANCH ADMINISTRATION
Gordon E. Yance, Vice President and Chief Financial Officer
Kathy K. Blackburn, Vice President, Human Resources
Vickie A. Sant, Auditor
Lynn B. Fawcett, Comptroller
Emily P. Snyder, Assistant Vice President
Rebecca A. Brownfield, Administrative Officer
OPERATIONS, DEPOSITS AND INVESTMENTS
Ian Watson, Vice President and Secretary
Bruce B. Hite, Assistant Vice President and Security Officer
Cheri L. Butcher, Assistant Vice President
Diana L. Doerr, Administrative Officer
Rebecca K. Rodeniser, Operations Officer
Betty L. Mossholder, Administrative Officer
CREDIT ADMINISTRATION
Lawrence A. Dailey, Vice President, Senior Credit Policy and Control Officer
W. Douglas Leonard, Vice President and Senior Retail Loan Officer
Louis G. Petros, Vice President and Senior Commercial Loan Officer
James E. Brinker, Vice President, and Commercial Loan Officer
William C. Brunka,Vice President, Retail Loan and Compliance Officer
Mark P. Leonard, Vice President and Commercial Loan Officer
David R. Ewart, Assistant Vice President and Commercial Loan Officer
Charlene V. Beckley, Assistant Vice President, Card Services
Eritt A. Coon, Administrative
Loan Officer
Joan M. Stout, Mortgage Loan Officer
Christopher D. Anderson, Administrative Officer
Jeanette A. Carpenter, Mortgage Loan Officer
Kimberly J. Peck, Mortgage Loan Officer
Anita K. Earlywine, Administrative Officer
Valerie J. Smith, Administrative Officer
TRUST
David R. Irvin, Vice President and Trust Officer
Mark B. Iverson, Trust Officer
Mary T. Collins, Trust Officer
MARKETING
J. Curtis Cree, Vice President and CRA Officer
Barbara A. Barry, Assistant Vice President
BRANCH OFFICE DIVISION
MAIN OFFICE
Frederick T. Baldeschwiler, Assistant Vice President and Manager
Patti J. Frazee, Assistant Manager
COSHOCTON AVENUE
Deborah K. Steinhauser, Assistant Vice President and Manager
Nancy L. Rice, Assistant Manager
BELLVILLE
James E. McLaughlin, Manager
Julie A. Cline, Assistant Manager
CENTERBURG
Sharon A. Cline, Assistant Vice President and Manager
Ella E. Altizer, Assistant Manager
DANVILLE
Cynthia L. Rhodes, Manager
Patty S. Durbin, Assistant Manager
EDISON
J. Blair Strain, Manager
FREDERICKTOWN
Ronald L. McMillan, Assistant Vice President and Manager
Marilyn L. Reed, Assistant Manager
LEXINGTON
Debra E. Holiday, Manager
Jennifer S. Mack, Assistant Manager
MILLERSBURG
William J. Mohr, Assistant Vice President and Manager
Rea D. Wirt, Assistant Manager
MOUNT GILEAD
R. Edward Kline, Assistant Vice President and Manager
William F. Wieland, Assistant Manager
FARMERS AND SAVINGS BANK
OFFICERS
Dwight D. Mathias, President and Chief Executive Officer
Stanley D. Young, Senior Vice President and Cashier
James S. Lingenfelter, Vice President
Wayne D. Young, Vice President
Karen S. Burgess, Assistant Vice President
Gregory A. Henley, Assistant Vice President
Barbara J. Young, Assistant Vice President
Janeen R. Lackey, Assistant Cashier and Manager, Perrysville Office
51 Page 74
<PAGE> 331
First-Knox Banc Corp. 1995 Annual Report
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
The Corporation's headquarters are located at: One South Main Street,
Mount Vernon, Ohio 43050, phone: 614/399-5500, 800/837-5266.
ANNUAL MEETING
The Annual Shareholders' Meeting of First-Knox Banc Corp. will be held
on Tuesday, March 26, 1996, at 3:00 p.m. at Thorne Performance Hall in the R. R.
Hodges Chapel/Auditorium and Fine Arts Center at the Mount Vernon Nazarene
College, 800 Martinsburg Road, Mount Vernon, Ohio.
TRANSFER AGENT AND REGISTRAR
First-Knox National Bank, P.O. Box 871, One South Main Street, Mount
Vernon, Ohio 43050
INDEPENDENT AUDITORS
Crowe, Chizek and Company LLP, Columbus, Ohio
CORPORATE COUNSEL
Vorys, Sater, Seymour and Pease, Columbus, Ohio
FORM 10-K AND OTHER
FINANCIAL INFORMATION
A copy of First-Knox Banc Corp.'s Annual Report Form 10-K for the
period ending December 31, 1995, may be obtained by shareholders without charge
upon written request to Ian Watson, Vice President and Secretary, First-Knox
Banc Corp., P. O. Box 871, One South Main Street, Mount Vernon, Ohio 43050.
DIVIDEND REINVESTMENT PLAN
The Corporation offers a Dividend Reinvestment Plan which generally
allows shareholders to reinvest their First-Knox Banc Corp. dividends in
additional Corporate stock at the prevailing market price. Participation in the
Plan is offered only by means of a prospectus which describes the Plan in
detail. Plan information and a Plan prospectus may be obtained by calling the
Trust Department of First-Knox National Bank at 614-399-5505, 800-837-5266, or
by writing: First-Knox National Bank, Attn: Dividend Reinvestment Plan, P. O.
Box 871, One South Main Mount Vernon, Ohio 43050.
COMMON STOCK LISTING
The common shares of First-Knox Banc Corp. are traded on the NASDAQ
National Market under the symbol FKBC.
MARKET MAKERS
McDonald & Company Securities, Inc.,
Cleveland, Ohio
The Ohio Company, Columbus, Ohio
Sweney Cartwright & Co., Columbus, Ohio
FIRST-KNOX NATIONAL BANK OFFICES
Main Office
One South Main Street
Mount Vernon 43050
614/399-5500
Coshocton Avenue
Office
810 Coshocton Avenue
Mount Vernon 43050
614/397-5551
Bellville Office
154 Main Street
Bellville 44813
419/886-3711
Centerburg Office
35 West Main Street
Centerburg 43011
614/625-6136
Danville Office
Public Square
Danville 43014
614/599-6686
Edison Office
504 West High Street
Mount Gilead 43338
419/947-4686
Fredericktown
Office
137 North Main Street
Fredericktown 43019
614/694-2015
Lexington Office
10 Plymouth Street
Lexington 44904
419/884-3005
Millersburg Office
60 West Jackson Street
Millersburg 44654
330/674-2610
Mount Gilead Office
17 West High Street
Mount Gilead 43338
419/946-9010
FARMERS AND SAVINGS BANK OFFICES
Loudonville Office
120 North Water Street
Loudonville 44842
419/994-4115
Perrysville Office
112 North Bridge Street
Perrysville 44864
419/938-5622
Page 75
<PAGE> 332
[LOGO] First-Knox Banc Corp.
P.O. - One South Main Street - Mount Vernon, Ohio 43050
An Equal Opportunity Employer
Page 76
<PAGE> 333
APPENDIX E
QUARTERLY REPORT ON FORM 10-Q
FOR FISCAL QUARTER ENDED
SEPTEMBER 30, 1996
OF
FIRST KNOX BANC CORP.
<PAGE> 334
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
........................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .................... to .....................
Commission file number 0-13161
First-Knox Banc Corp.
............................................
(Exact name of registrant as specified in its charter)
Ohio 31-1121049
................... (IR.S Employer
(State or other jurisdiction of incorporation Identification No.)
or organization)
One South Main Street, Mount Vernon, Ohio 43050
..............................................................
(Address of principal executive offices)
(Zip Code)
(614) 399-5500
................................
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
..... .....
Number of shares of Common Stock, Par Value $3.125 per share at November 6, 1996
Authorized 6,000,000
Issued 3,755,618
Outstanding 3,755,618
Page 1 of 21
Exhibit Index at Page 19
<PAGE> 335
FIRST-KNOX BANC CORP.
FORM 10-Q
QUARTER ENDED September 30, 1996
Part I - Financial Information
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Item 1. Unaudited Financial Statements:
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Income . . . . . . . . . . . . . . 4
Condensed Consolidated Statement
of Changes in Shareholders' Equity . . . . . . . . . . . . 5
Condensed Consolidated Statement of Cash Flows . . . . . . . 6
Notes to the Consolidated Financial Statements . . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . 13
Part II - Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . N/A
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . N/A
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . N/A
Item 4. Submission of Matters to Vote of Security Holders . . . . . . . N/A
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . N/A
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 19
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
Page 2
<PAGE> 336
FIRST-KNOX BANC CORP
Consolidated Balance Sheet
($ Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and non-interest bearing deposits with banks $ 16,038 $ 17,012
Federal funds sold -- 3,400
--------- ---------
Total cash and cash equivalents 16,038 20,412
Investment securities available for sale,
at fair value (Note 2) 121,713 94,694
Mortgage-backed securities available for sale,
at fair value (Note 2) 55,830 37,294
--------- ---------
Total securities 177,543 131,988
Loans & lease financing (Note 3) 352,071 330,641
Allowance for loans and lease losses (Note 4) (4,438) (4,166)
--------- ---------
Net loans and leases 347,633 326,475
Premises and equipment, net 10,712 10,993
Accrued interest receivable and other assets 8,737 7,031
--------- ---------
TOTAL ASSETS $ 560,663 $ 496,899
========= =========
LIABILITIES
Deposits
Non-interest bearing demand $ 51,804 $ 54,706
Interest-bearing demand 44,623 39,882
Savings 96,967 99,133
Time 232,764 210,346
--------- ---------
Total deposits 426,158 404,067
Short-term borrowings 19,848 7,986
Long-term debt (Note 5) 62,643 33,415
Accrued interest payable and other liabilities 3,975 4,772
--------- ---------
TOTAL LIABILITIES 512,624 450,240
--------- ---------
SHAREHOLDERS' EQUITY (Note 1)
Common Stock, par value $3.125 per share;
6,000,000 shares authorized; 3,747,713 issued
and outstanding in 1996 and 3,650,225 shares
issued in 1995 11,712 11,407
Paid-in-capital 25,849 24,042
Retained earnings 10,411 11,187
Net unrealized holding gains on securities
available for sale 67 1,912
Common stock in treasury
(89,965 shares in 1995) -- (1,889)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 48,039 46,659
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 560,663 $ 496,899
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 3
<PAGE> 337
FIRST-KNOX BANC CORP.
Consolidated Statement of Income (Unaudited)
($ Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ending Nine Months Ending
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans and leases, including fees ........ $ 7,795 $ 7,364 $ 22,856 $ 21,240
Investment and mortgage-backed securities
Taxable .............................. 1,809 1,337 4,452 3,864
Non-taxable .......................... 731 698 2,158 2,098
Federal funds sold ...................... 104 66 304 153
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME ................ 10,439 9,465 29,770 27,355
----------- ----------- ----------- -----------
Interest expense:
Deposits ................................ 4,166 3,954 12,172 11,087
Short-term borrowings ................... 93 94 271 294
Long-term debt .......................... 931 493 1,894 1,493
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE ............... 5,190 4,541 14,337 12,874
----------- ----------- ----------- -----------
NET INTEREST INCOME .................. 5,249 4,924 15,433 14,481
Provision for loan &
lease losses (Note 4) ................... 211 166 543 402
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN AND LEASE LOSSES 5,038 4,758 14,890 14,079
----------- ----------- ----------- -----------
Other income:
Income from fiduciary activities ........ 195 174 570 498
Service charges, commissions and fees ... 598 548 1,787 1,742
Loan sale gains, net .................... -- 27 -- 27
Securities gains (losses), net .......... (11) -- (11) (20)
Other ................................... 15 27 40 76
----------- ----------- ----------- -----------
TOTAL OTHER INCOME ................... 797 776 2,386 2,323
----------- ----------- ----------- -----------
Other expense:
Salaries & employee benefits ............ 1,822 1,882 5,190 5,379
Occupancy and equipment ................. 585 530 1,796 1,572
FDIC Insurance .......................... 1 (12) 3 414
Other ................................... 1,357 1,223 4,156 3,794
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE .................. 3,765 3,623 11,145 11,159
----------- ----------- ----------- -----------
Income before federal income taxes ......... 2,070 1,911 6,131 5,243
Federal income tax expense ................. 466 423 1,415 1,097
----------- ----------- ----------- -----------
NET INCOME ................................. $ 1,604 $ 1,488 $ 4,716 $ 4,146
=========== =========== =========== ===========
Earnings per common share (Note 1):
Primary ...... $ 0.42 $ 0.39 $ 1.24 $ 1.08
Fully diluted $ 0.42 $ 0.39 $ 1.24 $ 1.08
=========== =========== =========== ===========
Weighted average common shares
outstanding (Note 1): Primary ...... 3,797,557 3,775,761 3,794,909 3,827,272
Fully diluted 3,798,265 3,783,744 3,795,591 3,831,324
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 4
<PAGE> 338
FIRST-KNOX BANC CORP.
Condensed Consolidated Statement of Changes in Shareholders' Equity (Unaudited)
($ Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ending Nine Months Ending
September 30, September 30,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period .................................................... $46,520 $42,821 $46,659 $40,832
Net income ...................................................................... 1,604 1,488 4,716 4,146
Issuance of 2863 and 9,047 shares in 1996 and 5,348 and 8,588 shares in 1995
for stock options exercised ................................................. 59 60 144 95
Treasury stock purchased - 96,322 common shares ................................. (1,926)
Cash dividends, declared at a per share rate of $.17 and $.436 in 1996 and
$.114 and $.324 in 1995 .................................................... (638) (426) (1,635) (1,217)
Change in net unrealized holding gain (loss) on securities
available for sale ........................................................... 494 (21) (1,845) 1,992
------- ------- ------- -------
Balance, end of period .......................................................... $48,039 $43,922 $48,039 $43,922
------- ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 5
<PAGE> 339
FIRST-KNOX BANC CORP.
Condensed Consolidated Statement of Cash Flows (Unaudited)
($ Amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ending
September 30,
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by operating activities ........................ $ 4,346 $ 4,222
Cash Flows from Investing Activities:
Purchases of investment securities
held to maturity ........................................... (1,279)
Proceeds from calls, payments and maturities of investment
securities held to maturity ................................ 1,533
Purchases of investment and mortgage-backed securities
available for sale ......................................... (72,290) (24,724)
Proceeds from calls, payments and maturities of investment and
mortgage-backed securities available for sale .............. 13,970 10,304
Proceeds from sales of investment and mortgage-backed
securities available for sale .............................. 10,032 13,462
Net increase in loans and leases ............................. (21,701) (21,964)
Proceeds from sale of loans .................................. 1,578
Expenditures for premises and equipment ...................... (525) (1,520)
-------- --------
Net cash provided by (applied to) investing activities ...... (70,514) (22,610)
-------- --------
Cash Flows from Financing Activities:
Net increase in deposit accounts ............................. 22,091 24,178
Net increase in short-term borrowings ........................ 11,862 (4,656)
Proceeds from long-term debt ................................. 30,000
Payments on long-term debt ................................... (772) (1,294)
Cash dividends paid .......................................... (1,531) (1,246)
Issuance of common stock ..................................... 144 95
Purchase of treasury shares .................................. (1,926)
-------- --------
Net cash provided by financing activities ............... 61,794 15,151
-------- --------
Net increase (decrease) in cash and cash equivalents ............. (4,374) (3,237)
Cash and cash equivalents at beginning of period ............. 20,412 18,110
-------- --------
Cash and cash equivalents at end of period ....................... 16,038 14,873
======== ========
Supplemental cash flow information:
Interest paid ................................................ $ 14,543 $ 12,317
======== ========
Income taxes paid ............................................ $ 1,460 $ 1,052
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 6
<PAGE> 340
FIRST-KNOX BANC CORP.
Notes to the Consolidated Financial Statements
(Unaudited)
Note 1 - SUMMARY OF ACCOUNTING POLICIES:
The consolidated financial statements include the accounts of
the First-Knox Banc Corp. (the Corporation), and its
wholly-owned subsidiaries; The First-Knox National Bank
(First-Knox), and The Farmers and Savings Bank (Farmers). All
significant intercompany transactions have been eliminated.
These interim financial statements are prepared without audit
and reflect all adjustments of a normal and recurring nature
which, in the opinion of management, are necessary to present
fairly the consolidated financial position of First-Knox Banc
Corp. at September 30, 1996 and its results of operations and
cash flows for the periods presented. The accompanying
consolidated financial statements do not purport to contain
all the necessary financial disclosures required by generally
accepted accounting principles that might otherwise be
necessary in the circumstances. Accordingly, these financial
statements should be read in conjunction with the 1995
consolidated financial statements and notes thereto of
First-Knox Banc Corp. included in its Annual Report on Form
10-K for the year ended December 31, 1995.
The provision for income taxes is based upon the effective tax
rate expected to be applicable for the entire year.
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 stock method. Fully diluted earnings per share
reflects additional dilution related to stock options due to
the use of market price at the end of the period when higher
than average price for the period. All share and per share
data has been adjusted for a 5% stock dividend distributed in
September 1996.
During the first nine months of 1996, options on 35,550 shares
were granted. During the first nine months of 1996 options for
9,441 common shares and 1,048 stock appreciation rights were
exercised. There was no material compensation recognized
during the first nine months of 1996 or the first nine months
of 1995 related to stock appreciation rights. At September 30,
1996, exercisable options and stock appreciation rights were
124,252 and 19,613, respectively. At September 30, 1996,
there were outstanding options for 209,327 common shares and
44,807 outstanding stock appreciation rights.
The Corporation, through its subsidiary banks, grants
residential, consumer, and commercial loans to customers in
the central Ohio counties of Knox, Morrow, Holmes, Ashland and
Richland. In addition the Corporation is in the business of
commercial and consumer leasing. Commercial loans, residential
real estate loans, consumer loans and leases were 30.8%,
47.3%, 21.3%, and 0.6% of total loans and leases respectively,
at September 30, 1996.
Page 7
<PAGE> 341
Note 1 - SUMMARY OF ACCOUNTING POLICIES (Continued):
On January 1, 1996, the Corporation adopted SFAS 122
"Accounting for Mortgage Servicing Rights." This pronouncement
requires companies to recognize, as separate assets, rights to
service mortgage loans for others, however those loans are
acquired. A company that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans
and sells or securitizes those loans with servicing rights
retained should allocate the total cost of the mortgage loans
to mortgage servicing rights and to loans (without the
mortgage servicing rights) based on their relative fair
values. Mortgage servicing rights recorded as a separate asset
will be amortized in proportion to, and over the period, of
estimated net servicing income. The impact of adopting this
pronouncement in 1996 was not material.
On January 1, 1996, the Corporation adopted SFAS 123
"Accounting for Stock-Based Compensation." SFAS encourages but
does not require entities to use a fair value based method to
account for stock-based compensation plans such as the
Corporation's stock options plans. If the fair value
accounting encouraged by SFAS No. 123 is not adopted, entities
must disclose the pro forma effect on net income and earnings
per share had the accounting been adopted. Fair value of a
stock option is to be estimated using an option-pricing model
that considers exercise price, expected life of the option,
current price of the stock, expected price volatility,
expected dividends on the stock, and the risk-free interest
rate. The Corporation elected not to expense the fair value of
options granted and will disclose the pro forma effect on net
income and earnings per share in the annual financial
statements. The impact of adopting this pronouncement in 1996
was not material.
The Corporation in its normal course of business, makes
commitments to extend credit which are not reflected in the
financial statements. At September 30, 1996, unused credit
lines amounted to approximately $51,886,000 and commitments
under outstanding letters of credit amounted to approximately
$498,000. Since many commitments to make loans expire without
being used, the amount does not necessarily represent future
cash commitments. Collateral obtained related to the
commitments is determined using management's credit evaluation
of the borrower and may include real estate, vehicles,
business assets, deposits, and other items. In management's
opinion these commitments represent normal banking
transactions, and no material losses are expected to result
therefrom.
Residential real estate loans originated and intended for sale
in the secondary market are carried at the lower of cost or
estimated market in the aggregate. Net unrealized losses are
recognized in a valuation allowance by charges to income.
Certain items in the 1995 financial statements have been
reclassified to correspond with the 1996 presentation.
Page 8
<PAGE> 342
Note 2 - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES:
The amortized costs and estimated fair values are as follows
at September 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
September 30, 1996
INVESTMENT SECURITIES AVAILABLE FOR SALE GROSS GROSS ESTIMATED
($ amounts in thousands): AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $30,612 $108 ($171) $30,549
Obligations of states and
political subdivisions 57,009 1,050 (809) $57,250
Obligations of U.S. government
corporations and agencies 26,610 (35) 26,575
Other securities 7,012 327 7,339
-------- ------ ------- --------
Total investment securities 121,243 1,485 (1,015) 121,713
Mortgage-backed securities 56,198 231 (599) 55,830
-------- ------ ------- --------
TOTAL $177,441 $1,716 ($1,614) $177,543
======== ====== ======= ========
December 31, 1995
INVESTMENT SECURITIES AVAILABLE FOR SALE
($ amounts in thousands): GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
U.S. Treasury securities COST GAINS LOSSES VALUE
Obligations of U.S. government --------- ---------- ---------- ---------
corporations and agencies
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
-------- ------ ----- --------
Total investment securities 92,335 2,487 (128) 94,694
Mortgage-backed securities 36,756 636 (98) 37,294
-------- ------ ----- --------
TOTAL $129,091 $3,123 ($226) $131,988
======== ====== ===== ========
</TABLE>
Proceeds from the sales of investment and mortgage-backed
securities for the nine months ending September 30, 1996 were
$13,970,000 resulting in gross gains of $11,000 and gross
losses of $22,000. Proceeds from the sales of investment and
mortgage-backed securities for the nine months ending
September 30, 1995 were $13,462,000 resulting in gross gains
of $67,000 and gross losses of $87,000.
At September 30, 1996, the percentages of the portfolio
maturing in various time frames had not changed significantly
from December 31, 1995.
Page 9
<PAGE> 343
Note 3 - LOANS AND LEASE FINANCING:
Loans and leases are comprised of the following ($ amounts
in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Residential real estate loans held for sale...... $ 5,020
Residential real estate loans.................... $165,323 147,927
Commercial real estate loans..................... 12,317 9,548
Commercial and industrial loans.................. 92,283 88,632
Consumer and credit card loans................... 75,498 73,137
Obligations of states and
political subdivisions......................... 4,364 4,678
Lease financing, net............................. 2,286 1,699
-------- --------
$352,071 $330,641
======== ========
</TABLE>
Note 4 - ALLOWANCE FOR LOAN AND LEASE LOSSES:
Activity in the allowance for possible loan and lease losses
is summarized as follows for the nine months ended
September 30. ($ amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Balance, beginning of period..................... $4,166 $3,876
Provision for loan and lease losses.............. 543 402
Losses charged to the allowance.................. (408) (428)
Recoveries....................................... 137 198
-------- --------
Balance, end of period...................... $4,438 $4,048
======== ========
</TABLE>
Loans and leases over 90 days past due and still accruing
interest approximated $1,636,000 at September 30, 1996
and $862,000 at December 31, 1995. Loans on non-accrual
status were $377,000 at September 30, 1996 and $197,000 at
December 31, 1995. Impaired loans were not material
at any date or during any period presented.
Page 10
<PAGE> 344
Note 5 - LONG-TERM DEBT:
<TABLE>
<CAPTION>
($ amounts in thousands):
September 30, December 31,
Description 1996 1995
----------- -------- -------
<S> <C> <C>
Fixed rate Federal Home Loan Bank
advances with monthly principal and
interest payments:
5.60% Advance due August 1, 2003 ............................ $2,246 $2,442
6.35% Advance due August 1, 2013 ............................ 2,746 2,812
5.95% Advance due March 1, 2004 ............................. 602 649
5.70% Advance due May 1, 2004 ............................... 4,889 5,262
5.85% Advance due January 1, 2016 ........................... 4,910 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
------- -------
$62,643 $33,415
======= =======
</TABLE>
At September 30, 1996, Federal Home Loan Bank (FHLB) advances are
collateralized by all shares of FHLB stock owned by the
Corporation (totaling $6,285,200) and by 100% of the Corporation's
qualified real estate-backed investments and mortgage loan
portfolio (totaling approximately $217,338,000). Based on the
carrying amount of FHLB stock owned by the Corporation, total FHLB
advances are limited to approximately $73,170,000 at September 30,
1996. Future advances to be received by the Corporation, above
this limit, require additional purchases of FHLB stock.
The aggregate minimum future principal payments on long-term debt
are $269,000 in 1996, $11,587,000 in 1997, $1,576,000 in 1998,
$28,576,000 in 1999, $1,587,000 in 2000 and $19,048,000
thereafter.
PAGE 11
<PAGE> 345
Note 6 - SUBSEQUENT EVENT:
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 First-Knox Banc Corp. will be merged with and into Park
National. Under the terms of the Agreement, Park National will
exchange 0.5914 shares of Park National common stock for each
outstanding share of First-Knox Banc Corp. common stock 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 will be accounted
for as a pooling-of-interests. The exact exchange ratio will be
determined pursuant to 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 oustanding or subject
to options prior to closing. The transaction is valued at
approximately $29.00 per share of First-Knox Banc Corp. common stock,
or approximately $114.3 million based on the $48.75 closing price of
Park National common stock on October 25, 1996. Closing of the
transaction is subject to certain conditions including regulatory
approval and the approval of the shareholders of First-Knox Banc Corp.
and Park National.
Page 12
<PAGE> 346
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The following discussion focuses on the consolidated financial condition of
First-Knox Banc Corp. at September 30, 1996, compared to December 31, 1995, and
the results of operations for the three and nine months periods ended September
30, 1996, compared to the same period in 1995. 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 financial statements, notes
and tables included elsewhere in this report and the First-Knox Banc Corp. 1995
Annual Report on Form 10-K. The Registrant cautions that any forward looking
statements contained in this report, in a report incorporated by reference to
this report or made by management of the company involve risks and uncertainties
and are subject to change based on various important factors. The forward
looking statements could cause actual results to differ materially from those
expressed or implied. The Registrant is not aware of any market or institutional
trends, events or uncertainties that will have or are reasonably likely to have
a material effect on liquidity, capital resources or operations except as
discussed herein. Other than as discussed herein, the Registrant is not aware of
any current recommendations by regulatory authorities which would have such
effect if implemented.
Financial Condition
- -------------------
Liquidity
- ---------
Liquidity relates to the Corporation's ability to meet cash demands of its
customers and their credit needs. Liquidity is provided by the Corporation's
ability to readily convert assets to cash and raise funds in the market place.
Traditional asset liquidity is provided by cash and readily marketable,
short-term assets such as federal funds sold and deposits in other banks.
Cash, amounts due from banks and federal funds sold totaled $16.04 million at
September 30, 1996. Investment and mortgage-backed securities available for sale
were $177.54 million at September 30, 1996. This amount increased by $45.56
million from December 31, 1995 balances. These assets, as well as anticipated
deposit growth and scheduled loan payments and maturing investment securities,
provide the Corporation with an adequate source of funds for expected future
demand for loans and for fluctuations in deposit volume. They also provide
management with the flexibility to change the composition of interest earning
assets as market conditions change in the future.
Liability liquidity relates to the Corporation's ability to retain existing
deposits, obtain new deposits and borrow in the marketplace. Total deposits
increased $22.09 million for the nine months ended September 30, 1996. Demand
deposits experienced a $1.84 million or 1.94% increase, savings and time
deposits increased $20.25 million or
Page 13
<PAGE> 347
6.54% during the first nine months of 1996. Management anticipates core deposits
to experience moderate growth or remain stable during the rest of the year.
Access to advances from the Federal Home Loan Bank (FHLB) described in Note 5 is
a supplemental source of cash to meet liquidity needs. The FHLB allows these
borrowings to be utilized for any purpose.
Capital Resources
- -----------------
Shareholders' equity totaled $48.04 million at September 30, 1996, compared to
$46.66 million at December 31, 1995. This increase was due primarily to earnings
retention which more than offset a decrease in the net unrealized holding gain
on securities available for sale. The ratio of shareholders' equity to assets
was 8.57% at September 30, 1996 and 9.39% at December 31, 1995.
Cash dividends declared during the nine months ended September 30, 1996 were
$1,635,000 or $.436 per share representing 34.67% of net income and an increase
of 34.35% over the first nine months of 1995.
Regulatory Capital Requirements
- -------------------------------
The Corporation complies with the capital requirements established by the
Federal Reserve System, which are summarized as follows:
<TABLE>
<CAPTION>
Capital Position
as of
Regulatory
Minimum September 30, 1996 December 31, 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I risk-based
capital....... 4.00% 14.55% 14.29%
Total risk-based
capital....... 8.00% 15.71% 15.45%
Tier I leverage 3.00% - 5.00% 8.41% 8.84%
</TABLE>
Under "Prompt Corrective Action" regulations adopted in September 1992, 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 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 the
current laws and regulations. Under a current regulatory proposal, interest rate
risk would become an additional element in measuring risk-based capital. This
proposed change is not expected to significantly impact the Corporation's
compliance with capital guidelines.
Page 14
<PAGE> 348
Changes in Financial Condition
- ------------------------------
Consolidated total assets were $560.66 million at the end of the current period
after recording growth of $63.76 million or 12.83% during the first nine months
of 1996. This growth was funded primarily by FHLB advances which increased by
$39.23 million and deposits which increased $22.09 million. These new FHLB
advances were used to purchase investment and mortgage-backed securities during
the third quarter of 1996. Loans and leases increased by $21.43 million, and
investments and mortgage-backed securities increased by $45.56 million during
the first nine months of 1996. The residential real estate loan portfolio
increased by $12.38 million or 8.09%, while commercial and other loans increased
$6.11 million or 5.94%. Consumer and credit card loans increased by $2.36
million or 3.23%, while lease financing balances increased by $.59 million or
34.55%. Short-term borrowings increased by $11.86 million or 148.53% during the
first nine months of 1996, primarily from the addition of a $10 million
short-term FHLB advance.
The allowance for loan and lease losses as a percentage of loans and leases was
1.26% at the end of the current period and 1.26% at the end of 1995. Net loan
and lease charge-offs were $271,000 for the first nine months of 1996,
representing an annualized rate of .11% of the average loan and lease balances.
This represented an increase of $41,000 in net charge-offs compared to the first
nine months of 1995. Commercial loans had net charge offs of $51,000 compared to
net charge-offs of $124,000 during the first nine months of 1995. Net
charge-offs for consumer and credit card loans were $103,000 higher than 1995.
Loans past due more than 90 days plus loans placed in non-accrual status were
$2.01 million or .58% of outstanding balances at September 30, 1996 compared to
$1.06 million or .32% of outstanding balances at the end of 1995.
The interest rate sensitivity of the Corporation has not changed significantly
from that of December 31, 1995 as disclosed in the Corporation's 1995 annual
report on Form 10-K.
Results of Operations-Third Quarter 1996 vs. Third Quarter 1995
- ---------------------------------------------------------------
Consolidated net income of $1,604,000 for the third quarter of 1996 was 7.80%
over the $1,488,000 recorded for the third quarter of 1995. Expressed as
annualized returns on average assets and average shareholders' equity, net
income for 1996 was 1.16% and 13.37% compared to 1.22% and 13.62% for 1995.
Fully diluted earnings per share increased $.03 to $.42 per share for the third
quarter 1996 compared to the same period in 1995. These per share amounts were
restated to reflect the 5% stock dividend distributed in September 1996.
The increased level of net income for the third quarter of 1996 compared to the
third quarter of 1995, resulted primarily from higher net interest income.
Increased net interest income resulted from a $56.75 million or 12.44% increase
in average earning assets. The annualized net interest margin rate (net interest
income adjusted for tax-exempt income restated to a pre-tax equivalent based on
the statutory federal tax rate [FTE] divided by average earning assets) was
4.43% in the third quarter of 1996 and 4.64% for the same period in 1995.
Page 15
<PAGE> 349
The net interest spread percentage (the FTE average earning assets yield minus
the average cost of funds) declined by 16 basis points to 3.83% for the third
quarter 1996 compared to the same period of a year ago. Management expects the
net interest margin rate for 1996 to finish at lower levels than those
experienced in 1995.
The provision for loan and lease losses increased by $45,000 or 27.11% during
the third quarter of 1996 compared to the same period last year. Net loan and
lease charge-offs were up $41,000 or 17.83% compared to the same period a year
ago. Net loan and lease charge-offs for the third quarter of 1996 and 1995 were
at an annualized rate of .09% and .04%, respectively. Management anticipates
higher loan and lease charge-offs and a higher provision for loan and lease
losses in 1996 compared to the full year levels experienced in 1995.
Non-interest income of $797,000 during the third quarter of 1996 represented an
annualized .59% of average assets compared to $776,000 or .64% of average assets
for the same period in 1995. There were no loan sales in both the third quarter
of 1996 or third quarter of 1995. Approximately $4.9 million of mortgage loans
held for sale were moved into a long-term investment position during the third
quarter of 1996. This action was in concert with management's intent to fully
utilize the leverage of shareholder's equity.
Non-interest expenses increased $142,000 or 3.92% over the third quarter 1995.
Employee salaries and benefits decreased by $60,000 or 3.19% over the same
period in 1995. This decline was largely due primarily to lowered employee group
health insurance costs. All other non-interest expenses including occupancy
expense, advertising, and franchise taxes were higher by $202,000 or 11.60% over
1995.
As a percentage of income before federal income taxes, federal income tax
expense was 22.51% in 1996 and 22.14% in 1995. These effective tax rates are
lower than the statutory tax rate of 34% due primarily to tax exempt income from
obligations of states and political subdivisions and non-taxable loans.
Results of Operations-Nine Months 1996 vs. Nine Months 1995
- -----------------------------------------------------------
Consolidated net income of $4,716,000 for the first nine months of 1996 was
13.75% over the $4,146,000 recorded for the same period in 1995. Expressed as
annualized returns on average assets and average shareholders' equity, net
income for 1996 was 1.22% and 13.39% compared to 1.17% and 13.02% for 1995.
Fully diluted earnings per share increased $.16 to $1.24 per share for the nine
months of 1996 compared to the same period in 1995. These per share amounts were
restated to reflect the 5% stock dividend distributed in September, 1996.
The increased level of net income for the nine months of 1996 compared to the
first nine months of 1995, resulted primarily from higher net interest income,
reduced FDIC insurance expense, and lower personnel expense. These items are
discussed more fully below.
Page 16
<PAGE> 350
Increased net interest income resulted from a $38.80 million or 8.69% increase
in average earning assets. The annualized net interest margin rate (net interest
income adjusted for tax-exempt income restated to a pre-tax equivalent based on
the statutory federal tax rate [FTE] divided by average earning assets) was
4.59% in 1996 and 4.70% during the same period in 1995.
The net interest spread percentage (the FTE average earning assets yield minus
the average cost of funds) declined by 10 basis points to 3.95% for the first
nine months of 1996 compared to the same period of a year ago. Management
expects the net interest margin rate for 1996 to remain at lower levels than
those experienced in 1995.
The provision for loan and lease losses increased by $141,000 or 35.08% during
the first nine months of 1996 compared to the same period last year. Net loan
and lease charge-offs were up $41,000 or 17.83% compared to the same period a
year ago. Net loan and lease charge-offs for the first nine months of 1996 and
1995 were at an annualized rate of .11% and .10%, respectively. Management
anticipates both loan and lease charge-offs and the provision for loan and lease
losses for 1996 to be higher than the full year levels experienced in 1995.
Non-interest income of $2,386,000 during the first nine months of 1996
represented an annualized .62% of average assets compared to $2,323,000 or .66%
of average assets for the same period in 1995. Fiduciary income essentially kept
pace with trust asset growth. There were no loan sales in both 1996 and 1995
periods.
Non-interest expenses decreased $14,000 or .13% over the same period in 1995. A
reduction in FDIC insurance expense of $411,000 was a significant contributor to
this decrease. Employee salaries and benefits decreased by $189,000 or 3.51%
over the same period in 1995. This decline was largely due to a one time
adjustment which significantly lowered employee group health insurance costs.
All other non-interest expenses including occupancy expense, advertising, and
franchise taxes were higher by $586,000 or 10.92% over 1995.
As a percentage of income before federal income taxes, federal income tax
expense was 23.08% in 1996 and 20.92% in 1995. These effective tax rates are
lower than the statutory tax rate of 34% due primarily to tax exempt income from
obligations of states and political subdivisions and non-taxable loans.
Pending Merger
- --------------
As discussed earlier, 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
First-Knox Banc Corp. will be merged with and into Park National. Under the
terms of the agreement, Park National will exchange 0.5914 shares of Park
National common stock for each outstanding share of First-Knox Banc Corp. common
stock 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 will be accounted
for as a pooling-of-interests. The exact exchange ratio will be determined
pursuant to 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 $29.00 per share of
Page 17
<PAGE> 351
First-Knox Banc Corp. common stock, or approximately $114.3 million based on the
$48.75 closing price of Park National common stock on October 25, 1996. Closing
of the transaction is subject to certain conditions including regulatory
approval and the approval of the shareholders of First-Knox Banc Corp. and Park
National.
Page 18
<PAGE> 352
PART II - OTHER INFORMATION
(Items which are not applicable have been omitted)
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
Description Location
----------------------------- --------------------------
<S> <C>
4(b) First-Knox Banc Corp. Divided Incorporated herein
Reinvestment Plan by reference to the
Corporation's Registration
Statement on Form S-3
(Registration No. 33-52590)
4(b)1 Amendment to the First-Knox Banc Corp. Incorporated herein
Dividend Reinvestment Plan by reference to exhibit
4(b)1 to the March 31, 1995
Form 10-Q
10(a) Summary of Incentive Compensation Plan Incorporated herein
dated December 9, 1983 by reference to exhibit
10(a) to the 1992 Form 10-K
10(b) Employees Retirement Plan dated January 1, 1984 Incorporated herein
by reference to exhibit
10(a) to the 1986 Form 10-K
10(c) Supplemental Retirement Agreement dated Incorporated herein
August 11, 1987 by reference to exhibit
10(c) to the 1992 Form 10-K
</TABLE>
Page 19
<PAGE> 353
<TABLE>
<S> <C>
10(d) Non-qualified Stock Option and Incorporated herein
Stock Appreciation Rights Plan by reference to exhibit 23
to the 1989 Form 10-K
10(e) First-Knox Banc Corp. Savings Retirement Incorporated herein
Plan by reference to exhibit 10(e)
to the 1993 Form 10-K
10(f) Project Services Agreement between First-Knox Incorporated herein
National Bank and Sverdrup Building Corporation by reference to exhibit 10(f)
to the 1993 Form 10-K
10(g) First-Knox Banc Corp. Stock Option and Incorporated herein
Stock Appreciation Rights Plan by reference to exhibit
10(g) to the March 31, 1995
Form 10-Q
11 Statement regarding computation of Page 7 - Note 1 to consolidated
per share earnings financial statements
23 Consent of Independent Accountants Incorporated herein
by reference to exhibit 23
to the 1995 Form 10-K
</TABLE>
(b) No reports on Form 8-K were filed during the fiscal quarter covered by this
report.
Page 20
<PAGE> 354
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First-Knox Banc Corp.
(Registrant)
Date November 13, 1996 /S/ Carlos E. Watkins
----------------- -------------------------------
By Carlos E. Watkins
President and Chief Executive Officer
Date November 13, 1996 /S/ Gordon E. Yance
----------------- -------------------------------
By Gordon E. Yance
Vice President & Treasurer
Page 21
<PAGE> 355
[ARTICLE] 9
[CIK] 0000756899
[NAME] FIRST-KNOX BANC CORP.
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] SEP-30-1996
[CASH] 15,454
[INT-BEARING-DEPOSITS] 584
[FED-FUNDS-SOLD] 0
[TRADING-ASSETS] 0
[INVESTMENTS-HELD-FOR-SALE] 177,543
[INVESTMENTS-CARRYING] 0
[INVESTMENTS-MARKET] 0
[LOANS] 352,071
[ALLOWANCE] 4,438
[TOTAL-ASSETS] 560,663
[DEPOSITS] 426,158
[SHORT-TERM] 19,848
[LIABILITIES-OTHER] 3,975
[LONG-TERM] 62,643
[COMMON] 11,712
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 36,327
[TOTAL-LIABILITIES-AND-EQUITY] 560,663
[INTEREST-LOAN] 22,856
[INTEREST-INVEST] 6,914
[INTEREST-OTHER] 0
[INTEREST-TOTAL] 29,770
[INTEREST-DEPOSIT] 12,172
[INTEREST-EXPENSE] 14,337
[INTEREST-INCOME-NET] 15,433
[LOAN-LOSSES] 543
[SECURITIES-GAINS] (11)
[EXPENSE-OTHER] 11,145
[INCOME-PRETAX] 6,131
[INCOME-PRE-EXTRAORDINARY] 4,716
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 4,716
[EPS-PRIMARY] 1.24
[EPS-DILUTED] 1.24
[YIELD-ACTUAL] 4.59
[LOANS-NON] 377
[LOANS-PAST] 1,636
[LOANS-TROUBLED] 2,290
[LOANS-PROBLEM] 7,105
[ALLOWANCE-OPEN] 4,166
[CHARGE-OFFS] 408
[RECOVERIES] 137
[ALLOWANCE-CLOSE] 4,438
[ALLOWANCE-DOMESTIC] 1,480
[ALLOWANCE-FOREIGN] 0
[ALLOWANCE-UNALLOCATED] 2,958
</TABLE>
<PAGE> 356
APPENDIX F
OPINION OF MCDONALD & COMPANY SECURITIES, INC.
<PAGE> 357
______________, 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> 358
Board of Directors
___________, 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> 359
Board of Directors
____________, 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 and does not constitute a
recommendation to any Park shareholder as to how such shareholder should vote
with respect to 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> 360
Board of Directors
____________, 1997
Page Four
This opinion is directed to and has been prepared for the confidential
use of the Board of Directors of Park. We do not believe that we are acting as
agents of the Park Board of Directors nor the holders of the Park Common Shares,
and we do not believe that any person other than the Park Board of Directors has
any legal right under state law to rely on this opinion. 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,
McDONALD & COMPANY SECURITIES, INC.
<PAGE> 361
APPENDIX G
OPINION OF DANIELSON ASSOCIATES INC.
<PAGE> 362
DANIELSON ASSOCIATES INC.
6110 EXECUTIVE BOULEVARD
SUITE 504
ROCKVILLE, MARYLAND 20852-3903
TEL: (301) 468-4884
FAX: (301) 468-0013
PITTSBURGH OFFICE
-----------------
TEL: (412) 262-3207
October 28, 1996
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 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 opinion, First-Knox' market has been analyzed; its
business and prospects have been discussed with management; and its financial
performance has been compared with other Ohio banks. In addition, any unique
characteristics have been considered.
This opinion is partly based on data supplied to Danielson Associates
by First-Knox, but it relies on some public information all of which is believed
to be reliable, but neither the completeness nor accuracy of such information
can be guaranteed. In particular, the opinion assumes, based on its management's
representation that there are no significant asset quality problems beyond what
was stated in recent reports to regulatory agencies and in the monthly report to
the directors.
In determining the "fair" sale value of First-Knox, the emphasis has
been on prices paid relative to earnings for Midwest banks that have similar
financial, structural and market characteristics. These prices were then related
to assets and equity capital, also referred to as "book."
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Board of Directors
October 28, 1996
Page 2
The "fair" market value of Park's common stock to be exchanged for
First-Knox stock has been determined by a comparison with other similar bank
holding companies and includes no in person due diligence of Park. This
comparison shows Park stock to be valued similarly to the comparable banks.
Based on this analysis, the "fair" sale value of First-Knox's is $103.6
to $109.9 million, or $26.51 to $28.10 per share. Thus, Park's offer of $112.8
million, or $29.21 per share, is a "fair" offer from a financial point of view
for First-Knox and its shareholders.
Respectfully submitted,
/s/ Arnold G. Danielson
-----------------------
Arnold G. Danielson
Chairman
Danielson Associates Inc.
AGD:lm
Enclosure
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APPENDIX H
OHIO REVISED CODE SECTION 1701.85
<PAGE> 365
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.
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(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.
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(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.
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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
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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
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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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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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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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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
II-6
<PAGE> 374
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> 375
<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
8 Form of opinion of Porter, Wright, Morris & Arthur, regarding
tax matters
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
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>
II-8
<PAGE> 376
<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 Park's 1993 Form 10-K
[Exhibit 10(g)])
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
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)
13(a) Annual Report to Stockholders of Park for the fiscal year
ended December 31, 1995 (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)
13(b) Park's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996 (Included as Appendix C to the
Joint Proxy Statement/Prospectus)
21 Subsidiaries of Park
23(a) Consent of Ernst & Young L.L.P., independent auditors
23(b) Consent of Vorys, Sater, Seymour and Pease (contained in
Exhibit 5)
23(c) Consent of Crowe, Chizek and Company LLP
23(d) Consent of Porter, Wright, Morris & Arthur regarding Exhibit
8 (contained in Exhibit 8)
23(e) Consent of Danielson Associates Inc.
23(f) Consent of McDonald & Company Securities, Inc.
23(g) Consent of Coopers & Lybrand, L.L.P.
</TABLE>
II-9
<PAGE> 377
<TABLE>
<S> <C>
24 Powers of Attorney
99(a) Form of proxy for Annual Meeting of Shareholders of Park
National Corporation
99(b) Form of proxy for Special Meeting of Shareholders of
First-Knox Banc Corp.
</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 F.
(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 G.
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.
II-10
<PAGE> 378
(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.
II-11
<PAGE> 379
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Park
National Corporation has duly caused this Registration Statement 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 January, 1997.
By: /s/ William T. McConnell
-----------------------------------------------------
William T. McConnell, Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement 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: William T. McConnell,
Attorney-in-Fact
Date: January 21, 1997
II-12
<PAGE> 380
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, 102
between Park ational 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 157
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 409
legality of shares
8 Form of opinion of Porter, Wright, Morris & Arthur, 412
regarding tax matters
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> 381
<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 415
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 *; 416
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)])
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 417
Executive Retirement Plan
10(j) Employment Security Agreement, dated as of July 12, 1996, 418
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)
13(a) Annual Report to Stockholders of Park for the fiscal year 160
ended December 31, 1995 (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> 382
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
13(b) Park's Quarterly Report on Form 10-Q for the fiscal quarter 220
ended September 30, 1996 (Included as Appendix C to the
Joint Proxy Statement/Prospectus)
21 Subsidiaries of Park 425
23(a) Consent of Ernst & Young L.L.P., independent auditors 426
23(b) Consent of Vorys, Sater, Seymour and Pease (contained in 409
Exhibit 5)
23(c) Consent of Crowe, Chizek and Company LLP 427
23(d) Consent of Porter, Wright, Morris & Arthur regarding Exhibit 412
8 (contained in Exhibit 8)
23(e) Consent of Danielson Associates Inc. 429
23(f) Consent of McDonald & Company Securities, Inc. 430
23(g) Consent of Coopers & Lybrand L.L.P. 432
24 Powers of Attorney 433
99(a) Form of proxy for Annual Meeting of Shareholders of Park 447
National Corporation
99(b) Form of proxy for Special Meeting of Shareholders of 450
First-Knox Banc Corp.
</TABLE>
- ---------------------
* Incorporated herein by reference as noted.
E-3
<PAGE> 1
EXHIBIT 5
---------
Opinion of Vorys, Sater, Seymour and Pease
<PAGE> 2
[VORYS, SATER, SEYMOUR AND PEASE LETTERHEAD]
(614) 464-6400
January 23, 1997
Board of Directors
Park National Corporation
50 North Third Street
Newark, OH 43055
Ladies and Gentlemen:
We are familiar with the proceedings taken and proposed to be
taken by Park National Corporation, an Ohio corporation ("Park"), in connection
with the issuance by Park of up to 2,345,000 of its common shares, without par
value (the "Park Common Shares"). The Park Common Shares are being issued by
Park in connection with the merger of First-Knox Banc Corp., an Ohio corporation
("First-Knox"), with and into Park (the "Merger").
Park and First-Knox entered into an Agreement and Plan of Merger,
dated as of October 28, 1996, and amended by an Amendment to Agreement and Plan
of Merger, dated as of January 10, 1997 (collectively, the "Merger Agreement").
In accordance with and subject to the terms of the Merger Agreement, each of the
outstanding common shares of First-Knox (other than those owned beneficially 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) will be cancelled and extinguished on the effective date of the
Merger in consideration and exchange for a number of Park Common Shares equal to
the "Exchange Ratio" set forth in the Merger Agreement. We have collaborated in
the preparation of the Registration Statement on Form S-4 (the "Registration
Statement") filed by Park with the Securities and Exchange Commission in order
to register the Park Common Shares to be issued in the Merger under the
Securities Act of 1933, as amended. In connection therewith, we have examined,
among other things, such records and documents as we have deemed necessary in
order to express the opinions hereinafter set forth.
<PAGE> 3
Board of Directors
Park National Corporation
January 23, 1997
Page 2
Based upon the foregoing, we are of the opinion that Park is a
duly organized and legally existing corporation under the laws of the State of
Ohio. Assuming compliance with applicable federal and state securities laws, we
are also of the opinion that when the Park Common Shares to be issued by Park
have been issued, upon surrender of the First-Knox common shares to be
surrendered in exchange therefor as contemplated by the Merger Agreement, as
specified in the Registration Statement when it shall become effective, will be
validly issued and outstanding, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus included therein.
Very truly yours,
/s/ Vorys, Sater, Seymour and Pease
-----------------------------------
Vorys, Sater, Seymour and Pease
ETF:i
<PAGE> 1
EXHIBIT 8
PORTER, WRIGHT, MORRIS & ARTHUR
41 South High Street
Columbus, Ohio 43215-6194
Telephone: 614-227-2000
Facsimile: 614-227-2100
Nationwide: 800-533-2794
______________, 1997
Park National Corporation
50 North Third Street
Newark, Ohio 43055
The First-Knox Banc Corp.
1 South Main Street
P.O. Box 871
Mt. Vernon, Ohio 43050
Gentlemen:
We have acted as counsel in connection with the proposed merger (the
"Merger") of The First-Knox Banc Corp., an Ohio corporation ("First-Knox"), with
and into Park National Corporation, an Ohio corporation (the "Company"),
pursuant to which the shareholders of First-Knox will receive common shares,
without par value, of the Company ("Company Shares") subject to the
Agreement and Plan of Merger, dated as of October 28, 1996, between First-Knox
and the Company, as amended by the Amendment to Agreement and Plan of Merger,
dated as of January 10, 1997 (the "Merger Agreement"), in exchange for their
outstanding common shares of First-Knox, $3.125 par value ("First-Knox
Shares"). At your request, and pursuant to Sections 6.2(d) and 6.3(d) of the
Merger Agreement, we are rendering our opinion concerning certain federal
income tax consequences of the Merger. As used herein, terms not otherwise
defined shall have the same meaning as when used in the Merger Agreement.
In that connection, we have examined and relied upon originals, or
copies certified or otherwise identified to our satisfaction, of such records,
documents, and other instruments, and such other matters of fact and law, as we
have considered necessary or appropriate for the purposes of this opinion,
including an examination of: (i) the Merger Agreement and the other documents
and agreements referred to therein; and (ii) the Joint Proxy
Statement/Prospectus (the "Prospectus") relating to the Merger and included in
the Registration Statement of the Company on Form S-4 (the "Registration
Statement") filed by the Company with the Securities and Exchange Commission. In
our examination, we have assumed the legal capacity of all natural persons, the
genuineness of all
Cincinnati - Cleveland - Columbus - Dayton - Naples, FL - Washington, DC
<PAGE> 2
Park National Corporation
_______________, 1997
Page 2
signatures, the authenticity of all documents submitted to us as originals, the
conformity to the original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of such
latter documents.
For purposes of the opinions set forth below, we have assumed the
accuracy and completeness of the statements and representations (which
statements and representations we have neither investigated nor verified, and
upon which we are entitled to rely) contained, respectively, in certain
certificates of the officers of the Company and First-Knox, and we have assumed
that the statements and representations contained in such certificates continue
to be accurate as of the Effective Time, as defined in the Merger Agreement. We
have also assumed that the transactions contemplated by the Merger Agreement
will be consummated in accordance with the Merger Agreement, the Merger
constitutes a merger pursuant to the applicable provisions of the laws of the
State of Ohio, and the facts, statements, and other information contained in the
Prospectus relating to the Merger are true, correct, and complete in all
material respects.
The opinions set forth below are based upon, and the section numbers
cited herein refer to, the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated thereunder, the administrative
interpretations thereof and the judicial decisions with respect thereto, all as
currently in effect, and are further based upon the continued accuracy and
completeness of the documents, certifications, and representations referred to
in the two preceding paragraphs as of the Effective Time.
In reliance on the assumptions and the representations set forth above,
and further assuming that the shareholders of First-Knox do not, for a
sufficient period of time to meet the continuity of interest requirements for a
reorganization, sell, exchange, transfer by gift, or otherwise dispose of a
number of Company Shares received in the Merger that would reduce the ownership
of Company Shares by the former shareholders of First-Knox to a number of shares
having a value, as of the date of the Merger, of less than 50 percent of the
total value of all the formerly outstanding First-Knox Shares as of the same
date, we are of the opinion that:
(1) The Merger of First-Knox with and into the Company will
constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code.
(2) Each of First-Knox and the Company will be a "party to a
reorganization" within the meaning of Section 368(b) of the
Code.
(3) Neither First-Knox nor the Company will recognize gain or loss
for Federal income purposes (except for the inclusion in
income of amounts resulting from any required change in
accounting methods or similar items) as a result of the
consummation of the Merger.
Cincinnati o Cleveland o Columbus o Dayton o Naples, FL o Washington, DC
<PAGE> 3
Park National Corporation
_______________, 1997
Page 3
(4) No gain or loss will be recognized by a shareholder of
First-Knox upon the exchange of the shareholder's First-Knox
Shares solely for Company Shares pursuant to the Merger,
except that a shareholder of First-Knox will recognize gain,
if any, with respect to cash received in lieu of fractional
shares or upon the exercise of dissenter's rights.
We have given this opinion pursuant to Sections 6.2(d) and 6.3(d) of
the Merger Agreement in connection with the transactions contemplated thereby
and such opinion is not to be relied upon for any other purpose. This opinion
may not be applicable to all shareholders, including, without limitation, (1) a
First-Knox shareholder whose First-Knox Shares are not held as a capital asset;
or (2) a First-Knox shareholder who is subject to special treatment under the
Code, including without limitation, insurance companies, dealers in securities,
financial institutions, tax-exempt investors, or non-United States citizens.
This opinion further assumes no stockholder acquired First-Knox Shares in
contemplation of or to effectuate the Merger.
In addition to the assumptions and exclusions above, no opinion is
expressed herein concerning the effect of state, local, and foreign tax laws.
Furthermore, no opinion is expressed herein about the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
that are not specifically addressed by the foregoing opinion.
You should be aware that this opinion represents our conclusions as to
the application of existing law and is based on the certifications and
representations given as of the date hereof. The statutory provisions,
regulations, interpretations, and other authorities upon which our opinion is
based are subject to change, and such changes could apply retroactively. In
addition, no advance ruling has been obtained from the Internal Revenue Service
("Service"). Our opinion is not binding on the Service and there can be no
assurance that positions contrary to those stated in our opinion will not be
taken by the Service or the courts. No person other than the addressees named
herein may rely on this opinion for any purpose.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. By giving this consent, however, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
Very truly yours,
Cincinnati - Cleveland - Columbus - Dayton - Naples, FL - Washington, DC
<PAGE> 1
EXHIBIT 10(d)
SUMMARY OF INCENTIVE BONUS PLAN
OF PARK NATIONAL CORPORATION
The Incentive Bonus Plan of Park National Corporation ("Park")
enables the officers of Park's subsidiaries, The Park National Bank ("PNB"), The
Richland Trust Company ("Richland") and Mutual Savings Bank ("Mutual"), to share
in any above-average return on equity (net income divided by average equity)
which Park may generate during a fiscal year.
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 those 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 compensa tion as determined by the Park Board of
Directors. After deduct ing 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 of Directors. 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 during the first two
quarters of the next fiscal year.
<PAGE> 1
SCHEDULE A TO EXHIBIT 10(f)
The following directors of Park National Corporation (the
"Company") entered into Split-Dollar Agreements with the subsidiaries of the
Company identified below which are identical to the Split-Dollar Agreement,
dated September 29, 1993, between Dominic C. Fanello and The Richland Trust
Company ("Richland") filed as Exhibit 10(g) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-18772):
<TABLE>
<CAPTION>
Subsidiary of the Company which is a Date of Split-Dollar
Name of Director Party to Split-Dollar Agreement Agreement
- --------------- ------------------------------------- --------------------
<S> <C> <C>
R. William Geyer Mutual Federal Savings Bank October 4, 1993
("Mutual")
Howard E. LeFevre The Park National Bank ("PNB") September 7, 1993
Phillip T. Leitnaker PNB October 5, 1993
Tamala Longaberger Kaido Mutual October 19, 1993
John J. O'Neill PNB September 2, 1993
William A. Phillips Mutual September 14, 1993
J. Gilbert Reese PNB September 8, 1993
Rick R. Taylor Richland September 29, 1993
John L. Warner PNB September 7, 1993
</TABLE>
<PAGE> 1
EXHIBIT 10(i)
DESCRIPTION OF PARK NATIONAL CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Park National Corporation ("Park") adopted a Supplemental
Executive Retirement Plan (the "Park SERP") in December, 1996. 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 Internal Revenue Code of 1986, as amended (the
"Code"). Additionally, the Internal Revenue Service (the "IRS") reduced the
amount of compensation available in calculating pension benefits to $150,000
annually. 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 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.
<PAGE> 1
Exhibit 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)
<PAGE> 2
EMPLOYMENT SECURITY AGREEMENT
This Agreement, made and entered into as of the 12th day of July, 1996, by and
between The First- Knox National Bank of Mount Vernon, Ohio, (hereinafter the
"Company"), and Carlos E. Watkins, President and Chief Executive Officer
(hereinafter the "Executive").
WITNESSETH;
THAT WHEREAS, the Executive is presently employed by the Company, and;
WHEREAS, Company is a wholly owned subsidiary of First-Knox Banc Corp.,
an Ohio Corporation, and;
WHEREAS, the Executive performs services for both First-Knox Banc Corp.
and Company but is compensated solely by the Company, and;
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the Executive's contribution to the growth and success of First-Knox Banc
Corp. and the Company during the past five plus years has been substantial, the
Board desires to provide for the continued employment of the Executive and to
make certain changes in the Executive's employment arrangements with the Company
which the Board has determined will reinforce and encourage the continued
attention and dedication to First-Knox Banc Corp. and the Company of the
Executive as a member of the management of both the Company and First-Knox Banc
Corp. and is in the best interest of both First-Knox Banc Corp. and the Company
and its shareholders.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, and in consideration of the Executive's continuation of employment with
the Company, the parties agree as follows:
1. OPERATION OF AGREEMENT
This Agreement shall be effective and binding immediately upon its
execution, but the Agreement shall not become operative unless and until a
change in control of First-Knox Banc Corp. as defined below, shall occur. The
date of such a change is referred to herein as the "operative date" of this
Agreement.
For purposes of this Agreement, a change in control of First-Knox Banc
Corp. shall mean, and shall be deemed to occur if:
(a) When any person, corporation, partnership, association,
trust, or other entity, becomes or tenders an offer the result of which
will be that it will become the beneficial owner of twenty-five (25%)
or more of the voting stock of First-Knox Banc Corp.; or
<PAGE> 3
(b) Individuals who were members of the Board of
Directors of First-Knox Banc Corp. immediately prior to a meeting of
the shareholders of the First-Knox Banc Corp. involving a contest for
the election of directors shall not thereafter constitute a majority
of the Board of Directors following such election; or
(c) First-Knox Banc Corp. is merged or consolidated with
another company or entity; or
(d) First-Knox Banc Corp. transfers substantially all of
its assets to another person, corporation, partnership, association,
trust, or other entity, other than a wholly owned subsidiary of the
First-Knox Banc Corp..
Upon any such change in control, this Agreement shall become immediately
operative.
2. TERM OF THE AGREEMENT
The term of this Agreement shall commence with the operative date of
the Agreement, as set forth above, and shall continue for a term of twenty four
(24) months thereafter.
3. EMPLOYMENT DURING TERM OF AGREEMENT
The Company hereby agrees to continue the Executive in the employ of
the Company, and the Executive agrees to remain in the employ of the Company,
for the term of this Agreement.
The Executive agrees that in the event that any tender or exchange
offer occurs or steps are taken to effect a change in control, the Executive
will not voluntarily leave the employ of the Company and will continue to render
services in a complete and professional manner until such efforts are abandoned
or a change of control has been effected.
4. COMPENSATION, BENEFITS, PERQUISITES
During the term of the Agreement, the Executive shall receive an annual
base salary which is not less than the salary in existence at the time of the
operative date of this Agreement, which salary shall be increased from time to
time thereafter in accordance with the Company's standards, policies or
practices, along with all fringe benefits of the Company, including, but not
limited to, medical insurance, disability insurance, life insurance, retirement
plans, deferred compensation plans, vacations and holidays.
5. TERMINATION OF EMPLOYMENT
(a) The employment of the Executive under this Agreement may
be terminated, and the Executive shall not be entitled to the benefits
set forth in the Agreement, only upon the occurrence of one or more of
the following events:
(1) Death of the Executive; or
2
<PAGE> 4
(2) Disability within the meaning of the long-term
disability plan in effect for management employees of the Company
immediately prior to the operative date of this Agreement; or
(3) Termination by the Company for cause.
6. TERMINATION PAYMENTS
(a) In the event of a breach of the Agreement by the Company or the
termination of the Executive's employment for other than the permissible reasons
set forth above, the Executive shall be paid a sum equal to two (2) years annual
compensation, said sum to be paid as a lump sum or in periodic payments as
determined by the acquiring entity. In addition the Company shall maintain in
full force and effect, and at its expense, the same or equivalent hospital,
medical, dental, accident, disability, and life insurance as the Executive (and
his dependents, if applicable) was covered by immediately prior to the breach or
termination, until the expiration of the term of the Agreement, or until the
Executive has obtained new full-time employment, whichever is earlier.
(b) The Executive shall not be required to mitigate the amount of any
payments due hereunder, nor shall the amount of any payments provided hereunder
be reduced by any compensation earned by him as a result of employment by
another employer after the date of breach or termination, or otherwise, except
as specifically provided in this Agreement.
7. VOLUNTARY RESIGNATION
Beginning with the operative date and continuing for the two years
thereafter, should the Executive resign from his employment with the Company,
the Executive shall be paid a sum of money equal to his annual compensation for
the remainder of the time from his date of resignation to the end of the two (2)
year period but diminished by any compensation paid during said period for
employment with any third party person or entity.
8. TAXES
The Company has determined that the amounts payable pursuant to this
Agreement constitute reasonable compensation for services to be rendered by the
Executive or for services that the Executive has agreed to render during the
term of this Agreement. Accordingly, notwithstanding any other provision hereof,
unless such action would be expressly prohibited by applicable law, if any
amount paid or payable is subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), the Company will pay
to the Executive an additional amount in cash including such additional cash
payment (net of all federal, state and local income taxes and all taxes payable
as the result of the application of Sections 28OG and/or 4999 of the Code) to be
equal to the aggregate remuneration the Executive would have received under the
Agreement, excluding such additional payment (net of all federal, state and
local income taxes), as if Sections 28OG and 4999 of the Code (and any successor
provisions thereto) had not been enacted into law.
3
<PAGE> 5
9. SUCCESSORS AND BINDING AGREEMENT
(a) First-Knox Banc Corp. on behalf of the Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business and/or
assets of the First Knox Bank Corp., by agreement in form and substance
satisfactory to the Executive, expressly to assume and payee to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. This Agreement shall
be binding upon and inure to the benefit of the Company and any successor to the
First-Knox Banc Corp., including without limitation any persons acquiring
directly or indirectly all or substantially all of the business and/or assets of
the First-Knox Banc Corp. whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), in which event the date of
succession or transfer shall be deemed to be the date of the breach.
(b) This Agreement and all rights of the Executive shall inure to the
benefit of and be enforceable by the Executive's personal or legal
representatives, estates, executors, administrators, heirs and beneficiaries.
This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder, except as provided in
subsection 9 (a) hereof.
10. LEGAL FEES AND EXPENSES
It is the intent of the Company that the Executive not be required to
incur any expenses associated with the enforcement of his rights under this
Agreement, by litigation or other legal action, because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes any litigation
designed to deny, or to recover from, the Executive the benefits intended to be
provided to the Executive hereunder, the Company irrevocably authorizes the
Executive from time to time to retain counsel of his choice, at the expense of
the Company as hereafter provided, to represent the Executive in connection with
the initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. The Company shall pay or cause
to be paid and shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Executive as a result of the Company's
failure to perform this Agreement, or any provision hereof, or as a result of
the Company or any person contesting the validity or enforceability of this
Agreement or any provision hereof as aforesaid; provided, however, that the
Company shall not be responsible for such attorney fees and/or related fees and
expenses to the extent that it is determined that the company is the prevailing
party in any such action or dispute.
4
<PAGE> 6
11. GOVERNING LAW
This Agreement and the rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of Ohio.
12. MISCELLANEOUS
(a) Enforcement - If any provision or part of this Agreement is
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remainder of such provisions or parts hereof
and the applicability thereof shall not be affected thereby.
(b) Payment Obligations Absolute - The Company's obligation during and
after the term of this Agreement to pay the Executive the compensation and to
make the arrangements provided herein shall be absolute and unconditional and
shall not be affected by any circumstances, including, without limitation, any
setoff, counterclaim, recoupment, defense or other right which the Company may
have against him or anyone else. All amounts payable by the Company hereunder
shall be paid without notice or demand. Each and every payment made hereunder by
the Company shall be final and the Company will not seek to recover all or any
part of such payment from the Executive or from whosoever may be entitled
thereto, for any reason whatsoever.
(c) Waiver and Entire Agreement - No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.
(d) Notices - For all purposes of this Agreement, all communications
including without limitation notices, consents, requests or approvals, provided
for herein shall be in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to the Executive at his principal residence,
or to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
(e) Lapse of Agreement - This Agreement shall lapse and become null and
void two (2) years after the date of this Agreement unless this Agreement has
been reapproved by the Board of Directors of the Company and ratified by the
Board of Directors of First-Knox Banc Corp.
5
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered as of the date first written above.
THE FIRST-KINOX NATIONAL BANK OF
MOUNT VERNON, OHIO
By: /s/ Philip H. Jordan, Jr.
---------------------------------------
Philip H. Jordan, Jr.
Chairman of the Board
EXECUTIVE
/s/ Carlos E. Watkins
-------------------------------------------
6
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF PARK NATIONAL CORPORATION
<TABLE>
<CAPTION>
State or Other Jurisdiction of
Name Incorporation or Organization
- -------------------------------- ------------------------------
<S> <C>
The Park National Bank ("PNB") United States (federally-
chartered national banking
association)
The Richland Trust Company Ohio
("Richland")
Consolidated Computer Center, Ohio
Inc. (NOTE: is a wholly-owned
subsidiary of PNB)
Park Investments, Inc. (NOTE: is Delaware
a wholly-owned subsidiary of
PNB)
Mutual Federal Savings Bank, A United States (federally-
Stock Corporation ("Mutual") chartered stock savings bank)
Zane-Fed Services, Incorporated Ohio
(NOTE: is a wholly-owned
subsidiary of Mutual)
MFS Investments, Inc. (NOTE: is Delaware
a wholly-owned subsidiary of
Mutual)
Richland Investments, Inc. Delaware
(NOTE: is a wholly-owned
subsidiary of Richland)
Scope Leasing, Inc. (NOTE: is a Ohio
wholly-owned subsidiary of PNB)
</TABLE>
<PAGE> 1
Exhibit 23(a)
[ERNST & YOUNG LLP LETTERHEAD]
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 6, 1996, in the Registration Statement (Form
S-4) and related Prospectus of Park National Corporation for the registration of
2,345,000 shares of its common stock.
Ernst & Young LLP
Columbus, Ohio
January 22, 1997
<PAGE> 1
Exhibit 23(c)
-------------
Consent of Crowe, Chizek and Company LLP
<PAGE> 2
[logo]
CROWE CHIZEK
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of Park National Corporation of our report dated January
18, 1996 related to the consolidated balance sheets of First-Knox Banc Corp. as
of December 31, 1995 and 1994 and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ending December 31, 1995, which report appears in the December 31, 1995 annual
report on Form 10-K of First-Knox Banc Corp. We also consent to the reference to
our firm under the caption "Experts" in this Registration Statement.
/S/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
January 21, 1997
<PAGE> 1
DANIELSON ASSOCIATES INC.
6110 EXECUTIVE BOULEVARD
SUITE 504
ROCKVILLE, MARYLAND 20852-3903
TEL: (301) 468-4884
FAX: (301) 468-0013
PITTSBURGH OFFICE
-----------------
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 & 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 G to the
Prospectus/Proxy Statement contained herein.
/s/ Arnold G. Danielson
-----------------------
Arnold G. Danielson, Chairman
Rockville, Maryland
January 22, 1996
<PAGE> 1
Exhibit 23(f)
-------------
Consent of McDonald & Company Securities, Inc.
<PAGE> 2
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 the form of
our opinion 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.
McDONALD & COMPANY SECURITIES, INC.
Cleveland, Ohio
January 23, 1997
<PAGE> 1
Exhibit 23(g)
-------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Park National Corporation Form S-4 (File No. 333- ) of our report, which
includes an explanatory paragraph regarding the change in method of
accounting for income taxes and for certain investment securities in 1993,
dated January 18, 1994 on our audits of the consolidated financial statements
of Park National Corporation and Subsidiaries as of December 31, 1993 and 1992,
and for the years ended December 31, 1993, 1992, and 1991, which report is
incorporated by reference in this Form S-4. We also to the reference to our
firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
January 23, 1997
<PAGE> 1
Exhibit 24
Powers of Attorney
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ William T. McConnell
--------------------------
William T. McConnell
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ C. Daniel DeLawder
---------------------------
C. Daniel DeLawder
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ David C. Bowers
---------------------------
David C. Bowers
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ Dominic C. Fanello
---------------------------
Dominic C. Fanello
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ R. William Geyer
---------------------------
R. William Geyer
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for her and in her name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as she might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand
this 21st day of January, 1997.
/s/ Tamala Longaberger Kaido
-----------------------------
Tamala Longaberger Kaido
<PAGE> 8
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ Howard E. LeFevre
---------------------------
Howard E. LeFevre
<PAGE> 9
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ Phillip T. Leitnaker
---------------------------
Phillip T. Leitnaker
<PAGE> 10
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ John J. O'Neill
---------------------------
John J. O'Neill
<PAGE> 11
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ William A. Phillips
---------------------------
William A. Phillips
<PAGE> 12
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ J. Gilbert Reese
---------------------------
J. Gilbert Reese
<PAGE> 13
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ Rick R. Taylor
---------------------------
Rick R. Taylor
<PAGE> 14
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer
and/or director of Park National Corporation (the "Company"), which is about to
file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1933, as amended, a Registration Statement
on Form S-4 for the registration of certain of its common shares, hereby
constitutes and appoints William T. McConnell, C. Daniel DeLawder and David C.
Bowers as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign both the Registration Statement on Form S-4 and
any and all amendments and documents related thereto, and to file the same, and
any and all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission and the American Stock Exchange, and
grants unto each of said attorneys-in-fact and agents, and substitute or
substitutes, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, and hereby ratifies
and confirms all things that each of said attorneys-in-fact and agents, or any
of them or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand
this 21st day of January, 1997.
/s/ John L. Warner
---------------------------
John L. Warner
<PAGE> 1
Exhibit 99(a)
Form of proxy for
Annual Meeting of Shareholders
of Park National Corporation
<PAGE> 2
PARK NATIONAL CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 21, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of common shares of Park National
Corporation, an Ohio corporation (the "Company"), hereby constitutes and
appoints Tamala Longaberger Kaido, Phillip T. Leitnaker and John J. O'Neill, or
any of them, the Proxy or Proxies of the undersigned, with full power of
substitution, to attend the Annual Meeting of Shareholders of the Company (the
"Annual Meeting") to be held on April 21, 1997, at the offices of The Park
National Bank, 50 North Third Street, Newark, Ohio, at 2:00 p.m., local time,
and any adjournment(s) thereof, and to vote all of the common shares of the
Company which the undersigned is entitled to vote at such Annual Meeting or at
any adjournment(s) thereof:
1. TO ADOPT 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"), BETWEEN THE COMPANY
AND FIRST-KNOX BANC CORP. ("FIRST- KNOX") AND APPROVE THE MERGER OF FIRST-KNOX
WITH AND INTO THE COMPANY CONTEMPLATED THEREBY (THE "MERGER"). UPON
CONSUMMATION OF THE MERGER, EACH OUTSTANDING COMMON SHARE OF FIRST-KNOX (OTHER
THAN COMMON SHARES OWNED BENEFICIALLY BY THE COMPANY, FIRST-KNOX OR ANY
SUBSIDIARY OF THE COMPANY OR FIRST-KNOX AND COMMON SHARES AS TO WHICH
DISSENTERS' RIGHTS ARE PERFECTED) WILL BE CONVERTED INTO THE RIGHT TO RECEIVE A
NUMBER OF COMMON SHARES OF THE COMPANY EQUAL TO THE EXCHANGE RATIO (AS
DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS WHICH ACCOMPANIED THIS PROXY
CARD).
/ / FOR / / AGAINST / / ABSTAIN
2. IF THE MERGER AGREEMENT IS ADOPTED, TO ADOPT THE PROPOSED AMENDMENT
TO SUBSECTION 2.02(A) OF THE COMPANY'S REGULATIONS TO DECREASE THE MAXIMUM
ALLOWABLE NUMBER OF DIRECTORS FROM 25 TO 16.
/ / FOR / / AGAINST / / ABSTAIN
3. TO ELECT FOUR DIRECTORS TO SERVE FOR TERMS OF THREE YEARS EACH.
<TABLE>
<S> <C> <C>
/ / FOR election as directors / / WITHHOLD AUTHORITY / / FOR ALL EXCEPT
of the Company of all of the to vote for all of the nominees
the nominees listed below listed below.
(except as marked to the
contrary below.)*
</TABLE>
R. William Geyer William A. Phillips
William T. McConnell John L. Warner
*INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
"FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME ON THE LINE BELOW:
<PAGE> 3
4. TO ADOPT THE PROPOSED AMENDMENT TO ARTICLE SIXTH OF THE COMPANY'S
ARTICLES OF INCORPORATION TO ELIMINATE PRE-EMPTIVE RIGHTS IN RESPECT OF THE
OFFERING OR SALE OF COMMON SHARES HELD AS TREASURY SHARES.
/ / FOR / / AGAINST / / ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS (NONE KNOWN AT THE TIME OF SOLICITATION OF THIS PROXY) AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT(S) THEREOF.
WHERE A CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS
PROXY CARD WHEN PROPERLY EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO
CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY CARD WILL BE
VOTED FOR THE ELECTION OF THE NOMINEES LISTED IN ITEM NO. 3 AS DIRECTORS OF THE
COMPANY AND FOR PROPOSALS NO. 1, 2 AND 4. IF ANY OTHER MATTERS ARE PROPERLY
BROUGHT BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT(S) THEREOF OR IF A NOMINEE
FOR ELECTION AS A DIRECTOR NAMED IN THE JOINT PROXY STATEMENT/PROSPECTUS IS
UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE, THE COMMON SHARES REPRESENTED
BY THIS PROXY CARD WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH
MATTERS OR FOR SUCH SUBSTITUTE NOMINEE(S) AS THE DIRECTORS MAY RECOMMEND.
ALL PROXIES PREVIOUSLY GIVEN OR EXECUTED BY THE UNDERSIGNED ARE HEREBY
REVOKED. The undersigned acknowledges receipt of the accompanying Notice of
Annual Meeting of Shareholders and Joint Proxy Statement/Prospectus for the
April 21, 1997 meeting and the Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
Dated:_____________, 1997
-------------------------------------------
Signature(s)
--------------------------------------------
Signature(s)
Please sign exactly as your name appears
hereon. When common shares are registered in
two names, both shareholders should sign.
When signing as executor, administrator,
trustee, guardian, attorney or agent, please
give full title as such. If shareholder is a
corporation, please sign in full corporate
name by President or other authorized
officer. If shareholder is a partnership,
please sign in partnership name by
authorized person. (Please note any change
of address on this proxy card.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
PARK NATIONAL CORPORATION. PLEASE FILL IN, DATE, SIGN AND RETURN
THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
-2-
<PAGE> 1
Exhibit 99(b)
Form of proxy for Special Meeting of
Shareholders of First-Knox Banc Corp.
<PAGE> 2
FIRST-KNOX BANC CORP.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of common shares of First-Knox Banc Corp., an
Ohio corporation (the "Company"), hereby constitutes and appoints Bruce B.
Levering, Richard B. Murray and Wendell W. McCoy, or any of them, the Proxy or
Proxies of the undersigned, with full power of substitution, to attend the
Special Meeting of Shareholders of the Company (the "Special Meeting") to be
held on April 23, 1997, at the Dan Emmett Conference Center, 150 Howard Street,
Mount Vernon, Ohio, at 3:30 p.m., local time, and any adjournment(s) thereof,
and to vote all of the common shares of the Company which the undersigned is
entitled to vote at such Special Meeting or at any adjournment(s) thereof:
1. TO ADOPT 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, BETWEEN THE COMPANY AND PARK NATIONAL CORPORATION ("PARK")
AND APPROVE THE MERGER OF THE COMPANY WITH AND INTO PARK CONTEMPLATED THEREBY
(THE "MERGER"). UPON CONSUMMATION OF THE MERGER, EACH OUTSTANDING COMMON SHARE
OF THE COMPANY (OTHER THAN COMMON SHARES OWNED BENEFICIALLY BY PARK, THE
COMPANY OR ANY SUBSIDIARY OF PARK OR THE COMPANY AND COMMON SHARES AS TO WHICH
DISSENTERS' RIGHTS ARE PERFECTED) WILL BE CONVERTED INTO THE RIGHT TO RECEIVE A
NUMBER OF COMMON SHARES OF PARK EQUAL TO THE EXCHANGE RATIO (AS DESCRIBED IN
THE JOINT PROXY STATEMENT/PROSPECTUS WHICH ACCOMPANIED THIS PROXY CARD.)
/ / FOR / / AGAINST / / ABSTAIN
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS (NONE KNOWN AT THE TIME OF SOLICITATION OF THIS PROXY) AS MAY
PROPERLY COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENT(S) THEREOF.
WHERE A CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS
PROXY CARD WHEN PROPERLY EXECUTED WILL BE VOTED OR NOT VOTED AS SPECIFIED. IF NO
CHOICE IS INDICATED, THE COMMON SHARES REPRESENTED BY THIS PROXY CARD WILL BE
VOTED FOR PROPOSAL NO. 1. IF ANY OTHER MATTERS ARE PROPERLY BROUGHT BEFORE THE
SPECIAL MEETING, THE COMMON SHARES REPRESENTED BY THIS PROXY CARD WILL BE VOTED
IN THE DISCRETION OF THE PROXIES ON SUCH MATTERS AS THE DIRECTORS MAY RECOMMEND.
<PAGE> 3
ALL PROXIES PREVIOUSLY GIVEN OR EXECUTED BY THE UNDERSIGNED ARE HEREBY
REVOKED. The undersigned acknowledges receipt of the accompanying Notice of
Special Meeting of Shareholders and Joint Proxy Statement/Prospectus for the
April 23, 1997 meeting and the Annual Report to Shareholders for the fiscal year
ended December 31, 1996.
Dated:________________________, 1997
_____________________________________
Signature(s)
_____________________________________
Signature(s)
Please sign exactly as your name
appears hereon. When common shares
are registered in two names, both
shareholders should sign. When
signing as executor, administrator,
trustee, guardian, attorney or agent,
please give full title as such. If
shareholder is a corporation, please
sign in full corporate name by
President or other authorized
officer. If shareholder is a
partnership, please sign in
partnership name by authorized
person. (Please note any change of
address on this proxy card.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRST-KNOX BANC CORP. PLEASE FILL IN, DATE, SIGN AND RETURN
THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
