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Filed pursuant to
Rule 424(b)(3)
Registration No. 333-30858
- --------------------------------------------- ----------------------------------
PARK NATIONAL CORPORATION U.B. BANCSHARES, INC.
PROSPECTUS PROXY STATEMENT
FOR FOR
325,500 COMMON SHARES, WITHOUT PAR VALUE, SPECIAL MEETING OF SHAREHOLDERS OF
OF U.B. BANCSHARES, INC.
PARK NATIONAL CORPORATION TO BE HELD ON
TO BE ISSUED IN CONNECTION WITH THE MERGER WEDNESDAY, APRIL 19, 2000
OF AT 3:00 P.M.
U.B. BANCSHARES, INC. WITH AND INTO
PARK NATIONAL CORPORATION
- --------------------------------------------- ----------------------------------
The boards of directors of Park National and U.B. Bancshares have each
unanimously approved the merger agreement between U.B. Bancshares and Park
National. If the merger is completed, the shareholders of U.B. Bancshares will
receive approximately .554 common shares of Park National for each common share
of U.B. Bancshares which they own. In lieu of issuing fractional common shares,
Park National will make a cash payment based on a formula in the merger
agreement. Following the merger, U.B. Bancshares' subsidiary, United Bank, N.A.,
will be a subsidiary of Park National and U.B. Bancshares will no longer exist
as a separate entity.
On December 13, 1999, the last trading day prior to the joint public
announcement by Park National and U.B. Bancshares of the proposed merger, Park
National common shares, which are listed on the American Stock Exchange under
the symbol "PRK," closed at $110.75 per share, and on March 14, 2000, the last
trading day before the date of this proxy statement/prospectus, Park National
common shares closed at $99.50 per share.
This document is a proxy statement for use by U.B. Bancshares in
soliciting proxies for its special meeting of shareholders. It is also a
prospectus for Park National relating to the issuance of Park National common
shares in connection with the merger. It gives detailed information about the
merger, and includes a copy of the merger agreement. We urge you to read the
document before deciding how to vote. YOU SHOULD CAREFULLY CONSIDER THE RISK
FACTORS RELATING TO THE MERGER, WHICH ARE DESCRIBED BEGINNING ON PAGE 11.
We cannot complete the merger unless the shareholders of U.B.
Bancshares vote to adopt the merger agreement. YOUR VOTE IS VERY IMPORTANT. IF
YOU FAIL TO VOTE, THE EFFECT WILL BE A VOTE "AGAINST" ADOPTION OF THE MERGER
AGREEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE PARK NATIONAL COMMON SHARES TO BE
ISSUED IN CONNECTION WITH THE MERGER OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated March 15, 2000 and is first
being mailed to U.B. Bancshares shareholders on or about March 20, 2000.
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Park National from documents that Park National has
filed with the Securities and Exchange Commission but has not included or
delivered with this proxy statement/prospectus. If you call or write us, we will
send you these documents, including exhibits specifically incorporated by
reference into this proxy statement/prospectus, without charge. You can contact
us at:
Park National Corporation
50 North Third Street
P.O. Box 3500
Newark, Ohio 43058-3500
Attention: David C. Bowers, Secretary
(740) 349-3708
PLEASE REQUEST DOCUMENTS FROM PARK NATIONAL NO LATER THAN APRIL 12,
2000. If you request any documents, Park National will mail the documents to you
by first class mail, or another equally prompt means, by the next business day
after we receive your request.
See "Where You Can Find More Information" on page 67 for more
information about the documents referred to in this proxy statement/prospectus.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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DESCRIPTION PAGE
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Questions and Answers About the Merger............................................................................1
Summary...........................................................................................................3
Selected Financial Data......................................................................................10
Risk Factors.....................................................................................................11
Since the market price of Park National common shares fluctuates, U.B. Bancshares shareholders
cannot be sure of the market value of the Park National common shares they will receive in the
merger.....................................................................................................11
We cannot assure you that Park National and U.B. Bancshares will be able to successfully integrate
their businesses...........................................................................................11
The termination fee may discourage other companies from trying to acquire U.B. Bancshares even if
the other acquisition could offer higher immediate value to U.B. Bancshares' shareholders..................11
Directors and executive officers of U.B. Bancshares may have interests that are different from or in
addition to your interests as a shareholder................................................................12
Park National's acquisition strategy could pose risks in the future..........................................12
The U.B. Bancshares Special Meeting..............................................................................12
General......................................................................................................12
Matters to be Considered at the U.B. Bancshares Special Meeting..............................................13
Voting at the U.B. Bancshares Special Meeting; U.B. Bancshares Record Date...................................13
Principal Shareholders of Park National..........................................................................14
Principal Shareholders of U.B. Bancshares........................................................................17
The Merger.......................................................................................................18
General......................................................................................................18
Background and Reasons for Merger............................................................................18
Opinion of Austin Associates.................................................................................20
Comparative Transactions.................................................................................21
Value of Park National Common Shares.....................................................................22
Contribution Analysis....................................................................................22
Dilution Analysis........................................................................................22
Discounted Cash Flow Analysis............................................................................22
Dividends................................................................................................22
Effect on Outstanding Park National Common Shares and Exchange of U.B. Bancshares Common
Shares......................................................................................................23
Effect on Outstanding Park National Common Shares........................................................23
Exchange of U.B. Bancshares Common Shares................................................................23
No Fractional Park National Common Shares to Be Issued...................................................24
Closing of U.B. Bancshares Share Transfer Books; Exchange of Certificates Evidencing U.B.
Bancshares Common Shares..............................................................................24
Rights of Holders of U.B. Bancshares Share Certificates Prior to Surrender...............................25
Lost Share Certificates..................................................................................25
Treatment of Outstanding U.B. Bancshares Stock Options...................................................25
Accounting Treatment of the Merger...........................................................................25
Federal Income Tax Consequences of the Merger................................................................26
Interests of Certain Persons in the Merger...................................................................26
Resale of Park National Common Shares Received in the Merger.................................................27
Regulatory Approvals.........................................................................................27
Other Transactions Involving Park National...................................................................28
Existing Relationship Between Park National and U.B. Bancshares..............................................28
The Merger Agreement.............................................................................................28
The Merger...................................................................................................28
Conversion of Shares.........................................................................................28
Representations and Warranties...............................................................................28
Conduct of Business Pending the Merger.......................................................................30
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<TABLE>
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Conditions to the Consummation of the Merger.................................................................33
Effective Time of the Merger.................................................................................35
Amendment and Termination....................................................................................35
Costs and Expenses; Indemnification..........................................................................37
Recommendation and Vote......................................................................................37
Rights of Dissenting Shareholders................................................................................37
Business of Park National........................................................................................39
General......................................................................................................39
Additional Information.......................................................................................40
Management of Park National......................................................................................41
Board of Directors...........................................................................................41
Executive Officers...........................................................................................44
Compensation Committee Interlocks and Insider Participation..................................................44
Executive Compensation.......................................................................................45
Summary of Cash and Certain Other Compensation...........................................................45
Grants of Options........................................................................................46
Option Exercises and Holdings............................................................................47
Pension Plan; Supplemental Executive Retirement Plan.....................................................47
Compensation of Directors....................................................................................48
Transactions Involving Management............................................................................49
Business of U.B. Bancshares......................................................................................50
General......................................................................................................50
Market Prices................................................................................................51
Comparison of Rights of Holders of Park National Common Shares and Holders of U.B. Bancshares
Common Shares.................................................................................................51
General......................................................................................................51
Board of Directors...........................................................................................52
Voting Rights................................................................................................53
Preemptive Rights............................................................................................55
Dividends....................................................................................................55
Anti-Takeover Statutes.......................................................................................56
Director and Officer Liability and Indemnification...........................................................57
Regulation of Financial Institutions.............................................................................58
Regulation of Bank Holding Companies.........................................................................58
Transactions with Affiliates.................................................................................60
Regulation of Nationally-Chartered Banks.....................................................................60
Regulation of Ohio State-Chartered Banks and Consumer Finance Companies......................................60
Federal Deposit Insurance Corporation........................................................................60
Regulatory Capital...........................................................................................61
Fiscal and Monetary Policies.................................................................................62
Competition..................................................................................................62
Prompt Corrective Regulatory Action..........................................................................63
Limits on Dividends and Other Payments.......................................................................63
Financial Services Modernization Act of 1999.................................................................64
Liquidity........................................................................................................65
Park National................................................................................................65
U.B. Bancshares..............................................................................................65
Legal Matters....................................................................................................66
Experts..........................................................................................................66
Cautionary Statement Regarding Forward-Looking Information.......................................................66
Where You Can Find More Information..............................................................................67
SEC Filings..................................................................................................67
Registration Statement.......................................................................................67
Documents Incorporated by Reference..........................................................................67
</TABLE>
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LIST OF APPENDICES
Appendix A Agreement and Plan of Merger......................................................... A-1
Appendix B Amendment to Agreement and Plan of Merger............................................ B-1
Appendix C Park National Corporation Annual Report to Shareholders for fiscal year
ended December 31, 1999............................................................ C-1
Appendix D Opinion of Austin Associates, Inc.................................................... D-1
Appendix E Ohio Revised Code Section 1701.85.................................................... E-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHAT WILL U.B. BANCSHARES' SHAREHOLDERS RECEIVE FOR THEIR U.B.
BANCSHARES COMMON SHARES IN THE MERGER?
A. When the merger is completed, U.B. Bancshares shareholders will receive
approximately .554 Park National common shares for each of their common
shares of U.B. Bancshares. Because the market price of the Park
National common shares may change from day to day, U.B. Bancshares
shareholders cannot be sure of the market value of the Park National
common shares they will receive in the merger at the time they vote
their common shares.
The closing price of a Park National common share on December 13, 1999,
the last trading day before the announcement of the merger, was
$110.75. The closing price of a Park National common share on March 14,
2000, the last trading day before the date of this document, was
$99.50.
Q. WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A. We plan to continue paying dividends on U.B. Bancshares common shares
until the closing of the merger. We are paying a quarterly dividend of
$.32 per share on March 24, 2000 to shareholders of record on March 10,
2000. U.B. Bancshares and Park National agreed in the merger agreement
to cooperate to assure that during any applicable period, there will
not be a payment of both a Park National and an U.B. Bancshares
dividend to former U.B. Bancshares shareholders as a result of the
merger.
Q. WHAT WILL HAPPEN IF U.B. BANCSHARES' SHAREHOLDERS DO NOT ADOPT THE
MERGER AGREEMENT?
A. If U.B. Bancshares' shareholders do not adopt the merger agreement,
management and the board of directors will continue to operate U.B.
Bancshares as before, and may consider other strategic alternatives.
However, if U.B. Bancshares receives an alternative proposal prior to
termination of the merger agreement and then enters into an agreement
to sell U.B. Bancshares with another party prior to September 30, 2000,
U.B. Bancshares may be required to pay Park National a termination fee
of $1,000,000.
Q. WHAT HAPPENS IF I DO NOT SEND IN MY PROXY CARD, IF I DO NOT INSTRUCT MY
BROKER, OR IF I ABSTAIN FROM VOTING?
A. If you do not send in your proxy card, if you do not instruct your
broker to vote your common shares, or if you abstain from voting, it
will have the same effect as a vote "AGAINST" the adoption of the
merger agreement.
Q. WHAT DO I NEED TO DO NOW?
A. After you have carefully read this document, please indicate on your
proxy card how you want to vote. Sign and date the proxy card and mail
it in the enclosed prepaid return envelope marked "Proxy" as soon as
possible, so that your U.B. Bancshares common shares may be represented
and voted at the U.B. Bancshares special meeting.
In order for us to complete the merger, the holders of at least
two-thirds of the issued and outstanding U.B. Bancshares common shares
must vote to adopt the merger agreement. THE BOARD OF DIRECTORS OF U.B.
BANCSHARES UNANIMOUSLY RECOMMENDS VOTING "FOR" ADOPTION OF THE MERGER
AGREEMENT.
Q. IF MY BROKER HOLDS MY COMMON SHARES IN "STREET NAME," WILL MY BROKER
VOTE MY COMMON SHARES FOR ME?
A. Your broker cannot vote your common shares without specific
instructions from you. Unless you follow the directions your broker
provides to you regarding how to instruct your broker to vote your
common shares, your common shares will not be voted.
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<PAGE> 7
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. Yes. You can change your vote at any time before your proxy is voted at
the U.B. Bancshares special meeting. Just send in a later dated, signed
proxy card or a written notice of revocation to the U.B. Bancshares
Secretary, Albert L. Stetzer, before the special meeting or attend the
special meeting in person and vote. Your attendance alone will not
revoke your proxy. If you have instructed your broker to vote your
common shares, you must follow the directions received from your broker
to change those instructions.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working toward completing the merger as quickly as possible. We
anticipate completing the merger shortly after the special meeting is
held, assuming that the U.B. Bancshares shareholders adopt the merger
agreement.
Q. WHERE CAN I FIND MORE INFORMATION ABOUT PARK NATIONAL?
A. Park National files reports and other information with the SEC. You may
read and copy this information at the SEC's public reference
facilities. Please call the SEC at 1-800-SEC-0330 for information about
these facilities. These documents are also available on the Internet
site the SEC maintains at WWW.SEC.GOV and at the offices of the
American Stock Exchange. You can also request copies of these documents
from Park National.
Q. WHO CAN ANSWER ANY OTHER QUESTIONS I MAY HAVE?
A. If you have questions, you may contact us at:
<TABLE>
<CAPTION>
<S> <C>
Park National Corporation U.B. Bancshares, Inc.
50 North Third Street 401 South Sandusky Avenue
P.O. Box 3500 Bucyrus, Ohio 44820
Newark, Ohio 43058-3500 Attention: Albert L. Stetzer, Secretary
Attention: David C. Bowers, Secretary (419) 562-3040
(740) 349-3708
</TABLE>
2
<PAGE> 8
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that may be
important to you. We urge you to read carefully the entire proxy statement/
prospectus and the other documents referred to in this proxy
statement/prospectus to fully understand the proposed merger.
INTRODUCTION
We propose a merger between Park National and U.B. Bancshares. If the
holders of at least two-thirds of the issued and outstanding U.B. Bancshares
common shares adopt the merger agreement, and if all other conditions to the
consummation of the merger are satisfied, U.B. Bancshares' operating subsidiary,
United Bank, a national banking association, will become a wholly-owned
subsidiary of Park National.
PARTIES TO THE MERGER
PARK NATIONAL CORPORATION (SEE PAGE 39)
50 North Third Street
P.O. Box 3500
Newark, Ohio 43058-3500
(740) 349-8451
Park National is an Ohio corporation registered as a bank holding
company under the Bank Holding Company Act of 1956, and subject to regulation by
the Board of Governors of the Federal Reserve System.
Through its banking subsidiaries, The Park National Bank, Newark, Ohio,
a national banking association; The Richland Trust Company, Mansfield, Ohio, an
Ohio state-chartered bank; Century National Bank, Zanesville, Ohio, a national
banking association; and The First-Knox National Bank of Mount Vernon, a
national banking association, Park National is engaged in a general commercial
banking and trust business in small to medium population Ohio communities. In
early 1999, Park National organized Guardian Financial Services Company, an Ohio
consumer finance company based in Hilliard, Ohio. Park National's subsidiaries
operate 59 full-service offices and a network of 65 automatic teller machines in
15 central and southern Ohio counties.
Park National Bank is further divided into two banking divisions with
the Park National Division headquartered in Newark, Ohio and the Fairfield
National Division headquartered in Lancaster, Ohio. First-Knox National Bank is
similarly divided into two banking divisions with the First-Knox National
Division headquartered in Mount Vernon, Ohio and the Farmers and Savings
Division headquartered in Loudonville, Ohio.
As of December 31, 1999, Park National had total consolidated assets of
approximately $2.6 billion.
U.B. BANCSHARES, INC. (SEE PAGE 50)
401 South Sandusky Avenue
Bucyrus, Ohio 44820
(419) 562-3040
U.B. Bancshares is an Ohio corporation registered as a bank holding
company under the Bank Holding Company Act, and subject to regulation by the
Federal Reserve Board. U.B. Bancshares' principal business activity is the
ownership and management of its wholly-owned subsidiary, United Bank. United
Bank operates under a national banking charter and provides commercial banking
services primarily in Crawford, Marion and contiguous counties in Ohio. As a
national bank, United Bank is subject to regulation by the Comptroller of
Currency.
As of December 31, 1999, U.B. Bancshares had total consolidated assets
of approximately $180 million.
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<PAGE> 9
U.B. BANCSHARES SPECIAL MEETING (SEE PAGE 12)
U.B. Bancshares will hold a special meeting of shareholders on
Wednesday, April 19, 2000, at 3:00 p.m., local time, at the main office of
United Bank, 401 South Sandusky Avenue, Bucyrus, Ohio. Only the holders of
record of the issued and outstanding U.B. Bancshares common shares at the close
of business on March 17, 2000 will be entitled to notice of, and to vote at, the
special meeting and any adjournment(s) of the special meeting. As of that record
date, there were 551,971 U.B. Bancshares common shares issued and outstanding,
each of which will be entitled to one vote on each matter properly submitted for
vote to the shareholders at the U.B. Bancshares special meeting.
At the special meeting, U.B. Bancshares will ask you to consider and
vote upon:
- a proposal to adopt the merger agreement; and
- the transaction of any other business that properly comes before the
special meeting or any adjournment.
The affirmative vote of the holders of at least two-thirds of the
issued and outstanding U.B. Bancshares common shares, voting in person or by
proxy, is required to adopt the merger agreement. If you abstain from voting or
fail to return your properly executed proxy card, the effect will be a vote
"AGAINST" adoption of the merger agreement. As of February 25, 2000, the
directors and executive officers of U.B. Bancshares (14 persons) and their
respective affiliates in the aggregate beneficially owned 31.2% of the
outstanding U.B. Bancshares common shares, including 153,916 common shares and
options exercisable within 60 days to acquire 26,600 U.B. Bancshares common
shares.
If you return your properly executed proxy card prior to the special
meeting and do not revoke it prior to its use, the U.B. Bancshares common shares
represented by that proxy card will be voted at the special meeting, or any
adjournment(s) of the meeting. The U.B. Bancshares common shares will be voted
as specified on the proxy card or, in the absence of specific instructions to
the contrary, will be voted "FOR" adoption of the merger agreement.
If you return a proxy card which has been voted "AGAINST" adoption of
the merger agreement, your proxy will not be used to vote to adjourn the special
meeting so that U.B. Bancshares may solicit further support for adoption of the
merger agreement.
THE MERGER (SEE PAGE 18)
Reasons for the Merger (See page 18)
The board of directors of U.B. Bancshares believes that the merger with
Park National is fair and in the best interests of U.B. Bancshares and its
shareholders. In negotiating the terms of the merger, management of U.B.
Bancshares considered a number of factors with a view to maximizing shareholder
value in the intermediate and long term, including:
- the economic conditions and prospects for the markets in which U.B.
Bancshares operates, including competitive pressures in the financial
services industry in general;
- the prospect for increased market liquidity provided by the Park
National common shares;
- the business, results of operations, asset quality and financial
condition of Park National, compatibility of management and business
philosophies and services and products offered to customers by Park
National; and
- the opinion of Austin Associates to the effect that the Park National
proposal was fair to the holders of U.B. Bancshares common shares,
from a financial point of view.
4
<PAGE> 10
In negotiating the terms of the merger, management of Park National considered a
number of factors with a view to maximizing shareholder value in the
intermediate and long term, including:
- earnings potential of the combined business;
- realization of economies of scale;
- commitment of United Bank management to remain with United Bank
following the merger; and
- expansion into two new counties which are contiguous to counties in
which Park National has banking offices.
The boards of directors of Park National and U.B. Bancshares each
believe that the operating results of United Bank will improve as a result of
the merger thereby providing a benefit to shareholders. The boards expect the
improvement to result from United Bank's ability to offer new loan and deposit
products and trust services following the merger and from the sharing of
management information and the gain of operating efficiencies in the merger.
Park National anticipates that it will reduce its operating expense by
eliminating duplicate back office functions and administrative expenses, and by
converting United Bank's data processing operations to Park National.
Opinion of Austin Associates (See page 20)
Austin Associates, U.B. Bancshares' financial advisor, has delivered
its written opinion to the board of directors of U.B. Bancshares to the effect
that, as of December 14, 1999, the financial terms of Park National's offer to
acquire U.B. Bancshares were fair to U.B. Bancshares and its shareholders. A
copy of the updated opinion of Austin Associates, dated as of the date of this
proxy statement/prospectus, is attached as Appendix D. The opinion should be
read in its entirety for a description of the procedures followed, assumptions
and qualifications made and matters considered by Austin Associates as well as
for a description of the limitations of the opinion.
Exchange of Common Shares (See page 23)
At the effective time of the merger, U.B. Bancshares will merge with
and into Park National, after which Park National will be the continuing and
surviving corporation. As a result of the merger, each of the issued and
outstanding U.B. Bancshares common shares will be canceled and extinguished in
consideration and exchange for a number of Park National common shares equal to
the exchange ratio. All U.B. Bancshares common shares that are owned by U.B.
Bancshares as treasury shares will be canceled and extinguished and no Park
National common shares or other consideration will be delivered in exchange for
those shares. The exchange ratio will be determined by dividing 325,500 by the
number of U.B. Bancshares common shares outstanding as of the effective time of
the merger.
On February 25, 2000, there were 551,971 U.B. Bancshares common shares
issued and outstanding and 35,400 U.B. Bancshares common shares subject to
outstanding U.B. Bancshares stock options, the average exercise price of which
was $21.64. Under the terms of the merger agreement and agreements signed by the
holders of the stock options, following U.B. Bancshares' shareholder adoption of
the merger agreement, and as of or prior to the effective time of the merger,
all of the holders of U.B. Bancshares' stock options will exercise their
options. Assuming the holders of the U.B. Bancshares stock options exercise
their options to acquire the maximum number of shares covered by the stock
options, immediately prior to the effective time of the merger, there will be
587,371 U.B. Bancshares common shares issued and outstanding. Based on this
assumption, the exchange ratio will equal approximately .554, calculated by
dividing 325,500 by 587,371.
The actual exchange ratio will be greater than .554 if outstanding
stock options are not exercised to acquire the maximum number of U.B. Bancshares
common shares covered by the options as of the effective time of the merger. All
option holders have signed letters agreeing to exercise their options as of or
prior to the merger.
The Park National common shares are listed on the American Stock
Exchange, under the symbol "PRK." The U.B. Bancshares common shares are traded
on the over-the-counter market, under the symbol "UBBC.OB".
5
<PAGE> 11
The following table sets forth the high and low sales prices on the American
Stock Exchange of the Park National common shares on December 13, 1999 and the
bid and ask prices reported on the over-the-counter market of the U.B.
Bancshares common shares as of December 13, 1999, the last trading day prior to
the joint public announcement by Park National and U.B. Bancshares of the
proposed merger as well as the equivalent per share basis of the U.B. Bancshares
common shares calculated by multiplying the high and low sales prices of the
Park National common shares on December 13, 1999 by the assumed exchange ratio
of approximately .554.
HIGH/ASK LOW/BID
-------- -------
Sales prices on December 13, 1999
for Park National common shares........... $110.75 $108.00
Ask price and average bid price on December
13, 1999 for U.B. Bancshares shares....... $48.00* $44.25*
Equivalent per share basis................ $61.36 $59.83
- ---------------
* For additional information, see "Business of U.B. Bancshares - Market Prices"
on page 51.
WE CANNOT GUARANTEE WHAT THE MARKET PRICE OF THE PARK NATIONAL COMMON
SHARES WILL BE WHEN THE PARK NATIONAL COMMON SHARES ARE ACTUALLY ISSUED. WE
ENCOURAGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE PARK NATIONAL COMMON
SHARES.
Fractional Shares (See page 24)
Park National will not issue fractional common shares in the merger. In
lieu of fractional shares, Park National will pay to each holder of U.B.
Bancshares common shares who otherwise would be entitled to receive a fraction
of a Park National share, an amount in cash, without interest, equal to the
average Park National trading price for the 20 trading days prior to the
expiration of the waiting period following Federal Reserve Board approval of the
merger, multiplied by that fraction.
Exchange of Certificates (See page 24)
As soon as practicable after the consummation of the merger, each U.B.
Bancshares shareholder will be advised of the merger by letter accompanied by
instructions for surrendering the certificate or certificates evidencing his or
her U.B. Bancshares common shares to First-Knox National Bank, the exchange
agent for the merger. Certificates for U.B. Bancshares common shares should not
be forwarded to First-Knox National Bank until after receipt of the letter of
transmittal and should not be returned to U.B. Bancshares with the enclosed
proxy.
Accounting Treatment (See page 25)
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 that the exercise of dissenters' rights by
shareholders owning, in the aggregate, more than 10% of the common shares of
U.B. Bancshares may prevent the utilization of the pooling-of-interests method
of accounting for the merger. Because pooling-of-interests accounting is a
condition to the merger, the unavailability of this method could result in the
termination of the merger agreement.
Federal Income Tax Consequences (See page 26)
The consummation of the merger is conditioned upon the receipt of an
opinion of counsel to the effect that the merger will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986. U.B.
Bancshares shareholders will not recognize a gain or loss upon the issuance of
Park National common shares to them. A gain or loss will be recognized, however,
in respect of cash received upon the exercise of dissenters' rights
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<PAGE> 12
by U.B. Bancshares shareholders and by U.B. Bancshares shareholders generally
with respect to any cash received in lieu of fractional shares. Neither the
opinion of counsel nor the discussion of federal income tax consequences in this
proxy statement/prospectus is binding upon either the Internal Revenue Service,
or "IRS", or the courts. You should consult your own tax advisor for a full
understanding of the tax consequences of the merger.
Interests of Certain Persons in the Merger (See page 26)
Park National has agreed to indemnify each of the officers, directors
and employees of U.B. Bancshares and its subsidiaries from and against certain
liabilities relating to each person's service as a director, officer or employee
of U.B. Bancshares or any of its subsidiaries, in each case to the full extent
U.B. Bancshares would have been required to indemnify that person under Ohio law
and the articles of U.B. Bancshares. The merger agreement also provides for the
continuation of director and officer liability insurance for these individuals
for a period of three years.
United Bank has employment agreements with seven of its senior officers
that provide for a severance payment if the officer's employment is terminated
for any reason other than for "cause" following a change of control. The
severance payment would be equal to 12 months of the officer's normal salary
from the termination date. These seven agreements will remain in force after the
merger has been completed.
Resale of Park National Common Shares (See page 27)
The Park National common shares to be issued upon consummation of the
merger have been registered with the SEC under the Securities Act of 1933 and
will be freely transferable (except for Park National common shares received by
persons who may be deemed to be affiliates of U.B. Bancshares). The term
"affiliate" generally includes executive officers and directors of U.B.
Bancshares. Affiliates may not sell their Park National common shares, except
under an effective registration statement under the Securities Act covering the
Park National common shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In addition,
U.B. Bancshares has obtained agreements with all directors, officers and
affiliates of U.B. Bancshares under which those persons have agreed not to
dispose of their Park National common shares in a manner that would adversely
affect the ability of Park National to treat the merger as a
pooling-of-interests for financial accounting purposes.
Regulatory Approvals (See page 27)
Consummation of the merger is subject to prior receipt by Park National
and U.B. Bancshares of all necessary regulatory approvals. The principal
regulatory approval required to be obtained is from the Federal Reserve Board. A
bank holding company merger application was filed with the Federal Reserve Board
on February 2, 2000. On March 6, 2000, that application was approved. Under the
terms of that approval, the merger cannot be consummated before March 21, 2000
and must be consummated before June 6, 2000, unless the time period is extended
by the Federal Reserve Board.
Other Transactions Involving Park National (See page 28)
On December 17, 1999, Park National entered into an agreement and plan
of merger with SNB Corp., an Ohio corporation registered as a bank holding
company under the Bank Holding Company Act, under which SNB will merge with and
into Park National. Under the terms of the SNB merger agreement, as amended on
March 3, 2000, the shareholders of SNB on the effective date of that merger will
receive an aggregate of 835,500 Park National common shares in exchange for
their SNB common shares. Completion of the SNB merger is subject to certain
conditions, including the approval of bank regulators and other governmental
agencies, the approval of shareholders of SNB and other specific conditions to
closing.
7
<PAGE> 13
THE MERGER AGREEMENT (SEE PAGE 28)
Representations and Warranties; Covenants (See page 28)
In the merger agreement, Park National and U.B. Bancshares have each
made representations and warranties to the other in respect of various matters.
In addition, Park National and U.B. Bancshares have each made 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 of the
merger.
Conditions; Effective Time (See pages 33 and 35)
The consummation of the merger is subject to the satisfaction or waiver
of a number of conditions. These include:
- the adoption of the merger agreement by the U.B. Bancshares
shareholders;
- the absence of any legal prohibitions against the merger;
- material compliance by Park National and U.B. Bancshares with their
obligations under the merger agreement;
- the receipt of all required regulatory approvals;
- the truth and correctness of the representations and warranties of
Park National and U.B. Bancshares in all material respects; and
- the listing on the American Stock Exchange of the Park National
common shares to be issued in the merger.
As soon as possible after the satisfaction or waiver of all conditions,
Park National will file a certificate of merger with the Ohio Secretary of
State. We currently anticipate that the merger will be completed during the
second quarter of 2000.
Amendment and Termination (See page 35)
We may agree in writing to amend or terminate the merger agreement at
any time without completing the merger, even after the U.B. Bancshares
shareholders have approved it. U.B. Bancshares may also decide not to proceed
with the merger if the average closing price of a Park National common share for
the 20 trading days prior to the expiration of the waiting period following
Federal Reserve Board approval of the merger is less than $85.71 and if the
ratio for price decline of Park National common shares exceeds the ratio of
decline for a specific group of bank holding companies. In addition, either U.B.
Bancshares or Park National may decide to terminate the merger agreement:
- upon specified breaches by the other party;
- if the merger has not been completed by September 30, 2000;
- if a regulatory authority fails to approve the merger; or
- upon the occurrence or the failure to occur of other conditions
described in the merger agreement and in greater detail later in this
proxy statement/prospectus.
Under specific circumstances, if the parties fail to consummate the
merger, U.B. Bancshares could be required to pay a special fee to Park National.
In the merger agreement, U.B. Bancshares has agreed not to solicit or encourage
the submission of any other acquisition proposal by a third party. However, the
board of directors of
8
<PAGE> 14
U.B. Bancshares is not prohibited from taking any action which is necessary in
the exercise of its fiduciary duties. If the parties do not complete the merger
because of another possible acquisition involving U.B. Bancshares, U.B.
Bancshares may be required to pay a $1,000,000 special fee to Park National.
This fee could discourage other companies from trying to acquire U.B. Bancshares
before the merger.
Recommendation of the Board of Directors (See page 37)
The board of directors of U.B. Bancshares believes that the
consummation of the proposed merger is in the best interest of U.B. Bancshares
and its shareholders. Accordingly, the board of directors of U.B. Bancshares
unanimously recommends that you vote "FOR" the adoption of the merger agreement.
RIGHTS OF DISSENTING SHAREHOLDERS (SEE PAGE 37)
Any shareholder of U.B. Bancshares who does not vote in favor of the
adoption of the merger agreement and who delivers a written demand for payment
of the fair cash value of his or her common shares in the manner provided by
Section 1701.85 of the Ohio Revised Code will be entitled, if and when the
merger is consummated and upon strict compliance with the procedures described
in Section 1701.85, to receive the fair cash value of his or her U.B. Bancshares
common shares. The amount you will receive if you exercise your dissenters'
rights may be equal to, more than or less than the value of the Park National
common shares you would otherwise receive in the merger. If you wish to submit a
written demand for payment of the fair cash value of your U.B. Bancshares common
shares, you must deliver such notice by April 29, 2000 to U.B. Bancshares Inc.,
401 Sandusky Avenue, Bucyrus, Ohio 44820, Attention: Albert L. Stetzer,
Secretary. A copy of Section 1701.85 is attached as Appendix E.
9
<PAGE> 15
SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for
Park National on an historical basis. Except for average balance information,
the selected financial data for each of the years in the five-year period ended
December 31, 1999 is derived from the audited consolidated financial statements
of Park National (including notes to those financial statements) and other
financial information included in the Park National annual report to
shareholders included with this document, and should be read in conjunction with
that information. All share and per share information for Park National has been
restated to reflect the 5% share dividend effective as of December 15, 1999.
PARK NATIONAL UNAUDITED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest income $ 191,920 $ 185,946 $ 180,288 $ 163,193 $ 150,288
Interest expense 76,063 78,295 77,032 69,155 64,347
Net interest income 115,857 107,651 103,256 94,038 85,941
Provision for loan losses 6,969 6,798 6,999 5,294 5,248
Noninterest income 23,088 23,969 20,701 16,660 16,049
Noninterest expense 67,540 64,309 62,408 59,112 56,501
Income tax expense 18,689 18,941 16,857 14,592 12,412
----------------------------------------------------------------------
Net income $ 45,747 $ 41,572 $ 37,693 $ 31,700 $ 27,829
======================================================================
Earnings per share - basic $ 4.69 $ 4.24 $ 3.82 $ 3.23 $ 2.82
Earnings per share - diluted $ 4.67 $ 4.22 $ 3.81 $ 3.22 $ 2.81
Cash dividends declared per share $ 2.36 $ 1.94 $ 1.60 $ 1.38 $ 1.19
Book value per share (period end) $ 24.60 $ 24.12 $ 22.52 $ 20.26 $ 18.87
Average common shares outstanding - basic 9,753,656 9,807,582 9,855,119 9,819,497 9,865,108
Average common share equivalents - diluted 9,793,202 9,855,802 9,894,960 9,855,530 9,895,562
Common shares outstanding (period end) 9,739,834 9,773,312 9,861,956 9,822,159 9,702,798
Average balances:
Assets $2,517,489 $2,335,483 $2,219,582 $2,011,795 $1,872,999
Earning assets 2,359,189 2,178,527 2,084,146 1,891,653 1,756,689
Deposits 1,961,471 1,876,976 1,779,463 1,628,181 1,513,731
Short-term borrowings 295,309 190,175 162,626 126,721 139,035
Long-term debt 1,254 15,099 46,652 46,497 33,413
Shareholders' equity 235,466 226,601 206,999 187,755 168,432
Year-end balances:
Assets $2,634,337 $2,460,779 $2,288,383 $2,184,970 $1,973,107
Long-term debt 76 8,430 30,868 62,375 33,415
</TABLE>
10
<PAGE> 16
COMPARISON OF RIGHTS OF HOLDERS OF PARK NATIONAL COMMON SHARES AND OF U.B.
BANCSHARES COMMON SHARES (SEE PAGE 51)
After the merger, U.B. Bancshares shareholders will become shareholders
of Park National and their rights as shareholders will be governed by the
articles and regulations of Park National. There are several differences between
the articles and bylaws of U.B. Bancshares and articles and regulations of Park
National. However, since U.B. Bancshares and Park National are both Ohio
corporations, the rights of U.B. Bancshares shareholders will continue to be
governed by Ohio law after the merger.
RISK FACTORS
You should consider the following matters in deciding how to vote. You
also should consider the other information included or incorporated by reference
in this document.
SINCE THE MARKET PRICE OF PARK NATIONAL COMMON SHARES FLUCTUATES, U.B.
BANCSHARES SHAREHOLDERS CANNOT BE SURE OF THE MARKET VALUE OF THE PARK NATIONAL
COMMON SHARES THEY WILL RECEIVE IN THE MERGER.
- At the time the merger is completed, each U.B. Bancshares common
share will be converted into the right to receive approximately .554
Park National common shares. This exchange ratio will not be adjusted
in the event of any increase or decrease in the price of the Park
National common shares or the U.B. Bancshares common shares. As a
result, the value of the Park National common shares received by U.B.
Bancshares shareholders in the merger may be higher or lower than the
market value of the Park National common shares at the time you vote
on the merger agreement. U.B. Bancshares may decide not to proceed
with the merger if the average closing price of Park National common
shares for the 20 trading days prior to the expiration of the waiting
period following Federal Reserve Board approval of the merger is less
than $85.71 and if the ratio of the price decline for Park National
common shares exceeds the ratio of decline for a specific group of
bank holding companies. U.B. Bancshares is not obligated to exercise
this right and the parties could decide to proceed with the merger
even if the average closing price for that period were less than
$85.71 per share. If U.B. Bancshares notifies Park National that U.B.
Bancshares intends to exercise its right, Park National may elect to
complete the merger by increasing the number of Park National common
shares to be issued.
WE CANNOT ASSURE YOU THAT PARK NATIONAL AND U.B. BANCSHARES WILL BE ABLE TO
SUCCESSFULLY INTEGRATE THEIR BUSINESSES.
- Park National currently intends to operate United Bank as a separate
subsidiary after the merger under its present management. The merger
will nevertheless require some integration of the management and
operations of companies that have previously operated separately.
This involves a number of risks, including the possible loss of key
management personnel and additional demands on management resulting
from the increase in the consolidated size of Park National after the
merger.
THE TERMINATION FEE MAY DISCOURAGE OTHER COMPANIES FROM TRYING TO ACQUIRE U.B.
BANCSHARES EVEN IF THE OTHER ACQUISITION COULD OFFER HIGHER IMMEDIATE VALUE TO
U.B. BANCSHARES' SHAREHOLDERS.
- We have agreed to a termination fee that could discourage other
companies from trying to acquire U.B. Bancshares. Other acquisitions
might be superior to the merger for U.B. Bancshares' shareholders. If
this termination fee were to be paid, U.B. Bancshares would
experience a material negative impact on its financial condition and
results of operations. This could discourage other companies from
trying to acquire U.B. Bancshares.
11
<PAGE> 17
DIRECTORS AND EXECUTIVE OFFICERS OF U.B. BANCSHARES MAY HAVE INTERESTS THAT ARE
DIFFERENT FROM OR IN ADDITION TO YOUR INTERESTS AS A SHAREHOLDER.
- When considering the recommendations of the U.B. Bancshares board of
directors, you should be aware that some members of the U.B.
Bancshares board of directors and some executive officers of U.B.
Bancshares may have interests in the merger that are different from,
or in addition to, your interests as shareholders.
- After the merger, Park National will indemnify each of the officers
and directors of U.B. Bancshares from and against specific
liabilities arising out of the fact that the individual is or was a
director, officer or employee of U.B. Bancshares or any of its
subsidiaries. The merger agreement also provides for the continuation
of director and officer liability insurance for these individuals for
a period of three years.
- Under the terms of their existing option agreements, all holders of
options to acquire U.B. Bancshares common shares (including the
directors and executive officers of U.B. Bancshares) will exercise
those options as of or prior to the completion of the merger, whether
or not those options are vested at the time of exercise, and unvested
options held by option holders (including certain directors and
executive officers) will become fully vested and exercisable by
reason of the merger. In addition, under the terms of the existing
option agreements, certain transfer restrictions applicable to shares
issuable upon the exercise of options will lapse upon completion of
the merger.
- United Bank has employment agreements with seven of its senior
officers that provide for a severance payment if the officer's
employment is terminated for any reason other than for "cause"
following a change of control. The severance payment would be equal
to 12 months of the officer's normal salary from the termination
date. These seven agreements will remain in force after the merger
has been completed.
PARK NATIONAL'S ACQUISITION STRATEGY COULD POSE RISKS IN THE FUTURE.
- On December 17, 1999, Park National entered into an agreement and
plan of merger with SNB under which SNB will merge with and into Park
National. Under the terms of the SNB merger agreement, as amended on
March 3, 2000, the shareholders of SNB on the effective date of the
SNB merger will receive an aggregate of 835,500 Park National common
shares in exchange for their SNB common shares. In addition, Park
National has grown through other acquisitions during recent years and
anticipates that it will make additional acquisitions in the future.
Park National may need to issue additional common shares to pay for
future acquisitions, which would further dilute the ownership
interest of Park National shareholders, including former U.B.
Bancshares shareholders. Future acquisitions may also require Park
National to use substantial cash or other liquid assets or to incur
debt. If this occurs, Park National may be more susceptible to
economic downturns and competitive pressures.
THE U.B. BANCSHARES SPECIAL MEETING
GENERAL
This proxy statement/prospectus is furnished to the shareholders of
U.B. Bancshares in connection with the solicitation on behalf of the Board of
Directors of U.B. Bancshares of proxies for use at the U.B. Bancshares special
meeting to be held at the main office of United Bank, 401 South Sandusky Avenue,
Bucyrus, Ohio, on Wednesday, April 19, 2000 at 3:00 p.m., local time, or any
adjournment. This proxy statement/prospectus and the accompanying form of proxy
card were first mailed to U.B. Bancshares shareholders on or about March 20,
2000.
12
<PAGE> 18
MATTERS TO BE CONSIDERED AT THE U.B. BANCSHARES SPECIAL MEETING
At the U.B. Bancshares special meeting, U.B. Bancshares shareholders
will be asked to consider and vote upon the adoption of the merger agreement.
U.B. Bancshares shareholders will also consider and vote upon any other business
which properly comes before the special meeting.
The U.B. Bancshares Board of Directors has unanimously approved the
merger agreement and recommends that you vote "FOR" adoption of the merger
agreement.
VOTING AT THE U.B. BANCSHARES SPECIAL MEETING; U.B. BANCSHARES RECORD DATE
Only holders of record of U.B. Bancshares common shares at the close of
business on March 17, 2000 will be entitled to vote at the U.B. Bancshares
special meeting. As of that date, there were 551,971 U.B. Bancshares common
shares outstanding. Each U.B. Bancshares common share entitles the holder
thereof to one vote on each matter to be submitted to the U.B. Bancshares
shareholders at the U.B. Bancshares special meeting. A majority of the issued
and outstanding U.B. Bancshares common shares constitutes a quorum for the U.B.
Bancshares special meeting.
U.B. Bancshares common shares represented by signed proxy cards or
voting instructions that are returned to U.B. Bancshares will be counted toward
the quorum in all matters even though they are marked as "abstain" or "against"
or they are not marked at all. Broker non-votes will also count toward the
establishment of a quorum. BECAUSE THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT
LEAST TWO-THIRDS OF THE OUTSTANDING COMMON SHARES IS REQUIRED TO ADOPT THE
MERGER AGREEMENT, THE EFFECT OF AN ABSTENTION OR BROKER NON-VOTE IS THE SAME AS
A "NO" VOTE.
If you properly sign and return the accompanying proxy card to U.B.
Bancshares prior to the U.B. Bancshares special meeting and do not revoke it,
your proxy will be voted in accordance with the instructions contained on the
card. If you do not give any instructions, the persons designated as proxies in
the accompanying proxy card will vote "FOR" adoption of the merger agreement. In
that event, you will not have the right to dissent from the merger and demand
payment of the "fair cash value" of your U.B. Bancshares common shares.
THE PROXIES OF THE U.B. BANCSHARES BOARD OF DIRECTORS MAY NOT VOTE U.B.
BANCSHARES COMMON SHARES REPRESENTED BY YOUR PROXY CARD WHICH HAVE BEEN VOTED
"AGAINST" ADOPTION OF THE MERGER AGREEMENT TO ADJOURN THE U.B. BANCSHARES
SPECIAL MEETING FOR THE PURPOSE OF SOLICITING FURTHER SUPPORT FOR ADOPTION OF
THE MERGER AGREEMENT.
The U.B. Bancshares board of directors is not currently aware of any
matters other than those referred to above which will come before the U.B.
Bancshares special meeting. If any other matter should be presented at the U.B.
Bancshares special meeting for action, the persons named in the accompanying
proxy card will vote your common shares in their own discretion.
You may revoke your proxy at any time before it is actually voted at
the U.B. Bancshares special meeting by delivering written notice of revocation
to Albert L. Stetzer, Secretary of U.B. Bancshares, by submitting a later dated
signed proxy card, or by attending the U.B. Bancshares special meeting and
voting in person. YOUR ATTENDANCE AT THE U.B. BANCSHARES SPECIAL MEETING WILL
NOT, IN AND OF ITSELF, CONSTITUTE A REVOCATION OF YOUR PROXY.
Park National and U.B. Bancshares will share the expense of preparing,
printing and mailing proxy materials to the U.B. Bancshares shareholders. In
addition, proxies may be solicited personally or by telephone, mail or
telegraph. Officers or employees of U.B. Bancshares may assist with personal or
telephone solicitation and will receive no additional compensation for doing so.
U.B. Bancshares will also reimburse brokerage houses and other nominees for
their reasonable expenses in forwarding proxy materials to beneficial owners of
the U.B. Bancshares common shares.
13
<PAGE> 19
PRINCIPAL SHAREHOLDERS OF PARK NATIONAL
The following table provides information regarding the beneficial
ownership of Park National common shares as of February 25, 2000, for each of
the current directors of Park National, each of the executive officers of Park
National, all directors and executive officers of Park National as a group, and
each person known by Park National to beneficially own more than 5% of the
outstanding Park National common shares. None of the directors or executive
officers of Park National currently hold U.B. Bancshares common shares.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership (1)
---------------------------------------------
Park National
Common Shares Percent of Class (2)
Which Can Be --------------------
Acquired Upon
Name of Beneficial Park National Exercise of Options
Owner or Number of Common Shares Exercisable February 25, Post-
Of Persons in Group Presently Held Within 60 Days Total 2000 Merger (3)
- ------------------- -------------- -------------- ----- ---- ----------
<S> <C> <C> <C> <C> <C>
The Park National Bank,
Trust Department 1,334,381 (4) 0 1,334,381 13.7% 12.3%
50 North Third Street
Newark, OH 43055
John L. Warner 851,828 (5) 0 851,828 8.8% 7.8%
868 Shoreham Road
Newark, OH 43055
Maureen Buchwald 1,524 1,303 2,827 (6) (6)
James J. Cullers 8,510 (7) 651 9,161 (6) (6)
C. Daniel DeLawder (8) 82,686 (9) 5,991 88,677 (6) (6)
D. C. Fanello 1,049 (10) 0 1,049 (6) (6)
R. William Geyer 4,882 (11) 0 4,882 (6) (6)
Philip H. Jordan, Jr., Ph.D. 3,609 (12) 0 3,609 (6) (6)
Howard E. LeFevre 47,989 (13)(14) 0 47,989 (6) (6)
Phillip T. Leitnaker 2,513 (15) 0 2,513 (6) (6)
Tami L. Longaberger 1,663 0 1,663 (6) (6)
William T. McConnell (8) 193,630 (13)(16) 0 193,630 2.0% 1.8%
James A. McElroy 34,702 (17) 1,303 36,005 (6) (6)
John J. O'Neill 142,002 (13) 0 142,002 1.5% 1.3%
William A. Phillips 8,793 (18) 0 8,793 (6) (6)
J. Gilbert Reese 432,306 (13)(19) 0 432,306 4.4% 4.0%
Rick R. Taylor 1,452 0 1,452 (6) (6)
David C. Bowers (8) 28,329 (20) 4,200 32,529 (6) (6)
All current executive officers and
directors as a group (17 persons) 1,847,467 (21) 13,448 1,860,915 19.1% 17.1%
</TABLE>
- ------------------------
(1) Unless otherwise noted, the beneficial owner has sole voting and
investment power with respect to all of the Park National common shares
reflected in the table. All fractional Park National common shares have been
rounded to the nearest whole common share.
(2) The percent of class is based on 9,719,637 Park National common
shares outstanding and entitled to vote on February 25, 2000 and the number of
Park National 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 that date.
14
<PAGE> 20
(3) The post-merger percent of class is based on the issuance of
325,500 Park National common shares in the U.B. Bancshares merger and 835,500
Park National common shares in the SNB merger. For more information, see "The
Merger - Other Transactions Involving Park National" on page 28.
(4) The Trust Department of Park National Bank, as the fiduciary of
various agency, trust and estate accounts, has sole voting and investment power
with respect to 1,324,931 of these Park National common shares and shared voting
and investment power with respect to 9,450 of these Park National common shares.
The officers and directors of Park National Bank and Park National disclaim
beneficial ownership of the Park National common shares beneficially owned by
the Trust Department of Park National Bank. The number shown does not include
Park National common shares held by Park National Bank's Trust Department in
various trust accounts, as to which Park National Bank's Trust Department has no
voting or investment power.
(5) The number shown includes 358,386 Park National common shares held
by Mr. Warner in a family trust for which Mr. Warner serves as trustee and
exercises sole voting and investment power; 9,450 Park National common shares
held in a family trust for which he serves as co-trustee with Park National
Bank's Trust Department and exercises shared voting and investment power; and
5,722 Park National common shares held by the wife of Mr. Warner as to which she
exercises sole voting and investment power.
(6) Represents ownership of less than 1% of the outstanding Park
National common shares.
(7) The number shown includes 592 Park National common shares held by
Mr. Cullers' wife; 622 Park National common shares held in a trust with respect
to which Mr. Cullers has sole voting and investment power; 4,513 Park National
common shares held in a Keough plan maintained by Mr. Cullers' law firm with
respect to which Mr. Cullers has voting and investment power; 160 Park National
common shares held by Mr. Cullers as custodian for his grandchildren; and 88
Park National common shares held by Mr. Cullers' wife as custodian for their
grandchildren. The number shown does not include 20,127 Park National common
shares held by Mr. Cullers as trustee of a trust as to which the grantor has
retained sole voting and investment power.
(8) Executive officer of Park National named in the Summary
Compensation Table on page 45.
(9) The number shown includes 34,965 Park National common shares held
by the wife of Mr. DeLawder as to which she exercises sole voting and investment
power; 1,073 Park National common shares held by Mr. DeLawder's daughter and
1,072 Park National common shares held by Mr. DeLawder's son as to which Mr.
DeLawder exercises shared voting and investment power; and 6,477 Park National
common shares held for the account of Mr. DeLawder in the Park National 401(k)
plan.
(10) The number shown includes 1,049 Park National common shares held
in a trust as to which Mr. Fanello has sole voting and investment power; but
does not include 420 Park National common shares held in a grantor trust
established for the benefit of the wife of Mr. Fanello, with respect to which
Park National common shares Mr. Fanello has no voting or investment power.
(11) The number shown includes 613 Park National common shares held by
the wife of Mr. Geyer as to which she exercises sole voting and investment
power; and 2,835 Park National common shares held in Mr. Geyer's account in a
Keough plan.
(12) The number shown includes 3,609 Park National common shares held
in a trust with respect to which Mr. Jordan has sole voting and investment
power.
(13) The number shown does not include 27,803 Park National common
shares owned by the Newark Campus Development Fund, an Ohio not for profit
corporation, of which the following directors of the Park National serve as
officers and/or trustees: Messrs. LeFevre, McConnell, O'Neill and Reese. None of
these individuals has the power to vote these common shares without the consent
of a majority of the Newark Campus Development Fund's board of trustees and,
therefore, each disclaims beneficial ownership of the Park National common
shares.
15
<PAGE> 21
(14) The number shown includes 47,989 Park National common shares held
in an inter vivos trust created by Mr. LeFevre for which Park National Bank's
Trust Department serves as trustee and Mr. LeFevre exercises sole voting and
investment power.
(15) The number shown includes 980 Park National common shares held
jointly by Mr. Leitnaker and his wife as to which they share voting and
investment power; and 525 Park National common shares held by the wife of Mr.
Leitnaker as to which she exercises sole voting or investment power.
(16) The number shown includes 70,954 Park National common shares held
by the wife of Mr. McConnell as to which she exercises sole voting and
investment power; 16,170 Park National common shares held in an inter vivos
irrevocable trust established by Mr. McConnell with respect to which Park
National Bank's Trust Department serves as trustee; and 3,676 Park National
common shares held for the account of Mr. McConnell in the Park National 401(k)
plan.
(17) The number shown includes 20,127 Park National common shares held
in a trust as to which Mr. McElroy exercises sole voting and investment power;
12,324 Park National common shares owned by AMG Industries, Inc., a corporation
controlled by Mr. McElroy; and 651 Park National common shares held by Mr.
McElroy's wife as to which she exercises sole voting and investment power.
(18) The number shown includes 935 Park National common shares held for
the account of Mr. Phillips in the Park National 401(k) plan and 3,675 Park
National common shares held by Mr. Phillips' wife as to which she exercises sole
voting and investment power.
(19) The number shown includes 53,676 Park National common shares held
by the wife of Mr. Reese as to which she exercises sole voting and investment
power.
(20) The number shown includes 4,250 Park National common shares held
for the account of Mr. Bowers in the Park National 401(k) plan and 2,921 Park
National common shares held by Mr. Bowers' wife as to which she exercises sole
voting and investment power.
(21) See Notes (5), (7) and (9) through (20) above.
16
<PAGE> 22
PRINCIPAL SHAREHOLDERS OF U.B. BANCSHARES
The following table furnishes information regarding the beneficial
ownership of U.B. Bancshares common shares as of February 25, 2000 for each of
the current directors of U.B. Bancshares, each of the executive officers of U.B.
Bancshares, all directors and executive officers of U.B. Bancshares as a group,
and each person known by U.B. Bancshares to beneficially own more than 5% of the
outstanding U.B. Bancshares common shares.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership (1)
---------------------------------------------
U.B. Bancshares
Common Shares
Which Can Be
Acquired Upon Park National Post-Merger
Exercise of Percentage Common Percentage
Name of Beneficial U.B. Bancshares Options Ownership Shares to be Ownership
Owner or Number Common Shares Exercisable of U.B. Received in of Park
of Persons in Group Presently Held Within 60 Days Total Bancshares (2) Merger (3) National (4)
- ------------------- -------------- -------------- ----- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Binau 2,499 (5) 0 2,499 (6) 1,384 (7)
J. H. Blicke 103,786 (8) 0 103,786 18.8% 57,497 (7)
401 S. Sandusky Ave.
Bucyrus, OH 44820
W. J. Blicke 1,882 (9) 6,000 7,882 1.4% 4,366 (10) (7)
James Cotsamire 793 (11) 0 793 (6) 439 (7)
Joe D. Donithen 800 20,000 20,800 3.6% 11,523 (10) (7)
John Gebhardt 7,278 0 7,278 1.3% 4,032 (7)
Kenneth A. Parr, Jr. 833 0 833 (6) 461 (7)
Theodore Robinson 13,989 (12) 0 13,989 2.5% 7,749 (7)
Albert L. Stetzer 7,500 (13) 0 7,500 1.4% 4,155 (7)
Frederick Theiss 2,168 (14) 0 2,168 (6) 1,201 (7)
Donald E. Widman 8,694 (15) 0 8,694 1.6% 4,816 (7)
Douglas Wilson 1,700 (16) 0 1,700 (6) 941 (7)
Daniel Wingate 1,044 (17) 0 1,044 (6) 578 (7)
Harold Strang 950 600 1,550 (6) 858 (10) (7)
All current directors and 153,916 26,600 180,516 31.2% 100,000 (10) (7)
executive officers as a
group (14 persons)
</TABLE>
- ---------------
(1) Unless otherwise noted, the beneficial owner has sole
voting and investment power with respect to all of the U.B. Bancshares
common shares reflected in the table.
(2) The percent of class is based on 551,971 U.B. Bancshares
common shares outstanding and entitled to vote on February 25, 2000 and
the number of U.B. Bancshares 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 that date.
(3) Assumes exchange ratio of approximately .554 Park National
common shares for each U.B. Bancshares common share.
(4) The post-merger percent of class is based on 9,719,637
Park National common shares outstanding as of February 25, 2000, the
issuance of 325,500 Park National common shares in the U.B. Bancshares
merger and 835,500 Park National common shares in the SNB merger. For
more information, see "The Merger - Other Transactions Involving Park
National" on page 28.
17
<PAGE> 23
(5) Includes 1,428 U.B. Bancshares common shares owned by spouse and
357 U.B. Bancshares common shares held in trust for which Mr. Binau is trustee.
(6) Represents ownership of less than 1% of the outstanding common
shares of U.B. Bancshares.
(7) Represents ownership of less than 1% of the outstanding common
shares of Park National.
(8) Includes 87,426 U.B. Bancshares common shares held in trust for
which Mr. J.H. Blicke is trustee.
(9) Includes 1,000 U.B. Bancshares common shares held in trust for
which Mr. W.J. Blicke is trustee.
(10) Assumes exercise of options to acquire the maximum number of U.B.
Bancshares common shares covered by the stock options.
(11) Includes 193 U.B. Bancshares common shares held in trust for which
Mr. Cotsamire is trustee.
(12) Includes 1,000 U.B. Bancshares common shares owned by spouse and
5,850 U.B. Bancshares common shares held in trust for which Mr. Robinson is
trustee.
(13) Includes 3,942 U.B. Bancshares common shares owned jointly with
spouse.
(14) Includes 1,150 U.B. Bancshares common shares owned jointly with
spouse.
(15) Includes 7,980 U.B. Bancshares common shares owned by spouse.
(16) Includes 200 U.B. Bancshares common shares owned by spouse and 900
U.B. Bancshares common shares owned jointly with spouse.
(17) Includes 444 U.B. Bancshares common shares owned by spouse.
THE MERGER
GENERAL
This section of the proxy statement/prospectus contains a summary of
the material terms of the merger which are more specifically described in the
merger agreement attached to this document as Appendix A and the amendment to
the merger agreement attached to this document as Appendix B. The following
description summarizes all of the material terms of the merger; however, we do
not address every provision of the merger agreement and qualify our description
by reference to the merger agreement. We urge you to read the merger agreement
in its entirety.
Under the terms of the merger agreement, at the effective time of the
merger, U.B. Bancshares will merge with and into Park National and the separate
existence of U.B. Bancshares will end. At that time, each outstanding U.B.
Bancshares common share will be canceled and extinguished and converted into the
right to receive approximately .554 Park National common shares. All U.B.
Bancshares common shares that are owned by U.B. Bancshares as treasury shares
will be canceled and extinguished and no Park National common shares or other
consideration will be delivered in exchange for those shares. For more
information, see "The Merger - Effect on Outstanding Park National Common Shares
and Exchange of U.B. Bancshares Common Shares - Exchange of U.B. Bancshares
Common Shares" on page 23. As discussed further below, the consideration to be
received by the U.B. Bancshares shareholders in the merger was determined by
arm's-length negotiations between the management of Park National and U.B.
Bancshares.
Park National has provided all information contained in this proxy
statement/prospectus relating to Park National and U.B. Bancshares has provided
all information relating to U.B. Bancshares. The party providing the information
is responsible for the accuracy of that information.
BACKGROUND AND REASONS FOR MERGER
The decision of the Park National board of directors to approve the
merger agreement and the decision of the U.B. Bancshares board of directors to
approve the merger agreement and recommend that its shareholders adopt
18
<PAGE> 24
the merger agreement are the result of each board of directors' individual
assessment of the opportunities to enhance shareholder value resulting from the
merger.
In April 1998, U.B. Bancshares completed the acquisition of two
branches from another financial institution. As a result of the branch
acquisitions, U.B. Bancshares began the sale of additional common shares in
December 1998. Prior to completing the equity offering, Joe Donithen, President
and Chief Executive Officer of U.B. Bancshares, contacted Austin Associates to
discuss the future prospects of U.B. Bancshares and the manner by which U.B.
Bancshares could maximize shareholder value. U.B. Bancshares completed the
equity offering in April 1999, at which time Austin Associates met with the
board of directors of U.B. Bancshares to discuss a variety of issues including
the possible sale or merger of U.B. Bancshares with another financial
institution.
In July 1999, representatives from Austin Associates met again with the
board of directors and the board of directors decided to pursue the possible
sale of U.B. Bancshares. In August and September 1999, Austin Associates
contacted several financial institutions, including Park National, regarding a
possible sale or merger of U.B. Bancshares. Of particular concern to the board
of directors was finding an institution with similar management and business
philosophies that could maximize the return to U.B. Bancshares shareholders and
provide excellent service to existing customers. In October 1999, Austin
Associates received and reviewed four proposals with the U.B. Bancshares board
of directors. Following extensive review and discussion of the four proposals,
the board of directors elected to pursue further negotiations with Park
National. That decision was based primarily on the superior financial
performance of Park National and difference between the current aggregate value
and long term value of Park National's proposal in comparison to the aggregate
values of each of the three other proposals.
In negotiating the terms of the merger, management of Park National
considered a number of factors with a view to maximizing shareholder value in
the intermediate and long term, including:
- earnings potential of the combined business;
- realization of economies of scale;
- commitment of United Bank management to remain with United Bank
following the merger; and
- expansion into two new counties which are contiguous to counties in
which Park National has banking offices.
The U.B. Bancshares board of directors also considered numerous factors
with a view to maximizing shareholder value in the intermediate and long term in
arriving at its conclusion, including:
- the economic conditions and prospects for the markets in which U.B.
Bancshares operates, including competitive pressures in the financial
services industry in general;
- the prospect for increased market liquidity provided by the Park
National common shares;
- the business, results of operations, asset quality and financial
condition of Park National, compatibility of management and business
philosophies and services and products offered to customers by Park
National; and
- the opinion of Austin Associates to the effect that the Park National
proposal was fair to the holders of U.B. Bancshares common shares,
from a financial point of view.
The boards of directors of Park National and U.B. Bancshares each
believe that the operating results of United Bank will improve as a result of
the merger thereby providing a benefit to shareholders. The boards expect the
improvement to result from United Bank's ability to offer new loan and deposit
products and trust services following the merger and from the sharing of
management information and the gain of operating efficiencies in the merger.
Park National anticipates that it will reduce its operating expense by
eliminating duplicate back office
19
<PAGE> 25
functions and administrative expenses, and by converting United Bank's data
processing operations to Park National.
United Bank is headquartered in Bucyrus, Ohio, the county seat of
Crawford County, and has branch offices in Marion County. Park National's
affiliate banks are also generally located in the "county seats" of the counties
in which they are located, and consequently, management has significant
experience with "county seat" banking. Park National has developed a model that
has been successfully used in previous acquisitions and currently has five
separate banking affiliates in the "county seats" of the counties in which they
are located in Central Ohio, each with outstanding operating results. Crawford
and Marion Counties are contiguous to Richland and Morrow Counties, where Park
National currently operates full service branch offices. Park National believes
that the markets served by United Bank will beneficially add to Park National's
current markets.
The board of directors of Park National believes that the merger is
fair and in the best interest of Park National and its shareholders. The board
of directors of U.B. Bancshares also believes that the merger is fair and in the
best interest of U.B. Bancshares and its shareholders, and recommends that the
U.B. Bancshares shareholders vote "FOR" the adoption of the merger agreement.
Park National's primary financial goal is to achieve a superior
long-term return on shareholders' equity which the board of directors of Park
National believes may be achieved through the merger. The tables below compare
(1) the return on average assets for Park National, all U.S. bank holding
companies with $1 billion to $3 billion in consolidated assets, and U.B.
Bancshares, and (2) the return on average equity for Park National, all U.S.
bank holding companies with $1 to $3 billion in consolidated assets, and U.B.
Bancshares.
RETURN ON AVERAGE ASSETS
Year Ended December 31,
----------------------------------------------
1997 1998 1999
---- ---- ----
Park National 1.70% 1.78% 1.82%
Peer U.S. bank 1.28% 1.20% 1.19% (1)
holding companies
U.B. Bancshares 1.16% 0.86% 0.14%
RETURN ON AVERAGE EQUITY
Year Ended December 31,
----------------------------------------------
1997 1998 1999
---- ---- ----
Park National 18.21% 18.35% 19.43%
Peer U.S. bank 14.19% 13.63% 13.84%(1)
holding companies
U.B. Bancshares 11.79% 10.34% 1.42%
- -------------------
(1) Peer group information for 1999 is as of September 30, 1999 because
year-end information is not yet available.
OPINION OF AUSTIN ASSOCIATES
Austin Associates is a recognized investment banking firm regularly
engaged in the valuation of financial institutions and other business and their
securities in connection with mergers and acquisitions and in valuation for
estate, corporate and other purposes. U.B. Bancshares selected Austin Associates
to serve as financial advisor in connection with the merger on the basis of its
reputation and qualifications in representing financial institutions in mergers
and acquisitions.
Austin Associates has rendered a written opinion to the board of
directors of U.B. Bancshares to the effect that the terms of the merger are fair
from a financial point of view to the shareholders of U.B. Bancshares. Austin
Associates based its opinion upon, among other things:
20
<PAGE> 26
- a comparison of the financial statements and other financial
information concerning U.B. Bancshares and Park National included or
incorporated by reference in this proxy statement/prospectus;
- other financial information concerning U.B. Bancshares, including,
but not limited to, operating budgets and loan loss reserve adequacy
reports;
- financial and share price data of U.B. Bancshares, Park National and
comparable banking organizations;
- the financial terms, to the extent publicly available, of selected
comparable transactions;
- the terms of selected other proposals received by U.B. Bancshares
from other banking institutions;
- discussions with the management of U.B. Bancshares and Park National
regarding operations of the respective companies and the strategic
objectives of the merger;
- the pro forma impact of the merger on the combined company's
financial performance; and
- other analysis and other factors it deemed relevant.
Park National and U.B. Bancshares and their representatives determined
the terms of the merger agreement after arm's-length negotiations between the
parties. Austin Associates participated in the negotiations on behalf of U.B.
Bancshares.
In connection with rendering its opinion, Austin Associates performed a
variety of financial analyses, which are summarized below. Austin Associates
believes that you must consider all of its analyses together and that if you
select portions of the analyses and the factors considered in the analyses
without considering all factors and analyses, you may have an incomplete view of
the analyses and the process underlying the Austin Associates opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analyses or summary
description. In its analyses, Austin Associates made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond U.B. Bancshares' or Park National's control.
Any estimates contained in Austin Associates' analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than the estimates.
Comparative Transactions
Austin Associates reviewed a comparison of prices paid in selected sale
of control transactions announced in the Midwest between July 1, 1998 and
December 13, 1999, for banks having assets of between $100 and $350 million. The
26 transactions reviewed had an average price to tangible book value ratio of
255% and a price to earnings multiple of 20.3. The median multiples were 265% of
tangible book value and 20.3 times earnings. Austin Associates also reviewed a
comparison of prices paid in selected sale of control transactions nationally
between July 1, 1998 and December 13, 1999, for banks having assets of between
$100 and $350 million, a return on average assets between 0.50% and 1.15% and a
tangible equity to tangible asset ratio less than 8.0%. The 16 transactions
reviewed had an average price to tangible book value ratio of 272% and a price
to earnings multiple of 23.9. The median multiples were 276% of tangible book
value and 22.1 times earnings.
In preparing its comparative analyses, Austin Associates considered the
normalized net income of U.B. Bancshares. For the year ended December 31, 1999,
U.B. Bancshares normalized net income was calculated to be $1,375,000 or $2.46
per common share after adding back certain nonrecurring expenses and special
provisions to the loan loss reserve. The aggregate market value of the
consideration to be received by U.B. Bancshares' shareholders of $30,841,125
(based on Park National's market price of $94.75 at March 8, 2000) represents
262% of U.B. Bancshares' tangible book value at December 31, 1999, and is 22.4
times U.B. Bancshares' 1999 normalized net income.
21
<PAGE> 27
Value of Park National Common Shares
During the last 20 trading days, the Park National common shares have
traded between $93.94 and $100.50 per share with a current per share price as of
March 8, 2000 of $94.75. Austin Associates compared Park National's trading
multiples to six Ohio banking organizations with assets ranging from $1 billion
to $3 billion, or Park National's "peer group." As of March 8, 2000, the median
price-to-tangible book multiple for the peer group was 205% compared to Park
National's multiple of 405%. As of March 8, 2000, the median price-to-earnings
multiple for the peer group was 11.8 compared to Park National's multiple of
20.3. The median dividend yield for the peer group was 3.42% compared to Park
National's dividend yield of 2.49%. The median return on average assets of the
peer group for the last 12 months was 1.30% compared to Park National's return
on average assets of 1.82% . The median return on average equity of the peer
group for the last 12 months was 14.61% compared to Park National's return on
average equity of 19.43%.
Contribution Analysis
Austin Associates compared the pro forma ownership interest in Park
National that U.B. Bancshares shareholders would receive, in the aggregate, to
the contribution of U.B. Bancshares to the total assets, equity and net income
in the combined organization. Based on 325,500 Park National common shares
issued to U.B. Bancshares shareholders, immediately following the U.B.
Bancshares merger, the U.B. Bancshares shareholders would own approximately 3.0%
of the outstanding Park National common shares on a pro forma basis. U.B.
Bancshares' contribution of total assets would equal 5.8%, the contribution of
total tangible equity would equal 4.3%, and the contribution of normalized net
income for 1999 would equal 2.7%.
Dilution Analysis
Austin Associates reviewed the pro forma effect of the merger to U.B.
Bancshares' and Park National's December 31, 1999 earnings per share and
tangible book value per share. U.B. Bancshares recorded normalized earnings per
share in 1999 of $2.46 and a tangible book value of $21.35 per share as of
year-end 1999. Giving effect to the merger, the equivalent U.B. Bancshares
normalized earnings per share would have been $2.60, an increase of 6.0% over
normalized results. Tangible book value per share would have decreased to $13.90
per share, a decrease of 34.9% over actual tangible book value. Giving effect to
the merger, Park National's tangible book value per share would have been
increased by $1.72 or 7.4%, and earnings per share would have been increased by
$.03 or 0.6%.
Based on Austin Associates' projected pro forma merger performance,
U.B. Bancshares' earnings per share would continue to be enhanced over
stand-alone projections by 11.0% in 2000, 16.2% in 2001 and 21.7% in 2002.
Tangible book value per share would be decreased over stand-alone projections by
34.7% in 2000, 34.1% in 2001 and 33.2% in 2002. Park National's pro forma
earnings per share would increase by 1.6% in 2000 and by 2.5% in 2001 from
stand-alone projections. Park National's pro forma tangible book value would
increase by 6.8% in 2000 and by 6.4% in 2001 from stand-alone projections.
Discounted Cash Flow Analysis
Austin Associates performed a discounted cash flow analysis of the
value of the common shares of U.B. Bancshares and Park National as of December
31, 1999. The discounted cash flow results were based on projections considered
reasonable by Austin Associates for the five-year period from December 31, 1999
to December 31, 2004. The discounted cash flow value of U.B. Bancshares was
determined to be in the range of $16.7 to $18.8 million compared to the value of
the merger at $30.8 million. The discounted cash flow value of Park National,
without consideration of the merger, was determined to be in the range of $92.17
to $100.70 per share. The Park National per share price of $94.75 falls within
the range of values determined by Austin Associates.
Dividends
Austin Associates reviewed the current cash dividends paid by U.B.
Bancshares and Park National. Based on the assumed exchange ratio of
approximately .554 Park National common shares for each common share of U.B.
22
<PAGE> 28
Bancshares in the merger, equivalent dividends to U.B. Bancshares shareholders
would have been $1.31 for the year ending December 31, 1999 compared to U.B.
Bancshares' actual dividend of $1.30 per share.
The summary set forth above does not purport to be a complete
description of the analyses performed by Austin Associates. Further, Austin
Associates did not conduct a physical inspection of any of the properties or
assets of U.B. Bancshares or Park National. Austin Associates has assumed and
relied 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 U.B. Bancshares and Park National made in the merger agreement,
and has not independently attempted to verify any of that information. Austin
Associates has also assumed that the conditions to the merger described 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. Neither U.B.
Bancshares nor Park National imposed any limitations on the scope of Austin
Associates' investigation nor were any specific instructions given to Austin
Associates in connection with its fairness opinion.
For Austin Associates' service as financial advisor, U.B. Bancshares
has paid Austin Associates a total of $65,000 through the date of this proxy
statement/prospectus. U.B. Bancshares will pay Austin Associates additional fees
at closing based on the total value of the transaction. Assuming a closing value
of $31.0 million, U.B. Bancshares will pay Austin Associates additional fees of
$168,000 at closing.
THE FULL TEXT OF THE OPINION OF AUSTIN ASSOCIATES, DATED AS OF MARCH
13, 2000, WHICH DESCRIBES THE ASSUMPTIONS MADE AND MATTERS CONSIDERED, IS
ATTACHED TO THIS DOCUMENT AS APPENDIX D. WE URGE YOU TO READ THIS OPINION IN ITS
ENTIRETY. AUSTIN ASSOCIATES' OPINION IS DIRECTED ONLY TO THE CONSIDERATION TO BE
RECEIVED BY U.B. BANCSHARES SHAREHOLDERS IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION AS TO HOW YOU SHOULD VOTE AT THE U.B. BANCSHARES SPECIAL MEETING.
EFFECT ON OUTSTANDING PARK NATIONAL COMMON SHARES AND EXCHANGE OF U.B.
BANCSHARES COMMON SHARES
Effect on Outstanding Park National Common Shares
Each issued and outstanding Park National common share will continue to
be one Park National common share after consummation of the merger.
Exchange of U.B. Bancshares Common Shares
At the effective time of the merger, all U.B. Bancshares common shares
that are owned by U.B. Bancshares as treasury shares will be canceled and
extinguished and no Park National common shares or other consideration will be
delivered in exchange for those shares. The exact number of Park National common
shares to be received for each outstanding U.B. Bancshares common share is
determined by dividing 325,500 Park National common shares by the total of:
- the number of U.B. Bancshares common shares outstanding immediately
prior to the effective time of the merger, and
- the number of U.B. Bancshares common shares which may be acquired
upon the exercise of U.B. Bancshares stock options in effect
immediately prior to the effective time of the merger.
At February 25, 2000, there were 551,971 U.B. Bancshares common shares
outstanding and 35,400 U.B. Bancshares common shares subject to stock options.
If the merger had been effective at that date, approximately .554 Park National
common shares would have been issued for each U.B. Bancshares common share.
If necessary, this exchange ratio will be proportionately adjusted to
prevent dilution as a result of a stock split, stock dividend, recapitalization,
reclassification, split up, combination, exchange of shares, readjustment or
similar transaction with respect to the outstanding Park National common shares
prior to the effective date of the merger.
23
<PAGE> 29
If both of the following conditions are met, U.B. Bancshares may elect
to terminate the merger agreement at any time during the three-day period
beginning with the date on which the waiting period expires following the
approval by the Federal Reserve Board of the merger:
- the average closing price of a Park National common share on the
American Stock Exchange during the 20 trading days prior to the
beginning of the three-day period is less than $85.71, and
- the ratio of that average closing price divided by $110.75 (the
closing price of a Park National common share on the American Stock
Exchange on December 13, 1999) is less than the number obtained by
dividing:
- the sum of the average daily closing sales price of a common share
during the 20 trading days prior to the beginning of the three-day
period of each company comprising the index group of 17 similar
bank holding companies (multiplied by the appropriate weighting),
by
- the sum of each per share closing price of the common shares of
each index group company (multiplied by the appropriate
weighting) on December 13, 1999.
If U.B. Bancshares notifies Park National of its intent to terminate
the merger agreement because both conditions described above are satisfied, Park
National will be entitled to prevent termination by giving notice to U.B.
Bancshares, within five days after U.B. Bancshares' notice of termination to
Park National, of its intent to prevent termination and agreeing that for
purposes of calculating the exchange ratio, the number of Park National common
shares exchanged in the merger will be increased to the number determined by
dividing $27,900,000 by its 20 day average closing price described above.
Before making any decision to terminate the merger agreement as a
result of the events described above, the U.B. Bancshares board of directors
would consult with its financial and other advisors and would consider all
financial and other information it deemed relevant to its decision. The U.B.
Bancshares board of directors is under no obligation to resolicit the U.B.
Bancshares shareholders in the event U.B. Bancshares elects to exercise its
termination right in connection with the occurrence of any of the
above-described events. The U.B. Bancshares board of directors will make its
decision regarding resolicitation of the shareholders based on the market
conditions and other circumstances relating to the merger existing at the time.
For more information, see "The Merger Agreement - Amendment and Termination" on
page 35.
No Fractional Park National Common Shares to Be Issued
Park National will not issue scrip or fractional interests in Park
National common shares in the merger. In lieu of fractional interests, Park
National will pay the cash value of the fraction to each holder of U.B.
Bancshares common shares who otherwise would have been entitled to a fraction of
a Park National share, upon surrender of his or her certificates representing
U.B. Bancshares common shares. The shareholder will receive an amount of cash
(without interest) determined by multiplying the fractional share interest by
the average trading price of a common share of Park National for the 20 trading
days prior to the expiration of the waiting period following Federal Reserve
Board approval of the merger.
Closing of U.B. Bancshares Share Transfer Books; Exchange of Certificates
Evidencing U.B. Bancshares Common Shares
The share transfer books in respect of the U.B. Bancshares common
shares will be closed as of the close of business on the date which is three
business days prior to the closing date.
As soon as practicable after the effective time of the merger, each
U.B. Bancshares 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 U.B. Bancshares common
shares to Park National's exchange agent, First-Knox National Bank.
24
<PAGE> 30
The letter of transmittal will be used to exchange certificates for
Park National common shares and cash in lieu of any fractional share interest.
If any certificate representing Park National common shares is to be issued in a
name other than that in which the U.B. Bancshares certificate 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 National or First-Knox National Bank, any applicable transfer
or other taxes required by reason of the issuance of the Park National
certificate. CERTIFICATES FOR U.B. BANCSHARES COMMON SHARES SHOULD NOT BE
FORWARDED TO FIRST-KNOX NATIONAL BANK UNTIL AFTER RECEIPT OF THE LETTER OF
TRANSMITTAL AND SHOULD NOT BE RETURNED TO U.B. BANCSHARES WITH THE ENCLOSED
PROXY CARD.
Rights of Holders of U.B. Bancshares Share Certificates Prior to Surrender
Upon surrender to First-Knox National Bank of U.B. Bancshares
certificates and a properly completed letter of transmittal, the holder of the
certificates will be entitled to receive in exchange for the U.B. Bancshares
certificates a certificate or certificates representing the Park National common
shares (and cash in lieu of any resulting fractional share interest) to which he
is entitled. Unless and until the shareholder surrenders the U.B. Bancshares
certificates together with a properly completed letter of transmittal, no
dividend payable to holders of record of Park National common shares as of any
time after the effective time of the merger will be paid to that holder. Upon
surrender of his outstanding U.B. Bancshares certificates to First-Knox National
Bank together with a properly completed letter of transmittal, the former U.B.
Bancshares shareholder will receive the dividends (without interest) that have
become payable as of that time with respect to the Park National common shares
to be issued upon such surrender and conversion.
Lost Share Certificates
Any U.B. Bancshares shareholder who has lost or misplaced a certificate
for any of his U.B. Bancshares common shares should immediately call Robin
Kocher of U.B. Bancshares at (419) 562-3040 for information regarding the
procedures to be followed in order to obtain Park National common shares in
exchange for his U.B. Bancshares common shares.
Treatment of Outstanding U.B. Bancshares Stock Options
As of February 25, 2000, there were 35,400 unexercised U.B. Bancshares
stock options outstanding under all incentive and stock option programs of U.B.
Bancshares. Under the merger agreement, as of or prior to the effective time of
the merger, U.B. Bancshares is to take the actions reasonably necessary to cause
each outstanding U.B. Bancshares stock option, whether vested or unvested, to be
exercised. As of December 14, 1999, each holder of U.B. Bancshares stock options
executed a letter agreeing to exercise all of his U.B. Bancshares stock options
according to the terms of the merger agreement.
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 National and U.B. Bancshares 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.
The obligations of Park National and U.B. Bancshares to effect the
merger are conditioned, among other things, upon their receipt from Park
National's auditors of a letter, dated the effective time of the merger, 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. For more
information, see "The Merger Agreement -- Conditions to the Consummation of the
Merger" on page 33. The merger agreement further provides that neither Park
National nor U.B. Bancshares shall intentionally take or cause to be taken any
action, whether before or after the effective time of the merger, which would
disqualify the merger as a pooling-of-interests for accounting purposes.
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FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Park National and U.B. Bancshares will receive an opinion of Vorys,
Sater, Seymour and Pease LLP 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 Internal Revenue Code, Park National
and U.B. Bancshares each will be parties to that reorganization within the
meaning of Section 368(b) of the Internal Revenue Code and, accordingly, for
federal income tax purposes:
- no gain or loss will be recognized by either Park National or U.B.
Bancshares as a result of the merger;
- no gain or loss will be recognized by shareholders of U.B. Bancshares
who exchange their U.B. Bancshares common shares solely for Park
National common shares in the merger, except to the extent that those
shareholders receive cash in lieu of a fractional share;
- the tax basis of Park National common shares received by shareholders
of U.B. Bancshares who exchange all of their U.B. Bancshares common
shares solely for Park National common shares in the merger will be
the same as the tax basis of the U.B. Bancshares common shares
surrendered in exchange; and
- the holding period of the Park National common shares received in the
merger will include the holding period of U.B. Bancshares common
shares surrendered in exchange therefor, provided the U.B. Bancshares
common shares were held as capital assets at the effective time of
the merger.
The merger agreement provides that neither Park National nor U.B.
Bancshares shall intentionally take or cause to be taken any action, whether
before or after the effective time of the merger, which would disqualify the
merger as a reorganization within the meaning of Section 368 of the Internal
Revenue Code. The opinion of Vorys, Sater, Seymour and Pease LLP will be based
on facts, representations and assumptions included in the opinion, the merger
agreement, and certificates of officers of U.B. Bancshares and Park National,
which will not have been independently investigated or verified.
THE FOREGOING DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE
MERGER TO U.B. BANCSHARES SHAREHOLDERS WHO PERFECT DISSENTERS' RIGHTS. FOR MORE
INFORMATION, SEE "RIGHTS OF DISSENTING SHAREHOLDERS" ON PAGE 37.
THIS DISCUSSION DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX
ASPECTS OF THE MERGER OR THE TAX CONSEQUENCES OF THE MERGER TO CERTAIN
SHAREHOLDERS WHO MAY BE SUBJECT TO SPECIAL RULES, INCLUDING, FOR EXAMPLE,
FOREIGN SHAREHOLDERS. THIS DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS
OF THE INTERNAL REVENUE 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
U.B. BANCSHARES SHAREHOLDER WHO ACQUIRED U.B. BANCSHARES COMMON SHARES UPON
EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION. WE URGE YOU
TO CONSULT YOUR OWN TAX ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE
MERGER TO YOU, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL
AND OTHER TAX LAWS AND ANY PROPOSED CHANGES IN THOSE TAX LAWS.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Park National has agreed to indemnify each of the officers and
directors of U.B. Bancshares from and against certain liabilities arising out of
the fact that such person is or was a director, officer or employee of U.B.
Bancshares or any of its subsidiaries, in each case to the full extent U.B.
Bancshares would have been required to indemnify such person under Ohio law and
the articles of U.B. Bancshares. The merger agreement also provides for the
continuation of director and officer liability insurance for these individuals
for a period of three years. For more information, see "The Merger Agreement --
Costs and Expenses; Indemnification" on page 37 and "Comparison of
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Rights of Holders of Park National Common Shares and Holders of U.B. Bancshares
Common Shares -- Director and Officer Liability and Indemnification" on page 57.
United Bank has employment agreements with seven of its senior officers
that provide for a severance payment if the officer's employment is terminated
for any reason other than for "cause" following a change of control. The
severance payment would be equal to 12 months of the officer's normal salary
from the termination date. These seven agreements will remain in force after the
merger has been completed.
RESALE OF PARK NATIONAL COMMON SHARES RECEIVED IN THE MERGER
The Park National 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 National common shares received by persons,
including directors and executive officers of U.B. Bancshares, who may be deemed
to be "affiliates" of U.B. Bancshares, as that term is defined in Rule 145 under
the Securities Act. Affiliates may not sell Park National common shares acquired
in the merger, except under an effective registration statement under the
Securities Act or in compliance with Rule 145 or another applicable exemption
from the registration requirements of the Securities Act. Under Rule 145, an
affiliate may generally resell Park National common shares received in the
merger as long as Park National complies with specific reporting requirements
and the affiliate complies with certain volume and manner of sale requirements.
In addition, U.B. Bancshares has obtained written agreements from all
directors, officers and affiliates of U.B. Bancshares under which those persons
have agreed not to dispose of their Park National common shares in a manner that
would adversely affect the ability of Park National to treat the merger as a
pooling-of-interests for financial accounting purposes.
PERSONS WHO MIGHT BE DEEMED AFFILIATES OF U.B. BANCSHARES SHOULD
CONSULT WITH THEIR LEGAL ADVISORS PRIOR TO MAKING ANY OFFER OR SALE OF PARK
NATIONAL COMMON SHARES RECEIVED IN THE MERGER.
REGULATORY APPROVALS
Consummation of the merger is subject to prior receipt by Park National
and U.B. Bancshares of all necessary regulatory approvals. The principal
regulatory approval required to be obtained is from the Federal Reserve Board.
The application to the Federal Reserve Board (which was submitted on
February 2, 2000 to the Federal Reserve Bank of Cleveland under delegated
authority) sought approval, as required by the Bank Holding Company Act, of the
merger. On March 6, 2000, the Federal Reserve Bank of Cleveland approved the
merger. Under the terms of the approval of the Federal Reserve Bank of
Cleveland, the merger can not be consummated prior to March 21, 2000 and must be
consummated before June 6, 2000 unless that period is extended by the Federal
Reserve Board.
Park National has filed an application with the American Stock Exchange
to list the common shares to be issued in the merger.
The approval of an application means only that the regulatory criteria
for approval have been satisfied or waived. It does not mean that the approving
authority has determined that the consideration to be received by U.B.
Bancshares shareholders is fair. Regulatory approval does not constitute an
endorsement or recommendation of the merger.
We will not complete the merger before we receive all requisite
regulatory approvals and all applicable waiting periods have expired and any
conditions have been complied with. We cannot guarantee 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 National and the Park National subsidiaries taken as a whole
or otherwise materially impair the value to Park National of U.B. Bancshares and
the U.B. Bancshares subsidiaries as a whole. If the Federal Reserve Board
imposes any such condition, the merger agreement permits the boards of directors
of Park National and U.B. Bancshares to abandon the merger.
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We cannot assure you as to when, or if, all necessary regulatory
approvals will be obtained. If we do not complete the merger by September 30,
2000, either of us may terminate the merger agreement. For more information, see
"The Merger Agreement - Amendment and Termination" on page 35.
OTHER TRANSACTIONS INVOLVING PARK NATIONAL
On December 17, 1999, Park National entered into an agreement and plan
of merger with SNB under which SNB will merge with and into Park National. Under
the terms of the SNB merger agreement, as amended on March 3, 2000, the
shareholders of SNB on the effective date of that merger will receive an
aggregate of 835,500 Park National common shares in exchange for their SNB
common shares. Completion of the SNB merger is subject to certain conditions,
including the approval of bank regulators and other governmental agencies, the
approval of shareholders of SNB and other specific conditions to closing.
EXISTING RELATIONSHIP BETWEEN PARK NATIONAL AND U.B. BANCSHARES
Except in connection with the merger agreement and the transactions
contemplated thereby, U.B. Bancshares has not conducted business with, nor has
it had any business relationship with, Park National prior to the transactions
described in the merger agreement. As of February 25, 2000, Park National and
its affiliates owned a total of 2,500 U.B. Bancshares common shares.
THE MERGER AGREEMENT
THE MERGER
The merger agreement provides that, subject to the adoption of the
merger agreement by the shareholders of U.B. Bancshares and the satisfaction or
waiver of the other conditions to the merger, U.B. Bancshares will be merged
with and into Park National. Following completion of the merger, U.B. Bancshares
will no longer exist as a separate corporation. The merger agreement provides
for Park National and U.B. Bancshares to implement the merger by filing a
certificate of merger with the Ohio Secretary of State consistent with the
applicable provisions of the merger agreement.
The material provisions of the merger agreement are briefly summarized
below. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the merger agreement and the
amendment to the merger agreement which are reprinted as Appendix A and Appendix
B to this proxy statement/prospectus and incorporated in this document by this
reference. We urge you to read the merger agreement and the amendment in their
entirety for a more complete description of the merger.
CONVERSION OF SHARES
At the effective time of the merger, each U.B. Bancshares common share
outstanding immediately prior to the effective time of the merger will be
canceled and extinguished and converted into approximately .554 Park National
common shares. All U.B. Bancshares common shares that are owned by U.B.
Bancshares as treasury shares will be canceled and extinguished and no Park
National common shares or other consideration will be delivered in exchange for
those shares. For more information, see "The Merger --Effect on Outstanding Park
National Common Shares and Exchange of U.B. Bancshares Common Shares" on page
23.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, U.B. Bancshares has made various
representations and warranties concerning the following items:
- U.B. Bancshares' and United Bank's due organization, good standing
and qualification, and similar corporate matters;
- U.B. Bancshares' capital structure;
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- U.B. Bancshares' subsidiaries;
- U.B. Bancshares' corporate power and authority to enter into the
merger agreement and consummate the merger, enforceability of the
merger agreement and related matters;
- regulatory and statutory approvals;
- non-contravention of the merger agreement with U.B. Bancshares'
corporate documents, applicable laws and contracts;
- financial statements and reports, and the absence of a subsequent
material adverse effect;
- legal proceedings of U.B. Bancshares and its subsidiaries;
- regulatory matters;
- compliance with laws;
- absence of defaults under material contracts;
- engagement of Austin Associates as it relates to brokerage
commissions, finder's fees or other payments;
- employee benefit plans and compliance with certain provisions of the
Employee Retirement Income Security Act of 1974;
- labor matters;
- non-applicability of takeover laws;
- environmental matters;
- taxes of U.B. Bancshares and its subsidiaries;
- nature of risk management instruments;
- completeness of books and records;
- insurance;
- accounting treatment of the merger;
- the accuracy and completeness of information supplied to Park
National;
- Year 2000 compliance;
- absence of any material adverse changes;
- absence of undisclosed liabilities;
- properties;
- loans; allowance for loan losses;
- repurchase agreements; and
- deposit insurance.
Park National has made various representations and warranties
concerning the following items:
- Park National's organization, good standing and qualification, and
similar corporate matters;
- Park National's capital structure;
- Park National's corporate power and authority to enter into the
merger agreement and consummate the merger, enforceability of the
merger agreement and related matters;
- regulatory and statutory approvals;
- non-contravention of the merger agreement with Park National's
corporate documents, applicable laws and contracts;
- the reports and financial statements that have been filed with the
SEC have complied in all material respects with all applicable
requirements, and did not contain a material misrepresentation or
omission, as of their respective dates;
- the use of a broker or finder;
- non-applicability of takeover laws;
- accounting treatment of the merger;
- the accuracy and completeness of information supplied to U.B.
Bancshares;
- Year 2000 compliance;
- absence of a material adverse change; and
- deposit insurance.
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Park National and U.B. Bancshares believe that the representations and
warranties contained in the merger agreement are customary in transactions
similar in nature to the merger. For more information, see Article V of the
agreement and plan of merger which is attached as Appendix A to this proxy
statement/prospectus.
CONDUCT OF BUSINESS PENDING THE MERGER
The merger agreement provides that U.B. Bancshares will not, and will
cause each of its subsidiaries not to:
- conduct business other than in the ordinary and usual course or fail
to use reasonable efforts:
- to perform any contractual obligations,
- to preserve intact their business organizations and assets and
maintain their rights, franchises and existing relations with
customers, suppliers, employees and business associates, or
- to voluntarily take any action which, at the time taken, is
reasonably likely to have an adverse effect upon U.B. Bancshares'
ability to perform any of its obligations under the merger
agreement;
- other than pursuant to previously disclosed rights:
- issue, sell or otherwise permit to become outstanding, or authorize
the creation of, any additional U.B. Bancshares common shares or
any rights to acquire U.B. Bancshares common shares,
- enter into any agreement with respect to the foregoing or
- permit any additional U.B. Bancshares common shares to become
subject to new U.B. Bancshares stock options, other rights or
similar stock-based employee rights;
- make, declare, pay or set aside for payment any dividend, other than
quarterly cash dividends on U.B. Bancshares common shares in an
amount not to exceed $.325 per share, with record and payment dates
as indicated in the merger agreement and dividends from wholly-owned
subsidiaries to U.B. Bancshares, or directly or indirectly adjust,
split, combine, redeem, reclassify, exchange, purchase or otherwise
acquire, any of its common shares;
- enter into, amend or renew any employment, consulting, severance or
similar agreements or arrangements with any director, officer or
employee (other than the normal extension of the seven existing
severance agreements with management), or grant any salary or wage
increase or increase any employee benefit, (including incentive or
bonus payments) except (1) for normal individual increases in
compensation to employees in the ordinary course of business
consistent with past practice, (2) for other changes that are
required by applicable law or (3) to satisfy previously disclosed
contractual obligations existing as of December 14, 1999;
- enter into, establish, adopt or amend any pension, retirement, stock
option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any
trust agreement (or similar arrangement) related thereto, in respect
of any director, officer or employee, or take any action to
accelerate the vesting or exercisability of stock options, restricted
stock or other compensation or benefits payable thereunder. However,
U.B. Bancshares may:
- take any of these actions in order to satisfy either applicable law
or previously disclosed contractual obligations existing as of
December 14, 1999 or regular annual renewal of insurance contracts,
- pay cash bonuses for performance during 1999 in the amounts accrued
by U.B. Bancshares as of December 14, 1999 with respect to its
incentive plans,
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- pay cash bonuses on the closing date in the amounts accrued by U.B.
Bancshares as of the closing date with respect to its incentive
plans, and
- terminate its defined contribution 401(k) plan at any time before
the effective time of the merger, with benefit distributions
deferred until the IRS issues a favorable determination with
respect to the terminating plan's tax-qualified status upon
termination. U.B. Bancshares and Park National will cooperate in
good faith to apply for such approval and agree upon associated
plan termination amendments that shall, among other things, provide
for the application of all assets of a terminating plan for its
participants, and allow plan participants not only to receive
lump-sum distributions of their benefits, but also to transfer
those benefits to the tax-qualified 401(k) plan that Park National
maintains for its employees;
- sell, transfer, mortgage, encumber or otherwise dispose of or
discontinue any of its assets, deposits, business or properties
except in the ordinary course of business;
- acquire (other than by way of foreclosures or acquisitions of control
in a bona fide fiduciary capacity or in satisfaction of debts
previously contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or any
portion of, the assets, business, deposits or properties of any other
entity;
- merge or consolidate with any other entity or otherwise reorganize;
- amend the articles or bylaws of U.B. Bancshares or adopt regulations
for U.B. Bancshares, or amend the articles or regulations (or similar
governing documents) of any of U.B. Bancshares' subsidiaries except
for immaterial amendments to regulations previously disclosed to Park
National;
- implement or adopt any change in its accounting principles, practices
or methods, other than as may be required by generally accepted
accounting principles;
- enter into or terminate any contract requiring the payment or receipt
of $10,000 or more in any 12 month period or amend or modify in any
material respect any of its existing material contracts, other than
loans and contracts of deposit made by United Bank;
- except in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding, except for any
claim, action or proceeding which does not involve precedent for
other material claims, actions or proceedings and which involve
solely money damages in an amount, individually or in the aggregate
for all such settlements, that is not material to U.B. Bancshares and
its subsidiaries, taken as a whole;
- take any action that would, or is reasonably likely to, prevent or
impede the merger from qualifying for "pooling-of-interests"
accounting treatment or as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- take any action that is intended or is reasonably likely to result
in:
- any of its representations and warranties set forth in the merger
agreement being or becoming untrue in any material respect at or
prior to the effective time of the merger,
- any of the conditions to the merger not being satisfied, or
- a violation of any provision of the merger agreement except as
required by law or regulation;
- except as required by applicable law or regulation:
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- implement or adopt any material change in its interest rate risk
management and other risk management policies, procedures or
practices,
- fail to follow its existing policies or practices with respect to
managing its exposure to interest rate and other risk, or
- fail to use commercially reasonable means to avoid any material
increase in its aggregate exposure to interest rate risk;
- incur any indebtedness for borrowed money or incur any material
obligation or liability other than in the ordinary course of
business;
- make any capital expenditures in excess of $25,000 in the aggregate
or for any item in excess of $5,000;
- fail to maintain insurance described in the merger agreement;
- fail to maintain its property and facilities in their present
condition and working order, ordinary wear and tear excepted; or
- agree or commit to do any of the foregoing.
The merger agreement also provides that Park National will not, and
will cause each of its subsidiaries not to:
- take any action which, at the time taken, is reasonably likely to
have a material adverse affect upon Park National's ability to
perform any of its material obligations under the merger agreement;
or
- take any action while knowing that:
- the action would, or is reasonably likely to, prevent or impede the
merger from qualifying:
- for "pooling of interests" accounting treatment, or
- as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; or
- the action is intended or is reasonably likely to result in:
- any of Park National's representations and warranties set forth
in the merger agreement being or becoming untrue in any material
respect at or prior to the effective time of the merger,
- any of the conditions to the merger not being satisfied, or
- a material violation of any provision of the merger agreement
except as required by law or regulation.
Park National and U.B. Bancshares are required to use their reasonable
best efforts to take all actions necessary to comply with all applicable legal
requirements and to obtain all required governmental and third party consents.
Park National has also filed a listing application with the American Stock
Exchange covering the Park National common shares to be issued in the merger.
U.B. Bancshares employees will continue to participate in the U.B.
Bancshares employee benefit plans until:
- Park National determines that those employees will (subject to
eligibility requirements) participate in Park National's employee
benefit plans, and
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- that all or some of the U.B. Bancshares plans will be terminated or
merged into Park National's employee benefit plans.
Park National will give U.B. Bancshares employees credit for purposes of
eligibility and vesting (but not for benefit accrual purposes) in Park
National's employee benefit plans, and the employees will not be subject to:
- any exclusion or penalty for pre-existing conditions that were
covered under U.B. Bancshares' welfare plans, or
- any waiting period relating to that coverage.
In addition, if Park National adopts a new plan or program for its employees or
executives, to the extent its employees or executives receive past service
credits for any reason, Park National will credit similarly-situated employees
and executives of U.B. Bancshares with equivalent credit for service with U.B.
Bancshares or its predecessors.
Park National and U.B. Bancshares have agreed to coordinate the payment
of dividends with respect to the Park National common shares and the U.B.
Bancshares common shares and the record dates and payment dates relating to
dividends.
United Bank has employment agreements with seven of its senior officers
that provide for a severance payment if the officer's employment is terminated
for any reason other than for "cause" following a change of control. The
severance payment would be equal to 12 months of the officer's normal salary
from the termination date. These seven agreements will remain in force after the
merger has been completed.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligation of each of Park National and U.B. Bancshares to
consummate the merger is subject to a number of conditions, including the
following:
- the adoption of the merger agreement by the requisite vote of the
U.B. Bancshares shareholders;
- all necessary regulatory approvals have been obtained in connection
with the merger and all statutory waiting periods have expired;
- regulatory approvals contain any conditions, restrictions or
requirements which Park National reasonably determines would either
before or after the effective time, have a material adverse effect on
Park National or prevent Park National from realizing the economic
benefits of the merger and related transactions;
- no court or other governmental or regulatory authority has enacted,
issued, promulgated, enforced, threatened commenced a proceeding with
respect to, or entered, any statute, rule, regulation, judgment,
decree, injunction or other order prohibiting or delaying
consummation of the transactions contemplated by the merger
agreement;
- the Form S-4 Registration Statement has become effective and no stop
order suspending the effectiveness of the Registration Statement has
been issued or no proceedings for that purpose initiated or
threatened by the SEC;
- all permits and other authorizations required under state securities
laws to consummate the transactions contemplated by the merger
agreement and issue the common shares of Park National to be issued
in the merger have been received; and
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- Park National has received from Ernst & Young LLP, its opinion,
dated the date of or shortly prior to the effective date of the
merger that the merger qualifies for pooling-of-interests accounting
treatment.
The obligation of Park National to consummate the merger is also
subject to a number of additional conditions, including the following:
- the representations and warranties of U.B. Bancshares contained in
the merger agreement are true and correct as of the effective time of
the merger, or in the case of representations and warranties made as
of a specified date earlier than the closing date of the merger, on
and as of that date, and U.B. Bancshares has delivered a certificate
to Park National to that effect;
- all obligations required to be performed by U.B. Bancshares under the
merger agreement have been performed, and U.B. Bancshares has
delivered a certificate to Park National to that effect;
- Park National has received the opinion of Vorys, Sater, Seymour and
Pease LLP stating that the merger constitutes a "reorganization"
within the meaning of Section 368 of the Internal Revenue Code;
- Park National has received the opinion of Werner & Blank Co., L.P.A.,
legal counsel to U.B. Bancshares, stating that:
- U.B. Bancshares is a corporation in good standing under the laws of
the State of Ohio,
- the merger agreement was duly approved by the U.B. Bancshares board
of directors and duly adopted and approved by the U.B. Bancshares
shareholders,
- the merger agreement was duly executed by U.B. Bancshares and, with
certain stated exceptions, constitutes the binding obligation of
U.B. Bancshares and is enforceable in accordance with its terms
against U.B. Bancshares, and
- that upon the filing of the certificate of merger with the
Secretary of State of Ohio, the merger will become effective;
- Park National has received an agreement from each U.B. Bancshares
affiliate concerning the resale of Park National common shares
received in the merger;
- receipt of a certificate of merger duly executed by U.B. Bancshares
in appropriate form for filing with the Secretary of State of Ohio;
and
- receipt of certified copies of resolutions adopted by the directors
and shareholders of U.B. Bancshares approving and adopting the merger
agreement and authorizing the consummation of the transactions
described in the merger agreement.
The obligation of U.B. Bancshares to consummate the merger is also
subject to a number of additional conditions, including the following:
- the representations and warranties of Park National contained in the
merger agreement are true and correct as of the effective time of the
merger, or in the case of representations and warranties made as of a
specified date earlier than the closing date of the merger, on and as
of that date, and Park National has delivered a certificate to U.B.
Bancshares to that effect;
- all obligations required to be performed by Park National under the
merger agreement have been performed, and Park National has delivered
a certificate to U.B. Bancshares to that effect;
- U.B. Bancshares has received the opinion of Vorys, Sater, Seymour and
Pease LLP, legal counsel to Park National, stating that the merger
constitutes a "reorganization" within the meaning of Section 368
34
<PAGE> 40
of the Internal Revenue Code and no gain or loss will be recognized
by shareholders of U.B. Bancshares who receive Park National common
shares in exchange for U.B. Bancshares common shares, and cash in
lieu of fractional share interests, other than the gain or loss to be
recognized as to cash received in lieu of fractional share interests;
- U.B. Bancshares has received the opinion of Vorys, Sater, Seymour and
Pease LLP stating that:
- Park National is a corporation in good standing under the laws of
the State of Ohio,
- the merger agreement was duly executed by Park National, and with
certain stated exceptions, constitutes the binding obligation of
Park National and is enforceable in accordance with its terms
against Park National,
- that the Park National common shares to be issued as consideration
in the merger, when issued, shall be duly authorized, fully paid
and non-assessable, and
- that upon the filing of the certificate of merger with the
Secretary of State of Ohio, the merger will become effective; and
- U.B. Bancshares has received a fairness opinion from its financial
advisor, Austin Associates, dated as of a date reasonably proximate
to the date of the proxy statement/prospectus, stating that the
consideration to be issued in the merger is fair to the shareholders
of U.B. Bancshares from a financial point of view.
Where the law permits, Park National or U.B. Bancshares could decide to
complete the merger even though one or more conditions were not satisfied. By
law, neither Park National nor U.B. Bancshares can waive (1) the condition of
adoption of the merger agreement by U.B. Bancshares' shareholders, (2) a
condition requiring regulatory approval by the Federal Reserve Board, or (3) any
court order or law having the effect of making illegal or otherwise prohibiting
the consummation of the merger. Whether any of the conditions would be waived
would depend upon the facts and circumstances as determined by the reasonable
business judgment of the boards of directors of Park National or U.B.
Bancshares.
EFFECTIVE TIME OF THE MERGER
Upon satisfaction or waiver of all conditions under the merger
agreement, we 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 a time after the filing that we agree to in writing
and set forth in the certificate of merger.
The closing of the transactions contemplated by the merger agreement
will take place on a day designated by Park National which is not (1) earlier
than the third business day after the last of the conditions described in the
merger agreement has been satisfied or waived in accordance with the terms of
the merger agreement, or (2) later than the last business day of the month in
which that third business day occurs. However, the date chosen by Park National
may not fall after September 30, 2000 or after the date or dates on which any
regulatory authority approval (or extension) expires. We are also free to agree
to close the transactions on a different date.
AMENDMENT AND TERMINATION
We may amend the merger agreement at any time before or after the U.B.
Bancshares special meeting. However, after approval of the matters to be
considered at the special meeting, we may not make an amendment which by law
requires further approval by the U.B. Bancshares' shareholders unless we obtain
that further approval.
We may agree in writing to terminate the merger agreement at any time
before completion of the merger, even if the U.B. Bancshares shareholders have
adopted it.
Either U.B. Bancshares or Park National may decide to terminate the
merger agreement if:
35
<PAGE> 41
- the other party breaches any representation or warranty or any
covenant or agreement contained in the merger agreement and does not
cure the breach within 30 days after receiving written notice of the
breach, provided that the breach would be reasonably likely,
individually or in the aggregate with other breaches, to result in a
material adverse effect;
- the merger has not been completed by September 30, 2000 unless the
failure to complete the merger arises out of or results from the
knowing action or inaction of the party seeking to terminate; or
- a governmental authority fails to approve the merger.
Park National may decide to terminate the merger agreement if:
- U.B. Bancshares fails to meet one or more closing conditions; or
- the shareholders of U.B. Bancshares fail to adopt the merger
agreement.
U.B. Bancshares may decide to terminate the merger agreement if:
- Park National fails to meet one or more closing conditions; or
- during the three-day period beginning with the date on which the
waiting period expires following Federal Reserve Board approval of
the merger, both of the following conditions are satisfied:
- the average closing price of a Park National common share on the
American Stock Exchange during the 20 trading days prior to the
beginning of the three-day period is less than $85.71, and
- the ratio of such 20 day average closing price divided by $110.75
(the closing price of a Park National common share on the American
Stock Exchange on December 13, 1999) is less than the number
obtained by dividing:
- the sum of the average daily closing sales price of a common
share during the 20 trading day period ending on the trading day
immediately prior to the beginning of the three-day period of
each company comprising the index group of 17 similar bank
holding companies (multiplied by the appropriate weighting), by
- the sum of each per share closing price of the common shares of
each index group company (multiplied by the applicable weighting)
on December 13, 1999;
- however, if U.B. Bancshares notifies Park National of its intent to
terminate the merger agreement due to the satisfaction of the
conditions relating to the average closing price, Park National may
prevent termination by giving notice to U.B. Bancshares within five
days after U.B. Bancshares' notice of termination to Park National of
its intent to prevent termination, and agreeing that for purposes of
calculating the exchange ratio, the number of Park National common
shares exchanged in the merger will be increased to the number
determined by dividing $27,900,000 by the average closing price
calculated as described above.
Prior to the receipt of the approval of its shareholders and upon
payment of a $1,000,000 special fee to Park National, U.B. Bancshares may also
terminate the merger agreement if its board of directors determines in good
faith, based on the advice of Werner & Blank, that termination of the merger
agreement and pursuit of another acquisition proposal for U.B. Bancshares would
be more favorable to the U.B. Bancshares shareholders from a financial point of
view than the merger.
In the event of termination, the merger agreement will become void
except that certain provisions regarding the accuracy and completeness of
information submitted to the SEC, press releases, confidentiality, acquisition
36
<PAGE> 42
proposals, effect of termination and enforcement of the merger agreement and the
miscellaneous provisions contained in Article IX will survive termination. In
addition, if the merger agreement is terminated by reason of an acquisition
proposal for U.B. Bancshares or if the U.B. Bancshares board of directors fails
to recommend the merger to the U.B. Bancshares shareholders, withdraws or
modifies its recommendation, announces its intention not to recommend the
merger, recommends or approves another acquisition proposal or fails to solicit
proxies to approve the merger, U.B. Bancshares will be required to pay the
special fee of $1,000,000 to Park National.
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 by the merger agreement will be paid by the party incurring those
costs and expenses, except that Park National and U.B. Bancshares will share all
expenses incurred in connection with filing, printing and mailing this proxy
statement/prospectus equally and Park National will pay all fees due to
regulatory authorities and the SEC in connection with the transactions
contemplated by the merger agreement.
Park National has agreed to indemnify each of the officers, directors
and employees of U.B. Bancshares and its subsidiaries against costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of actions or omissions occurring on or prior to the
effective time of the merger, in each case to the fullest extent U.B. Bancshares
would have been required to indemnify and advance expenses to that person under
Ohio law and the articles of U.B. Bancshares.
In addition, for a period of three years after the effective time of
the merger, Park National will provide director's and officer's liability
insurance, on terms no less favorable than those in effect as of December 14,
1999, to indemnify the present and former officers and directors of U.B.
Bancshares and its subsidiaries with respect to claims against those persons
arising from facts or events which occurred prior to the effective time of the
merger. Park National will not be required to pay more than 300 percent of the
amount spent by U.B. Bancshares as of December 14, 1999 in order to maintain or
procure that insurance, but if that limit is met, Park National must use its
reasonable best efforts to maintain or obtain as much comparable insurance as
can be obtained up to the 300 percent limit.
RECOMMENDATION AND VOTE
The board of directors of U.B. Bancshares believes that the
consummation of the proposed merger is in the best interest of U.B. Bancshares
and its shareholders. The affirmative vote of the holders of two-thirds of the
outstanding U.B. Bancshares common shares is required for the merger agreement
to be adopted. THE U.B. BANCSHARES BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
RIGHTS OF DISSENTING SHAREHOLDERS
The following is a description of the steps you must take to perfect
dissenters' rights with respect to the merger. The description is not intended
to be complete and is qualified in its entirety by reference to Section 1701.85
of the Ohio Revised Code, a copy of which is included as Appendix E to this
proxy statement/prospectus. We recommend that you consult with your own counsel
if you have questions with respect to your rights under the statute.
"Dissenters' rights" is your right to dissent from the merger and to
have the "fair cash value" of your U.B. Bancshares common shares determined by a
court and paid in cash. The "fair cash value" of a U.B. Bancshares common share
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. Fair cash value is determined as of the day
prior to the day on which the vote of the U.B. Bancshares shareholders to adopt
the merger agreement is taken. When determining fair cash value, any
appreciation or depreciation in market value resulting from the proposed merger
is excluded. In no event can the fair cash value of a common share exceed the
amount specified in the demand of the particular shareholder discussed in
numbered paragraph 3 below.
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<PAGE> 43
To perfect your dissenters' rights, you must satisfy each of the
following conditions:
1. You Must be a Shareholder of U.B. Bancshares on the Record Date. To
be entitled to dissenters' rights, you must be the record holder of
the dissenting shares on March 17, 2000. If you have a beneficial
interest in U.B. Bancshares common shares held of record in the name
of any other person for which you desire to perfect dissenters'
rights, you must cause the shareholder of record to timely and
properly act to perfect those rights.
2. You Must Not Vote in Favor of Adoption of the Merger Agreement. Only
a shareholder whose U.B. Bancshares common shares are not voted in
favor of adoption of the merger agreement is entitled, if the merger
is completed, to be paid the fair cash value of the U.B. Bancshares
common shares held of record by the shareholder on April 18, 2000.
If you vote for adoption of the merger agreement, your vote will
constitute a waiver of your dissenters' rights.
3. You Must Serve a Written Demand. On or before the tenth day after
the U.B. Bancshares special meeting, you must serve a written demand
for payment of the fair cash value of your shares to U.B.
Bancshares. Your written demand must state your name, address, the
number of common shares as to which you seek relief and the amount
claimed by you as the fair cash value of the common shares.
4. You Must Deliver Your Share Certificates for Legending, if Requested
by U.B. Bancshares. If requested by U.B. Bancshares, you must submit
your share certificates for dissenting shares to U.B. Bancshares
within fifteen days after U.B. Bancshares sends its request. U.B.
Bancshares will then endorse the share certificates with a legend
that demand for fair cash value has been made.
5. You Must File a Petition in Court, if You and U.B. Bancshares Cannot
Agree on the Fair Cash Value of Your Dissenting Shares. If U.B.
Bancshares and any dissenting shareholder cannot agree on the fair
cash value of the dissenting shares, either U.B. Bancshares or the
shareholder must, within three months after service of the written
demand by the shareholder, file or join in a petition in the Court
of Common Pleas of Crawford County, Ohio, for a determination of the
fair cash value of the dissenting shares.
You must mail or deliver any written demand for payment to U.B.
Bancshares, Inc., 401 South Sandusky Avenue, Bucyrus, Ohio 44820, Attention:
Albert L. Stetzer, Secretary. Because you must deliver the written demand within
the ten-day period following the U.B. Bancshares special meeting, we recommend,
but do not require, that if you use the mails, you use certified or registered
mail, return receipt requested, to confirm that you have made a timely delivery.
If you dissent from the merger, your right to be paid the fair cash
value of your U.B. Bancshares common shares will terminate:
- if, for any reason, the merger is not completed;
- if you fail to serve a timely and appropriate written demand upon
U.B. Bancshares;
- if you do not, upon request of U.B. Bancshares, make timely and
appropriate surrender of the share certificates evidencing your
dissenting shares for endorsement of a legend that you have made a
demand for the fair cash value of your common shares;
- if you withdraw your demand with the consent of the board of
directors of U.B. Bancshares;
- if you and U.B. Bancshares do not agree upon the fair cash value per
share of your U.B. Bancshares common shares and you have not timely
filed or joined in an appropriate petition in the Court of Common
Pleas of Crawford County, Ohio; or
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<PAGE> 44
- if you otherwise fail to comply with the requirements of Section
1701.85 of the Ohio Revised Code.
A dissenting shareholder of U.B. Bancshares who receives payment for
shares in cash will 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 not essentially equivalent to a dividend within the meaning of
Section 302 of the Internal Revenue Code. A sale of shares pursuant to an
exercise of dissenters' rights will not constitute such a "dividend" if, as a
result of such exercise, the shareholder owns no Park National common shares as
the surviving corporation in the merger (either actually or constructively
within the meaning of Section 318 of the Internal Revenue Code).
If you are not in favor of the merger but do not wish to exercise
dissenters' rights, you may, in the alternative, attempt to sell your U.B.
Bancshares common shares in the open market at the then current market price.
BUSINESS OF PARK NATIONAL
GENERAL
Park National is a bank holding company which is incorporated under
Ohio law. Through its banking subsidiaries, Park National Bank, Richland Trust,
Century National Bank and First-Knox National Bank, Park National is engaged in
a general commercial banking and trust business in small to medium population
Ohio communities. Guardian Financial provides consumer finance services in the
central Ohio area. Park National's subsidiaries compete for deposits and loans
with other banks, savings associations, credit unions and other types of
financial institutions and operate 59 full-service offices and a network of 65
automatic teller machines in fifteen central and southern Ohio counties.
Park National Bank, Richland Trust, Century National Bank and
First-Knox National Bank provide the following principal services:
- the acceptance of deposits for demand, savings and time accounts and
the servicing of those accounts;
- commercial, industrial, consumer and real estate lending, including
installment loans and automobile leasing, 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.
Park National Bank also leases equipment under terms similar to its
commercial lending policies. Park Leasing Company, a division of Park National
Bank, originates and services direct leases of equipment which Park National
Bank acquires with no outside financing. In addition, Scope Leasing, Inc., a
wholly-owned subsidiary of Park National Bank, specializes in aircraft
financing.
Park National is subject to regulation by the Federal Reserve Board. As
national banks, Park National Bank, Century National Bank and First-Knox
National Bank are supervised and regulated by the Office of the Comptroller of
the Currency. As an Ohio state-chartered bank, Richland Trust is supervised and
regulated by the Ohio Division of Financial Institutions. In addition, as
insurer of their deposits, the Federal Deposit Insurance Corporation has some
regulatory authority over Park National Bank, Richland Trust, Century National
Bank and
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<PAGE> 45
First-Knox National Bank, including authority to impose assessments for deposit
insurance. As an Ohio consumer finance company, Guardian Financial is supervised
and regulated by the Ohio Division of Financial Institutions.
Park National Bank, in addition to having seven offices in Newark
(including the main office and the Operations Center) has offices in Granville,
Heath (two offices), Hebron, Johnstown, Kirkersville, Pataskala 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 (seven offices) in Fairfield County. The offices in Fairfield County
comprise the Fairfield National Division. Park National Bank also operates nine
stand-alone automatic banking center locations.
Richland Trust, 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 Trust also operates three stand-alone automatic
banking center locations.
Century National Bank, in addition to having four offices (including
the main office) and a mortgage lending office in Zanesville, has offices in New
Concord and Dresden 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. Century National Bank also operates seven stand-alone
automatic banking center locations.
First-Knox National Bank, in addition to having three offices
(including the main office and operations center) in Mount Vernon, has offices
in Loudonville and Perrysville in Ashland County, an office in Millersburg in
Holmes County, offices in Centerburg, Danville and Fredericktown in Knox County,
two offices in Mount Gilead in Morrow County and an office in Bellville in
Richland County. The offices in Ashland County comprise the Farmers and Savings
Division. First-Knox National Bank also operates four stand-alone automatic
banking center locations.
Guardian Financial has its main office in Hilliard in Franklin County
and an office in Mansfield where it leases space from Richland Trust.
ADDITIONAL INFORMATION
For additional information concerning Park National, see "Where You Can
Find More Information" on page 67.
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<PAGE> 46
MANAGEMENT OF PARK NATIONAL
BOARD OF DIRECTORS
The following table gives information concerning the individuals who
are and will remain the members of the board of directors of Park National, the
surviving corporation in the merger, as of February 25, 2000. Unless the table
indicates otherwise, each person has held his or her principal occupation for
more than five years.
<TABLE>
<CAPTION>
Position(s) Held with Director of Park
Park National and its Principal National
Subsidiaries and Continuously
Name Age Principal Occupations Since Term Expires in
- ---- --- --------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
William T. McConnell 66 Chairman of the Board since 1986 2000
1994, Chief Executive Officer from
1986 to January, 1999, and President
from 1986 to 1994, of Park National;
Chairman of the Board since 1993,
Chief Executive Officer from 1983 to
January, 1999, President from 1979 to
1993, and Director of Park National
Bank; Director of Century National
Bank; Director of First-Knox National
Bank
C. Daniel DeLawder 50 Chief Executive Officer since 1994 2002
January, 1999, and President
since 1994, of Park National; Chief
Executive Officer since January, 1999,
President since 1993, Executive Vice
President from 1992 to 1993, and
Director of Park National Bank;
Chairman of Advisory Board since 1989
and President from 1985 to 1992 of the
Fairfield National Division of Park
National Bank; Director of Richland
Trust; Chairman of the Board of
Guardian Financial since February 1999
Maureen Buchwald 68 Vice President of Ariel 1997 2001
Corporation (manufacturer of
reciprocating compressors)
until her retirement in 1997;
Director of First-Knox National
Bank
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
Position(s) Held with Director of Park
Park National and its Principal National
Subsidiaries and Continuously
Name Age Principal Occupations Since Term Expires in
- ---- --- --------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
James J. Cullers 69 Senior Partner, Zelkowitz, 1997 2000
Barry & Cullers, Attorneys at
Law, Mount Vernon, Ohio;
Director of First-Knox National
Bank
D. C. Fanello 78 Vice Chairman and founder of 1990 2001
Shiloh Corporation, Mansfield,
Ohio (stamping/blanking);
Director of Richland Trust
R. William Geyer 68 Partner, Kincaid, Taylor 1992 2000
and Geyer, Attorneys at
Law, Zanesville, Ohio;
Director of Century National
Bank
Philip H. Jordan, Jr., Ph.D. 68 Retired. From 1975 to 1995, 1997 2002
President of Kenyon College;
Chairman of the Board and
Director of First-Knox National
Bank
Howard E. LeFevre 92 Chairman of the Board of 1987 2002
Freight Service, Inc., Newark,
Ohio (leasing and warehousing);
Director of Park National Bank
Phillip T. Leitnaker 72 President and owner of Phillip 1990 2001
Leitnaker Construction, Inc.
Baltimore, Ohio (construction
company); Owner of Leitnaker
Farms, Baltimore, Ohio
(farming); President and
majority owner of D & B Paving
Company, Baltimore, Ohio
(paving company); Member of
Advisory Board of Fairfield
National Division of Park
National Bank
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
Position(s) Held with Director of Park
Park National and its Principal National
Subsidiaries and Continuously
Name Age Principal Occupations Since Term Expires in
- ---- --- --------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Tami L. Longaberger 38 Chief Executive Officer since 1996 2002
1998, President since 1994 and
President, Sales and Marketing,
from 1991 to 1993, and of The
Longaberger Company, Dresden,
Ohio (specialty goods
manufacturer); Director of
Century National Bank
James A. McElroy 67 Chairman of the Board, AMG 1997 2000
Industries, Inc. (manufacturer
of automobile parts), Mount
Vernon, Ohio; Director of
First-Knox National Bank
John J. O'Neill 79 President/Owner of Southgate 1987 2002
Corporation, Newark, Ohio (real
estate development and
management); Director of Park
National Bank
William A. Phillips 67 Chairman of the Board since 1990 2000
1986, Chief Executive Officer
from 1986 to 1998, and Director
of Century National Bank
J. Gilbert Reese 74 Senior Partner, Reese, Pyle, 1987 2001
Drake & Meyer, P.L.L.,
Attorneys at Law, Newark, Ohio;
Chairman Emeritus of First
Federal Savings and Loan
Association of Newark, Newark,
Ohio; Director of Park National
Bank
Rick R. Taylor 52 President of Jay Plastics 1995 2001
Corp., Mansfield, Ohio (plastic
parts manufacturer); Director
of Richland Trust
John L. Warner 72 Agent, Dawson, Coleman & 1987 2000
Wallace Insurance Agency, Inc.
(successor to W. A. Wallace
Co.), Newark, Ohio
(insurance); Director of Park
National Bank
</TABLE>
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<PAGE> 49
EXECUTIVE OFFICERS
The following table lists the names and ages of the executive officers
of Park National as of February 25, 2000, the positions presently held by those
officers and their individual business experience during the past five years.
These individuals will be the executive officers of the surviving corporation in
the merger. The board of directors may remove any of the executive officers at
any time.
Positions Held with Park National and its Principal
Name Age Subsidiaries and Principal Occupation
- ---- --- -------------------------------------
William T. McConnell 66 Chairman of the Board since 1994, Chief
Executive Officer from 1986 to January,
1999, President from 1986 to 1994 and
Director of Park National; Chairman of
the Board since 1993, Chief Executive
Officer from 1983 to January, 1999,
President from 1979 to 1993, and
Director of Park National Bank; Director
of Century National Bank; Director of
First-Knox National Bank
C. Daniel DeLawder 50 Chief Executive Officer since January,
1999, President since 1994 and Director
of Park National; Chief Executive
Officer since January, 1999, President
since 1993, Executive Vice President
from 1992 to 1993, and Director of Park
National Bank; Chairman of Advisory
Board since 1989 and President from 1985
to 1992 of the Fairfield National
Division of Park National Bank; Director
of Richland Trust; Chairman of the Board
of Guardian Financial since February
1999
David C. Bowers 63 Secretary since 1987, Chief Financial
Officer and Chief Accounting Officer
from 1990 to 1998, and Director from
1989 to 1990, of Park National;
Executive Vice President since January
1999, Senior Vice President from 1986 to
January 1999, and Director of Park
National Bank; Director of Guardian
Financial
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The executive committee of the board of directors of Park National
performs the functions of a compensation committee. C. Daniel DeLawder, who is
Chief Executive Officer and President of Park National and Park National Bank,
serves as a member of the executive committee. William T. McConnell, who serves
as Chairman of the Board of Park National and Park National Bank, serves as a
member of the executive committee of the Park National board of directors. 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 National board of directors.
J. Gilbert Reese, who is senior partner in the law firm of Reese, Pyle,
Drake & Meyer, P.L.L. which rendered legal services to certain of Park
National's subsidiaries during the 1999 fiscal year and continues to do so, is
also a member of the executive committee.
John L. Warner, who serves as an agent for Dawson, Coleman & Wallace
Insurance Agency, Inc. (and served as an agent for W.A. Wallace Co. prior to its
acquisition by Dawson, Coleman & Wallace, in January 1999), also serves as a
member of the executive committee of the Park National board of directors.
During each of Park National's last three fiscal years, Park National and its
subsidiaries have purchased insurance through these two agencies. The aggregate
premiums paid to Dawson, Coleman & Wallace (and W.A. Wallace Co. prior to the
acquisition) by Park National and its subsidiaries during 1999 were $351,113.
The aggregate premiums paid to W.A. Wallace Co. by Park National and its
subsidiaries during 1998 and 1997 were $205,245 and $136,363, respectively.
44
<PAGE> 50
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the last three fiscal years, the cash
compensation paid by Park National and its subsidiaries, as well as other
compensation paid or accrued for those years, to each of Park National's
executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------- ------
Park National
Common Shares
Name and Underlying Options All Other
Principal Position Year Salary ($) Bonus($)(1) (#)(2) Compensation ($)
- ------------------ ---- ---------- ----------- ------ ----------------
<S> <C> <C> <C> <C> <C>
William T. McConnell, Chairman of the 1999 $326,000 $ 0 0 $ 11,204 (4)
Board of Park National and Park 1998 $325,988 $423,942 0 $ 8,276
National Bank (3) 1997 $166,400 $373,895 0 $ 7,657
C. Daniel DeLawder, President and Chief 1999 $326,000 $436,261 1,050 $ 8,491 (4)
Executive Officer of Park National 1998 $217,000 $311,799 1,050 $ 6,983
and Park National Bank (3) 1997 $110,000 $249,263 1,732 $ 6,366
David C. Bowers, Secretary of Park 1999 $167,000 $181,508 0 $ 8,322 (4)
National and Executive Vice 1998 $164,000 $137,403 1,050 $ 7,242
President of Park National Bank (3) 1997 $ 97,000 $122,554 1,706 $ 6,549
</TABLE>
- ------------------
(1) All bonuses reported were earned under Park National's incentive
bonus plan. The amount of bonus reported for each executive officer for 1999
reflects the amount of bonus determined and paid for the 1999 fiscal year as of
the date of this proxy statement/prospectus.
(2) These numbers represent options for Park National common shares
granted under the 1995 incentive stock option plan. Each number has been
adjusted to reflect a 5% share dividend distributed on December 15, 1999. See
the table under "Grants of Options" immediately following this section for more
detailed information on these options.
(3) Mr. McConnell stepped down from his positions as Chief Executive
Officer of Park National and Park National Bank and Mr. DeLawder assumed those
positions effective January 1999. Mr. Bowers became Executive Vice President of
Park National Bank in January 1999.
(4) "All Other Compensation" in 1999 for Messrs. McConnell, DeLawder
and Bowers includes (a) the amounts of $7,065, $2,150 and $2,236, respectively,
representing 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 equal to approximately two times the named executive officer's
highest annual total compensation during his employment with Park National Bank;
(b) the amounts of $1,000, $5,000 and $5,000, respectively, representing
contributions to the Park National 401(k) plan on their behalf to match 1999
pre-tax elective deferral contributions (included in "Salary") made by each
executive officer to the Park National 401(k) plan; and (c) the amounts of
$3,139, $1,341 and $1,086, respectively, representing the amount of the premium
deemed to have been paid on behalf of each executive officer under the life
insurance policy which funds that officer's account under the SERP.
45
<PAGE> 51
Grants of Options
The following table summarizes information concerning individual grants
of options made during the 1999 fiscal year to each of the executive officers of
Park National. Park National has never granted stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of Percent of Potential Realizable
Park National Total Value at Assumed
Common Shares Options Annual Rates of Share
Underlying Granted to Exercise Price Appreciation
Options Employees in Price Expiration for Option Term (1)
Name Granted Fiscal Year ($/Share) Date 5% 10%
---- ------- ----------- --------- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
William T. McConnell 0 -- -- -- -- --
C. Daniel DeLawder 1,050 (2)(3) 1.47% $90.48 (2) 5/11/04 $26,250 $58,002
David C. Bowers 0 -- -- -- -- --
</TABLE>
- -----------------
(1) The amounts reflected in this table represent the specified assumed
rates of appreciation only and have been rounded to the nearest whole dollar.
Actual realized values, if any, on an option exercise will be dependent on the
actual appreciation of the Park National common shares over the term of the
option. There can be no assurances that the potential realizable values
reflected in this table will be achieved.
(2) This option was granted under the 1995 incentive stock option plan
as an original option and was fully exercisable as of the grant date (May 11,
1999). The number of Park National common shares underlying the option and the
exercise price have been adjusted to reflect the 5% share dividend distributed
by Park National on December 15, 1999.
(3) Upon the exercise of an option, the executive committee which
administers the 1995 incentive stock option plan will automatically grant a new
reload option covering the same number of Park National common shares as were
the subject of the exercise; however, 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 the original option covering, with respect to all reload
options granted in that one year, more than the number of Park National common
shares which were subject to the original option on the date of grant of the
original option; and (b) will be granted a reload option covering only that
number of common shares which will allow the reload option and any other
outstanding options granted to the optionee under the 1995 incentive stock
option plan to qualify as incentive stock options under Section 422 of the
Internal Revenue Code. If an option is exercised on or after the optionee's
termination of employment, no reload options will be granted in connection with
the exercise. If an optionee's employment terminates due to his retirement, his
options may thereafter be exercised in full for a period of three months,
subject to the stated term of the options. If an optionee's employment
terminates due to his 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 an optionee's employment is terminated for any other reason, his
options are forfeited.
46
<PAGE> 52
Option Exercises and Holdings
The following table summarizes information concerning unexercised
options held as of the end of the 1999 fiscal year by each of the executive
officers of Park National. No executive officer exercised options during the
1999 fiscal year.
<TABLE>
<CAPTION>
AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Park National
Common Shares Value of Unexercised
Underlying Unexercised In-the-Money
Options At FY-End(#) Options At FY-End($)(1)
--------------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William T. McConnell 0 0 -- --
C. Daniel DeLawder 5,991 (2) 0 $189,206 (2) --
David C. Bowers 4,200 (2) 0 $151,513 (2) --
</TABLE>
- ---------------
(1) "Value of Unexercised In-the-Money Options at FY-End" is based upon
the fair market value of the Park National common shares on December 31, 1999
($96.00) less the exercise price of in-the-money options at the end of the 1999
fiscal year; and has been rounded to the nearest whole dollar.
(2) These numbers have been adjusted to reflect the 5% share dividend
distributed by Park National on December 15, 1999.
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, 1999 under the Park National pension plan based on compensation that
is covered under the Park National pension plan, years of service with Park
National and its subsidiaries and payment in the form of a 10-year certain and
life annuity:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Estimated Annual Pension Benefits (rounded to nearest $100)(1)
--------------------------------------------------------------
Based On Years of Credited Service Indicated
--------------------------------------------
Annualized
Average Years of Credited Service
Monthly --------------------------------------------------------------------------------
Compensation 10 15 20 25 30 35 or more
------------ --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $11,600 $17,400 $23,200 $29,000 $34,000 $39,700
125,000 14,600 21,800 29,100 36,400 43,700 51,000
150,000 17,900 26,700 35,600 44,400 53,300 62,200
160,000 19,100 28,600 38,100 47,700 57,200 66,700
and more
</TABLE>
47
<PAGE> 53
- -----------------
(1) Applicable provisions of the Internal Revenue Code currently limit
the amount of annual compensation used to determine plan benefits under a
defined benefit pension plan, such as the Park National pension plan, and the
amount of plan benefits payable annually under such a plan. The Park National
pension plan is operated in compliance with those provisions.
The Park National pension plan covers employees of Park National, Park
National Bank (both the Park National Division and the Fairfield National
Division), Richland Trust, Century National Bank, First-Knox National Bank (both
the First-Knox National Division and the Farmers and Savings Division) and
Guardian Financial who have attained age 21 and completed one year of credited
service. The Park National pension plan is funded and noncontributory.
A participant's "average monthly compensation" for purposes of the Park
National pension plan is based upon an amount equal to the total compensation
paid by Park National 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 projected "annualized average monthly compensation" as of
the October 1, 1999 anniversary of the Park National pension plan was $160,000
for each of Messrs. McConnell, DeLawder and Bowers. Messrs. McConnell, DeLawder
and Bowers had approximately 39, 28 and 13 years of credited service,
respectively, under the Park National pension plan as of October 1, 1999.
Benefits under the Park National pension plan become fully vested upon
five years of credited service. The Park National 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 National 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
these benefits being reduced by 1/420th for each month of credited service less
than 420 months at normal retirement date. The Park National 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 these 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 National
pension plan are not subject to any deduction for Social Security benefits.
Benefits payable under the Park National pension plan are adjusted for
retirement before normal retirement date. The normal form of payment of
retirement benefits under the Park National pension plan will be a life annuity
with 120 monthly payments guaranteed. Various other payment options are
available under the Park National pension plan.
Park National adopted the Park National SERP in December 1996. The Park
National SERP currently benefits 29 officers of Park National and its
subsidiaries. The Park National SERP is a non-qualified benefit plan designed to
restore benefits lost due to limitations under the Internal Revenue Code on the
amount of compensation covered by and the benefits payable under a defined
benefit plan. Park National has purchased life insurance contracts to fund the
Park National SERP. The Park National 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 National SERP also provides a life
insurance benefit for officers of Park National and its subsidiaries
participating in the Park National 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 National
during the life of each officer.
COMPENSATION OF DIRECTORS
Each director of Park National who is not an employee of Park National
or one of its subsidiaries receives as fees an annual retainer (which was paid
in the form of 100 Park National common shares for the 1999 fiscal year), $750
for each meeting of the Park National board of directors attended, and $200 for
each meeting of a committee of the Park National board of directors attended. If
the date of a meeting of the Park National board of directors is changed from
that provided for by resolution of the Park National board of directors and a
non-employee director is unable to attend the 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
board of directors since they are employees of one of the subsidiaries of Park
National.
48
<PAGE> 54
Park National and its subsidiaries maintain a life insurance policy
with a death benefit of $100,000 on behalf of each director of Park National who
is not an executive officer of Park National or one of its subsidiaries. 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 National
and its subsidiaries maintain on behalf of each director who is an executive
officer of Park National or one of its subsidiaries, in his capacity as an
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 National 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's policy remains in effect following his
retirement as long as specified conditions are met.
TRANSACTIONS INVOLVING MANAGEMENT
As discussed more fully in the section entitled "Management of Park
National -- Compensation Committee Interlocks and Insider Participation" on page
44, during each of Park National's last three fiscal years, Park National and
its subsidiaries have purchased insurance through Dawson, Coleman & Wallace (and
its predecessor W. A. Wallace Co.) for which John L. Warner, a director of Park
National, serves as an agent.
J. Gilbert Reese, a director of Park National, is senior partner in the
law firm of Reese, Pyle, Drake & Meyer, P.L.L. which rendered legal services to
certain of Park National's subsidiaries during each of Park National's last
three fiscal years and continues to do so.
R. William Geyer, a director of Park National, is a partner in the law
firm of Kincaid, Taylor and Geyer which rendered legal services to certain of
Park National's subsidiaries during each of Park National's last three fiscal
years and continues to do so.
James J. Cullers, a director of Park National, is senior partner in the
law firm of Zelkowitz, Barry & Cullers which rendered legal services to certain
of Park National's subsidiaries during each of Park National's last three fiscal
years and continues to do so.
Directors and executive officers of Park National, members of their
immediate families and corporations or organizations with which they are
affiliated had banking transactions with Park National Bank (both the Park
National Division and the Fairfield National Division), Richland Trust, Century
National Bank and First-Knox National Bank (both the First-Knox National
Division and the Farmers and Savings Division), in the ordinary course of their
respective businesses during the last three fiscal years. Park National expects
that similar banking transactions will be entered into in the future. Loans to
these 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 unaffiliated persons. These loans have been
subject to and are presently subject to no more than a normal risk of
uncollectibility and present no other unfavorable features. The aggregate amount
of loans to the 17 directors and executive officers of Park National and their
associates as a group at December 31, 1999 was approximately $21,710,000. In
addition, loans to the directors and executive officers of Park National's
subsidiaries, who are not also directors or executive officers of Park National,
totaled $31,028,000 at December 31, 1999. The aggregate amount of loans to the
directors and executive officers of Park National and their associates as a
group at December 31, 1998 was approximately $23,488,000. In addition, loans to
the directors and executive officers of Park National's subsidiaries, who were
not also directors or executive officers of Park National, totaled $21,591,000
at December 31, 1998. The aggregate amount of loans to the directors and
executive officers of Park National and their associates as a group at December
31, 1997 was approximately $20,880,000. In addition, loans to the directors and
executive officers of Park National's subsidiaries, who were not also directors
or executive officers of Park National, totaled $22,675,000 at December 31,
1997. As of the date of this proxy statement/prospectus, all of the outstanding
loans were performing loans.
49
<PAGE> 55
BUSINESS OF U.B. BANCSHARES
GENERAL
U.B. Bancshares was incorporated under the laws of the State of Ohio on
November 26, 1986, and is registered as a bank holding company under the Bank
Holding Company Act of 1956. U.B. Bancshares owns all of the voting common
shares of United Bank. United Bank is the only subsidiary of U.B. Bancshares,
and substantially all of U.B. Bancshares' operations are conducted through
United Bank. U.B. Bancshares, through United Bank, operates in one industry
segment, the commercial banking industry.
United Bank was formed on January 2, 1982 when The Crawford County
National Bank and The Bucyrus City Bank merged. These institutions were
chartered in 1859 and 1886, respectively, to serve the commercial banking needs
of Crawford County, Ohio.
Since 1986, U.B. Bancshares has pursued a growth strategy to increase
shareholders' return on investment. United Bank provides services in the State
of Ohio to Crawford, Marion and contiguous counties. In 1990, United Bank added
an office in Galion, Ohio, followed by two offices in Marion County in 1996 and
a loan production office in Marion County in 1997. In April 1998, United Bank
acquired two former National City Bank offices in Caledonia and Galion, Ohio.
The new Galion office was then consolidated with the existing Galion office. The
1998 acquisitions added approximately $42,000,000 to United Bank's deposits.
United Bank added a mortgage banking department in 1991 which has grown
to the point where during 1999, the department closed more than $21,000,000 in
real estate mortgage loans. Non-deposit investment services were introduced to
United Bank's market area in 1994 with the securities licensing of a United Bank
employee through a third-party broker/dealer.
United Bank offers a wide range of commercial and retail banking
services. Products are comprised of traditional bank services such as consumer
loans, commercial and individual real estate loans, agricultural, small and
medium sized business loans as well as personal loans. United Bank also offers
standard business and individual checking accounts, money market accounts,
savings accounts and certificates of deposit. United Bank has additional
services, such as credit cards, access cards, safe deposit boxes, drive-up
windows, wire transfers and night depositories. United Bank will operate as a
separate subsidiary of Park National following the merger.
U.B. Bancshares is subject to regulation by the Federal Reserve Board.
As a national bank, United Bank is supervised and regulated by the Office of the
Comptroller of the Currency.
United Bank operates six full service facilities located in Bucyrus
(main office), Crestline, Galion, Caledonia, Prospect and Waldo, Ohio. In
addition, it operates a loan production office in Marion, Ohio and a
drive-thru/loan processing center in Bucyrus, Ohio.
50
<PAGE> 56
MARKET PRICES
The U.B. Bancshares common shares are quoted on the over-the-counter
market under the symbol "UBBC.OB". The following table sets forth the high and
low bid and ask prices for the U.B. Bancshares common shares for the periods
indicated and the cash dividends per common share declared during those periods:
<TABLE>
<CAPTION>
SWENEY CARTWRIGHT & CO. (1) COMMUNITY BANC INVESTMENTS (1)
--------------------------- ------------------------------
CASH DIVIDEND
DECLARED
QUARTER ENDED HIGH BID LOW BID HIGH ASK LOW ASK HIGH BID LOW BID HIGH ASK LOW ASK
------------- -------- ------- -------- ------- -------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31, 1998 $39.00 $39.00 $40.00 $40.00 $40.00 $40.00 $41.00 $41.00 --
June 30, 1998 40.00 39.00 40.00 40.00 42.00 42.00 43.00 43.00 $.65
September 30, 1998 40.00 40.00 42.00 42.00 42.00 42.00 43.00 43.00 --
December 31, 1998 40.25 40.00 42.00 42.00 42.00 42.00 43.00 43.00 $.65
March 31, 1999 40.25 40.25 none quoted none 42.00 42.00 43.00 43.00 --
quoted
June 30, 1999 41.00 40.50 46.00 46.00 43.00 43.00 45.00 45.00 $.65
September 30, 1999 43.00 41.00 none quoted none 43.00 43.00 45.00 45.00 --
quoted
December 31, 1999 42.50 42.50 none quoted none 46.00 46.00 48.00 48.00 $.65
quoted
February 15, 2000 (2) -- -- -- -- -- -- -- -- --
</TABLE>
-----------------
(1) The bid and ask price quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and do not necessarily represent
actual transactions. No established public trading market exists for U.B.
Bancshares common shares.
(2) As of December 31, 1999, there were 576 shareholders of U.B.
Bancshares. The most recent bid and ask prices reported for a U.B. Bancshares
common share were reported for the quarter ended December 31, 1999. Since that
date, U.B. Bancshares has not received any additional bid or ask information
from either Sweney Cartwright & Co. or Community Banc Investments. In addition,
no ask price was provided by Sweney Cartwright & Co. after the quarter ended
June 30, 1999. The ask price quoted in "Summary -- The Merger -- Exchange of
Common Shares" on page 5 is the ask price provided by Community Banc
Investments, and the bid price quoted in that section is the average of the bid
prices provided by Sweney Cartwright & Co. and Community Banc Investments.
COMPARISON OF RIGHTS OF HOLDERS OF PARK NATIONAL COMMON SHARES
AND HOLDERS OF U.B. BANCSHARES COMMON SHARES
GENERAL
As a result of the merger, the holders of U.B. Bancshares common
shares, which are currently traded on the over-the-counter market under the
symbol "UBBC.OB", will become holders of Park National common shares, which are
listed on the American Stock Exchange under the symbol "PRK". Following the
merger, the Park National articles and regulations will govern the rights of
those shareholders. Both U.B. Bancshares and Park National are incorporated in
Ohio, so the Ohio General Corporation Law will continue to govern the rights of
U.B. Bancshares shareholders after the merger.
There are certain differences between the rights of holders of the Park
National common shares and the rights of holders of U.B. Bancshares common
shares arising from the distinctions between the Park National articles and
regulations and the U.B. Bancshares articles. U.B. Bancshares has no
regulations; however, its board of directors has adopted bylaws. The rights of
holders of Park National common shares and those of holders of U.B. Bancshares
common shares are similar in many material respects. The differences are
addressed below.
51
<PAGE> 57
BOARD OF DIRECTORS
General. The Park National regulations provide for a board of directors
consisting of not more than sixteen and not less than five directors. Park
National currently has sixteen directors. The regulations divide Park National's
board of directors into three classes with staggered terms whereby one class is
elected each year for a three-year term.
Classification of directors makes it more difficult for shareholders to
change the composition of the board of directors. Generally, two annual
meetings, instead of one, are required to change the composition of more than
one-half of the board of directors. Should a shareholder attempt to force a
proxy contest, a tender or exchange offer or other extraordinary corporate
transaction, this classification and extra time period would allow the board
sufficient time to review the proposal as well as any available alternatives in
order to act in what it believes to be the best interests of the shareholders.
However, the classification provisions may also discourage a third party from
starting a proxy contest, making a tender offer or otherwise attempting to
obtain control of Park National. As a result, Park National may miss an
opportunity to enter into a transaction that could be beneficial to Park
National or its shareholders.
The U.B. Bancshares bylaws provide for a board of directors consisting
of not less than five and no more than twenty-five directors. U.B. Bancshares
currently has thirteen directors. The U.B. Bancshares board of directors is not
classified.
Under the Park National regulations, there are two ways to change the
number of directors. The number of directors can be changed by the affirmative
vote of the holders of a majority of the shares represented in person or by
proxy at any shareholder meeting to change the number of directors or by a
majority of the Park National directors then in office. In the case of a change
approved by the directors, the size of the board can only be changed by a
maximum of two directors during any year and cannot exceed sixteen.
Under the U.B. Bancshares bylaws, the number of directors may also be
changed by either the shareholders or the directors. The shareholders may change
the size of the board of directors by a resolution approved by a majority of
shares voted at any meeting called for the purpose of electing directors and the
directors may change the number of directors by a resolution of the majority of
the full U.B. Bancshares board of directors. If the number of directors then on
the board is sixteen or more, the board may not increase the number of
directors.
Nominations. Park National's regulations provide that shareholder
nominations for election to Park National's board of directors must be made in
writing and must be delivered or mailed to the president of Park National not
less than fourteen days nor more than fifty days prior to any meeting of
shareholders called for the election of directors. However, if Park National
gives less than twenty-one days' notice of the meeting to its shareholders, the
nomination must be mailed or delivered to the president of Park National not
later than the close of business on the seventh day following the day on which
Park National mailed the notice of the meeting. The notification must contain
the following information to the extent known by the notifying shareholder:
- the name and address of each proposed nominee;
- the principal occupation of each proposed nominee;
- the total number of Park National common shares that will be voted
for each proposed nominee;
- the name and residence address of the notifying shareholder; and
- the number of Park National common shares beneficially owned by the
notifying shareholder.
Park National will disregard any nominations which the chairman of the meeting
determines are not made in accordance with Park National's regulations.
52
<PAGE> 58
The U.B. Bancshares bylaws provide that nominations for U.B.
Bancshares' board of directors may be made by the board of directors or any
shareholder entitled to vote for the election of directors. Nominations by
shareholders must be in writing and be delivered or mailed to the U.B.
Bancshares president under the same time frame as Park National nominations,
however, in addition to a nomination being mailed or delivered to the president
of U.B. Bancshares, the nomination must also be mailed or delivered to the
Federal Reserve Board.
Removal. The holders of a majority of the voting power of Park National
entitled to elect directors may remove a director with or without cause. Unless
all directors are removed, however, no individual director may be removed if the
votes of a sufficient number of shares are cast against his removal that, if
cumulatively voted at an election of all of the directors or all of the
directors of a particular class, would be sufficient to elect at least one
director.
The U.B. Bancshares articles and bylaws do not include provisions
limiting the removal of directors. As a result of this omission, the Ohio
General Corporation Law governs the removal of U.B. Bancshares directors. Under
the statute, a director may be removed as follows:
- by the other directors if:
- he has been found to be of unsound mind;
- he is adjudicated bankrupt; or
- within 60 days from the date of his election, he does not
qualify by accepting in writing his election or by acting at a
meeting of the board of directors; or
- by a vote of the shareholders holding a majority of the voting
power entitled to elect a director.
Vacancies. Under the Park National regulations, the Park National
directors then in office (even if less than a quorum) may fill vacancies in the
board of directors or newly created directorships. Any Park National director
chosen to fill a vacancy will serve until the next election of the class for
which such director was chosen and until his or her successor is elected and
qualified.
Under the U.B. Bancshares bylaws, the remaining directors may fill any
vacancy in the board of directors at any regular meeting or at a special meeting
called for that purpose. Any U.B. Bancshares director chosen to fill a vacancy
will serve the remainder of the unexpired term of the directorship.
VOTING RIGHTS
Cumulative Voting. The holders of Park National common shares have the
right to cumulate votes in the election of directors. With cumulative voting, it
is possible for the holders of a minority of the Park National common shares to
elect one or more directors to the Park National board of directors, even though
the holders of a majority of the Park National common shares oppose the election
of such director(s) to the board of directors. The absence of cumulative voting
eliminates the ability of a minority of the shareholders of a corporation to
elect one or more directors to that corporation's board or directors and allows
the holders of a majority of the shares of that corporation to elect each of the
directors.
Neither the U.B. Bancshares articles nor bylaws alter the rights of the
holders of U.B. Bancshares common shares to cumulatively vote their common
shares.
Special Voting Requirements. The Park National articles contain special
voting requirements that may be deemed to have anti-takeover effects. These
voting requirements are described in Article Eighth and apply when any of the
following actions are contemplated:
- any merger or consolidation of Park National with a beneficial
owner of 20% or more of the voting power of Park National or an
affiliate or associate of that 20% beneficial owner;
53
<PAGE> 59
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of at least 10% of the total assets of Park National
to or with a 20% beneficial owner or its affiliates or associates;
- any merger of Park National or one of its subsidiaries with a 20%
beneficial owner or its affiliates or associates;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to Park National of all or any part of the assets of a
20% beneficial owner (or its affiliates or associates), excluding
any disposition which, if included with all other dispositions
consummated during the fiscal year by the 20% beneficial owner or
its affiliates or associates, would not result in dispositions
having an aggregate fair value in excess of 1% of the total
consolidated assets of Park National, unless all such dispositions
by the 20% beneficial owner or its affiliates or associates during
the same and four preceding fiscal years would result in
disposition of assets in excess of 2% of the total consolidated
assets of Park National;
- any reclassification of Park National common shares or any
recapitalization involving the common shares of Park National
consummated within five years after a 20% beneficial owner becomes
such; and
- any amendment to Article Eighth of the Park National articles.
Because the Park National articles do not provide any voting
requirements for amending the articles other than Article Eighth, the General
Corporation Law of Ohio applies. Under the Ohio General Corporation Law, the
affirmative vote of at least two-thirds of the voting power of Park National is
required to amend the provisions of the Park National articles other than
Article Eighth.
The enlarged majority vote required when Article Eighth applies is the
greater of:
- four-fifths (4/5) of the outstanding Park National common shares
entitled to vote on the proposed business combination, or
- that fraction of the outstanding Park National common shares
having:
- as the numerator a number equal to the sum of:
- the number of Park National common shares beneficially
owned by the 20% beneficial owner (and its affiliates
and associates), plus
- two-thirds (2/3) of the remaining number of Park
National common shares outstanding,
- and as the denominator, a number equal to the total number of
outstanding Park National common shares entitled to vote.
Article Eighth does not apply where (1) the shareholders who do not
vote in favor of the transaction and whose proprietary interest will be
terminated in connection with a transaction are paid a "minimum price per share"
and (2) a proxy statement satisfying the requirements of the Exchange Act is
mailed to the Park National shareholders for the purpose of soliciting
shareholder approval of the transaction. If the price criteria and procedural
requirements are satisfied, the approval of a business combination would require
only that affirmative vote (if any) required by law or by the Park National
articles or regulations.
Neither the U.B. Bancshares articles nor bylaws provide for any special
voting requirements; therefore, the General Corporate Law of Ohio governs. Under
Ohio law, the affirmative vote of holders of at least two-thirds of the voting
power of U.B. Bancshares is required to approve any merger, business combination
or similar transaction involving U.B. Bancshares or to amend the U.B. Bancshares
articles.
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Amendments of Regulations. The Park National regulations may be amended
by the affirmative vote of two-thirds of the voting power of Park National at a
meeting held for that purpose or without a meeting by the written consent of
two-thirds of the voting power of Park National. The U.B. Bancshares bylaws may
be amended at any regular meeting of the board of directors by a vote of a
majority of the total number of the directors.
Calling of Special Meeting. Under the Park National regulations,
meetings of shareholders may be called by the chairman of the board of
directors; the president; or, in case of the president's absence, death, or
disability, the vice-president authorized to exercise the authority of the
president; the secretary; a majority of the board of directors at a meeting or
acting without a meeting; or the holders of at least 25% of the voting power of
Park National.
Under the U.B. Bancshares bylaws, the board of directors, or three or
more shareholders, holding in the aggregate at least 25% of the voting power of
U.B. Bancshares, may call a special meeting of shareholders.
PREEMPTIVE RIGHTS
The shareholders of Park National have preemptive rights under
specified circumstances. A preemptive right allows a shareholder to maintain a
proportionate share of ownership by purchasing shares of any new share issuance.
The purpose of the right is to protect shareholders from dilution of value and
control when new shares are issued.
On the offering or sale of any shares of Park National, on reasonable
terms fixed by the Park National board of directors, shareholders of the same
class of shares have the right to purchase additional shares in proportion to
their respective share holdings at the price fixed for the sale of the shares.
This right does not exist where:
- the shares offered or sold are treasury shares;
- the shares offered or sold are issued as a share dividend or
distribution;
- the shares are offered or sold in connection with any merger or
consolidation to which Park National is a party or any acquisition
of, or investment in, another business entity or its assets by
Park National;
- the shares are offered or sold under the terms of a stock option
plan or other employee benefit plan approved by the holders of
three-fourths of the outstanding Park National common shares; or
- 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 preemptive rights.
Neither the U.B. Bancshares articles nor bylaws alter the rights of
U.B. Bancshares shareholders with respect to preemptive rights that are provided
under the Ohio General Corporation Law.
DIVIDENDS
As Ohio corporations, U.B. Bancshares and Park National, may, in the
discretion of their respective boards of directors, generally pay dividends to
their shareholders provided that the dividends do not exceed the surplus of the
relevant corporation. However if either corporation pays a dividend out of
capital surplus, it must notify its shareholders to that effect.
The ability of Park National and U.B. Bancshares to obtain funds for
the payment of dividends and for other cash requirements largely depends on the
amount of dividends which may be declared by their subsidiaries. In addition,
the Federal Reserve Board expects each of Park National and U.B. Bancshares to
serve as a source of strength to its subsidiary banks, which may require it to
retain capital for further investments in its subsidiary banks, rather than pay
dividends to its shareholders. For more information, see "Regulation of
Financial Institutions -- Limits on Dividends and Other Payments" on page 63.
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ANTI-TAKEOVER STATUTES
Ohio Control Share Acquisition Act. Section 1701.831 of the Ohio
Revised Code or 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 directors within any of the following
ranges:
- one-fifth or more but less than one-third of the voting power;
- one-third or more but less than a majority of the voting power; or
- a majority or more of the voting power.
An "issuing public corporation" is 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 at which at least a majority
of the voting power is represented in person or by proxy, the acquisition is
approved by both:
- a majority of the voting power of the corporation represented in
person or by proxy at the meeting, and
- a majority of the voting power at the meeting exercised by
shareholders, excluding:
- the acquiring shareholder,
- directors of the corporation who are also employees and
officers, and
- persons who acquire specified amounts of shares after the
first public disclosure of the proposed control share
acquisition.
The Ohio Control Share Acquisition Act does not apply to a corporation
whose articles or regulations so provide. The Ohio Control Share Acquisition Act
applies to U.B. Bancshares since it has not taken any corporate action to opt
out of it. Park National 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
or 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 (1) the transaction or (2) 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.
For three years after a person becomes an interested shareholder, the
following transactions between the corporation and the interested shareholder or
persons related to such shareholder are prohibited:
- the sale or acquisition of any interest in assets,
- mergers and similar transactions,
- a voluntary dissolution,
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- the issuance or transfer of shares or any rights to acquire shares
in excess of 5% of the corporation's outstanding shares,
- a transaction that increases the interested shareholder's
proportionate ownership of the corporation, and
- any other benefit that is not shared proportionately by all
shareholders.
After the three-year period, transactions between the corporation and
the interested shareholder are permitted if:
- the transaction is approved by the holders of shares with at least
66 2/3% of the voting power of the corporation (or a different
proportion specified in the corporation's articles), including at
least a majority of the outstanding shares after excluding shares
controlled by the interested shareholder, or
- the business combination results in shareholders, other than the
interested shareholder, receiving a "fair price" for their shares
determined by the method described in Section 1704.03(A)(4).
A corporation may elect not to be covered by the Ohio Merger Moratorium
Statute by the adoption of an appropriate amendment to its articles. The Ohio
Merger Moratorium Statute applies to U.B. Bancshares since it has not taken any
corporate action to opt out of it. Park National has opted out of the Ohio
Merger Moratorium Statute in its articles.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Park National. The Park National regulations provide that Park National
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 National
or, at the request of Park National, 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 National. With regard to
criminal matters, directors and officers will be similarly indemnified by Park
National 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 National and, with respect to any
criminal matter, to have had no reasonable cause to believe their conduct was
unlawful.
Park National will not indemnify any officer or director of Park
National who was a party to any completed action or suit instituted by (or in
the right of) Park National for any matter asserted in the 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 National or misconduct (other than
negligence) in the performance of his or her duty to Park National. However, if
the court in which the action was brought determines that the officer or
director is fairly and reasonably entitled to be indemnified, Park National must
indemnify that officer or director to the extent permitted by the court.
Any indemnification not precluded by Park National's regulations will
be made by Park National only upon a determination that the director or officer
has met the applicable standard of conduct. That determination may be made only:
- by a majority vote of a quorum of disinterested directors,
- 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,
- by the shareholders, or
- by the court, if any, in which the action was brought.
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Expenses incurred in defending any action, suit or proceeding will be paid by
Park National 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 National.
The Park National regulations state that the indemnification provided
by the regulations is not exclusive of any other rights to which any person
seeking indemnification may be entitled. Additionally, the Park National
regulations provide that Park National may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
Park National, or who is or was serving another entity at the request of Park
National, 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 National would have the obligation or power to indemnify him or her
under the Park National regulations. Park National has purchased and maintains
those policies.
U.B. Bancshares. The U.B. Bancshares articles provide that U.B.
Bancshares will indemnify, to the full extent permitted by the laws of the State
of Ohio, any director or officer and any former director or officer of U.B.
Bancshares for any costs or expenses incurred by him in his capacity, or arising
out of his status, as a director, officer, or trustee of U.B. Bancshares. U.B.
Bancshares has purchased a liability insurance policy insuring directors and
officers against liabilities that may be incurred by them in their capacities as
directors and officers of U.B. Bancshares.
Under the terms of the merger agreement, Park National has agreed to
indemnify the present officers and directors of U.B. Bancshares to the full
extent required under Ohio law and the U.B. Bancshares articles. In addition,
for a three-year period from the date of the merger, Park National will maintain
directors' and officers' liability insurance policies covering the officers and
directors of U.B. Bancshares so long as the cost does not exceed 300% of the
current premiums paid by U.B. Bancshares for its directors' and officers'
liability insurance policies. For more information, see "The Merger Agreement -
Costs and Expenses; Indemnification" on page 37.
REGULATION OF FINANCIAL INSTITUTIONS
Park National and U.B. Bancshares, as bank holding companies, are
regulated extensively under federal law. United Bank, Park National Bank,
Century National Bank and First-Knox National Bank, as national banks, and
Richland Trust, as an Ohio state-chartered bank, are regulated extensively under
federal and state law. Guardian Financial, as an Ohio state-chartered consumer
finance company, is regulated under state law. Park National and U.B. Bancshares
are subject to regulation, supervision and examination by the Federal Reserve
Board. United Bank, Park National Bank, Century National Bank and First-Knox
National Bank are subject to regulation by the Office of the Comptroller of
Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC). Richland
Trust is subject to regulation, supervision and examination by the Ohio Division
of Financial Institutions and the FDIC and Guardian Financial is subject to
regulation, supervision and examination by the Ohio Division of Financial
Institutions.
The following information describes selected federal and Ohio statutory
and regulatory provisions and is qualified in its entirety by reference to the
full text of the particular statutory or regulatory provisions. These statutes
and regulations are continually under review by Congress and state legislatures
and federal and state regulatory agencies. A change in statutes, regulations or
regulatory policies applicable to Park National, U.B. Bancshares and their
respective subsidiaries could have a material effect on their respective
businesses.
REGULATION OF BANK HOLDING COMPANIES
Park National and U.B. Bancshares are registered with the Federal
Reserve Board as bank holding companies under the Bank Holding Company Act of
1956. Bank holding companies and their activities are subject to extensive
regulation by the Federal Reserve Board. Bank holding companies are required to
file reports with the Federal Reserve Board and such additional information as
the Federal Reserve Board may require, and are subject to regular examinations
by the Federal Reserve Board. The Federal Reserve Board also has extensive
enforcement authority over bank holding companies, including, among other
things:
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- the ability to assess civil money penalties,
- to issue cease and desist or removal orders, and
- to require that a holding company divest subsidiaries (including
its bank subsidiaries).
In general, the Federal Reserve Board may initiate enforcement actions for
violations of law and regulations and unsafe or unsound practices.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support those subsidiary banks. Under this policy, the Federal
Reserve Board may require a bank holding company to contribute additional
capital to an undercapitalized subsidiary bank.
The Bank Holding Company Act requires the prior approval of the Federal
Reserve Board in any case where a bank holding company proposes to:
- acquire direct or indirect ownership or control of more than 5% of
the voting shares of any bank that is not already majority-owned
by it,
- acquire all or substantially all of the assets of another bank or
bank holding company, or
- merge or consolidate with any other bank holding company.
Section 4 of the Bank Holding Company Act also prohibits a bank holding
company, with certain exceptions, from acquiring more than 5% of the voting
shares of any company that is not a bank and from engaging in any business other
than banking or managing or controlling banks. The primary exception allows the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks that ownership of shares of that
company is appropriate. The Federal Reserve Board has by regulation determined
that certain activities are closely related to banking within the meaning of the
Bank Holding Company Act. These activities include:
- operating a savings association, mortgage company, finance
company, credit card company or factoring company;
- performing certain data processing operations;
- providing investment and financial advice; and
- acting as an insurance agent for certain types of credit-related
insurance.
Effective March 11, 2000, subject to certain conditions, bank holding
companies that elect to become financial holding companies may affiliate with
securities firms and insurance companies and engage in other activities that are
financial in nature. Also effective March 11, 2000, no regulatory approval is
required for a financial holding company to acquire a company, other than a bank
or savings association, engaged in activities that are financial in nature or
incidental to activities that are financial in nature, as determined by the
Federal Reserve Board. For more information, see "Regulation of Financial
Institutions - Financial Services Modernization Act of 1999" on page 64.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on maintenance of reserves
against deposits, extensions of credit to the bank holding company or any of its
subsidiaries, on investments in the stock or other securities of the bank
holding company or its subsidiaries and on the taking of such stock or
securities as collateral for loans to any borrower. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of
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credit, lease or sale of property or furnishing of any services. Various
consumer laws and regulations also affect the operations of these subsidiaries.
TRANSACTIONS WITH AFFILIATES
Sections 23A and 23B of the Federal Reserve Act restrict transactions
by banks and their subsidiaries with their affiliates. An affiliate of a bank is
any company or entity which controls, is controlled by or is under common
control with the bank. Generally, Sections 23A and 23B (1) limit the extent to
which a bank or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of that bank's capital stock and surplus
(i.e., tangible capital) and (2) require that all such transactions be on terms
substantially the same, or at least as favorable to the bank or subsidiary, as
those provided to a non-affiliate. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of a guarantee and other similar
types of transactions.
A bank's authority to extend credit to executive officers, directors
and greater than 10% shareholders, as well as entities such persons control, is
subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated thereunder by the Federal Reserve Board. Among other things, these
loans must be made on terms substantially the same as those offered to
unaffiliated individuals, the amount of loans a bank may make to these persons
is based, in part, on the bank's capital position, and specified approval
procedures must be followed in making loans which exceed specified amounts.
REGULATION OF NATIONALLY-CHARTERED BANKS
As national banking associations, United Bank, Park National Bank,
Century National Bank and First-Knox National Bank are subject to regulation
under the National Banking Act and are periodically examined by the OCC. They
are subject, as member banks, to the rules and regulations of the Federal
Reserve Board. Each is an insured institution. United Bank, Park National Bank
and First-Knox National Bank are members of the Bank Insurance Fund, and Century
National Bank is a member of the Savings Association Insurance Fund. As a
result, they are subject to regulation by the FDIC. The establishment of
branches of each of United Bank, Park National Bank, Century National Bank and
First-Knox National Bank is subject to prior approval of the OCC.
REGULATION OF OHIO STATE-CHARTERED BANKS AND CONSUMER FINANCE COMPANIES
The FDIC is the primary federal regulator of Richland Trust. The FDIC
issues regulations governing the operations of Richland Trust and examines
Richland Trust. The FDIC may initiate enforcement actions against insured
depository institutions and persons affiliated with them for violations of laws
and regulations or for engaging in unsafe or unsound practices. If the grounds
provided by law exist, the FDIC may appoint a conservator or a receiver for a
nonmember bank.
As a bank incorporated under Ohio law, Richland Trust is subject to
regulation and supervision by the Ohio Division of Financial Institutions.
Division regulation and supervision affects the internal organization of
Richland Trust, as well as its savings, mortgage lending and other investment
activities. The Division of Financial Institutions may initiate supervisory
measures or formal enforcement actions against Ohio commercial banks.
Ultimately, if the grounds provided by law exist, the Division of Financial
Institutions may place an Ohio bank in conservatorship or receivership. Whenever
the Superintendent of Financial Institutions considers it necessary or
appropriate, the Superintendent may also examine the affairs of any holding
company or any affiliate or subsidiary of an Ohio bank.
As a consumer finance company incorporated under Ohio law, Guardian
Financial is also subject to regulation and supervision by the Division of
Financial Institutions. Division regulation and supervision affects the lending
activities of Guardian Financial. If grounds provided by law exist, the Division
of Financial Institutions may suspend or revoke an Ohio consumer finance
company's ability to make loans.
FEDERAL DEPOSIT INSURANCE CORPORATION
The FDIC is an independent federal agency which insures the deposits,
up to prescribed statutory limits, of federally-insured banks and savings
associations and safeguards the safety and soundness of the financial
institution industry. Two separate insurance funds are maintained and
administered by the FDIC. In general, banking
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institutions are members of the "BIF" and savings associations are "SAIF"
members. The insurance fund conversion provisions do not prohibit a SAIF member
from either converting to a bank charter, as long as the resulting bank remains
a SAIF member (as Century National Bank did when it converted to a national bank
charter in April 1998), or merging with a bank, as long as the bank continues to
pay the SAIF insurance assessments on the deposits acquired. Exit and entrance
fees must be paid to the FDIC in full conversions.
Insurance Premiums. Insurance premiums for SAIF and BIF members are
determined during each semi-annual assessment period based upon the members'
respective categorization as either (1) well capitalized, (2) adequately
capitalized or (3) undercapitalized. The FDIC assigns banks to one of three
supervisory subgroups within each capital group. The supervisory subgroup to
which a bank is assigned is based on a supervisory evaluation provided to the
FDIC by the bank's primary federal regulator and information which the FDIC
determines to be relevant to the bank's financial condition and the risk posed
to the deposit insurance funds (which may include, if applicable, information
provided by the bank's state supervisor). A bank's assessment rate depends on
the capital category and supervisory category to which it is assigned.
Effective January 1, 2000, the BIF assessment rate and the SAIF
assessment rate became the same. This assessment (which includes the FICO
assessment) currently ranges from 2.12 to 29.12 cents per $100 of domestic
deposits. An increase in this assessment rate could have a material adverse
effect on the earnings of the affected banks, depending on the amount of the
increase.
Insurance of deposits may be terminated by the FDIC upon a finding that
the institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition enacted or imposed by the bank's regulatory
agency.
Depositor Preference. The Federal Deposit Insurance Act provides that,
in the event of the "liquidation or other resolution" of a bank, the claims of
depositors of the bank, including the claims of the FDIC as subrogee of insured
depositors, and certain claims for administrative expenses of the FDIC as a
receiver will have priority over other general unsecured claims against the
bank. If a bank fails, insured and uninsured depositors, along with the FDIC,
will have priority in payment ahead of unsecured, nondeposit creditors.
Liability of Commonly Controlled Banks. Under the Federal Deposit
Insurance Act, a bank is generally liable for any loss incurred, or reasonably
expected to be incurred, by the FDIC in connection with (a) the default of a
commonly controlled bank or (b) any assistance provided by the FDIC to a
commonly controlled bank in danger of default. "Default" means generally the
appointment of a conservator or receiver. "In danger of default" means generally
the existence of conditions indicating that a default is likely to occur in the
absence of regulatory assistance.
REGULATORY CAPITAL
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies and state member banks. The OCC and the FDIC have each
also adopted risk-based capital guidelines for national banks and state
non-member banks, respectively. The guidelines provide a systematic analytical
framework which makes regulatory capital requirements sensitive to differences
in risk profiles among banking organizations, takes off-balance sheet exposures
expressly into account in evaluating capital adequacy, and minimizes
disincentives to holding liquid, low-risk assets. Capital levels as measured by
these standards also are used to categorize financial institutions for purposes
of certain prompt corrective action regulatory provisions.
The minimum guideline for the ratio of total capital to risk-weighted
assets (including certain off-balance sheet items such as standby letters of
credit) is 8%. This total risk-based capital ratio must be at least 10% for a
bank holding company to be considered well capitalized. At least half of the
minimum total risk-based capital ratio (4%) must be composed of common
shareholders' equity, minority interests in the equity accounts of consolidated
subsidiaries, a limited amount of qualifying preferred stock, less goodwill and
certain other deductions, including the unrealized net gains and losses, after
applicable taxes, on available-for-sale securities carried at fair value
(commonly known as "Tier 1" risk-based capital). To be considered well
capitalized, the Tier 1 risk-based capital ratio must be at least 6%. The
remainder of total risk-based capital (commonly known as "Tier 2" risk-based
capital) may consist of mandatory convertible debt, subordinated debt, preferred
stock not qualifying as Tier 1
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capital, a limited amount of the loan and lease loss allowance and net
unrealized gains, after applicable taxes, on available-for-sale equity
securities with readily determinable fair values, subject to limitations
established by the guidelines.
Under the guidelines, capital is compared to the relative risk related
to the balance sheet. To derive the risk included in the balance sheet, one of
four risk weights (0%, 20%, 50% and 100%) is applied to different balance sheet
and off-balance sheet assets, primarily based on the relative credit risk of the
counterparty. For example, claims guaranteed by the U.S. government or one of
its agencies are risk-weighted at 0%. Off-balance sheet items, such as loan
commitments and derivative financial instruments, are also assigned one of the
above risk weights after calculating balance sheet equivalent amounts. For
example, certain loan commitments are converted at 50% and then risk-weighted at
100%. Derivative financial instruments are converted to balance sheet
equivalents based on notional values, replacement costs and remaining
contractual terms. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
The Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. The Federal Reserve Board guidelines
provide for a minimum ratio of Tier 1 risk-based capital to average assets
(excluding the loan and lease loss allowance, goodwill and certain other
intangibles), or "leverage ratio," of 3% for bank holding companies that meet
certain criteria, including having the highest regulatory rating. To be
considered well capitalized, the leverage ratio for a bank holding company must
be at least 5%. The guidelines further provide that bank holding companies
making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels. The OCC and the FDIC have each also
adopted minimum leverage ratio guidelines for national banks and for state
non-member banks, respectively.
Park National and U.B. Bancshares are in compliance with the current
applicable capital guideline ratios. As of December 31, 1999, Park National and
U.B. Bancshares had respective total risk-based capital ratios of 14.4% and
13.4%, Tier 1 risk-based capital ratios of 13.2% and 12.2% and leverage ratios
of 9.1% and 7.1%. Park National anticipates that it will continue to meet
current capital guideline ratios after the consummation of the merger. Park
National's management believes that each of its subsidiary banks is "well
capitalized" according to the guidelines described above, and U.B. Bancshares
believes that United Bank is "well capitalized" according to those guidelines.
FISCAL AND MONETARY POLICIES
The business and earnings of Park National and U.B. Bancshares are
affected significantly by the fiscal and monetary policies of the federal
government and its agencies. Park National and U.B. Bancshares are particularly
affected by the policies of the Federal Reserve Board, which regulates the
supply of money and credit in the United States. Among the instruments of
monetary policy available to the Federal Reserve Board are (a) conducting open
market operations in United States government securities, (b) changing the
discount rates of borrowings of depository institutions, (c) imposing or
changing reserve requirements against depository institutions' deposits, and (d)
imposing or changing reserve requirements against certain borrowing by banks and
their affiliates. These methods are used in varying degrees and combinations to
directly affect the availability of bank loans and deposits, as well as the
interest rates charged on loans and paid on deposits. For that reason alone, the
policies of the Federal Reserve Board have a material effect on the earnings of
Park National and U.B. Bancshares.
COMPETITION
The financial services industry is highly competitive. The subsidiaries
of Park National and U.B. Bancshares compete with financial services providers,
such as banks, savings associations, credit unions, finance companies, mortgage
banking companies, insurance companies, and money market and mutual fund
companies. They also face increased competition from non-banking institutions
such as brokerage houses and insurance companies, as well as from financial
services subsidiaries of commercial and manufacturing companies. Many of these
competitors enjoy the benefits of advanced technology, fewer regulatory
constraints and lower cost structures.
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PROMPT CORRECTIVE REGULATORY ACTION
The federal banking agencies have established a system of prompt
corrective action to resolve certain of the problems of undercapitalized
institutions. This system is based on five capital level categories for insured
depository institutions: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized."
The federal banking agencies may (or in some cases must) take certain
supervisory actions depending upon a bank's capital level. For example, the
banking agencies must appoint a receiver or conservator for a bank within 90
days after it becomes "critically undercapitalized" unless the bank's primary
regulator determines, with the concurrence of the FDIC, that other action would
better achieve regulatory purposes. Banking operations otherwise may be
significantly affected depending on a bank's capital category. For example, a
bank that is not "well capitalized" generally is prohibited from accepting
brokered deposits and offering interest rates on deposits higher than the
prevailing rate in its market, and the holding company of any undercapitalized
depository institution must guarantee, in part, specific aspects of the bank's
capital plan for the plan to be acceptable.
Under the final rules implementing the prompt corrective action
provisions:
- a bank that has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 6% or greater and a
leverage ratio of 5% or greater is deemed to be "well
capitalized";
- a bank with a total risk-based capital ratio of 8% or greater, a
Tier 1 risk-based capital ratio of 4% or greater and a leverage
ratio of 4% or greater (or a leverage ratio of 3% or greater and a
capital adequacy, asset quality, management administration,
earnings and liquidity (or CAMEL) 1 rating), is considered to be
"adequately capitalized";
- a bank that has a total risk-based capital of less than 8%, a Tier
1 risk-based capital ratio of less than 4%, and a leverage ratio
that is less than 4% (or a leverage ratio of less than 3% and a
CAMEL 1 rating), is considered "undercapitalized";
- a bank that has a total risk-based capital ratio of less than 6%,
a Tier 1 risk-based capital ratio of less than 3% or a leverage
ratio that is less than 3% is considered to be "significantly
undercapitalized"; and
- a bank that has tangible equity (Tier 1 capital minus intangible
assets other than purchased mortgage servicing rights) to total
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized".
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
There are various legal limitations on the extent to which subsidiary
banks may finance or otherwise supply funds to their parent holding companies.
Under federal and Ohio law, subsidiary banks may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, their bank holding companies. Subsidiary banks are also subject
to collateral security requirements for any loans or extension of credit
permitted by such exceptions.
None of United Bank or the Park National banking subsidiaries may pay
dividends out of its surplus if, after paying these dividends, it would fail to
meet the required minimum levels under the risk-based capital guidelines and
minimum leverage ratio requirements established by the OCC and the FDIC. In
addition, each bank must have the approval of its regulatory authority if a
dividend in any year would cause the total dividends for that year to exceed the
sum of the bank's current year's "net profits" (or net income, less dividends
declared during the period based on regulatory accounting principles) and the
retained net profits for the preceding two years, less required transfers to
surplus. Payment of dividends by United Bank or any of the Park National banking
subsidiaries may be restricted at any time at the discretion of its regulatory
authorities, if such regulatory authorities deem such dividends to constitute
unsafe and/or unsound banking practices or if necessary to maintain adequate
capital.
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The ability of a bank holding company 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 their subsidiary banks. However, the
Federal Reserve Board expects bank holding companies to serve as a source of
strength to their subsidiary bank(s), which may require them to retain capital
for further investment in their subsidiary bank(s), rather than pay dividends to
shareholders of the bank holding company. As stated previously, none of United
Bank or the Park National banking subsidiaries may pay dividends to U.B.
Bancshares or Park National, respectively, if, after paying those dividends, the
respective bank(s) would fail to meet the required minimum levels under the
risk-based capital guidelines and the minimum leverage ratio requirements.
Payment of dividends by United Bank or one of Park National's banking
subsidiaries may be restricted at any time at the discretion of its applicable
regulatory authorities, if they deem such dividends to constitute an unsafe
and/or unsound banking practice. These provisions could have the effect of
limiting Park National's ability to pay dividends on the Park National common
shares issuable in the merger.
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act (better known as the Financial Services Modernization Act
of 1999) which will, effective March 11, 2000, permit bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. A bank holding company may become a financial holding company if each of
its subsidiary banks is well capitalized under the Federal Deposit Insurance
Corporation Act of 1991 prompt corrective action provisions, is well managed,
and has at least a satisfactory rating under the Community Reinvestment Act, by
filing a declaration that the bank holding company wishes to become a financial
holding company. No regulatory approval will be required for a financial holding
company to acquire a company, other than a bank or savings association, engaged
in activities that are financial in nature or incidental to activities that are
financial in nature, as determined by the Federal Reserve Board.
The Financial Services Modernization Act defines "financial in nature"
to include:
- securities underwriting, dealing and market making;
- sponsoring mutual funds and investment companies;
- insurance underwriting and agency;
- merchant banking activities;
- and activities that the Federal Reserve Board has determined to be
closely related to banking.
A national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development and real estate
investment, through a financial subsidiary of the bank, if the bank is well
capitalized, well managed and has at least a satisfactory Community Reinvestment
Act rating. Subsidiary banks of a financial holding company or national banks
with financial subsidiaries must continue to be well capitalized and well
managed in order to continue to engage in activities that are financial in
nature without regulatory actions or restrictions, which could include
divestiture of the financial in nature subsidiary or subsidiaries. In addition,
a financial holding company or a bank may not acquire a company that is engaged
in activities that are financial in nature unless each of the subsidiary banks
of the financial holding company or the bank has a Community Reinvestment Act
rating of satisfactory or better.
The specific effects of the enactment of the Financial Services
Modernization Act on the banking industry in general and on Park National and
U.B. Bancshares in particular have yet to be determined due to the fact that the
Financial Services Modernization Act was only recently adopted.
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LIQUIDITY
PARK NATIONAL
Park National'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.
Cash and cash equivalents increased by $3.9 million during 1999 to
$104.2 million at year-end. Cash provided by operating activities was $59.3
million in 1999, $42.8 million in 1998, and $44.8 million in 1997. Net income
was the primary source of cash for operating activities during each year. Cash
used in investing activities was $197.9 million in 1999, $166.1 million in 1998,
and $93.4 million in 1997. A major use of cash in investing activities is the
net increase in the loan portfolio. Cash used for the net increase in loans was
$195.1 million in 1999, $53.2 million in 1998, and $111.3 million in 1997. Cash
of $2.6 million and $6.7 million was used in 1999 and 1997, respectively, to
purchase branch offices and $11.6 million was used to acquire the related loans
in 1997.
Security transactions are the other major use or source of cash in
investing activities. Proceeds from the sale or maturity of securities provide
cash and purchases of securities use cash. Net security transactions provided
$2.7 million of cash in 1999, used $109.4 million of cash in 1998 and provided
$38.9 million in 1997. Cash provided by financing activities was $142.5 million
in 1999, $130.0 million in 1998, and $60.4 million in 1997. A major source of
cash for financing activities is the net increase in deposits. Cash provided
from the net increase in deposits was $60.5 million in 1999, $84.8 million in
1998 and $42.4 million in 1997. The purchase of deposits with the branch offices
in 1999 and 1997 provided cash of $14.9 million and $49.2 million, respectively.
Changes in short-term borrowings or long-term debt is a major source or
use of cash for financing activities. The net increase in short-term borrowings
provided cash of $101.5 million in 1999, $95.0 million in 1998 and $16.5 million
in 1997. Park National used cash to repay long-term debt of $8.4 million in
1999, $22.4 million in 1998 and $31.5 million in 1997.
Park National has funds available from a number of sources, including
its securities portfolio, core deposit base, Federal Home Loan Bank borrowings
and the capability to securitize or package loans for sale. The present funding
sources provide more than adequate liquidity for Park National to meet its cash
flow needs.
Liquidity is enhanced by assets maturing or repricing within one year.
Assets maturing or repricing within one year were $1,300 million or 52.6% of
interest earning assets at December 31, 1999. Liquidity is also enhanced by a
significant amount of stable core deposits from a variety of customers in
several Ohio markets served by Park National.
U.B. BANCSHARES
The liquidity of U.B. Bancshares' subsidiary, United Bank, primarily
represented by cash and cash equivalents, is a result of its operating,
investing and financing activities. Principal sources of funds are deposits,
loan and mortgage-backed securities repayments, maturities of securities and
other funds provided by operations. United Bank also has the ability to borrow
from the Federal Reserve Bank. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and early loan and
mortgage-backed security prepayments and maturing investments are more
influenced by interest rates, general economic conditions and competition.
United Bank maintains investments in liquid assets based upon management's
assessment of (i) the need for funds, (ii) expected deposit flows, (iii) the
yields available on short-term liquid assets, and (iv) the objectives of the
asset/liability management program. In the ordinary course of business, part of
such liquid investment portfolio is composed of deposits at correspondent banks.
Although the amount on deposit at such banks often exceeds the $100,000 limit
covered by FDIC Insurance, United Bank monitors the capital of such institutions
to ensure that such deposits do not expose United Bank to undue risk of loss.
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LEGAL MATTERS
The federal income tax consequences of the merger, along with other
legal matters in connection with the merger and the issuance of Park National
common shares, will be passed upon for Park National by Vorys, Sater, Seymour
and Pease LLP.
EXPERTS
The consolidated financial statements of Park National for the fiscal
year ended December 31, 1999, included in Appendix C of this proxy
statement/prospectus, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein. Those
consolidated financial statements are included in this proxy
statement/prospectus in reliance upon that report given upon the authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of Park National incorporated by
reference in this proxy statement/prospectus from Park National's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998, have been audited by
Ernst & Young LLP as set forth in their report thereon incorporated by
reference therein. Those consolidated financial statements are incorporated in
this document by reference in reliance upon that report given upon the authority
of that firm as experts in accounting and auditing.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document contains forward-looking statements about the merger and
about our financial condition, results of operations, plans, objectives, future
performance and business. This includes information relating to:
- benefits, revenues and earnings estimated to result from the
merger; and
- estimated costs of combining our corporations.
It also includes statements using words like "believes," "expects,"
"intends," "anticipates" or "estimates" or similar expressions.
These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those predicted by the forward-looking
statements because of various factors and possible events, including those
discussed under "Risk Factors" above and the following:
- income (interest and non-interest) following the merger is lower
than expected;
- the costs of providing compensation and benefits to our employees
increase;
- competition increases in the banking industry or our markets;
- costs or difficulties related to the integration of our businesses
or other acquired businesses are greater than expected;
- there are adverse changes in general economic conditions or in
competitive forces;
- technological changes are more difficult or expensive to implement
than anticipated;
- there are adverse changes in the securities markets; and
- we suffer the loss of key personnel.
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There is also the risk that we incorrectly analyze these risks and
forces, or that the strategies we develop to address them are unsuccessful.
Because these forward-looking statements involve risks and
uncertainties, actual results may differ significantly from those predicted in
these forward-looking statements. You should not place a lot of weight on these
statements. These statements speak only as of the date of this document or, in
the case of any document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements attributable
to Park National or U.B. Bancshares or any person acting on our behalf are
qualified by the cautionary statements in this section. We have no obligation to
revise these forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
SEC FILINGS
Park National files annual, quarterly and current reports, proxy
statements and other information with the SEC. Park National's SEC filings are
available to the public over the Internet at the SEC's website at
http://www.sec.gov. You can also read and copy any document filed by Park
National with the SEC at the SEC's public reference rooms located at:
450 Fifth Street, N.W. New York Regional Office Chicago Regional Office
Room 1024 7 World Trade Center Citicorp Center
Washington, D.C. 20549 Suite 1300 500 West Madison Street
New York, New York 10048 Suite 1400
Chicago, Illinois 60661
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. You may also obtain copies of Park National's SEC filings by
mail from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates.
Park National's SEC filings are also available from commercial document
retrieval services and from the American Stock Exchange. For information on
obtaining copies of Park National's SEC filings at the American Stock Exchange,
call (212) 306-1000.
REGISTRATION STATEMENT
Park National has filed with the SEC a registration statement on Form
S-4 to register the Park National common shares to be issued to U.B. Bancshares
shareholders in the merger. The registration statement, including the attached
exhibits and schedules, contains additional relevant information about Park
National and U.B. Bancshares. This proxy statement/prospectus is part of that
registration statement. The rules and regulations of the SEC allow us to omit
some information included in the registration statement from this document.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
document. This means that we can disclose important information to you by
referring you to another document filed as an appendix to this document or to
documents filed separately with the SEC. The information incorporated by
reference is considered to be a part of this document, except for any
information that is superseded by information that is included directly in this
document.
Park National Documents. This proxy statement/prospectus incorporates
by reference the Park National SEC documents described below. All of these
documents were or will be filed under SEC File No. 1-13006.
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- Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
- Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1999, June 30, 1999 and September 30, 1999;
- Current Report on Form 8-K dated February 29, 2000;
- The description of the Park National common shares contained in
the Current Report on Form 8-K filed on April 21, 1998, including
any amendment or report filed to update such description; and
- All reports and definitive proxy or information statements of Park
National filed under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this proxy statement/prospectus and
before completion of the merger and the exchange of Park National
common shares for U.B. Bancshares common shares.
This proxy statement/prospectus also includes the information contained
in the section captioned "Financial Review," and the consolidated financial
statements of Park National and its subsidiaries as of December 31, 1999 and
1998 and for each of the years in the three-year period ended December 31, 1999,
all of which are contained in Park National's Annual Report to Shareholders for
the fiscal year ended December 31, 1999. A copy of the 1999 Park National Annual
Report to Shareholders is being delivered with this proxy statement/prospectus
as Appendix C and is not to be deemed a part of the Form S-4 registration
statement except to the extent specifically incorporated by this reference.
Park National will provide, without charge, copies of any report
incorporated by reference in this proxy statement/prospectus, excluding exhibits
other than those that are specifically incorporated by reference in this proxy
statement/prospectus. You may obtain a copy of any document incorporated by
reference by writing or calling Park National at:
Park National Corporation
50 North Third Street
P.O. Box 3500
Newark, Ohio 43058-3500
Attention: David C. Bowers, Secretary
(740) 349-3708
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY APRIL 12, 2000
TO ASSURE THAT YOU WILL RECEIVE THEM BEFORE THE SPECIAL MEETING. If you request
any incorporated documents from us, we will mail them to you by first class
mail, or another equally prompt means, within one business day after we receive
your request.
We have not authorized anyone to give any information or make any
representation about the merger or our corporations that differs from, or adds
to, the information in this proxy statement/prospectus or in the reports that
are publicly filed with the SEC. Therefore, if anyone does give you different or
additional information, you should not rely on it.
This proxy statement/prospectus is dated March 15, 2000. The
information contained in this document speaks only as of that date unless the
information specifically indicates that another date applies. You should not
assume that the information contained in this proxy statement/prospectus is
accurate as of any date other than such date, and neither the mailing of this
document to you nor the issuance to you of Park National common shares will
create any implication to the contrary.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
dated as of
December 14, 1999
by and between
PARK NATIONAL CORPORATION
and
U. B. BANCSHARES, INC.
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TABLE OF CONTENTS
PAGE
----
RECITALS................................................................... A-4
ARTICLE I Definitions
1.01 Certain Definitions............................................... A-4
ARTICLE II The Merger
2.01 The Merger........................................................ A-8
2.02 Effectiveness of Merger........................................... A-8
2.03 Effective Date and Effective Time................................. A-9
ARTICLE III Consideration; Exchange Procedures
3.01 Merger Consideration.............................................. A-9
3.02 Rights as Shareholders, Stock Transfers........................... A-9
3.03 Fractional Shares................................................. A-9
3.04 Exchange Procedures............................................... A-9
3.05 Anti-Dilution Provisions.......................................... A-11
ARTICLE IV Actions Pending Acquisition
4.01 Forbearances of UB................................................ A-11
4.02 Forbearances of Park.............................................. A-13
ARTICLE V Representations and Warranties
5.01 Disclosure Schedules.............................................. A-13
5.02 Standard.......................................................... A-13
5.03 Representations and Warranties of UB.............................. A-13
5.04 Representations and Warranties of Park............................ A-21
ARTICLE VI Covenants
6.01 Reasonable Best Efforts........................................... A-23
6.02 Carry on Business in Normal Manner................................ A-23
6.03 Shareholder Approval.............................................. A-24
6.04 Registration Statement............................................ A-24
6.05 Press Releases.................................................... A-25
6.06 Access; Information............................................... A-25
6.07 Acquisition Proposals............................................. A-25
6.08 Affiliate Agreements.............................................. A-26
6.09 Takeover Laws..................................................... A-26
6.10 AMEX Listing...................................................... A-26
6.11 Regulatory Applications........................................... A-27
6.12 Cooperation with Filings.......................................... A-27
6.13 Indemnification................................................... A-27
6.14 Opportunity of Employment; Employee Benefits...................... A-28
6.15 Notification of Certain Matters................................... A-28
6.16 Dividend Coordination............................................. A-28
6.17 UB Stock Options.................................................. A-28
6.18 Accounting and Tax Treatment...................................... A-28
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6.19 No Breaches of Representations and Warranties..................... A-28
6.20 Consents.......................................................... A-29
6.21 Insurance Coverage................................................ A-29
6.22 Correction of Information......................................... A-29
6.23 Supplemental Assurances........................................... A-29
6.24 Park Acquisition Proposal......................................... A-29
ARTICLE VII Conditions to Consummation of the Merger
7.01 Conditions to Each Party's Obligation to Effect the Merger........ A-29
7.02 Conditions to Obligation of UB.................................... A-30
7.03 Conditions to Obligation of Park.................................. A-31
ARTICLE VIII Termination
8.01 Termination....................................................... A-31
8.02 Effect of Termination and Abandonment; Enforcement of Agreement... A-33
ARTICLE IX Miscellaneous
9.01 Survival.......................................................... A-34
9.02 Waiver; Amendment................................................. A-34
9.03 Counterparts...................................................... A-34
9.04 Governing Law..................................................... A-34
9.05 Expenses.......................................................... A-34
9.06 Notices........................................................... A-34
9.07 Entire Understanding; No Third Party Beneficiaries................ A-35
9.08 Interpretation; Effect............................................ A-35
9.09 Waiver of Jury Trial.............................................. A-35
9.10 Successors and Assigns............................................ A-35
EXHIBIT A Form of UB Affiliate Agreement
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AGREEMENT AND PLAN OF MERGER, dated as of December 14, 1999 (this
"Agreement"), is by and between Park National Corporation ("Park") and U. B.
Bancshares, Inc. ("UB").
RECITALS
A. UB. UB is an Ohio corporation, having its principal place of
business in Bucyrus, Ohio.
B. Park. Park is an Ohio corporation, having its principal place of
business in Newark, Ohio.
C. Intentions of the Parties. It is the intention of the parties to
this Agreement that the business combination contemplated hereby be accounted
for under the "pooling-of-interests" accounting method and that it be treated as
a "reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
D. Board Action. The respective Boards of Directors of each of Park and
UB have determined that it is in the best interests of their respective
companies and their shareholders to consummate the strategic business
combinations provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINITIONS. The following terms are used in this
Agreement with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer, proposal for
a merger, consolidation or other business combination involving UB or any
of its Subsidiaries or any proposal or offer to acquire in any manner 20%
or more of the outstanding shares of any class of voting securities of, or
15% or more of the assets or deposits of, UB or any of its Subsidiaries,
other than the transactions contemplated by this Agreement.
"Affiliate" means with respect to any Person, any other Person who
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the first Person, including
without limitation all directors and executive officers of the first
Person.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 9.02.
"Agreement to Merge" means this Agreement.
"AMEX" means the American Stock Exchange.
"Average Closing Price" has the meaning set forth in Section 8.01(e).
"Bank" means United Bank, N.A., a wholly-owned subsidiary of UB.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compensation and Benefit Plans" has the meaning set forth in Section
5.03(m).
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"Consultants" has the meaning set forth in Section 5.03(m).
"Costs" has the meaning set forth in Section 6.13(a).
"Determination Date" has the meaning set forth in Section 8.01(e).
"Directors" has the meaning set forth in Section 5.03(m).
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"Dissenting Shares" means any shares of UB Common Stock held by a
holder who properly demands and perfects appraisal rights with respect to such
shares in accordance with applicable provisions of the OGCL.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Merger, as provided
for in Section 2.03.
"Employees" has the meaning set forth in Section 5.03(m).
"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Federal Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act, the
Federal Clean Water Act, the Federal Clean Air Act, and the Federal Occupational
Safety and Health Act, each as amended, regulations promulgated thereunder, and
state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04.
"Exchange Fund" has the meaning set forth in Section 3.04.
"Exchange Ratio" has the meaning set forth in Section 3.01.
"FFIEC" means Federal Financial Institutions Examination Committee.
"Final Index Price" has the meaning set forth in Section 8.01(e).
"Final Price" has the meaning set forth in Section 8.01(e).
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Hazardous Substances" means (a) any "hazardous substance" as defined
in Section 101(14) of the Comprehensive Environmental Response, Compensation and
Liability Act or regulations promulgated thereunder, (b) any "solid waste,"
"hazardous waste," or "infectious waste," as such terms are defined in any other
Environmental Law as of the date of this Agreement; and (c) asbestos,
urea-formaldehyde, polychlorinated biphenyls ("PCBs"), nuclear fuel or material,
chemical waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products, and other dangerous, toxic or hazardous pollutants,
contaminants, chemical, materials or substances listed or identified in, or
regulated by, any Environmental Law.
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"Indemnified Party" has the meaning set forth in Section 6.13(a).
"Index Price" has the meaning set forth in Section 8.01(e).
"Initial Index Price" has the meaning set forth in Section 8.01(e).
"IRS" has the meaning set forth in Section 5.03(m).
The term "knowledge" means, with respect to a party hereto, actual
knowledge of any officer of that party with the title of not less than a senior
vice president and that party's in-house counsel, if any.
"Latest Statement Date" has the meaning set forth in Section 5.03(g).
"Lien" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to PARK or UB, any
effect, change, event, occurrence or state of facts that (i) is material and
adverse to the financial position, results of operations or business of Park and
its Subsidiaries taken as a whole, or UB and its Subsidiaries taken as a whole,
respectively, or (ii) would materially impair the ability of either Park or UB
to perform its obligations under this Agreement or otherwise materially threaten
or materially impede the consummation of the Merger and the other transactions
contemplated by this Agreement; provided, however, that Material Adverse Effect
shall not be deemed to include the impact of (a) changes in banking and similar
laws of general applicability or interpretations thereof by courts or
governmental authorities or other changes affecting depository institutions
generally, including changes in general economic conditions and changes in
prevailing interest and deposit rates, (b) any modifications or changes to
valuation policies and practices in connection with the Merger directed by Park
or restructuring charges taken in connection with the Merger directed by Park,
in each case in accordance with generally accepted accounting principles, (c)
changes resulting from expenses (such as legal, accounting and investment
bankers' fees) incurred and Previously Disclosed in connection with this
Agreement or the transactions contemplated herein, and (d) actions or omissions
of a party which have been waived in accordance with Section 9.02 hereof.
"Merger" has the meaning set forth in Section 2.01.
"Merger Consideration" has the meaning set forth in Section 2.01.
"Merger Shares" has the meaning set forth in Section 3.01(a).
"New Certificate" has the meaning set forth in Section 3.04.
"OCC" means The Office of the Comptroller of the Currency.
"OGCL" means the Ohio General Corporation Law.
"Old Certificate" has the meaning set forth in Section 3.04.
"OSS" means the Office of the Secretary of State of the State of Ohio.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Park" has the meaning set forth in the preamble to this Agreement.
"Park Articles" means the Articles of Incorporation of Park, as
amended.
"Park Board" means the Board of Directors of Park.
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"Park Code" means the Code of Regulations of Park, as amended.
"Park Common Stock" means the common shares, without par value, of
Park.
"Park SEC Documents" has the meaning set forth in Section 5.04(f).
"Park Stock" means the Park Common Stock.
"Person" means any individual, bank, corporation, partnership, limited
liability company, association, joint-stock company, business trust or
unincorporated organization.
"Pension Plan" has the meaning set forth in Section 5.03(m).
"Previously Disclosed" by a party shall mean information set forth in
its Disclosure Schedule.
"Proxy/Prospectus" has the meaning set forth in Section 6.04.
"Proxy Statement" has the meaning set forth in Section 6.04.
"Registration Statement" has the meaning set forth in Section 6.04.
"Regulatory Authority" has the meaning set forth in Section 5.03(i).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Starting Date" has the meaning set forth in Section 8.01(e).
"Starting Price" has the meaning set forth in Section 8.01(e).
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed to
them in Rule 1-02 of Regulation S-X of the SEC.
"Superior Proposal" shall have the meaning set forth in Section 6.07
(c).
"Surviving Corporation" has the meaning set forth in Section 2.01.
"Takeover Laws" has the meaning set forth in Section 5.03 (o).
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges
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of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority whether
arising before, on or after the Effective Date.
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean issued shares of UB Stock held by UB or any
of its Subsidiaries other than in a fiduciary capacity or as a result of debts
previously contracted in good faith.
"UB" has the meaning set forth in the preamble to this Agreement.
"UB Articles" means the Articles of Incorporation of UB, and any
amendment thereto.
"UB Affiliate" has the meaning set forth in Section 6.08(a).
"UB Board" means the Board of Directors of UB.
"UB Bylaws" means the bylaws adopted by the directors of UB and any
amendments thereto.
"UB Common Stock" means the common stock, stated value $1.67 per share,
of UB.
"UB Financial Statements" has the meaning set forth in Section 5.03(g).
"UB Meeting" has the meaning set forth in Section 6.03.
"UB Properties" has the meaning set forth in Section 5.03(p).
"UB Special Event" has the meaning set forth in Section 6.07(b).
"UB Stock" means UB Common Stock.
"UB Stock Option" and collectively "UB Stock Options" have the meanings
set forth in Section 6.17.
"UB Stock Option Plans" has the meaning set forth in Section 6.17.
ARTICLE II
THE MERGER
2.01 THE MERGER. At the Effective Time, UB shall merge with and into
Park (the "Merger"), the separate corporate existence of UB shall cease and Park
shall survive and continue to exist as an Ohio corporation (Park, as the
surviving corporation in the Merger, sometimes being referred to herein as the
"Surviving Corporation"). Park may at any time prior to the Effective Time
change the method of effecting the Merger (including, without limitation, the
provisions of this Article II) if and to the extent it deems such change to be
necessary, appropriate or desirable; provided, however, that no such change
shall (i) alter or change the amount or kind of consideration to be issued to
holders of UB Stock as provided for in this Agreement (the "Merger
Consideration"), (ii) adversely affect the tax treatment of UB's shareholders as
a result of receiving the Merger Consideration or the Merger qualifying for
"pooling-of-interests" accounting treatment or (iii) materially impede or delay
consummation of the transactions contemplated by this Agreement.
2.02 EFFECTIVENESS OF MERGER. Subject to the satisfaction or waiver of
the conditions set forth in Article VII, the Merger shall become effective upon
the occurrence of the filing in the office of the OSS of a certificate of merger
in accordance with Section 1701.81 of the OGCL or such later date and time as
may be set forth in such filings. The Merger shall have the effects prescribed
in the OGCL.
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2.03 EFFECTIVE DATE AND EFFECTIVE TIME. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the parties shall cause the
effective date of the Merger (the "Effective Date") to occur on (i) the day
designated by Park which day shall not be earlier than the third business day to
occur after the last of the conditions set forth in Article VII shall have been
satisfied or waived in accordance with the terms of this Agreement or later than
the last business day of the month in which such third business day occurs;
provided, no such election shall cause the Effective Date to fall after the date
specified in Section 8.01(c) hereof or after the date or dates on which any
Regulatory Authority approval or any extension thereof expires, or (ii) such
other date to which the parties may agree in writing. The time on the Effective
Date when the Merger shall become effective is referred to as the "Effective
Time."
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 MERGER CONSIDERATION. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Merger and without any
action on the part of any Person:
(a) OUTSTANDING UB COMMON STOCK AND UB RIGHTS. Each share, excluding
Treasury Stock, of UB Common Stock issued and outstanding immediately prior to
the Effective Time and each share of UB Common Stock covered by a UB Stock
Option exercised as of or prior to the Effective Time (pursuant to the letters
described in Section 6.17) shall be cancelled and extinguished and, in
substitution and exchange therefor, the holders shall be entitled to receive
that number of shares of Park Common Stock (the "Exchange Ratio") equal to a
number (rounded to the nearest hundredth) obtained by dividing 325,500 ("Merger
Shares") by the total of (i) the number of shares of UB Common Stock outstanding
immediately prior to the Effective Time, and (ii) all shares of UB Common Stock
which may be acquired upon the exercise of UB Stock Options in effect
immediately prior to the Effective Time. The Exchange Ratio shall be subject to
adjustment as set forth in Section 3.05.
(b) TREASURY STOCK. Each share of UB Common Stock held as Treasury
Stock immediately prior to the Effective Time shall be canceled and retired at
the Effective Time and no consideration shall be issued in exchange therefor.
(c) OUTSTANDING PARK STOCK. Each share of Park Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding and unaffected by the Merger.
3.02 RIGHTS AS SHAREHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of UB Common Stock shall cease to be, and shall have no rights as,
shareholders of UB, other than to receive any dividend or other distribution
with respect to such UB Common Stock with a record date occurring prior to the
Effective Time and the consideration provided under this Article III, and
appraisal rights in the case of Dissenting Shares. After 3 business days prior
to the Effective Time, there shall be no transfers on the stock transfer books
of UB or the Surviving Corporation of any shares of UB Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Park Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger. Such
fractional share interests shall not entitle the owner thereof to vote or to any
rights of a shareholder of the Surviving Corporation. Park shall pay to each
holder of UB Common Stock who would otherwise be entitled to a fractional share
of Park Common Stock (after taking into account all Old Certificates delivered
by such holder) an amount in cash (without interest) determined by multiplying
such fractional share of Park Common Stock to which the holder would be entitled
by the Average Closing Price of Park Common Stock.
3.04 EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, Park
shall deposit, or shall cause to be deposited, with First-Knox National Bank (in
such capacity, the "Exchange Agent"), for the benefit of the holders of
certificates formerly representing shares of UB Common Stock ("Old
Certificates"), for exchange in accordance with this Article III, certificates
representing the shares of Park Common Stock ("New Certificates") and an
estimated amount of cash (such cash and New Certificates, together with any
dividends or distributions with a
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record date occurring on or after the Effective Date with respect thereto
(without any interest on any such cash, dividends or distributions), being
hereinafter referred to as the "Exchange Fund") to be paid pursuant to this
Article III in exchange for outstanding shares of UB Common Stock.
(b) As promptly as practicable after the Effective Date, Park shall
send or cause to be sent to each former holder of record of shares of UB Common
Stock immediately prior to the Effective Time transmittal materials for use in
exchanging such shareholder's Old Certificates for the consideration set forth
in this Article III. Park shall cause the New Certificates into which shares of
a shareholder's UB Common Stock are converted on the Effective Date and/or any
check in respect of any fractional share interests or dividends or distributions
which such person shall be entitled to receive to be delivered to such
shareholder upon delivery to the Exchange Agent of Old Certificates representing
such shares of UB Common Stock (or security or an indemnity affidavit reasonably
satisfactory to Park and the Exchange Agent, if any Old Certificates are lost,
stolen or destroyed) owned by such shareholder. No interest will be paid on any
such cash to be paid in lieu of fractional share interests or in respect of
dividends or distributions which any such person shall be entitled to receive
pursuant to this Article III upon such delivery.
(c) Notwithstanding the foregoing, neither the Exchange Agent, if any,
nor any party hereto shall be liable to any former holder of UB Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(d) No dividends or other distributions with respect to Park Common
Stock with a record date occurring on or after the Effective Date shall be paid
to the holder of any unsurrendered Old Certificate representing shares of UB
Common Stock converted in the Merger into the right to receive shares of such
Park Common Stock until the holder thereof shall be entitled to receive New
Certificates in exchange therefor in accordance with the procedures set forth in
this Section 3.04. After becoming so entitled in accordance with this Section
3.04, the record holder thereof also shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of Park Common Stock such
holder had the right to receive upon surrender of the Old Certificates.
(e) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of UB for six months after the Effective Time shall be delivered to
Park. Any shareholders of UB who have not theretofore complied with this Article
III shall thereafter look only to Park for payment of the shares of Park Common
Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on Park Common Stock deliverable in respect of each share of UB
Common Stock such shareholder holds as determined pursuant to this Agreement, in
each case, without any interest thereon.
(f) Park may from time to time, in the case of one or more Persons,
waive one or more of the rights provided to it in this Article III of this
Agreement to withhold certain payments, deliveries and distributions; and no
such waiver shall constitute a waiver of its rights thereafter to withhold any
such payment, delivery or distribution in the case of any Person.
(g) Anything contained in this Agreement or elsewhere to the contrary
notwithstanding, if any person shall perfect dissenters' rights in respect of
one or more Dissenting Shares in accordance with Section 1701.85 of the OGCL
(sometimes hereafter called the "Statute"), then:
(a) Each such Dissenting Share shall nevertheless be deemed to be
extinguished at the Effective Time as provided elsewhere in
this Agreement;
(b) Each person perfecting such dissenter's rights shall
thereafter have only such rights (and shall have such
obligations) as are provided in the Statute, and [unless such
rights and such obligations of such person are terminated in
accordance with division (D) of Section 1701.85] Park shall
not be required to deliver any Park Common Stock or cash
payments to such person in substitution for each such
Dissenting Share in accordance with this Agreement.
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No person entitled to relief as a dissenting shareholder shall be
entitled to submit a letter of transmittal, and any letter of
transmittal submitted by a dissenting shareholder shall be invalid.
3.05 ANTI-DILUTION PROVISIONS. In the event Park changes (or
establishes a record date for changing) the number of shares of Park Common
Stock issued and outstanding between the date hereof and the Effective Date as a
result of a stock split, stock dividend, recapitalization, reclassification,
split up, combination, exchange of shares, readjustment or similar transaction
with respect to the outstanding Park Common Stock and the record date therefor
shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted.
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 FORBEARANCES OF UB. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement and/or disclosed on the UB
Disclosure Schedule, without the prior written consent of Park, UB will not, and
will cause each of its Subsidiaries not to:
(a) Ordinary Course. Except as otherwise provided in this Section 4.01,
conduct the business of UB and its Subsidiaries other than in the ordinary and
usual course or fail to use reasonable efforts to perform its contractual
obligations, to preserve intact their business organizations and assets and
maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or voluntarily take any action
which, at the time taken, is reasonably likely to have an adverse effect upon
UB's ability to perform any of its obligations under this Agreement.
(b) Capital Stock. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof, (i) issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional shares of UB
Stock or any Rights, (ii) enter into any agreement with respect to the
foregoing, or (iii) permit any additional shares of UB Stock to become subject
to new UB Stock Options, other Rights or similar stock-based employee rights.
(c) Dividends, Etc. (i) Make, declare, pay or set aside for payment any
dividend, other than (A) quarterly cash dividends on UB Stock in an amount not
to exceed $.325 per share, with record and payment dates as indicated in Section
6.16 hereof, and (B) dividends from wholly owned Subsidiaries to UB, or (ii)
directly or indirectly adjust, split, combine, redeem, reclassify, exchange,
purchase or otherwise acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into or amend or
renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of UB or its Subsidiaries
(other than the normal extension of the seven existing severance agreements with
management), or grant any salary or wage increase or increase any employee
benefit, (including incentive or bonus payments) except (i) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (ii) for other changes that are required
by applicable law, or (iii) to satisfy Previously Disclosed contractual
obligations existing as of the date hereof.
(e) Benefit Plans. Enter into, establish, adopt or amend any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement (or
similar arrangement) related thereto, in respect of any director, officer or
employee of UB or its Subsidiaries, or take any action to accelerate the vesting
or exercisability of stock options, restricted stock or other compensation or
benefits payable thereunder; provided that UB may (i) take such actions in order
to satisfy either applicable law or Previously Disclosed contractual obligations
existing as of the date hereof or regular annual renewal of insurance contracts;
(ii) pay cash bonuses for performance during 1999 in the amounts accrued by UB
as of the date hereof with respect to its incentive plans as set forth in
Section 4.01(e) of the Disclosure Schedule; (iii) pay cash bonuses on the
Closing Date in the amounts accrued by UB as of the Closing Date with respect to
its incentive plans as set forth in Section 401(e)
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of the Disclosure Schedule; (iii) terminate its defined contribution 401k plan
at any time before the Effective Time, with benefit distributions deferred until
the IRS issues a favorable determination with respect to the terminating plan's
tax-qualified status upon termination and with UB and Park to cooperate in good
faith to apply for such approval and to agree upon associated plan termination
amendments that shall, among other things, provide for the application of all
assets of a terminating plan for its participants, and allow plan participants
not only to receive lump-sum distributions of their benefits, but also to
transfer those benefits to the tax-qualified 401k plan that Park maintains for
its employees.
(f) Dispositions. Sell, transfer, mortgage, encumber or otherwise
dispose of or discontinue any of its assets, deposits, business or properties
except in the ordinary course of business.
(g) Acquisitions, Reorganizations. Acquire (other than by way of
foreclosures or acquisitions of control in a bona fide fiduciary capacity or in
satisfaction of debts previously contracted in good faith, in each case in the
ordinary and usual course of business consistent with past practice) all or any
portion of, the assets, business, deposits or properties of any other entity; or
merge or consolidate with any other Person or otherwise reorganize.
(h) Governing Documents. Amend the UB Articles, UB Bylaws or adopt
regulations for UB or amend the articles of incorporation or code of regulations
(or similar governing documents) of any of UB's Subsidiaries except for
immaterial code of regulations amendments Previously Disclosed to Park.
(i) Accounting Methods. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by generally
accepted accounting principles.
(j) Contracts. Enter into or terminate any contract requiring the
payment or receipt of $10,000 or more in any 12 month period or amend or modify
in any material respect any of its existing material contracts, other than loans
and contracts of deposit made by the Bank. Park will not unreasonably withhold
its consent to a request by UB for UB to enter into, terminate, amend or modify
such a contract.
(k) Claims. Except in the ordinary course of business consistent with
past practice, settle any claim, action or proceeding, except for any claim,
action or proceeding which does not involve precedent for other material claims,
actions or proceedings and which involve solely money damages in an amount,
individually or in the aggregate for all such settlements, that is not material
to UB and its Subsidiaries, taken as a whole.
(l) Adverse Actions. (a) Take any action that would, or is reasonably
likely to, prevent or impede the Merger from qualifying (i) for
"pooling-of-interests" accounting treatment or (ii) as a reorganization within
the meaning of Section 368(a) of the Code; or (b) take any action that is
intended or is reasonably likely to result in (i) any of its representations and
warranties set forth in this Agreement being or becoming untrue in any material
respect at any time at or prior to the Effective Time, (ii) any of the
conditions to the Merger set forth in Article VII not being satisfied or (iii) a
violation of any provision of this Agreement except, in each case, as may be
required by applicable law or regulation.
(m) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate risk
management and other risk management policies, procedures or practices; (ii)
fail to follow its existing policies or practices with respect to managing its
exposure to interest rate and other risk; or (iii) fail to use commercially
reasonable means to avoid any material increase in its aggregate exposure to
interest rate risk.
(n) Indebtedness. Incur any indebtedness for borrowed money or incur
any material obligation or liability other than in the ordinary course of
business.
(o) Capital Expenditures. Make any capital expenditures in excess of
$25,000 in the aggregate or for any item in excess of $5,000.
(p) Maintenance of Insurance. Fail to maintain insurance described in
Section 5.03(t).
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(q) Maintenance of Property. Fail to maintain its property and
facilities in their present condition and working order, ordinary wear and tear
excepted.
(r) Commitments. Agree or commit to do any of the foregoing.
4.02 FORBEARANCES OF PARK. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of UB, Park will not, and will cause each of its Subsidiaries
not to:
(a) Performance of Obligations. Take any action which, at the time
taken, is reasonably likely to have a material adverse affect upon Park's
ability to perform any of its material obligations under this Agreement.
(b) Adverse Actions. (a) Take any action while knowing that such action
would, or is reasonably likely to, prevent or impede the Merger from qualifying
(i) for "pooling of interests" accounting treatment or (ii) as a reorganization
within the meaning of Section 368(a) of the Code; or (b) knowingly take any
action that is intended or is reasonably likely to result in (i) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time at or prior to the Effective Time,
(ii) any of the conditions to the Merger set forth in Article VII not being
satisfied, or (iii) a material violation of any provision of this Agreement
except, in each case, as may be required by applicable law or regulation.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, UB has
delivered to Park a schedule (respectively, its "Disclosure Schedule") setting
forth, among other things, items, the disclosure of which are necessary or
appropriate either in response to an express disclosure requirement contained in
a provision hereof or as an exception to one or more representations or
warranties contained in Section 5.03 or to one or more of its respective
covenants contained in Article IV and Article VI; provided, that (a) no such
item is required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence would not be reasonably likely to
result in the related representation or warranty being deemed untrue or
incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to have or result in a Material Adverse Effect on the
party making the representation. UB's representations, warranties and covenants
contained in this Agreement shall not be deemed to be untrue, incorrect or to
have been breached as a result of effects on UB arising solely from actions
taken in compliance with a written request of Park.
5.02 STANDARD. No representation or warranty of UB or Park contained in
Section 5.03 or 5.04 (other than those paragraphs for which this standard shall
not apply) shall be deemed untrue or incorrect, and no party hereto shall be
deemed to have breached a representation or warranty, as a consequence of the
existence of any fact, event or circumstance unless such breach of
representation or warranty contained in Section 5.03 or 5.04 has had, or is
reasonably likely to have, a Material Adverse Effect. The standard set forth in
this Section 5.02 shall not apply to paragraphs (a), (b), (c), (d) or (g) of
Section 5.03 or paragraphs (a), (b), (d) or (f) of Section 5.04.
5.03 REPRESENTATIONS AND WARRANTIES OF UB. Subject to Sections 5.01 and
5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, UB hereby represents and
warrants to Park:
(a) ORGANIZATION, STANDING AND AUTHORITY. UB is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and any foreign jurisdictions where its ownership or leasing of property or
assets or the conduct of its business requires it to be so qualified. UB is
registered as a bank holding company under the BHCA. Bank is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States of America. As a national bank, Bank is qualified to do
business where
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it does business. UB has delivered to Park accurate and complete copies of the
UB Articles and UB Bylaws and the Bank's articles of association and bylaws.
(b) CAPITAL STRUCTURE OF UB. The authorized capital stock of UB
consists solely of 1,000,000 shares of UB Common Stock, of which 551,971 shares
are outstanding. The outstanding shares of UB Common Stock have been duly
authorized, are validly issued and outstanding, fully paid and nonassessable,
and were not issued in violation of any preemptive rights. Except as Previously
Disclosed in its Disclosure Schedule, (i) there are no shares of UB Common Stock
authorized and reserved for issuance, (ii) UB has no Rights issued or
outstanding with respect to UB Common Stock, and (iii) UB has no commitment to
authorize, issue or sell any UB Common Stock or Rights, except pursuant to this
Agreement. All UB Common Stock has been issued in full compliance with all
applicable federal and state securities laws.
(c) SUBSIDIARIES. (i)(A) UB has Previously Disclosed a list of all of
its Subsidiaries together with the jurisdiction of organization of each such
Subsidiary, (B) except as Previously Disclosed, UB owns of record and
beneficially all the issued and outstanding equity securities of each of its
Subsidiaries, (C) except as Previously Disclosed, no equity securities of any of
its Subsidiaries are or may become required to be issued (other than to it or
its wholly-owned Subsidiaries) by reason of any Right or otherwise, (D) except
as Previously Disclosed, there are no contracts, commitments, understandings or
arrangements by which any of such Subsidiaries is or may be bound to sell or
otherwise transfer any equity securities of any such Subsidiaries (other than to
it or its wholly-owned Subsidiaries), (E) except as Previously Disclosed, there
are no contracts, commitments, understandings, or arrangements relating to UB's
rights to vote or to dispose of such securities and (F) except as Previously
Disclosed, all the equity securities of each Subsidiary held by UB or its
Subsidiaries are fully paid and nonassessable (except pursuant to 12 U.S.C.
Section 55) and are owned by UB or its Subsidiaries free and clear of any Liens.
(ii) UB does not own beneficially, directly or indirectly, any
equity securities or similar interests of any Person, or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries.
(iii) Each of UB's Subsidiaries has been duly organized and is
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified.
(d) CORPORATE POWER; AUTHORIZED AND EFFECTIVE AGREEMENT. Each of UB and
its Subsidiaries has full corporate power and authority to carry on its business
as it is now being conducted and to own all its properties and assets; and UB
has the corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(e) CORPORATE AUTHORITY. Subject to receipt of the requisite adoption
of this Agreement by the holders of at least two-thirds of the outstanding
shares of UB Common Stock entitled to vote thereon (which is the only
shareholder vote required thereon) and compliance with the requirements of
Section 1701.831 of the OGCL, this Agreement and the transactions contemplated
hereby have been authorized by all necessary corporate action of UB and the UB
Board prior to the date hereof. This Agreement is a valid and legally binding
obligation of UB, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general equity
principles). The UB Board has received the written opinion of Austin Associates,
Inc. to the effect that as of the date hereof the consideration to be received
by the holders of UB Common Stock in the Merger is fair to the holders of UB
Common Stock from a financial point of view.
(f) REGULATORY FILINGS; NO DEFAULTS. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any third
party are required to be made or obtained by UB or any of its Subsidiaries in
connection with the execution, delivery or performance by UB of this Agreement
or to consummate the Merger except for (A) filings of applications and notices,
as applicable, with and the approval of certain federal and state banking
authorities, (B) filings with the SEC and state securities authorities, and (C)
the filing of the certificate of merger with the OSS pursuant to the OGCL. As of
the date hereof, UB is not aware of any reason why
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the approvals set forth in Section 7.01(b) will not be received without the
imposition of a condition, restriction or requirement of the type described in
Section 7.01(b).
(ii) Subject to receipt of the regulatory and shareholder
approvals and other actions referred to in paragraphs 5.03(e) and (f) above and
expiration of related regulatory waiting periods, and required filings under
federal and state securities laws, the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby and
thereby do not and will not (A) constitute a breach or violation of, or a
default under, or give rise to any Lien, any acceleration of remedies or any
right of termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument of
UB or of any of its Subsidiaries or to which UB or any of its Subsidiaries or
properties is subject or bound, (B) constitute a breach or violation of, or a
default under, the UB Articles or the UB Code, or (C) require any consent or
approval under any such law, rule, regulation, judgment, decree, order,
governmental permit or license, agreement, indenture or instrument.
(g) FINANCIAL STATEMENTS AND REPORTS; MATERIAL ADVERSE EFFECT. (i) The
consolidated balance sheets of UB as of December 31, 1998 and 1997 and the
related consolidated statements of income, consolidated statements of cash flows
and consolidated statements of shareholders equity for the three (3) years in
the period ended December 31, 1998 (the "Latest Statement Date"), certified by
Robb, Dixon, Francis, Davis, Oneson & Company, accurate and complete copies of
which have been furnished by UB to Park; the unaudited balance sheets of UB
(parent-only) and the Bank as of September 30, 1999 and the related statements
of income and shareholders equity of UB and the statement of income of the Bank
for the nine (9) months then ended, accurate and complete copies of which have
been furnished by UB to Park, in the form prepared for UB's internal use, and FR
Y-6 Report for the year ended December 31, 1998, as filed with the Federal
Reserve Bank, accurate and complete copies of which have been furnished by UB to
Park (collectively the "UB Financial Statements"), have been prepared in
accordance with generally accepted accounting principles and practices ("GAAP")
in effect at the time as described in the UB Financial Statements applied on a
consistent basis, and present fairly in all material respects the consolidated
financial condition of UB at the dates, and the consolidated results of
operations and cash flows for the periods stated therein. In the case of interim
fiscal periods, all adjustments, consisting only of normal recurring items,
which management of UB believes necessary for a fair presentation of such
financial information, have been made.
(ii) Since September 30, 1999, UB and its Subsidiaries have
not incurred any material liability not disclosed in UB's Financial Statements,
other than in the ordinary course of business consistent with past practice.
(iii) Since September 30, 1999, except as disclosed in the UB
Financial Statements, (A) UB and its Subsidiaries have conducted their
respective businesses in the ordinary and usual course consistent with past
practice (excluding matters related to this Agreement and the transactions
contemplated hereby); (B) no event has occurred or circumstance arisen that,
individually or taken together with all other facts, circumstances and events
(described in any paragraph of Section 5.03 or otherwise), is reasonably likely
to have a Material Adverse Effect with respect to UB or the Bank; and (C)
neither UB nor any of its Subsidiaries has taken any action or failed to take
any action which would have violated Section 4.01 if this Agreement had been
entered into on September 30, 1999.
(h) LITIGATION. No litigation, claim or other proceeding before any
court or governmental agency is pending against UB or any of its Subsidiaries
and, to UB's knowledge, no such litigation, claim or other proceeding has been
threatened.
(i) REGULATORY MATTERS.
(i) Neither UB nor any of its Subsidiaries or UB's or their
properties is a party to or is subject to any order, judgment, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory letter
from, any court or federal or state governmental agency or authority, including
any such agency or authority charged with the supervision or regulation of
financial institutions (or their holding companies) or issuers of securities or
engaged in the insurance of deposits
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(including, without limitation, the Office of the Comptroller of the Currency,
the Federal Reserve System and the FDIC) or the supervision or regulation of it
or any of its Subsidiaries (collectively, the "Regulatory Authorities").
(ii) Neither UB nor any of its Subsidiaries has been advised by any
Regulatory Authority that such Regulatory Authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter,
supervisory letter or similar submission.
(j) COMPLIANCE WITH LAWS. Each of UB and its Subsidiaries:
(i) has been in compliance with all applicable federal, state,
local and foreign statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees applicable thereto or to the employees conducting such
businesses, including, without limitation, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure
Act and all other applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to UB's knowledge, no suspension or cancellation
of any of them is threatened; and
(iii) has received no notification or communication from any
Governmental Authority (A) asserting that UB or any of its Subsidiaries is not
in compliance with any of the statutes, regulations, or ordinances which such
Governmental Authority enforces or (B) threatening to revoke any license,
franchise, permit, or governmental authorization (nor, to UB's knowledge, do any
grounds for any of the foregoing exist).
(k) MATERIAL CONTRACTS; DEFAULTS. Except for this Agreement and as
Previously Disclosed, neither UB nor any of its Subsidiaries is a party to,
bound by or subject to any agreement, contract, arrangement, commitment or
understanding (whether written or oral) (i) that is a "material contract" within
the meaning of Item 601(b)(10) of the SEC's Regulation S-K or (ii) that
restricts or limits in any way the conduct of business by it or any of its
Subsidiaries (including without limitation a non-compete or similar provision)
or (iii) constitutes a power of attorney. Neither UB nor any of its
Subsidiaries, nor any other party to such contracts, is in default under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its respective assets, business, or
operations may be bound or affected in any way, or under which it or its
respective assets, business, or operations receive benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default.
(l) NO BROKERS. Except for the engagement of Austin Associates, Inc.,
no action has been taken by UB that would give rise to any valid claim against
any party hereto for a brokerage commission, finder's fee or other like payment
with respect to the transactions contemplated by this Agreement.
(m) EMPLOYEE BENEFIT PLANS. (i) Section 5.03(m)(i) of UB's Disclosure
Schedule contains a complete and accurate list of all bonus, incentive, deferred
compensation, pension (including, without limitation, Pension Plans),
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, severance, welfare
(including, without limitation, "welfare plans" within the meaning of Section
3(1) of ERISA), fringe benefit plans, employment or severance agreements and all
similar practices, policies and arrangements maintained or contributed to
(currently or within the last six years) by (a) UB or any of its Subsidiaries
and in which any employee or former employee (the "Employees"), consultant or
former consultant (the "Consultants") officer or former officer (the
"Officers"), or director or former director (the "Directors") of UB or any of
its Subsidiaries participates or to which any such Employees, Consultants,
Officers or Directors either participate or are a party or (b) any ERISA
Affiliate (collectively, the "Compensation and Benefit Plans"). Neither UB nor
any of its Subsidiaries has any commitment to create any additional Compensation
and Benefit Plan or to
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modify or change any existing Compensation and Benefit Plan, except as otherwise
contemplated by Section 4.01(e) of this Agreement.
(ii) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and with
applicable law, including, but not limited to, ERISA, the Code, the Securities
Act, the Exchange Act, the Age Discrimination in Employment Act, or any
regulations or rules promulgated thereunder, and all filings, disclosures and
notices required by ERISA, the Code, the Securities Act, the Exchange Act, the
Age Discrimination in Employment Act and any other applicable law have been
timely made. Each Compensation and Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and
which is intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter (including a determination that the related
trust under such Compensation and Benefit Plan is exempt from tax under Section
501(a) of the Code) from the Internal Revenue Service ("IRS"), and UB is not
aware of any circumstances likely to result in revocation of any such favorable
determination letter. There is no material pending or, to the knowledge of UB,
threatened legal action, suit or claim relating to the Compensation and Benefit
Plans other than routine claims for benefits thereunder. Neither UB nor any of
its Subsidiaries has engaged in a transaction, or omitted to take any action,
with respect to any Compensation and Benefit Plan that would reasonably be
expected to subject UB or any of its Subsidiaries to a tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA, assuming for purposes
of Section 4975 of the Code that the taxable period of any such transaction
expired as of the date hereof.
(iii) No liability (other than for payment of premiums to the PBGC
which have been made or will be made on a timely basis) under Title IV of ERISA
has been or is expected to be incurred by UB or any of its Subsidiaries with
respect to any ongoing, frozen or terminated "single-employer plan," within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any
of them, or any single-employer plan of any entity (an "ERISA Affiliate Plan")
which is considered one employer with UB under Section 4001(a)(14) of ERISA or
Section 414(b), (c) or (m) of the Code (an "ERISA Affiliate"). None of UB, any
of its Subsidiaries or any ERISA Affiliate has contributed, or has been
obligated to contribute, to a multiemployer plan under Subtitle E of Title IV of
ERISA (as defined in ERISA Sections 3(37)(A) and 4001(a)(3)) at any time since
September 26, 1980. No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Compensation and Benefit Plan or
by any ERISA Affiliate Plan within the 12-month period ending on the date
hereof, and no such notice will be required to be filed as a result of the
transactions contemplated by this Agreement. The PBGC has not instituted
proceedings to terminate any Pension Plan or ERISA Affiliate Plan and, to UB's
knowledge, no condition exists that presents a material risk that such
proceedings will be instituted. To the knowledge of UB, there is no pending
investigation or enforcement action by the PBGC, the Department of Labor (the
"DOL") or IRS or any other governmental agency with respect to any Compensation
and Benefit Plan. Under each Pension Plan and ERISA Affiliate Plan, as of the
date of the most recent actuarial valuation performed prior to the date of this
Agreement, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as determined
on the basis of the actuarial assumptions contained in such actuarial valuation
of such Pension Plan or ERISA Affiliate Plan), did not exceed the then current
value of the assets of such Pension Plan or ERISA Affiliate Plan and since such
date there has been neither an adverse change in the financial condition of such
Pension Plan or ERISA Affiliate Plan nor any amendment or other change to such
Pension Plan or ERISA Affiliate Plan that would increase the amount of benefits
thereunder which reasonably could be expected to change such result.
(iv) All contributions required to be made under the terms of any
Compensation and Benefit Plan or ERISA Affiliate Plan or any employee benefit
arrangements under any collective bargaining agreement to which UB or any of its
Subsidiaries is a party have been timely made or have been reflected on UB's
financial statements. Neither any Pension Plan nor any ERISA Affiliate Plan has
an "accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Code or Section 302 of ERISA and all required payments to
the PBGC with respect to each Pension Plan or ERISA Affiliate Plan have been
made on or before their due dates. None of UB, any of its Subsidiaries or any
ERISA Affiliate (x) has provided, or would reasonably be expected to be required
to provide, security to any Pension Plan or to any ERISA Affiliate Plan pursuant
to Section 401(a)(29) of the Code, and (y) has taken any action, or omitted to
take any action, that has resulted, or would reasonably be expected to result,
in the imposition of a lien under Section 412(n) of the Code or pursuant to
ERISA.
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(v) Except as disclosed in Section 5.03(m)(v) of UB's Disclosure
Schedule, neither UB nor any of its Subsidiaries has any obligations to provide
retiree health and life insurance or other retiree death benefits under any
Compensation and Benefit Plan, other than benefits mandated by Section 4980B of
the Code. Except as disclosed in Section 5.03(m)(v) of UB's Disclosure Schedule,
there has been no communication to Employees by UB or any of its Subsidiaries
that would reasonably be expected to promise or guarantee such Employees retiree
health or life insurance or other retiree death benefits on a permanent basis.
(vi) UB and its Subsidiaries do not maintain any Compensation and
Benefit Plans covering foreign Employees.
(vii) With respect to each Compensation and Benefit Plan, if
applicable, UB has provided or made available to Park, true and complete copies
of existing: (A) Compensation and Benefit Plan documents and amendments thereto;
(B) trust instruments and insurance contracts; (C) two most recent Forms 5500
filed with the IRS; (D) most recent actuarial report and financial statement;
(E) most recent summary plan description; (F) forms filed with the PBGC within
the past year (other than for premium payments); (G) most recent determination
letter issued by the IRS; (H) any Form 5310, Form 5310A, Form 5300, or Form 5330
filed within the past year with the IRS; and (I) most recent nondiscrimination
tests performed under ERISA and the Code (including but not limited to Code
Section 401(k) and 401(m) tests).
(viii) Except as disclosed on Section 5.03(m)(viii) of UB's
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement would not, directly or indirectly (including, without limitation, as a
result of any termination of employment prior to or following the Effective
Time) reasonably be expected to (A) entitle any Employee, Consultant or Director
to any payment (including severance pay or similar compensation) or any increase
in compensation, (B) result in the vesting or acceleration of any benefits under
any Compensation and Benefit Plan or (C) result in any material increase in
benefits payable under any Compensation and Benefit Plan.
(ix) Except as disclosed on Section 5.03(m)(ix) of UB's Disclosure
Schedule, neither UB nor any of its Subsidiaries maintains any compensation
plans, programs or arrangements the payments under which would not reasonably be
expected to be deductible as a result of the limitations under Section 162(m) of
the Code and the regulations issued thereunder.
(x) Except as disclosed on Section 5.03(m)(x) of UB's Disclosure
Schedule, as a result, directly or indirectly, of the transactions contemplated
by this Agreement (including, without limitation, as a result of any termination
of employment prior to or following the Effective Time), none of Park, UB or the
Surviving Corporation, or any of their respective Subsidiaries will be obligated
to make a payment that would be characterized as an "excess parachute payment"
to an individual who is a "disqualified individual" (as such terms are defined
in Section 280G of the Code) of UB on a consolidated basis, without regard to
whether such payment is reasonable compensation for personal services performed
or to be performed in the future.
(n) LABOR MATTERS. Neither UB nor any of its Subsidiaries is a party to
or is bound by any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is UB or any of
its Subsidiaries the subject of a proceeding asserting that it or any such
Subsidiary has committed an unfair labor practice (within the meaning of the
National Labor Relations Act) or seeking to compel UB or any such Subsidiary to
bargain with any labor organization as to wages or conditions of employment, nor
is there any strike or other labor dispute involving it or any of its
Subsidiaries pending or, to UB's knowledge, threatened, nor is UB aware of any
activity involving its or any of its Subsidiaries' employees seeking to certify
a collective bargaining unit or engaging in other organizational activity.
Except as Previously Disclosed, neither UB nor any of its Subsidiaries is a
party to any employment or consulting agreement not terminable at will.
(o) TAKEOVER LAWS. UB has taken all action required to be taken by it
in order to exempt this Agreement and the transactions contemplated hereby from,
and this Agreement and the transactions contemplated hereby are exempt from, the
requirements of any "moratorium", "control share", "fair price", "affiliate
transaction", "business combination" or other antitakeover laws and regulations
of any state (collectively, "Takeover Laws")
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applicable to it, including, without limitation, the State of Ohio, with the
exception of any action required to be taken to comply with the requirements of
Section 1701.831 of the OGCL.
(p) ENVIRONMENTAL MATTERS. Neither the conduct nor operation of UB or
its Subsidiaries nor any condition of any property presently or previously
owned, leased or operated by any of them (including, without limitation, in a
fiduciary or agency capacity), or on which any of them holds a Lien ("UB
Properties"), violates or violated Environmental Laws, no condition has existed
or event has occurred with respect to any of them or any UB Property that, with
notice or the passage of time, or both, is reasonably likely to result in
liability under Environmental Laws. Neither UB nor any of its Subsidiaries has
received any notice from any person or entity that UB or its Subsidiaries or the
operation or condition of any property ever owned, leased, operated, or held as
collateral or in a fiduciary capacity by any of them are or were in violation of
or otherwise are alleged to have liability under any Environmental Law,
including, but not limited to, responsibility (or potential responsibility) for
the cleanup or other remediation of any pollutants, contaminants, or hazardous
or toxic wastes, substances or materials at, on, beneath, or originating from
any such property. None of the UB Properties has asbestos, urea formaldehyde, or
lead paint. None of the UB Properties is on any state or federal list of
properties suspected to contain hazardous wastes or Hazardous Substances, or has
or currently contain any underground storage tanks, above ground storage tanks,
manufactured gas activities, industrial/manufacturing activities, or the storage
of any Hazardous Substances (except in small quantities used in compliance with
all Environmental Laws for residential or commercial cleaning purposes). None of
the UB Properties is known by UB or any of its Subsidiaries to be within 500
feet of any property which has or had underground storage tanks, above ground
storage tanks, manufactured gas activities, industrial/manufacturing activities,
or the storage of any Hazardous Substances (except in small quantities used in
compliance with all Environmental Laws for residential or commercial cleaning
purposes). Neither UB nor any of its Subsidiaries has participated in the
management of any business or property owned, leased or controlled by any third
party which generated, managed, stored, treated or disposed of any Hazardous
Substances.
(q) TAX MATTERS. (i) All Tax Returns that are required to be filed by
or with respect to UB and its Subsidiaries have been duly and timely filed, and
all such Tax Returns are true, correct and complete (ii) all Taxes shown to be
due on the Tax Returns referred to in clause (i) have been paid in full, (iii)
the Tax Returns referred to in clause (i) have not been examined by the Internal
Revenue Service or the appropriate state, local or foreign taxing authority, and
no such examination has been threatened (iv) except for Tax Returns for fiscal
years ended on or after December 31, 1995, the period for assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired, (v) all deficiencies asserted or assessments made as a result of such
examinations have been paid in full, (vi) no issues that have been raised by the
relevant taxing authority in connection with the examination of any of the Tax
Returns referred to in clause (i) are currently pending, and (vii) no waivers of
statutes of limitation have been given by or requested with respect to any Taxes
of UB or its Subsidiaries. UB has made or will make available to Park true and
correct copies of the United States federal income Tax Returns filed by UB and
its Subsidiaries for each of the three most recent fiscal years ended on or
before December 31, 1998. Neither UB nor any of its Subsidiaries has any
liability with respect to Taxes that accrued on or before the end of the most
recent period covered by the UB Financial Statements in excess of the amounts
accrued with respect thereto that are reflected in the UB Financial Statements.
As of the date hereof, neither UB nor any of its Subsidiaries has any reason to
believe that any conditions exist that might prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
UB and its Subsidiaries have withheld or collected and paid over to the
appropriate governmental authorities or are properly holding for such payment
all Taxes required by law to be withheld or collected. There are no Liens for
Taxes upon the assets of UB or any of its Subsidiaries, other than Liens for
current Taxes not yet due and payable. Neither UB nor any of its Subsidiaries
has agreed to make, or is required to make, any adjustment under Section 481(a)
of the Code. Neither UB nor any of its Subsidiaries is a party to any agreement,
contract, arrangement or plan that has resulted, or could result, individually
or in the aggregate, in the payment of "excess parachute payments" within the
meaning of Section 280G of the Code. Neither UB nor any of its Subsidiaries has
ever been a member of an affiliated group of corporations, within the meaning of
Section 1504 of the Code, other than an affiliated group of which UB is or was
the common parent corporation.
(ii) No Tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfer contemplated by this Agreement.
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(iii) UB and its Subsidiaries will not be liable for any Taxes as a
result of the transfer contemplated by this Agreement.
(r) RISK MANAGEMENT INSTRUMENTS. All material interest rate swaps,
caps, floors, option agreements, futures and forward contracts and other similar
risk management arrangements, whether entered into for UB's own account, or for
the account of one or more of UB's Subsidiaries or their customers (all of which
are listed on UB's Disclosure Schedule), were entered into (i) in accordance
with prudent business practices and all applicable laws, rules, regulations and
regulatory policies and (ii) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of UB or one of its Subsidiaries, enforceable in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles), and is in full force and effect. Neither UB
nor its Subsidiaries, nor to UB's knowledge any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement.
(s) BOOKS AND RECORDS. The books and records of UB and its Subsidiaries
have been fully, properly and accurately maintained, have been maintained in
accordance with sound business practices and there are no inaccuracies or
discrepancies of any kind contained or reflected therein and they fairly reflect
the substance of events and transactions included therein.
(t) INSURANCE. UB's Disclosure Schedule sets forth all of the insurance
policies, binders, or bonds maintained by UB or its Subsidiaries and a
description of all claims filed against the insurers of UB and its Subsidiaries
since December 31, 1997. UB and its Subsidiaries are insured with reputable
insurers against such risks and in such amounts as the management of UB
reasonably has determined to be prudent in accordance with industry practices.
All such insurance policies are in full force and effect; UB and its
Subsidiaries are not in material default thereunder; and all claims thereunder
have been filed in due and timely fashion.
(u) ACCOUNTING TREATMENT. As of the date hereof, it is aware of no
reason why the Merger will fail to qualify for "pooling-of-interests" accounting
treatment.
(v) DISCLOSURE. The representations and warranties contained in this
Section 5.03, the UB Disclosure Schedule, and the other written materials
furnished by UB to Park pursuant to this Agreement do not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements and information contained therein not misleading in
light of the circumstances under which such statements were made.
(w) YEAR 2000. Neither UB nor any of its Subsidiaries has received, or
has reason to believe that it will receive, a written rating of less than
"satisfactory" on any Office of the Comptroller of the Currency or other
Regulatory Authority Year 2000 Report of Examination. UB has disclosed to Park a
complete and accurate copy of its plan, including an estimate of the anticipated
associated costs, for addressing the issues set forth in the statements of the
FFIEC dated May 5, 1997, entitled "Year 2000 Project Management Awareness," and
December 17, 1997, entitled "Safety and Soundness Guidelines Concerning the Year
2000 Business Risk," as such issues affect it and its Subsidiaries and such plan
is in material compliance with the schedule set forth in the FFIEC statements.
(x) MATERIAL ADVERSE CHANGE. UB has not, on a consolidated basis,
suffered a change in its business, financial condition or results of operations
since September 30, 1999.
(y) ABSENCE OF UNDISCLOSED LIABILITIES. Neither UB nor any of its
Subsidiaries has any liability (contingent or otherwise), except as disclosed in
the UB Financial Statements and except for liabilities and obligations incurred
since the Latest Statement Date in the ordinary course of business.
(z) PROPERTIES. UB and its Subsidiaries have good and marketable title,
free and clear of all liens, encumbrances, charges, defaults or equitable
interests to all of the properties and assets, real and personal, reflected in
the UB Financial Statements as being owned by UB as of September 30, 1999 or
acquired after such date, except (i) liens for current taxes in amounts not yet
due and payable, (ii) pledges to secure deposits and other liens incurred
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in the ordinary course of banking business, (iii) such imperfections of title,
easements, encumbrances, liens, charges, defaults or equitable interests, if
any, as do not affect the use of properties or assets subject thereto or
affected thereby or otherwise impair business operations at such properties,
(iv) dispositions and encumbrances in the ordinary course of business none of
which exceed $25,000 in the aggregate, and (v) liens on properties acquired in
foreclosure or on account of debts previously contracted. All leases pursuant to
which UB or any of its Subsidiaries, as lessee, leases real or personal property
(except for leases that have expired by their terms or that UB or any such
Subsidiary has agreed to terminate since the date hereof) are valid without
default thereunder by the lessee or, to UB's knowledge, the lessor. All of the
assets of UB and its Subsidiaries are in good operating condition and repair,
ordinary wear and tear excepted, and are adequate to continue to conduct the
business of UB and its Subsidiaries as such businesses are presently being
conducted.
(aa) LOANS. Each loan reflected as an asset in the UB Financial
Statements as of December 31, 1998 and each balance sheet date subsequent
thereto, other than loans the unpaid balance of which does not exceed $500,000
in the aggregate, (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interest which have
been perfected, and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. Except as Previously Disclosed, Bank is not a party to a loan,
including any loan guaranty, with any director, executive officer or 5%
shareholder of UB or any of its Subsidiaries or any person, corporation or
enterprise controlling, controlled by or under common control with any of the
foregoing. All loans and extensions of credit that have been made by Bank and
that are subject either to Section 22(g) or (h) of the Federal Reserve Act, as
amended, or to 12 C.F.R. Part 215, comply therewith.
(bb) ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflected
in the UB Financial Statements, as of their respective dates, is adequate under
the requirements of generally accepted accounting principles to provide for
reasonably anticipated losses on outstanding loans.
(cc) REPURCHASE AGREEMENTS. With respect to all agreements pursuant to
which UB or any of its Subsidiaries has purchased securities subject to an
agreement to resell, if any, UB or such Subsidiary, as the case may be, has a
valid, perfected first lien or security interest in or evidence of ownership in
book entry form of the government securities or other collateral securing the
repurchase agreement, and the value of such collateral equals or exceeds the
amount of the debt secured thereby.
(dd) DEPOSIT INSURANCE. The deposits of Bank are insured by the FDIC in
accordance with The Federal Deposit Insurance Act ("FDIA"), and Bank has paid
all assessments and filed all reports required by the FDIA.
5.04 REPRESENTATIONS AND WARRANTIES OF PARK. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule, if any, corresponding to the relevant paragraph below, Park hereby
represents and warrants to UB as follows :
(a) ORGANIZATION, STANDING AND AUTHORITY. Park is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio. Park is duly qualified to do business and is in good standing in the State
of Ohio and any foreign jurisdictions where its ownership or leasing of property
or assets or the conduct of its business requires it to be so qualified. Park is
registered as a bank holding company under the BHCA.
(b) PARK STOCK. (i) As of the date of this Agreement, the authorized
capital stock of Park consists of 20,000,000 common shares, without par value,
all of which shares are Park Common Stock, of which 9,275,660 shares are
outstanding and Park has declared a 5% share dividend payable on December 15,
1999 to shareholders of record on December 3, 1999. As of the date of this
Agreement, except as set forth in the Park SEC Documents and options granted by
Park since January 1, 1999, Park does not have any Rights issued or outstanding
with respect to Park Common Stock and Park does not have any commitment to
authorize, issue or sell any Park Common Stock or Rights, except pursuant to
this Agreement. The outstanding shares of Park Common Stock have been duly
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authorized and are validly issued and outstanding, fully paid and nonassessable,
and were not issued in violation of any preemptive rights.
(ii) The shares of Park Common Stock to be issued in exchange
for shares of UB Common Stock in the Merger, when issued in accordance with the
terms of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable and subject to no preemptive rights.
(c) CORPORATE POWER. Each of Park and its Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Park has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby.
(d) CORPORATE AUTHORITY; AUTHORIZED AND EFFECTIVE AGREEMENT. This
Agreement and the transactions contemplated hereby have been authorized by all
necessary corporate action of Park and the Park Board prior to the date hereof
and no shareholder approval is required on the part of Park. This Agreement is a
valid and legally binding agreement of Park, enforceable in accordance with its
terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of
general applicability relating to or affecting creditors rights or by general
equity principles).
(e) REGULATORY APPROVALS; NO DEFAULTS. (i) No consents or approvals of,
or filings or registrations with, any Governmental Authority or with any third
party are required to be made or obtained by Park or any of its Subsidiaries in
connection with the execution, delivery or performance by Park of this Agreement
or to consummate the Merger except for (A) the filing of applications or
notices, as applicable, with and the approval of certain federal banking
authorities; (B) the filing and declaration of effectiveness of the Registration
Statement; (C) the filing of the certificate of merger with the OSS pursuant to
the OGCL; (D) such filings as are required to be made or approvals as are
required to be obtained under the securities or "Blue Sky" laws of various
states in connection with the issuance of Park Common Stock in the Merger; and
(E) receipt of the approvals set forth in Section 7.01(b). As of the date
hereof, Park is not aware of any reason why the approvals set forth in Section
7.01(b) will not be received without the imposition of a condition, restriction
or requirement of the type described in Section 7.01(b).
(ii) Subject to the satisfaction of the requirements referred
to in the preceding paragraph and expiration of the related waiting periods, and
required filings under federal and state securities laws, the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (A) constitute a breach or
violation of, or a default under, or give rise to any Lien, any acceleration of
remedies or any right of termination under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Park or of any of its Subsidiaries or to which Park or any of
its Subsidiaries or properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the articles of incorporation or Code of
Regulations (or similar governing documents) of Park or any of its Subsidiaries,
or (C) require any consent or approval under any such law, rule, regulation,
judgment, decree, order, governmental permit or license, agreement, indenture or
instrument.
(f) FINANCIAL REPORTS AND SEC DOCUMENTS; MATERIAL ADVERSE EFFECT. (i)
Park's Annual Report on Form 10-K for the fiscal year ended December 31, 1998,
Park's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999,
June 30, 1999, and September 30, 1999, and all other reports, registration
statements, definitive proxy statements or other statements filed or to be filed
by it or any of its Subsidiaries with the SEC subsequent to December 31, 1998
under the Securities Act, or under Section 13, 14 or 15(d) of the Exchange Act,
in the form filed or to be filed (collectively, "Park SEC Documents") as of the
date filed, (A) complied or will comply in all material respects with the
applicable requirements under the Securities Act or the Exchange Act, as the
case may be, and (B) did not and will 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; and each of the balance sheets or
statements of condition contained in or incorporated by reference into any such
Park SEC Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the consolidated financial position of Park
and its Subsidiaries as of its date, and each of the statements of income or
results of operations and changes in shareholders' equity and cash flows or
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equivalent statements in such Park SEC Documents (including any related notes
and schedules thereto) fairly presents, or will fairly present, the consolidated
results of operations, changes in shareholders' equity and cash flows, as the
case may be, of Park and its Subsidiaries for the periods to which they relate,
in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as may be
noted therein, subject to normal year-end audit adjustments and the absence of
footnotes in the case of unaudited statements.
(ii) Since September 30, 1999, no event has occurred or
circumstance arisen that, individually or taken together with all other facts,
circumstances and events (described in any paragraph of Section 5.04 or
otherwise), is reasonably likely to have a Material Adverse Effect with respect
to Park.
(g) BROKERAGE AND FINDER'S FEES. Park has not employed any broker,
finder, or agent, or agreed to pay or incurred any brokerage fee, finder's fee,
commission or other similar form of compensation in connection with this
Agreement or the transactions contemplated hereby.
(h) TAKEOVER LAWS. Park has taken all action required to be taken by it
in order to exempt this Agreement and the transactions contemplated hereby from,
and this Agreement and the transactions contemplated hereby are exempt from, the
requirements of any Takeover Laws applicable to Park.
(i) ACCOUNTING TREATMENT. As of the date hereof, Park is aware of no
reason why the Merger will fail to qualify for "pooling-of-interests" accounting
treatment.
(j) DISCLOSURE. The representations and warranties contained in this
Section 5.04 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 5.04 not misleading in light of the
circumstances under which such statements were made.
(k) YEAR 2000. Neither Park nor any of its Subsidiaries has received,
or has reason to believe that it will receive, a written rating of less than
"satisfactory" on any Year 2000 Report of Examination of any Regulatory
Authority. Park has disclosed to UB a complete and accurate copy of its plan,
including an estimate of the anticipated associated costs, for addressing the
issues set forth in the statements of the FFIEC dated May 5, 1997, entitled
"Year 2000 Project Management Awareness," and December 17, 1997, entitled
"Safety and Soundness Guidelines Concerning the Year 2000 Business Risk," as
such issues affect it and its Subsidiaries, and such plan is in material
compliance with the schedule set forth in the FFIEC statements.
(l) MATERIAL ADVERSE CHANGE. Park has not, on a consolidated basis,
suffered a change in its business, financial condition or results of operations
since September 30, 1999 that has had a Material Adverse Effect on Park.
(m) DEPOSIT INSURANCE. The deposits of Park's bank subsidiaries are
insured by the FDIC in accordance with The Federal Deposit Insurance Act
("FDIA"), and said banks have paid all assessments and filed all reports
required by the FDIA.
ARTICLE VI
COVENANTS
6.01 REASONABLE BEST EFFORTS. Subject to the terms and conditions of
this Agreement, each of UB and Park agrees to use its reasonable best efforts in
good faith to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or desirable, or advisable under applicable
laws, so as to permit consummation of the Merger as promptly as practicable and
otherwise to enable consummation of the transactions contemplated hereby and
shall cooperate fully with the other party hereto to that end.
6.02 CARRY ON BUSINESS IN NORMAL MANNER. From the date of this
Agreement to the Effective Date, UB shall carry on its business in substantially
the same manner as heretofore and, without the written consent of
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Park, UB shall not (a) do any of the things which UB represents and warrants
herein have not been done since September 30, 1999 or the date hereof, as the
case may be, except as necessary to carry out this Agreement on the part of UB;
(b) take any action which would be inconsistent with any representation or
warranty of UB set forth herein or which would cause a breach of any such
representation or warranty if made at or immediately following such action; or
(c) engage in any lending activities other than in the ordinary course of
business consistent with past practice. UB shall send to Park via facsimile
transmission a copy of all loan presentations made to UB's Board at the same
time as such presentations are transmitted to said board and all other proposals
for loans in excess of $250,000 to enable one of Park's senior loan committee
members to review, comment and make reasonable recommendations to the loan
committee with respect to such loan presentations. UB shall consult with Park
prior to (x) hiring any full-time officer, other than replacement employees for
positions then existing and (y) purchasing any investment securities in an
amount exceeding $150,000 per transaction. UB will use its reasonable best
efforts to keep its business organizations intact, to keep available the
services of present employees, and to preserve the goodwill of customers,
suppliers, and others having business relations with them.
6.03 SHAREHOLDER APPROVAL. UB agrees to take, in accordance with
applicable law and the UB Articles and UB Code, all action necessary to convene
an appropriate meeting of its shareholders to consider and vote upon the
adoption of this Agreement and any other matters required to be approved or
adopted by UB's shareholders for consummation of the Merger (including any
adjournment or postponement, the "UB Meeting"), as promptly as practicable after
the Registration Statement is declared effective. The UB Board shall recommend
that its shareholders adopt this Agreement at the UB Meeting unless otherwise
necessary under the applicable fiduciary duties of the UB Board, as determined
by the UB Board in good faith after consultation with and based upon advice of
independent legal counsel.
6.04 REGISTRATION STATEMENT. (a) Park agrees to prepare pursuant to all
applicable laws, rules and regulations a registration statement on Form S-4 (the
"Registration Statement") to be filed by Park with the SEC in connection with
the issuance of Park Common Stock in the Merger (including the proxy statement
and prospectus and other proxy solicitation materials of UB constituting a part
thereof (the "Proxy Statement") and all related documents). UB agrees to
cooperate, and to cause its Subsidiaries to cooperate, with Park, its counsel
and its accountants, in preparation of the Registration Statement and the Proxy
Statement; and provided that UB and its Subsidiaries have cooperated as required
above, Park agrees to file the Registration Statement, which will include the
Proxy Statement (together, the "Proxy/Prospectus") with the SEC as promptly as
reasonably practicable. Each of UB and Park agrees to use all reasonable efforts
to cause the Proxy/Prospectus to be declared effective under the Securities Act
as promptly as reasonably practicable after filing thereof. Park also agrees to
use all reasonable efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities law or "Blue Sky" permits
and approvals required to carry out the transactions contemplated by this
Agreement. UB agrees to furnish to Park all information concerning UB, its
Subsidiaries, officers, directors and shareholders as may be reasonably
requested in connection with the foregoing.
(b) Each of UB and Park agrees, as to itself and its Subsidiaries, that
none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
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 and any
amendment or supplement thereto will, at the date of mailing to the UB
shareholders and at the time of the UB Meeting, as the case may be, 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 not misleading.
Each of UB and Park further agrees, if it shall become aware prior to the
Effective Date of any information furnished by it that would cause any of the
statements in the Registration Statement and the Proxy Statement to be false or
misleading with respect to any material fact, or to omit to state any material
fact necessary to make the statements therein not false or misleading, to
promptly inform the other party thereof and to take the necessary steps to
correct the Registration Statement and the Proxy Statement.
(c) Park agrees to advise UB, promptly after Park receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any
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stop order or the suspension of the qualification of Park Stock for offering or
sale in any jurisdiction, of the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information.
6.05 PRESS RELEASES. Each of UB and Park agrees that it will not,
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or AMEX rules.
6.06 ACCESS; INFORMATION. (a) UB agrees that upon reasonable notice and
subject to applicable laws relating to the exchange of information, it shall
afford Park and Park's officers, employees, counsel, accountants and other
authorized representatives, such access during normal business hours throughout
the period prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties,
personnel and to such other information as Park may reasonably request and,
during such period, UB shall furnish promptly to Park (i) a copy of each
material report, schedule and other document filed by it pursuant to federal or
state securities or banking laws, and (ii) all other information concerning the
business, properties and personnel of UB as Park may reasonably request.
(b) Each of UB and Park agrees that it will not, and will cause its
representatives not to, use any confidential information obtained pursuant to
this Agreement (as well as any other information obtained prior to the date
hereof in connection with the entering into of this Agreement) for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of law, each party will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Agreement (as well as any
other information obtained prior to the date hereof in connection with the
entering into of this Agreement) unless such information (i) was already known
to such party, (ii) becomes available to such party from other sources not known
by such party to be bound by a confidentiality obligation, (iii) is disclosed
with the prior written approval of the party to which such information pertains
or (iv) is or becomes readily ascertainable from published information or trade
sources. In the event that this Agreement is terminated or the transactions
contemplated by this Agreement shall otherwise fail to be consummated, each
party shall promptly cause all copies of documents or extracts thereof
containing information and data as to another party hereto to be returned to the
party which furnished the same. No investigation by either party of the business
and affairs of the other shall affect or be deemed to modify or waive any
representation, warranty, covenant or agreement in this Agreement, or the
conditions to either party's obligation to consummate the transactions
contemplated by this Agreement.
(c) During the period from the date of this Agreement to the Effective
Time, UB shall promptly furnish Park with copies of all monthly and other
interim financial statements produced in the ordinary course of business as the
same shall become available.
6.07 ACQUISITION PROPOSALS. (a) UB agrees that it shall not, and shall
cause its Subsidiaries and its and its Subsidiaries' officers, directors,
agents, advisors and affiliates not to, solicit or encourage inquiries or
proposals with respect to, or engage in any negotiations concerning, or provide
any confidential information to, or have any discussions with, any person
relating to, any Acquisition Proposal, subject to the extent that the UB Board
determines in good faith, after consultations with independent legal counsel
that it is required by its fiduciary duties to do so. It shall immediately cease
and cause to be terminated any activities, discussions or negotiations conducted
prior to the date of this Agreement with any parties other than Park with
respect to any of the foregoing and shall use its reasonable best efforts to
enforce any confidentiality or similar agreement relating to an Acquisition
Proposal. UB shall promptly (within 24 hours) advise Park following the receipt
by UB of any inquiries or information concerning an Acquisition Proposal and the
substance thereof (including the identity of the person making such Acquisition
Proposal), and advise Park of any material developments with respect to such
Acquisition Proposal immediately upon the occurrence thereof.
(b) SPECIAL FEE. In order to induce Park to enter into this Agreement
and to compensate Park for the time and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement and the
losses suffered by Park from foregone opportunities, if the Effective Time has
not occurred on or before September 30, 2000, and a "UB Special Event" (as
defined below) has occurred, UB shall pay to Park on September
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30, 2000, $1,000,000 in immediately available funds; provided, however, that if
prior to September 30, 2000, UB notifies Park that it cannot consummate the
Merger because of a UB Special Event, then UB shall pay to Park $1,000,000 in
immediately available funds within three business days following the date of
such notice.
For purposes of the foregoing, "UB Special Event" shall mean any of the
following to occur on or prior to September 30, 2000: (i) a Person which is not
an Affiliate of Park has publicly announced or proposed, or consummated a
purchase, exchange or tender offer for shares of UB Common Stock representing,
on a fully diluted basis, more than 10% of the outstanding shares of UB Common
Stock, which causes the Merger not to be consummated; or (ii) a Person that is
not an Affiliate of Park has entered into an agreement with respect to a merger,
share exchange, consolidation, reorganization, combination or similar
transaction involving UB or the Bank or a purchase, lease or other acquisition
of all or any significant portion of the assets of, or an equity interest (or an
option, warrant or securities convertible into an equity interest) from, UB or
the Bank; or (iii) UB shall have caused the Merger not to be consummated by
September 30, 2000 for the purposes of pursuing any proposal by any Person
concerning (i) or (ii) above; (iv) failure of UB directors to recommend the
Merger or withdrawal or modification or announced intention to not recommend the
Merger; (v) recommendation or approval by the UB Directors of another
Acquisition Proposal; or (vi) failure of UB to solicit proxies in favor of the
Merger.
(c) (i) Notwithstanding any other provisions of this Agreement, prior
to the receipt of the approval of the UB shareholders described in 7.01(a) the
Board of Directors of UB, to the extent required by its fiduciary obligations,
as determined in good faith by the Board of Directors based on the advice of
counsel, may withdraw or modify its approval of the recommendation of this
Agreement or the Merger, approve or recommend any Superior Proposal, enter into
an agreement with respect to such Superior Proposal and terminate this
Agreement, so long as concurrently with entering into any agreement with respect
to a Superior Proposal, UB pays, or causes to be paid, to Park the Special Fee
described in Section 6.07(b) hereof. "Superior Proposal" as used herein means
any bona fide written Acquisition Proposal made by a third party which the Board
of Directors of UB determines in its good faith judgement is reasonably capable
of being completed and that, taking into account all legal, financial,
regulatory and other aspects of the proposal and the Person making the proposal
would, if consummated, be more favorable to the UB shareholders from a financial
point of view than the Merger.
(ii) Prior to receipt of the UB shareholder approval described in
Section 7.01(a) hereof, to the extent required by the fiduciary obligations of
the Board of Directors of UB, UB may, upon receipt of an unsolicited Acquisition
Proposal, and in response to it, (i) furnish information with respect to UB and
the Bank to any Person pursuant to a customary confidentiality agreement (as
determined by UB's counsel) and answer questions about such information and (ii)
participate in negotiations regarding such unsolicited Acquisition Proposal.
6.08 AFFILIATE AGREEMENTS. (a) In the UB Disclosure Schedule and not
later than the 15th day prior to the mailing of the Proxy Statement, UB shall
deliver to Park a schedule of each person that, to the best of its knowledge, is
or is reasonably likely to be, as of the date of the UB Meeting, deemed to be an
"affiliate" of UB (each, a "UB Affiliate") as that term is used in Rule 145
under the Securities Act or SEC Accounting Series Releases 130 and 135. UB shall
use its reasonable best efforts to cause each person who may be deemed to be a
UB Affiliate (who has not executed and delivered to Park concurrently with the
execution of this Agreement) to execute and deliver to UB on or before the date
of mailing of the Proxy Statement an agreement in the form attached hereto as
Exhibit A.
6.09 TAKEOVER LAWS. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement to be subject to
requirements imposed by any Takeover Law and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect.
6.10 AMEX LISTING. Park shall file a listing application, or other
document or notice, as required by AMEX, with respect to the shares of Park
Common Stock to be issued to the holders of UB Common Stock in the Merger.
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6.11 REGULATORY APPLICATIONS. Park and UB and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to timely effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Each of Park and UB 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, and shall be provided in advance so as to reasonably exercise its
right to review in advance, all material written information submitted to any
third party or any Governmental Authority 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 it will consult with the other party hereto with
respect to the obtaining of all material permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other party apprised of the status of material matters
relating to completion of the transactions contemplated hereby.
6.12 COOPERATION WITH FILINGS. Each party agrees, upon request, to
furnish the other party with all information concerning itself, its
Subsidiaries, directors, officers and shareholders and such other matters as may
be reasonably necessary or advisable in connection with any filing, notice or
application made by or on behalf of such other party or any of its Subsidiaries
to any third party or Governmental Authority.
6.13 INDEMNIFICATION. (a) Following the Effective Date, Park shall
indemnify, defend and hold harmless the present directors, officers and
employees of UB and its Subsidiaries (each, an "Indemnified Party") against
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of actions or
omissions occurring on or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the fullest
extent that UB is required to indemnify (and advance expenses to) its directors,
officers, and employees under the laws of the State of Ohio and the UB Articles
as in effect on the date hereof; provided that any determination required to be
made with respect to whether an officer's, director's or employee's conduct
complies with the standards set forth under Ohio law and the UB Articles shall
be made by the court in which the claim, action, suit or proceeding was brought
or by independent counsel (which shall not be counsel that provides material
services to Park) selected by Park and reasonably acceptable to such officer,
director or employee.
(b) For a period of three years from the Effective Time, Park shall use
its reasonable best efforts to provide that portion of director's and officer's
liability insurance that serves to reimburse the present and former officers and
directors of UB or any of its Subsidiaries (determined as of the Effective Time)
(as opposed to UB) with respect to claims against such directors and officers
arising from facts or events which occurred before the Effective Time, on terms
no less favorable than those in effect on the date hereof; provided, however,
that Park may substitute therefor policies providing at least comparable
coverage containing terms and conditions no less favorable than those in effect
on the date hereof; provided, however that in no event shall Park be required to
expend more than 300 percent of the current amount expended by UB (the
"Insurance Amount") to maintain or procure such directors and officers insurance
coverage; provided, further that if Park is unable to maintain or obtain the
insurance called for by this Section 6.13(b), Park shall use its reasonable best
efforts to obtain as much comparable insurance as is available for the Insurance
Amount; and provided, further, that officers and directors of UB or any
Subsidiary may be required to make application and provide customary
representations and warranties to Park's insurance carrier for the purpose of
obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.13(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify Park thereof; provided that
the failure so to notify shall not affect the obligations of Park under Section
6.13(a) unless and to the extent that Park is actually prejudiced as a result of
such failure.
(d) If Park or any of its successors or assigns shall consolidate with
or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all
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of its assets to any entity, then and in each case, proper provision shall be
made so that the successors and assigns of Park shall assume the obligations set
forth in this Section 6.13.
6.14 OPPORTUNITY OF EMPLOYMENT; EMPLOYEE BENEFITS. The existing
employees of UB shall have the opportunity to continue as employees of Park or
one of its Subsidiaries, on the Effective Date; subject, however, to the right
of Park and its Subsidiaries to terminate any such employees for "cause." It is
understood and agreed that nothing in this Section 6.14 or elsewhere in this
Agreement shall be deemed to be a contract of employment or be construed to give
said employees any rights other than as employees at will under applicable law
and said employees shall not be deemed to be third-party beneficiaries of this
provision. From and after the Effective Time, UB employees shall continue to
participate in the UB employee benefit plans in effect at the Effective Time
unless and until Park, in its sole discretion, shall determine that UB employees
shall, subject to applicable eligibility requirements, participate in employee
benefit plans of Park and that all or some of the UB plans shall be terminated
or merged into certain employee benefit plans of Park. Notwithstanding the
foregoing, each UB employee shall be credited with years of UB (or predecessor)
service for purposes of eligibility and vesting (but not for benefit accrual
purposes) in the employee benefit plans of Park, and shall not be subject to any
exclusion or penalty for pre-existing conditions that were covered under UB's
welfare plans immediately prior to the Effective Date, or to any waiting period
relating to such coverage. If, after the Effective Date, Park adopts a new plan
or program for its employees or executives, then to the extent its employees or
executives receive past service credits for any reason, Park shall credit
similarly-situated employees and executives of UB with equivalent credit for
service with UB or its predecessors. The foregoing covenants shall survive the
Merger, and Park shall before the Effective Time adopt resolutions that amend
its tax-qualified retirement plans to provide for UB service credits referenced
herein.
6.15 NOTIFICATION OF CERTAIN MATTERS. UB shall give prompt notice to
Park of any fact, event or circumstance known to UB that (i) is reasonably
likely, individually or taken together with all other facts, events and
circumstances known to it, to result in any Material Adverse Effect with respect
to it or (ii) would cause or constitute a material breach of any of its
representations, warranties, covenants or agreements contained herein.
6.16 DIVIDEND COORDINATION. It is agreed by the parties hereto that
they will cooperate to assure that as a result of the Merger, during any
applicable period, there shall not be a payment of both a Park and a UB dividend
to former UB shareholders.
6.17 UB STOCK OPTIONS. Concurrently with the execution of this
Agreement, each holder of an outstanding option to purchase shares of UB Common
Stock ("UB Stock Option") under the U.B. Bancshares, Inc. Amended and Restated
1989 Non-Qualified Stock Option Plan and the U.B. Bancshares, Inc. 1998
Non-Qualified Stock Option Plan (the "UB Stock Option Plans") has delivered to
Park an executed letter under which such holder agrees to exercise all UB Stock
Options held by such holder as of or prior to the Effective Time. Park
acknowledges that the UB Stock Option Plans permit each holder of a UB Stock
Option, following UB shareholder approval of this Agreement to exercise the UB
Stock Options to acquire all shares of UB Common Stock covered by the UB Stock
Options, regardless of whether such right is presently vested.
6.18 ACCOUNTING AND TAX TREATMENT. Each of Park and UB agrees not to
take any actions subsequent to the date of this Agreement that would adversely
affect the ability to treat the Merger as a "pooling-of-interests" in accordance
with GAAP or UB or the shareholders of UB to characterize the Merger as a
tax-free reorganization under Section 368(a) of the Code, and each of Park and
UB agrees to take such action as may be reasonably required, if such action may
be reasonably taken to reverse the impact of any past actions which would
adversely impact the ability of Park or UB (as the case may be) to treat the
Merger as a "pooling-of-interests" for accounting purposes or for the Merger to
be characterized as a tax-free reorganization under Section 368(a) of the Code.
6.19 NO BREACHES OF REPRESENTATIONS AND WARRANTIES. Between the date of
this Agreement and the Effective Time, without the written consent of the other
party, each of Park and UB will not do any act or suffer any omission of any
nature whatsoever which would cause any of the representations or warranties
made in Article V of this Agreement to become untrue or incorrect in any
material respect.
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6.20 CONSENTS. Each of Park and UB shall use its best efforts to obtain
any required consents to the transactions contemplated by this Agreement.
6.21 INSURANCE COVERAGE. UB shall cause the policies of insurance
listed in the Disclosure Schedule to remain in effect between the date of this
Agreement and the Effective Date.
6.22 CORRECTION OF INFORMATION. Each of Park and UB shall promptly
correct and supplement any information furnished under this Agreement (including
supplements to Disclosure Schedules) so that such information shall be correct
and complete in all material respects at all times, and shall include all facts
necessary to make such information correct and complete in all material respects
at all times.
6.23 SUPPLEMENTAL ASSURANCES. (a) On the date the Registration
Statement becomes effective and on the Effective Date, UB shall deliver to Park
a certificate signed by its principal executive officer and its principal
financial officer to the effect, to such officers' knowledge, that the
information contained in the Registration Statement relating to the business and
financial condition and affairs of UB, does not 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 not misleading.
(b) On the date the Registration Statement becomes effective and on the
Effective Date, Park shall deliver to UB a certificate signed by its chief
executive officer and its chief financial officer to the effect, to such
officers' knowledge, that the Registration Statement (other than the information
contained therein relating to the business and financial condition and affairs
of UB) does not 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 not misleading.
6.24 PARK ACQUISITION PROPOSAL. Park shall not accept any offer from
any Person regarding an Acquisition Proposal (as defined in Section 1.01,
however, references therein to UB shall be deemed for purposes of this section
to refer to Park) unless such offer is expressly conditioned upon or the offeror
agrees to the performance by Park or its successor in interest of its
obligations under this Agreement. Park acknowledges that the restrictions and
agreements contained in this section are reasonable and necessary to protect the
legitimate interests of UB and that any violation of this section will cause
substantial and irreparable injury to UB that would not be quantifiable and for
which no adequate remedy would exist at law and agrees and consents to, in
addition to all other remedies which may be available to UB, the entry of an
injunction by any court of competent jurisdiction against consummation of any
transaction involving Park and another Person which does not comply with this
section until such transaction does comply with this section.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each of Park and UB to consummate the Merger is subject
to the fulfillment or written waiver by Park and UB prior to the Effective Time
of each of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement (including the Plan of Merger)
shall have been duly adopted by the requisite vote of the shareholders of UB.
(b) REGULATORY APPROVALS. All regulatory approvals required to
consummate the transactions contemplated hereby shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals or statute, rule, or
order shall contain any conditions, restrictions or requirements which Park
reasonably determines would either before or after the Effective Time (i) have a
Material Adverse Effect on Park and its Subsidiaries taken as a whole after
giving effect to the consummation of the Merger; or (ii) prevent Park from
realizing the major portion of the economic benefits of the Merger and the
transactions contemplated thereby that Park currently anticipates obtaining.
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(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced, threatened, commenced a
proceeding with respect to or entered any statute, rule, regulation, judgment,
decree, injunction or other order (whether temporary, preliminary or permanent)
prohibiting or delaying consummation of the transactions contemplated by this
Agreement.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) BLUE SKY APPROVALS. All permits and other authorizations under
state securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Park Common Stock to be issued in the Parent
Merger shall have been received and be in full force and effect.
(f) ACCOUNTING TREATMENT. Park shall have received from Ernst & Young,
LLP, Park's independent auditors, a letter, dated the date of or shortly prior
to the Effective Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment.
7.02 CONDITIONS TO OBLIGATION OF UB. The obligation of UB to consummate
the Merger is also subject to the fulfillment or written waiver by UB prior to
the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Park set forth in this Agreement shall be true and correct, subject to
Section 5.02, as of the date of this Agreement and as of the Effective Date as
though made on and as of the Effective Date (except that representations and
warranties that by their terms speak as of a specific date shall be true and
correct as of such date), and UB shall have received a certificate, dated the
Effective Date, signed on behalf of Park by the Chief Executive Officer and 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 Effective Time, and UB shall have received a
certificate, dated the Effective Date, signed on behalf of Park by the Chief
Executive Officer and the Chief Financial Officer of Park to such effect.
(c) TAX OPINION. UB shall have received an opinion of counsel to Park,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code and
(ii) no gain or loss will be recognized by shareholders of UB who receive shares
of Park Common Stock in exchange for shares of UB Common Stock, and cash in lieu
of fractional share interests, other than the gain or loss to be recognized as
to cash received in lieu of fractional share interests. In rendering its
opinion, counsel to Park will require and rely upon representations contained in
letters from UB and Park.
(d) OPINION OF PARK'S COUNSEL. UB shall have received an opinion of
Vorys, Sater, Seymour and Pease LLP, counsel to Park, dated the Effective Date,
to the effect that, on the basis of the facts, representations and assumptions
set forth in the opinion, (i) Park is a corporation in good standing under the
laws of the State of Ohio, (ii) this Agreement has been duly executed by Park
and constitutes the binding obligation of Park, enforceable in accordance with
its terms against Park, except as the same may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, and other similar
laws relating to or affecting the enforcement of creditors' rights generally, by
general equitable principles (regardless of whether enforceability is considered
in a proceeding in equity or at law) and by an implied covenant of good faith
and fair dealing and (iii) that the Park Common Stock to be issued as Merger
Consideration, when issued, shall be duly authorized, fully paid and
non-assessable, and (iv) that upon the filing of the certificate of merger with
the OSS, the Merger shall become effective.
(e) FAIRNESS OPINION. UB shall have received a fairness opinion from
Austin Associates, Inc., financial advisor to UB, dated as of a date reasonably
proximate to the date of the Proxy Statement, stating that the Merger
Consideration is fair to the shareholders of UB from a financial point of view.
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7.03 CONDITIONS TO OBLIGATION OF PARK. The obligation of Park to
consummate the Merger is also subject to the fulfillment or written waiver by
Park prior to the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of UB set forth in this Agreement shall be true and correct, subject to Section
5.02, as of the date of this Agreement and as of the Effective Date as though
made on and as of the Effective Date (except that representations and warranties
that by their terms speak as of a specific date shall be true and correct as of
such date) and Park shall have received a certificate, dated the Effective Date,
signed on behalf of UB by the Chief Executive Officer and the Chief Financial
Officer of UB to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF UB. UB shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Park shall have received a
certificate, dated the Effective Date, signed on behalf of UB by the Chief
Executive Officer and the Chief Financial Officer of UB to such effect.
(c) TAX OPINION. Park shall have received an opinion of its counsel,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger
constitutes a "reorganization" within the meaning of Section 368 of the Code. In
rendering its opinion, counsel to Park will require and rely upon
representations contained in letters from UB and Park.
(d) OPINION OF UB'S COUNSEL. Park shall have received an opinion of
Werner & Blank Co., LPA, counsel to UB, dated the Effective Date, to the effect
that, on the basis of the facts, representations and assumptions set forth in
the opinion, (i) UB is a corporation in good standing under the laws of the
State of Ohio, (ii) this Agreement has been duly approved by the UB Board and
duly adopted by the shareholders of UB, (iii) this Agreement has been duly
executed by UB and constitutes a binding obligation on UB, enforceable in
accordance with its terms against UB, except as the same may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and
other similar laws relating to or affecting the enforcement of creditors' rights
generally, by general equitable principles (regardless of whether enforceability
is considered in a proceeding in equity or at law) and by an implied covenant of
good faith and fair dealing, (iv) that upon the filing of the certificate of
merger with the OSS, the Merger shall become effective.
(d) AFFILIATE AGREEMENTS. Park shall have received the agreements
referred to in Section 6.07 from each UB Affiliate.
(e) CERTIFICATE OF MERGER. Park shall have received from UB a
certificate of merger duly executed by UB in accordance with Section 1701.81 of
the OGCL and in appropriate form for filing with the OSS.
(f) CORPORATE RESOLUTIONS. Park shall have received from UB copies of
resolutions adopted by the directors and shareholders of UB approving and
adopting this Agreement and authorizing the consummation of the transactions
described herein accompanied by a certificate of the secretary or assistant
secretary of UB dated as of the Effective Date and certifying (1) the date and
manner of adoption of each such resolution; and (2) that each such resolution is
in full force and effect, without amendment, as of the Effective Date.
ARTICLE VIII
TERMINATION
8.01 TERMINATION. This Agreement may be terminated, and the
Acquisition may be abandoned:
(a) MUTUAL CONSENT. At any time prior to the Effective Time, by the
mutual consent of Park and UB, if the Board of Directors of each so determines
by vote of a majority of the members of its entire Board.
(b) BREACH. At any time prior to the Effective Time, by Park or UB, in
the event of either: (i) a breach by the other party of any representation or
warranty contained herein (subject to the standard set forth in Section
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5.02); or (ii) a breach by the other party of any of the covenants or agreements
contained herein, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach,
provided that such breach would be reasonably likely, individually or in the
aggregate with other breaches, to result in a Material Adverse Effect.
(c) DELAY. At any time prior to the Effective Time, by Park or UB, if
its Board of Directors so determines by vote of a majority of the members of its
entire Board, in the event that the Merger is not consummated by September 30,
2000, except to the extent that the failure of the Merger then to be consummated
arises out of or results from the knowing action or inaction of the party
seeking to terminate pursuant to this Section 8.01(c).
(d) NO APPROVAL. By UB or Park, in the event (i) the approval of any
Governmental Authority required for consummation of the Merger and the other
transactions contemplated by this Agreement shall have been denied by final
nonappealable action of such Governmental Authority; (ii) the UB shareholders
fail to adopt this Agreement at the UB Meeting; or (iii) any of the closing
conditions have not been met as required by Article VII hereof.
(e) PARK COMMON STOCK. By notice given by UB to Park, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, at any time during the three-day period commencing with the Determination
Date if both of the following conditions are satisfied: (i) the Average Closing
Price on the Determination Date shall be less than $85.71; and (ii) the ratio of
the Average Closing Price to the Starting Price, rounded to the nearest one
one-hundredth, shall be less than the number obtained by dividing the Final
Index Price on the Determination Date by the Initial Index Price on the Starting
Date, rounding to the nearest one one-hundredth; except that the termination
notice by UB shall not be effective and this Agreement shall not be terminated
by such notice if Park gives notice to UB within five (5) days after UB's
notice, that Park agrees that for purposes of calculating the Exchange Ratio,
the number of Merger Shares shall be increased to the number determined by
dividing $27,900,000 by the Average Closing Price.
For purposes of this Section 8.01(e), the following terms shall have
the meanings indicated:
"Average Closing Price" shall mean the average of the closing prices of
a share of Park Common Stock on the AMEX (as reported in The Wall Street
Journal, or if not reported therein, in another authoritative source) during the
period of 20 trading days ending on the trading day prior to the Determination
Date, rounded to the nearest whole cent.
"Determination Date" shall mean the date on which the waiting period
expires following the last required approval of a Governmental Entity with
respect to the Merger.
"Final Index Price" shall mean the sum of the Final Price for each
company comprising the Index Group multiplied by the appropriate weighting.
"Final Price," with respect to any company belonging to the Index
Group, shall mean the average of the daily closing sales prices of a share of
common stock of such company, as reported on the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded, during the period of 20 trading days ending on the trading
day prior to the Determination Date.
"Index Group" shall mean the 17 bank holding companies listed below,
the common stock of which shall be publicly traded and as to which there shall
not have been a publicly announced proposal since the Starting Date and before
the Determination Date for any such company to be acquired. In the event that
the common stock of any such company ceases to be publicly traded or a proposal
to acquire any such company is announced after the Starting Date and before the
Determination Date, such company shall be removed from the Index Group, and the
weights (which have been determined based on the number of outstanding shares of
common stock and the market prices of such stock) attributed to the remaining
companies shall be adjusted proportionately for purposes of
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determining the Final Index Price. The 17 bank holding companies and the weights
attributed to them are as follows:
BANK HOLDING COMPANY TICKER WEIGHTING
-------------------- ------ ---------
FirstMerit Corporation FMER 5.882%
Provident Financial Group Inc. PFGI 5.882%
Old National Bancorp OLDB 5.882%
Citizens Banking Corporation CBCF 5.882%
Sky Financial Group Inc. SKYF 5.882%
Republic Bancorp Inc. RBNC 5.882%
First Financial Bancorp. FFBC 5.882%
1st Source Corporation SRCE 5.882%
National City Bancshares, Inc. NCBE 5.882%
Chemical Financial Corporation CHFC 5.882%
Irwin Financial Corporation IRWN 5.882%
Second Bancorp, Incorporated SECD 5.882%
First Merchants Corporation FRME 5.882%
BancFirst Ohio Corp. BFOH 5.882%
Capitol Bancorp Ltd. CBCL 5.882%
Independent Bank Corporation IBCP 5.882%
Peoples Bancorp Inc. PEBO 5.882%
"Index Price," on a given date, shall mean the weighted average
(weighted in accordance with the factors listed above) of the closing prices on
such date of the common stocks of the companies comprising the Index Group.
"Initial Index Price" shall mean the sum of each per share closing
price of the common stock of each company comprising the Index Group multiplied
by the applicable weighting, as such prices are reported on the consolidated
transactions reporting system for the market or exchange on which such common
stock is principally traded on the Starting Date.
"Starting Date" shall mean the last trading day immediately preceding
the date of the first public announcement of entry into this Agreement.
"Starting Price" shall mean the closing price of a share of Park Common
Stock on the AMEX (as reported in The Wall Street Journal, or if not reported
therein, in another authoritative source) on the Starting Date.
If any company belonging to the Index Group declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange of
shares or similar transaction between the Starting Date and the Determination
Date, the prices for the common stock of such company shall be appropriately
adjusted for the purposes of applying this Section 8.01(e).
8.02 EFFECT OF TERMINATION AND ABANDONMENT; ENFORCEMENT OF AGREEMENT.
In the event of termination of this Agreement and the abandonment of the Merger
pursuant to this Article VIII, no party to this Agreement shall have any
liability or further obligation to any other party hereunder except (i) as set
forth in Section 9.01 and (ii) that termination will not relieve a breaching
party from liability for any breach of this Agreement
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giving rise to such termination. Notwithstanding anything contained herein to
the contrary, the parties hereto agree that irreparable damage will occur in the
event that a party breaches any of its obligations, duties, covenants and
agreements contained herein. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches or threatened
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled by law or in equity.
ARTICLE IX
MISCELLANEOUS
9.01 SURVIVAL. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than
Sections 6.13, 6.14 and 6.17 and this Article IX which shall survive the
Effective Time) or the termination of this Agreement if this Agreement is
terminated prior to the Effective Time (other than Sections 6.04(b), 6.05,
6.06(b), 6.07, 8.02, and this Article IX which shall survive such termination).
9.02 WAIVER; AMENDMENT. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefited by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that after
the UB Meeting, this Agreement may not be amended if it would violate the OGCL
or the federal securities laws.
9.03 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Ohio applicable to
contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law are applicable).
9.05 EXPENSES. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby,
except that printing and mailing expenses shall be shared equally between UB and
Park. All fees to be paid to Regulatory Authorities and the SEC in connection
with the transactions contemplated by this Agreement shall be borne by Park.
9.06 NOTICES. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to UB, to:
U.B. Bancshares, Inc.
401 South Sandusky Street
Bucyrus, Ohio 44820
Attn: Joe D. Donithen
President
With a copy to:
Werner & Blank Co., LPA
7205 West Central Avenue
Toledo, Ohio 43617
Attn: Edwin L. Herbert, Esq.
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If to Park, to:
Park National Corporation
50 North Third Street
Newark, Ohio 43055
Attn: C. Daniel DeLawder
President
With a copy to:
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
P.O. Box 1008
Columbus, Ohio 43216-1008
Attn: Charles S. DeRousie, Esq.
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and this Agreement supersedes any and all other
oral or written agreements heretofore made. The Disclosure Schedules shall be
deemed to be a part of this Agreement and shall not be amended without the prior
written consent of the other party hereto. Nothing in this Agreement, whether
express or implied, is intended to confer upon any person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
9.08 INTERPRETATION; EFFECT. 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 are not part 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."
9.09 WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or related to this Agreement or the transactions contemplated
hereby.
9.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, including but not limited to, with respect to Park, any acquiring party
pursuant to Section 6.25 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
PARK NATIONAL CORPORATION
By: /s/ C. Daniel DeLawder
----------------------------------
Name: C. Daniel DeLawder
Title: President
U. B. BANCSHARES, INC.
By: /s/ Joe D. Donithen
----------------------------------
Name: Joe D. Donithen
Title: President
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Exhibit and Schedule to
Agreement and Plan of Merger
dated as of December 14, 1999
by and between
Park National Corporation
and U.B. Bancshares, Inc.
-------------------------
1. Exhibit A - Form of U.B. Bancshares Affiliate Agreement.
2. Disclosure Schedule.
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APPENDIX B
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Amendment, dated as of the date specified below, is by and between
Park National Corporation ("Park") and U.B. Bancshares, Inc. ("UB").
RECITALS
A. Park and UB have entered into an Agreement and Plan of Merger dated as
of December 14, 1999 (the "Agreement").
B. Terms used but not defined herein will have the meanings defined for
them in the Agreement.
C. Section 3.01(a) of the Agreement sets forth the Exchange Ratio with
respect to the Merger, the method of computation of the Exchange Ratio stating
that it will equal a number rounded to the nearest hundredth.
D. Park and UB desire to amend the Agreement so that the Exchange Ratio
is more precise.
TERMS OF AMENDMENT
In consideration of the premises and of the mutual covenants contained
herein, Park and UB agree to amend Section 3.01(a) of the Agreement so that it
reads in its entirety as follows:
(a) OUTSTANDING UB COMMON STOCK AND UB RIGHTS. Each share, excluding
Treasury Stock, of UB Common Stock issued and outstanding immediately prior to
the Effective Time and each share of UB Common Stock covered by a UB Stock
Option exercised as of or prior to the Effective Time (pursuant to the letters
described in Section 6.17) shall be cancelled and extinguished and, in
substitution and exchange therefor, the holders shall be entitled to receive
that number of shares of Park Common Stock (the "Exchange Ratio") equal to a
number obtained by dividing 325,500 ("Merger Shares") by the total of (i) the
number of shares of UB Common Stock outstanding immediately prior to the
Effective Time, and (ii) all shares of UB Common Stock which may be acquired
upon the exercise of UB Stock Options in effect immediately prior to the
Effective Time. The Exchange Ratio shall be subject to adjustment as set forth
in Section 3.05.
The Agreement otherwise remains unchanged.
This Amendment may be signed in a number of counterparts, each of which
will be considered to be an original and when taken together will constitute one
document.
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Dated as of February 14, 2000.
PARK NATIONAL CORPORATION
By: /s/ John W. Kozak
Name: John W. Kozak
Title: Chief Financial Officer
U.B. BANCSHARES, INC.
By: /s/ Joe D. Donithen
Name: Joe D. Donithen
Title: President
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<PAGE> 112
APPENDIX C
Annual Report to Shareholders for
Fiscal Year Ended December 31,1999
It's getting harder to read stockholders' letters these days. To read and make
sense of them, that is. It used to be that if the letter opened by saying, "Last
year was a year of rebuilding..." or, "Your management team spent this past year
aggressively re-engineering your company to position it to meet the challenges
of the future..." or something like that, then you knew immediately that
earnings were down. But, if the letter began: "This was a year of record
earnings..." then you might safely assume that something good had happened. Not
so any more. Nowadays, you have to read further; and then be on your guard. The
more gobbledygook you run into, the more likely it is that things didn't go well
last year.
For instance, a letter might begin something like this:
We just had a record year -- even though the figures the accountants prepare
for this report don't show it. It's true that the figure reported as "net
income" is down, but that doesn't give a fair picture of the progress we've
made. There were a number of NON-RECURRING items that distorted the real
results -- the results from CONTINUING OPERATIONS (or ONGOING OPERATIONS).
Although we had to charge off a bunch of bad loans, that's certainly not
going to happen every year. Another ONE-TIME EVENT was the visit from the
tax folks when they insisted that we pay some back taxes that got overlooked
inadvertently. And, of course, we took a RESTRUCTURING CHARGE against income
to account for the overpayment for several of last year's acquisitions.
Except for these and a few other minor reporting problems, last year was a
record year.
This, of course, is an exaggeration. Perhaps not as much of an exaggeration as
you might imagine. A stockholders' letter should enlighten, not confuse. It
should do more than just reiterate the numbers. They all appear elsewhere in the
report. Rather, the letter should help the reader who is not trained in
accounting and finance to understand what happened to the company and what that
means.
Well, with all that as a preamble, what we want to report to you is that 1999
was a good year for Park National Corporation. And what that means in financial
terms is that earnings (any way you care to measure them) were up and that, when
compared with our peers, Park National looked very good indeed. Specifically,
net income totaled $45.7 million last year versus $41.6 million the year before,
an increase of 10.0 percent. On a per share basis the increase was somewhat
greater, 10.7 percent. The reason for the difference is that we (the
corporation) purchased some of our own shares last year so that there were fewer
outstanding at the end of the year than at the beginning. An incidental result
of these purchases is that each of us who did not sell now has a larger
proportionate ownership of the place -- not much larger, but a little.
Now, before leaving off talking about earnings, we must, with apologies,
introduce some gobbledygook. You will notice several places in this report that
per share net income is reported as $4.67 in 1999 and $4.22 in 1998. If by
chance you should look back at last year's report, you would see that we told
you then that we had earned $4.43 (not $4.22). What gives? This year's earnings,
indeed all this year's per share data have been adjusted for the 5 percent stock
dividend paid in December.
Cash dividends paid in 1999 were up sharply. They increased 25 percent.
In terms of total resources, the corporation grew by 7 percent last year.
However, this growth was not balanced. In its simplest terms, our business can
be described as receiving deposits and making loans. In other words, the
deposits entrusted to us fund the loans we make in our communities. For some
years now our loans have been growing faster than our deposits. Last year while
deposits grew less than 4 percent, loans increased almost 12 percent. Our
situation is not unique. Most banks face the same challenge. Regardless, we have
to figure out how to resolve this situation for ourselves. It doesn't do much
good to excuse ourselves by saying that many other banks are in the same boat,
if the boat is taking on water. During this current year we are making a
particular effort to balance our growth by placing more attention on attracting
deposits. We probably won't achieve parity this year but we intend to move in
that direction.
There are three ratios that we follow closely in trying to measure our
performance:
- - The first is Return on Equity. Equity represents the stockholders' ownership,
and return is the earnings we produce. Therefore, when the earnings are
expressed as a percentage of the ownership, or your investment in the company,
the resulting ratio provides an indication of how effectively your investment
is being managed. Our return on equity has consistently been in the top 10
percent of banks our size across the country. It increased in 1999 to 19.43
percent.
- - Another measure of the efficiency of management in profitably employing
resources is Return on Assets. Here the denominator is the total assets of the
institution and the numerator the earnings. The best banks earn in excess of
1.5 percent on assets. In 1999 the return on assets of Park National
Corporation was 1.82 percent, up slightly from 1.78 percent the year before.
This ratio will not increase each year. We will be very satisfied if we can
maintain it near this level.
- - Finally, we look carefully at our Efficiency Ratio. This is a measure of
expense control and, as you might therefore imagine, less is better. For the
industry, the efficiency ratio ranges all over the place -- from perhaps 40 to
70 percent. Ours was 46.39 percent in 1999, down from 48.01 percent in 1998.
That's pretty good, but we would like it to be better.
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A number of significant things happened last year, and while it isn't practical
to describe each of them, we want to mention a few. Certainly the most
newsworthy were the announcements in December of our agreements to acquire the
United Bank in Bucyrus and the Second National Bank in Greenville. We should
have known that, after spending a good bit of space in last year's letter
explaining why we were not active in the mergers and acquisition arena, we would
land two this year.
The Bucyrus bank is easily understood. It fits the profile of our other
affiliates as a first-rate county seat bank located adjacent to a county where
we are already doing business. The Greenville bank, on the other hand, is
located in the far western part of Ohio, well away from any market we now serve.
Aside from the geography, however, the Second National Bank has everything we
are looking for. The bank is well run by a management team whose banking
philosophy closely parallels our own.
Both of these new affiliates present us with significant and exciting new
opportunities. For business relationships to be successful in the long run, it
is necessary for all parties to benefit. The opportunities we envision fit this
pattern. Our experience has been that we can learn a great deal from the banks
with which we affiliate and they in turn can learn from us. We already have in
place, transition teams with members from the new banks working with people from
our other affiliates. Theirs is a major job, but we believe it is time well
spent in order to achieve a smooth merger that is transparent to the customers
of our new banks and relatively stress free for our new associates.
We anticipate that both the United Bank and the Second National Bank will be
able to offer new products and services to their customers as a result of their
affiliation with Park National Corporation. For example, neither bank has a
trust department. We will develop trust services in these new markets. Trust
business is important to all our banks; we surpassed $1.7 billion in trust
assets managed at year-end.
We hope to complete these two mergers early in the second quarter of 2000.
There are two things left to be said about Y2K. The first is that it came off
without a hitch, thanks to the dedication and hard work of lots of people from
all of our affiliate banks as well as our data processing unit, Consolidated
Computer Center, all led by Dave Bowers. The second is that we may never mention
it again.
Several new initiatives have been launched in recent years, and by and large
they are doing very well. The folks at Scope Leasing, our aircraft leasing and
finance subsidiary, have done an extraordinary job. Scope's receivables passed
$55 million in 1999.
In 1998 we entered the municipal finance business and this year founded a
consumer finance company. Both are off to a good start.
To remain competitive we continue to invest significantly in technology. Last
year we spent a lot to upgrade over 200 personal computers and 40 file servers
plus for updates to our mainframe and its software. In addition, we invested an
untold number of hours of staff time over several years in the development of a
tool that provides commercial customers with complete access to their accounts
from computers in their offices. Currently we are preparing to introduce
Internet banking. It should be ready in a few months.
Last year we talked about the transfer of leadership throughout the company.
Another step in this process occurred in 1999. Tim Lehman moved from the
management of the audit function for the corporation to replace Bill Jilek as
CEO of the Richland Bank. Bill was responsible for the management of the
Richland Bank for 22 years during which time it was owned by three different
bank holding companies. Bill served several masters with loyalty and grace. He
provided leadership not only to the bank but also to the entire Richland County
community.
Looking forward, we see great opportunities. We intend to focus this year on the
fundamentals of our business, on blocking and tackling as it were. As stated
above, we are anxious to expand our deposit base. We want to continue to grow
our portfolio of good loans, and to search out new opportunities in each of the
markets we serve. Delivering the highest level of quality service to our
customers will continue to distinguish each of our banks. While such a goal is
not easily achieved, and never achieved completely, we intend to help our
associates understand how we are different and why that difference is so
important to our continuing success.
We thank you all for your support. As we have said often in the past, there is
no better way to lend support to the bank you own than to do business (as much
as possible) with it.
/s/ William T. McConnell
WILLIAM T. MCCONNELL
Chairman
/s/ C. Daniel DeLawder
C. DANIEL DELAWDER
President
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<PAGE> 114
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of the
financial condition and results of operations for Park National Corporation
("Park" or the "Corporation"). This discussion should be read in conjunction
with the consolidated financial statements and related footnotes and the
five-year summary of selected financial data. Management's discussion and
analysis contains forward-looking statements that are provided to assist in the
understanding of anticipated future financial performance. These forward-looking
statements involve significant risks and uncertainties including changes in
general economic and financial market conditions, and the Corporation's ability
to execute its business plans. Although Park believes that the expectations
reflected in the forward-looking statements are reasonable, actual results may
differ materially. Undue reliance should not be placed on the forward-looking
statements, which speak only as of the date hereof. The Corporation does not
undertake any obligation to publicly update any forward-looking statement.
OVERVIEW
Net income for 1999 was $45.7 million, the highest in Park's thirteen year
history as a bank holding company. This represents a 10.0% increase over net
income of $41.6 million for 1998. Net income per share was $4.67 for 1999, up by
10.7% over the $4.22 net income per share for 1998. Net income has increased at
an annual compound growth rate of 12.7% over the last five years, and net income
per share has grown at an annual compound growth rate of 13.0% over the same
period.
The Corporation's Board of Directors approved a 5% stock dividend in November
1999. The additional common shares resulting from the dividend were distributed
on December 15, 1999 to stockholders of record as of December 3, 1999. The
consolidated financial statements, notes and other references to share and per
share data have been retroactively restated for the stock dividend.
Effective with the fourth quarter of 1999, the quarterly cash dividend on common
stock was increased to $.65 per share. The new annualized cash dividend of $2.60
per share is 13.8% greater than the cash dividend paid in 1999. 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 20.4%.
Park's business strategy is geared toward maximizing the return to stockholders.
The Corporation's common stock value has appreciated 21.6% annually on a
compounded, total return basis for the last five years and 24.8% annually for
the past ten years. The December 31, 1999 value of a $1,000 investment on
December 31, 1994 and a $1,000 investment on December 31, 1989 would be $2,663
and $9,164, respectively, inclusive of the reinvestment of dividends in the
Corporation's stock.
On May 5, 1997, Park merged with First-Knox Banc Corp. ("First-Knox"), a $569
million bank holding company headquartered in Mount Vernon, Ohio, in a
transaction accounted for as a pooling-of-interests. Park issued 2.3 million
shares of common stock to the stockholders of First-Knox based upon an exchange
ratio of .5914 shares of Park common stock for each outstanding share of
First-Knox common stock. The historical financial statements of Park have been
restated to show Park and First-Knox on a combined basis.
PENDING ACQUISITIONS
On December 14, 1999, Park entered into an Agreement and Plan of Merger with
U.B. Bancshares, Inc. (UB), a $180 million bank holding company headquartered in
Bucyrus, Ohio, providing for a merger of UB into the Corporation. Under terms of
the UB Merger Agreement, the stockholders of UB are expected to receive .554
shares of Park common stock for each outstanding share of UB in a tax free
exchange. The Corporation expects to issue an aggregate of 325,500 shares of
common stock to complete the merger which will be accounted for as a
pooling-of-interests. Completion of the merger is subject to various conditions,
including the approval of bank regulators and other governmental agencies, the
approval of stockholders of UB, and other conditions to closing, customary of a
transaction of this type. The merger is expected to be completed during the
second quarter of 2000.
On December 17, 1999, Park entered into an Agreement and Plan of Merger with SNB
Corp. (SNB), a $300 million bank holding company headquartered in Greenville,
Ohio, providing for a merger of SNB into the Corporation. Under terms of the SNB
Merger Agreement, the stockholders of SNB are expected to receive 5.37 shares of
Park common stock for each outstanding share of SNB in a tax free exchange. The
Corporation expects to issue an aggregate of 835,500 shares of common stock to
complete the merger which will be accounted for as a pooling-of-interests.
Completion of the merger is subject to various conditions, including the
approval of bank regulators and other governmental agencies, the approval of
stockholders of SNB, and other conditions to closing, customary of a transaction
of this type. The merger is expected to be completed during the second quarter
of 2000.
ABOUT OUR BUSINESS
Through its banking subsidiaries, Park is engaged in the commercial banking and
trust business, generally in small to medium population Ohio communities.
Management believes there is a significant number of consumers and businesses
which seek long-term relationships with community-based financial institutions
of quality and strength. While not engaging in 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, consumer and commercial leases, and investment and
deposit services. Familiarity with the local market, coupled with conservative
loan underwriting standards, has allowed the Corporation to achieve solid
financial results even in periods where there have been weak economic
conditions.
The Corporation has produced performance ratios which compare favorably to peer
bank holding companies in terms of equity and asset returns, capital adequacy
and asset quality. Continued strong 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 fifty-nine full- service offices
and a network of sixty-five automatic teller machines in fifteen central and
southern Ohio counties.
A table of financial data of the Corporation's affiliates for 1999, 1998, and
1997 is shown below. See Footnote 19 to the financial statements for additional
financial information on the Corporation's affiliates.
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TABLE 1 - PARK NATIONAL CORPORATION AFFILIATE FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1999 1998 1997
Average Net Average Net Average Net
(In thousands) Assets Income Assets Income Assets Income
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Park National Bank:
Park National
Division $ 883,680 $20,411 $ 812,688 $18,333 $ 716,356 $20,013
Fairfield National
Division 281,893 4,209 263,729 4,254 202,681 3,893
Richland Trust Company 415,528 5,085 405,646 5,006 385,469 5,195
Century National Bank 388,616 5,688 359,774 6,332 348,861 5,805
First-Knox National Bank:
First-Knox National
Division 509,143 8,765 477,663 7,541 502,723 2,516
Farmers and Savings
National Division 63,160 903 62,955 960 60,189 512
Parent Company,
including consolidating
entries (24,530) 686 (46,972) (854) 3,303 (241)
- ------------------------------------------------------------------------------------------------
Consolidated
Totals $2,517,490 $45,747 $2,335,483 $41,572 $2,219,582 $37,693
- ------------------------------------------------------------------------------------------------
</TABLE>
RETURN ON EQUITY
The Corporation's primary financial goal is to achieve a superior, long-term
return on stockholders' equity. The Corporation measures performance in its
attempts to achieve this goal against its peers, defined as all U.S. bank
holding companies between $1 billion and $3 billion in assets. At year-end 1999,
there were approximately 155 bank holding companies in this peer group. The
Corporation's net income to average equity ratio (ROE) was 19.43%, 18.35% and
18.21% in 1999, 1998, and 1997, respectively. In the past five years, the
Corporation's ROE exceeded the mean and median return of the peer group by a
substantial margin. Park's return on equity ratio has averaged 17.88% over the
past five years.
[GRAPH]
HISTORICAL COMPARISON OF RETURN ON AVERAGE EQUITY
1995 1996 1997 1998 1999
Park 16.52% 16.88% 18.21% 18.35% 19.43%
Peer Mean 12.58% 13.55% 14.19% 13.63% 13.84%*
*as of 09/30/99
BALANCE SHEET COMPOSITION
Park 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 noninterest bearing and interest bearing deposits, excluding
certificates of deposit of $100,000 and over which have been less than 16% of
total deposits for each of the last three years. In 1999, year-end total
deposits increased by $75 million or 3.9% compared to an increase of $85 million
or 4.6% for 1998. Approximately $15 million of the 1999 increase resulted from
the purchase of a bank branch office in Utica, Ohio in September 1999.
Increases in noninterest bearing deposits were experienced in all three years,
primarily from commercial and public fund depositors.
Maturity of time certificates of deposit and other time deposits of $100,000 and
over as of December 31, 1999 were:
TABLE 2 - OVER $100,000 MATURITY SCHEDULE
- -----------------------------------------------------------
DECEMBER 31, 1999 TIME CERTIFICATES
(IN THOUSANDS) OF DEPOSIT
- -----------------------------------------------------------
3 months or less $171,423
Over 3 months through 6 months 52,872
Over 6 months through 12 months 53,431
Over 12 months 35,485
- ------------------------------------------------------------
Total $313,211
- ------------------------------------------------------------
SHORT-TERM BORROWINGS: Short-term borrowings consist of securities sold under
agreements to repurchase, Federal Home Loan Bank advances, federal funds
purchased, and other borrowings. These funds are used to manage the
Corporation's liquidity needs and interest rate sensitivity risk. The average
rate paid on short-term borrowings generally moves closely with changes in
market interest rates for short-term investments. The average rate paid on
short-term borrowings was 4.61%, 4.77% and 4.76% for 1999, 1998 and 1997,
respectively. By comparison, the average federal funds rate was 4.97%, 5.35% and
5.46% for 1999, 1998 and 1997, respectively. In 1999, average short-term
borrowings were $295 million compared to $190 million in 1998 and $163 million
in 1997. The increase in average short-term borrowings in 1999 and 1998 was
needed to help fund the increase in the average balance of loans and investments
and to repay long-term debt. Average short-term borrowings were less than 12% of
average assets in all years.
LONG-TERM DEBT: Long-term debt is a result of borrowings from the Federal Home
Loan Bank. These borrowings were reduced in 1999, 1998 and late 1997 as more
attractive rates were available in short-term markets.
STOCKHOLDERS' EQUITY: The ratio of average stockholders' equity to average total
assets was 9.35% in 1999, 9.70% in 1998 and 9.33% in 1997.
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 accumulated other income which is part of
the Corporation's equity. While the effects 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 $(7.5), $7.5, and $7.0 million at year-end 1999, 1998 and 1997,
respectively.
INVESTMENT OF FUNDS
LOANS: Average loans, net of unearned income, were $1,715 million in 1999
compared to $1,601 million in 1998 and $1,528 million in 1997. The average yield
on loans was 8.85% in 1999 compared to 9.25% in 1998 and 9.36% in 1997. The
average prime lending rate in 1999 was 7.99% compared to 8.35% in 1998 and 8.44%
in 1997. Approximately 66% of loan balances mature or reprice within one year.
This results in the interest rate yield on the loan portfolio adjusting with
changes in interest rates, but on a delayed basis.
Year-end loan balances, net of unearned income, increased by $192 million or
11.7% in 1999 and by $50 million or 3.1% in 1998. Consumer loans increased by
$76 million or 22.7% to $408 million at year-end 1999 compared to an increase of
$19 million or 6.0% for 1998. Total lease outstandings increased by $57 million
or 93.4% to $117 million at year-end 1999 compared to an increase of $26 million
or 73.1% for 1998. These large
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increases in 1999 were primarily due to strong demand for automobile loans and
leases. As a percentage of assets, year-end loan balances were 69.6%, 66.7% and
69.6% in 1999, 1998 and 1997, respectively.
Table 3 reports year-end loan balances by type of loan for the past five years.
TABLE 3 - LOANS BY TYPE
- --------------------------------------------------------------------------------
DECEMBER 31,
(IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Commercial,
financial and
agriculture $ 236,718 $ 217,504 $ 212,970 $ 224,912 $ 211,535
Real estate -
construction 72,968 70,998 65,548 70,359 52,084
Real estate -
residential 693,930 679,239 708,768 617,018 585,739
Real estate -
commercial 305,193 280,789 256,074 215,372 200,675
Consumer, net 407,849 332,320 313,517 320,831 282,618
Leases, net 117,290 60,662 35,050 23,532 22,717
- --------------------------------------------------------------------------------
Total Loans $1,833,948 $1,641,512 $1,591,927 $1,472,024 $1,355,368
- --------------------------------------------------------------------------------
TABLE 4 - SELECTED LOAN MATURITY DISTRIBUTION
- ----------------------------------------------------------------------------
OVER ONE OVER
DECEMBER 31, 1999 ONE YEAR THROUGH FIVE
(IN THOUSANDS) OR LESS FIVE YEARS YEARS TOTAL
- ----------------------------------------------------------------------------
Commercial, financial and
agriculture $95,142 $65,996 $ 75,580 $236,718
Real estate - construction 34,010 4,597 34,361 72,968
- ----------------------------------------------------------------------------
Total $129,152 $70,593 $109,941 $309,686
- ----------------------------------------------------------------------------
Total of these selected loans
due after one year with:
Fixed interest rate $ 52,972
Floating interest rate $127,562
- ----------------------------------------------------------------------------
INVESTMENT SECURITIES: The Corporation's securities portfolio is structured to
provide liquidity and contribute to earnings. The Corporation classifies
approximately 99% 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 comprehensive other income which is part of 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 reevaluates 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. Park realized security losses of
$3.6 million in 1999 compared to a gain of $97,000 in 1998 and a loss of $7,000
in 1997. Interest rates on U.S. Treasury securities with a five year maturity
increased to 6.36% at December 31, 1999 compared to 4.56% at December 31, 1998.
This increase in interest rates provided the Corporation with an opportunity to
realize security losses and reinvest at higher interest rates. The Corporation's
strategy has generally been to reinvest the proceeds from the sale of securities
at a loss into higher yielding securities with modest extension of maturities.
The average yield on taxable investment securities was 6.61%, 6.91%, and 7.00%
for 1999, 1998, and 1997, respectively. The average maturity or repricing of the
taxable investment portfolio was approximately 5.1 years at year-end 1999
compared to 2.7 years at year-end 1998 and 3.1 years at year-end 1997. The
extension of the average maturity of the investment portfolio in 1999 was
primarily due to callable U.S. Agency securities of approximately $200 million
being priced to their maturity of 7.5 years compared to their first call date in
2.5 years. If interest rates were to decline in 2000, the average maturity of
the taxable portfolio could shorten by two years.
The Corporation's tax-exempt securities portfolio was approximately 16% of the
total securities portfolio at year-end 1999 compared to 17% at year-end 1998 and
16% at year-end 1997. The average tax-equivalent yield on tax-exempt securities
was 7.25%, 7.33% and 7.82% for 1999, 1998 and 1997, respectively. The average
maturity of the tax-exempt portfolio was 7.9 years at year-end 1999 compared to
6.7 years at year-end 1998 and 7.1 years at year-end 1997.
Total year-end investment securities decreased by $29 million or 4.5% in 1999
compared to an increase of $112 million or 20.7% in 1998. Year-end 1999 loan
totals increased by $192 million or 11.7% compared to an increase of $50 million
or 3.1% in 1998. The investment security portfolio was reduced in 1999 to help
fund the faster growth in the loan portfolio.
The following table sets forth the book value of investment securities at year
end:
TABLE 5 - INVESTMENT SECURITIES
- -------------------------------------------------------------------------------
DECEMBER 31,
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
Obligations of U.S. Treasury and other
U.S. Government agencies $201,527 $175,530 $159,248
Obligations of states and political subdivisions 102,333 110,616 87,367
U.S. Government asset-backed securities
and other asset-backed securities 295,279 344,936 274,234
Other securities 24,191 21,385 19,881
- --------------------------------------------------------------------------------
Total $623,330 $652,467 $540,730
- --------------------------------------------------------------------------------
EARNING RESULTS
The Corporation's principal source of earnings is net interest income, the
difference between total interest income and total interest expense. Net
interest income results from average balances outstanding for interest earning
assets and interest bearing liabilities in conjunction with the average rates
earned and paid on them.
Net interest income increased by $8.2 million or 7.6% to $115.9 million for 1999
compared to an increase of $4.4 million or 4.3% to $107.7 million for 1998. The
net yield on interest earning assets was stable at 5.04% for 1999 compared to
5.05% for 1998 and 1997. Similarly, the net interest rate spread -- the
difference between rates received for interest earning assets and the rates paid
for interest bearing liabilities was within the narrow range of 4.36% to 4.42%
for all three years. The increase in net interest income for both 1999 and 1998
was primarily due to the growth in average interest earning assets.
The yield on average interest earning assets was 8.26% in 1999 compared to 8.65%
in 1998 and 8.75% in 1997. The average prime lending rate was approximately
7.99% for 1999 compared to 8.35% for 1998 and 8.44% for 1997. Market interest
rates increased during the fourth quarter of 1999 and the prime lending rate
increased to 8.50% at year-end 1999. About one-third of the Corporation's loan
portfolio is indexed to the prime lending rate and as
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a result, the average yield on interest earning assets is expected to increase
in 2000. Average interest earning assets increased by $181 million or 8.3% to
$2,359 million in 1999 compared to an increase of $94 million or 4.5% to $2,179
million in 1998.
The average rate paid on average interest bearing liabilities was 3.84% in 1999
compared to 4.29% in 1998 and 4.38% in 1997. The average rate paid on deposits
was 3.70% for 1999 compared to 4.22% for 1998 and 4.28% for 1997. The
Corporation increased certain deposit rates during the fourth quarter of 1999 as
a result of the increase in market interest rates. The average rate paid on
deposits is expected to increase in 2000 and offset the expected increase in the
average yield on interest earning assets. Average interest bearing liabilities
increased by $155 million or 8.5% to $1,981 million in 1999 compared to an
increase of $65 million or 3.7% to $1,825 million in 1998. Average interest
bearing deposits as a percentage of average interest bearing liabilities were
85.0% in 1999, 88.8% in 1998, and 88.1% in 1997.
<TABLE>
<CAPTION>
TABLE 6 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
(DOLLARS IN THOUSANDS) DAILY AVERAGE DAILY AVERAGE DAILY AVERAGE
AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST EARNING ASSETS:
Loans (1) (2) $1,715,050 $151,718 8.85% $1,600,510 $148,085 9.25% $1,527,694 $142,934 9.36%
Taxable investment securities 539,722 35,675 6.61% 481,867 33,290 6.91% 474,707 33,229 7.00%
Tax-exempt investment securities (3) 103,927 7,536 7.25% 93,472 6,850 7.33% 73,613 5,757 7.82%
Federal funds sold 490 30 6.12% 2,678 152 5.68% 8,132 460 5.66%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EARNING ASSETS 2,359,189 194,959 8.26% 2,178,527 188,377 8.65% 2,084,146 182,380 8.75%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EARNING ASSETS:
Allowance for possible loan losses (40,081) (37,643) (34,346)
Cash and due from banks 86,899 79,149 71,244
Premises and equipment, net 26,534 27,563 27,361
Other assets 84,950 87,887 71,177
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,517,491 $2,335,483 $2,219,582
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST BEARING LIABILITIES:
Transaction accounts $ 391,994 $ 7,196 1.84% $ 366,890 $ 8,438 2.30% $ 364,776 $ 8,926 2.45%
Savings deposits 284,295 5,685 2.00% 281,106 7,557 2.69% 278,371 7,823 2.81%
Time deposits 1,007,730 49,503 4.91% 972,163 52,346 5.38% 907,718 49,699 5.48%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING DEPOSITS 1,684,019 62,384 3.70% 1,620,159 68,341 4.22% 1,550,865 66,448 4.28%
- -----------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 295,309 13,601 4.61% 190,175 9,079 4.77% 162,626 7,738 4.76%
Long-term debt 1,254 78 6.22% 15,099 875 5.80% 46,652 2,846 6.10%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST BEARING LIABILITIES 1,980,582 76,063 3.84% 1,825,433 78,295 4.29% 1,760,143 77,032 4.38%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST BEARING LIABILITIES:
Demand deposits 277,452 256,817 228,598
Other 23,989 26,632 23,842
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST BEARING LIABILITIES 301,441 283,449 252,440
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 235,466 226,601 206,999
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $2,517,489 $2,335,483 $2,219,582
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest earnings $118,896 $110,082 $105,348
Net interest spread 4.42% 4.36% 4.37%
Net yield on interest earning assets 5.04% 5.05% 5.05%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loan income includes net fee loan income/(expense) of $(53) in 1999, $1,210
in 1998 and $1,448 in 1997. Loan income also includes the effects of taxable
equivalent adjustments using a 35% rate in 1999, 1998 and 1997. The taxable
equivalent adjustment was $826 in 1999, $453 in 1998 and $434 in 1997.
(2) For purposes of this computation, nonaccrual loans are included in the daily
average loans outstanding.
(3) Interest income on tax-exempt securities includes the effect of taxable
equivalent adjustments using a 35% rate in 1999, 1998 and 1997. The taxable
equivalent adjustment was $2,213 in 1999, $1,978 in 1998 and $1,658 in 1997.
C-6
<PAGE> 118
The change in interest due to both volume and rate has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
TABLE 7 - VOLUME/RATE VARIANCE ANALYSIS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Change from 1998 to 1999 Change from 1997 to 1998
(In thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
- ------------------------------------------------------------------------------------------------------
TOTAL LOANS $ 10,246 $ (6,613) $ 3,633 $ 6,828 $ (1,677) $ 5,151
- ------------------------------------------------------------------------------------------------------
Taxable investments 3,875 (1,490) 2,385 494 (433) 61
Tax-exempt investments 761 (75) 686 1,472 (379) 1,093
Federal funds sold (133) 11 (122) (309) 1 (308)
- ------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 14,749 (8,167) 6,582 8,485 (2,488) 5,997
- ------------------------------------------------------------------------------------------------------
Interest expense:
Transaction accounts 544 (1,786) (1,242) 52 (540) (488)
Savings accounts 85 (1,957) (1,872) 75 (341) (266)
Time deposits 1,858 (4,701) (2,843) 3,550 (903) 2,647
Short-term borrowings 4,837 (315) 4,522 1,325 16 1,341
Long-term debt (855) 58 (797) (1,837) (134) (1,971)
- ------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 6,469 (8,701) (2,232) 3,165 (1,902) 1,263
- ------------------------------------------------------------------------------------------------------
NET VARIANCE $ 8,280 $ 534 $ 8,814 $ 5,320 $ (586) $ 4,734
- ------------------------------------------------------------------------------------------------------
</TABLE>
OTHER INCOME: Total other income, exclusive of security gains or losses,
increased by $2.8 million or 11.8% to $26.7 million in 1999 and increased by
$3.2 million or 15.3% to $23.9 million in 1998 compared to $20.7 million for
1997. Service charges on deposit accounts increased by $850,000 or 12.5% in 1999
and by $515,000 or 8.2% in 1998 due primarily to increases in the number of
transaction accounts. Additionally, in 1999 there was a fee increase on
transaction accounts which was implemented during the middle of the year.
The subcategory of "other" increased by $2.0 million or 29.4% in 1999 and
increased by $1.2 million or 21.6% in 1998 due primarily to increased fees from
check card and ATM products. The increased fee income is primarily due to an
increase in the usage of these electronic cards and to a lesser extent fee
increases.
Fee income earned from the origination and sale into the secondary market
of fixed rate mortgage loans is included with other nonyield related loan fees
in the subcategory other service income. For 1999, other service income
decreased by $614,000 or 11.9% due primarily to the decrease in fixed rate
mortgage loan volume compared to an increase of $1.6 million or 43.1% in 1998
due to a large increase in fixed rate mortgage loan production. Fixed rate
mortgage loan volume is greatly dependent on the level of interest rates and the
slope of the yield curve.
Income from fiduciary activities increased by $581,000 or 11.4% in 1999 due
primarily to increases in assets under management for new trust department
customers.
Losses on sale of securities were $3.6 million in 1999 compared to a gain of
$97,000 in 1998 and a loss of $7,000 in 1997. The proceeds from the sales of
securities in 1999 were generally invested in higher yielding, longer maturity
securities to take advantage of an upward sloping yield curve. Lower overall
interest rates and a flat yield curve prevented sales for losses and related
reinvestments in 1998 and 1997. During 1999, 1998, and 1997, the Corporation had
no investment in off-balance sheet derivative instruments.
OTHER EXPENSE: Total other expense increased by $3.2 million or 5.0%
to $67.5 million in 1999 and increased by $1.9 million or 3.0% to $64.3 million
in 1998 compared to $62.4 million for 1997. An increase in total other expense
of approximately $2.0 million in 1997 was due to one-time expenses related to
the May 1997 merger with First-Knox. These expenses were absorbed by First-Knox
in 1997.
Salaries and employee benefits increased by $3.2 million or 10.0% in 1999
compared to a decrease of $150,000 or .5% in 1998. Included in 1997, are
one-time expenses related to the First-Knox merger of approximately $1.9 million
for deferred employee payments, stock appreciation rights, and employee benefits
expense. Exclusive of the $1.9 million one-time expense in 1997, salaries and
employee benefits expense would have increased 5.8% in 1998. Full-time
equivalent employees at year-end were 1,023 in 1999, 1,007 in 1998 and 978 in
1997.
Data processing fees increased by $642,000 or 14.2% in 1999 compared to
a decrease of $788,000 or 14.9% in 1998. The decrease in data processing expense
in 1998 was due to efficiencies achieved from converting First-Knox to Park's
data processing system at the end of 1997. The increase in data processing
expense in 1999 was due to an upgrade in the mainframe equipment and to
additional expenses related to Year 2000 compliance.
Furniture and equipment expense decreased by $805,000 or 16.7% in 1999 compared
to a large increase of $1.1 million or 30.6% in 1998. The increase in 1998 was
primarily due to $1.0 million in increased depreciation expense on computer
hardware and software as their estimated useful lives were shortened from five
years to three years. Some of the older computer equipment was not Year 2000
compliant and accordingly was completely written-off in 1998. Exclusive of the
$1.0 million one time expense in 1998, furniture and equipment expense would
have increased 5.1% in 1999.
The subcategory "other expense" increased by $1.2 million or 25.3%
in 1998. The large increase in 1998 was primarily due to an increase in
depreciation expense from operating leases, in supplies expense, and Year 2000
compliance expense.
INCOME TAXES: Federal income tax expense as a percentage of income
before taxes was 29.0% in 1999, 31.3% in 1998 and 30.9% in 1997. A lower tax
percentage rate than the statutory rate of thirty-five percent is primarily due
to tax-exempt interest income from state and municipal investments and loans.
CREDIT EXPERIENCE
PROVISION FOR LOAN LOSSES: The provision for loan losses is the amount added to
the allowance for loan losses to absorb possible future loan charge-offs. The
amount of the loan loss provision is determined by management after reviewing
the risk characteristics of the loan portfolio, historical loan loss experience
and projections of future economic conditions. In 1997, First-Knox absorbed an
increase in the loan loss provision charged to earnings in order to bring its
allowance for possible loan losses into alignment with other Corporation
affiliates. The impact of this was partially offset by a reduced loan loss
provision at Park National Division.
The allowance for possible loan losses at December 31, 1999 totaled $41.3
million and represented 2.25% of total loans outstanding at December 31, 1999
compared to $38.0 million or 2.31% of total loans outstanding at December 31,
1998 and $35.6 million or 2.24% of total loans outstanding at December 31, 1997.
The provision for loan losses was $7.0 million for 1999 compared to $6.8 million
for 1998 and $7.0 million for 1997. Net charge-offs were $3.7 million for 1999
compared to $4.4 million for 1998 and $3.8 million for 1997.
Management believes that the allowance for possible loan losses at year-end 1999
is adequate to absorb estimated credit losses in the loan portfolio. See
Footnote 1 to the financial statements for additional information on
management's evaluation of the adequacy of the allowance for loan losses.
C-7
<PAGE> 119
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>
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS
(NET OF UNEARNED
INTEREST) $1,715,050 $1,600,510 $1,527,694 $1,379,973 $1,318,275
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Beginning Balance $ 37,989 $ 35,595 $ 32,347 $ 29,239 $ 25,438
CHARGE-OFFS:
Commercial 1,014 663 1,332 868 407
Real estate 1,827 1,569 1,265 185 471
Consumer 4,210 4,976 3,530 2,971 2,019
Leases 263 184 144 414 55
- --------------------------------------------------------------------------------------------------------
TOTAL CHARGE-OFFS 7,314 7,392 6,271 4,438 2,952
- --------------------------------------------------------------------------------------------------------
RECOVERIES:
Commercial 331 368 400 420 175
Real estate 1,471 1,008 696 365 171
Consumer 1,708 1,521 1,198 1,404 1,074
Leases 112 91 226 63 85
- --------------------------------------------------------------------------------------------------------
TOTAL RECOVERIES 3,622 2,988 2,520 2,252 1,505
- --------------------------------------------------------------------------------------------------------
NET CHARGE-OFFS 3,692 4,404 3,751 2,186 1,447
- --------------------------------------------------------------------------------------------------------
Provision charged
to earnings 6,969 6,798 6,999 5,294 5,248
- --------------------------------------------------------------------------------------------------------
ENDING BALANCE $ 41,266 $ 37,989 $ 35,595 $ 32,347 $ 29,239
- --------------------------------------------------------------------------------------------------------
RATIO OF NET CHARGE-OFFS
TO AVERAGE LOANS 0.22% 0.28% 0.25% 0.16% 0.11%
RATIO OF ALLOWANCE FOR
POSSIBLE LOAN LOSSES TO
END OF YEAR LOANS, NET
OF UNEARNED INTEREST 2.25% 2.31% 2.24% 2.20% 2.16%
- --------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes Park's allocation of the allowance for possible
loan losses. However, the total allowance for possible loan losses is available
to absorb losses from any segment of the loan portfolio.
TABLE 9 - ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
DECEMBER 31, 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 $10,379 12.91% $10,332 13.25% $10,116 13.38% $ 8,996 15.28% $ 8,779 15.61%
Real estate 11,950 58.46% 11,775 62.81% 11,420 64.73% 9,902 61.32% 8,071 61.86%
Consumer 15,127 22.24% 13,791 20.24% 12,541 19.69% 12,513 21.80% 11,474 20.85%
Leases 3,810 6.39% 2,091 3.70% 1,518 2.20% 936 1.60% 915 1.68%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL $41,266 100.00% $37,989 100.00% $35,595 100.00% $32,347 100.00% $29,239 100.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999, 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 interest continues to accrue. Other
real estate owned results from taking title to property used as collateral for a
defaulted loan.
The following is a summary of the nonaccrual, past due and renegotiated loans
and other real estate owned for the last five years:
TABLE 10 - NONPERFORMING ASSETS
- --------------------------------------------------------------------------------
DECEMBER 31,
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Nonaccrual loans $2,638 $2,155 $2,060 $2,301 $2,425
Renegotiated loans 429 492 1,642 2,348 2,525
Loans past due 90 days
or more 2,035 2,314 2,512 2,963 1,640
- --------------------------------------------------------------------------------
TOTAL NONPERFORMING
LOANS 5,102 4,961 6,214 7,612 6,590
- --------------------------------------------------------------------------------
OTHER REAL ESTATE OWNED 558 238 300 329 183
- --------------------------------------------------------------------------------
TOTAL NONPERFORMING
ASSETS $5,660 $5,199 $6,514 $7,941 $6,773
- --------------------------------------------------------------------------------
PERCENTAGE OF
NONPERFORMING LOANS
TO LOANS, NET OF
UNEARNED INTEREST 0.28% 0.30% 0.39% 0.52% 0.49%
PERCENTAGE OF
NONPERFORMING ASSETS
TO LOANS, NET
UNEARNED INTEREST 0.31% 0.32% 0.41% 0.54% 0.50%
PERCENTAGE OF
NONPERFORMING ASSETS
TO TOTAL ASSETS 0.22% 0.21% 0.28% 0.36% 0.34%
- --------------------------------------------------------------------------------
Tax equivalent interest income from loans of $151.7 million for 1999 would have
increased by $136,000 if all loans had been current in accordance with their
original terms. Interest income for the year ended December 31, 1999 in the
approximate amount of $307,000 is included in interest income for those loans in
accordance with original terms.
The Corporation had $42.6 million of loans included on the Corporation's watch
list of potential problem loans at December 31, 1999 compared to $36.2 million
at year-end 1998 and $17.6 million at year-end 1997. The existing conditions of
these loans do not warrant classification as nonaccrual. Management undertakes
additional surveillance regarding a borrower's ability to comply with payment
terms and conditions for those loans identified for inclusion on the watch list.
YEAR 2000 UPDATE
The Corporation's operations achieved a successful transition to year
2000 (Y2K). No disruptions in services have been detected. All customer
and internal systems including ATMs, audio response systems and other
computer-dependent services are operating in a normal manner.
The costs incurred to address the Y2K issue in implementing the Corporation's
year 2000 plan in 1997, 1998 and 1999 are not material to the Corporation's
financial statements and do not impact the comparability of information.
Management believes the risk of continued exposure to date-related computer
problems is low. During the testing process for Y2K all sensitive dates beyond
December 31, 1999 were tested and it was determined that the systems are
compliant.
The Corporation will continue to monitor its performance throughout year 2000
with regard to date-related computer problems.
C-8
<PAGE> 120
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.
Cash and cash equivalents increased by $3.9 million during 1999 to $104.2
million at year end. Cash provided by operating activities was $59.3 million in
1999, $42.8 million in 1998, and $44.8 million in 1997. Net income was the
primary source of cash for operating activities during each year. Cash used in
investing activities was $197.9 million in 1999, $166.1 million in 1998, and
$93.4 million in 1997. A major use of cash in investing activities is the net
increase in the loan portfolio. Cash used for the net increase in loans was
$195.1 million in 1999, $53.2 million in 1998, and $111.3 million in 1997. Cash
of $2.6 million and $6.7 million was used in 1999 and 1997, respectively, to
purchase branch offices and $11.6 million was used to acquire the related loans
in 1997.
Security transactions are the other major use or source of cash in investing
activities. Proceeds from the sale or maturity of securities provide cash and
purchases of securities use cash. Net security transactions provided $2.7
million of cash in 1999, used $109.4 million of cash in 1998 and provided $38.9
million in 1997. Cash provided by financing activities was $142.5 million in
1999, $130.0 million in 1998, and $60.4 million in 1997. A major source of cash
for financing activities is the net increase in deposits. Cash provided from the
net increase in deposits was $60.5 million in 1999, $84.8 million in 1998 and
$42.4 million in 1997. The purchase of deposits with the branch offices in 1999
and 1997 provided cash of $14.9 million and $49.2 million, respectively.
Changes in short-term borrowings or long-term debt is a major source or
use of cash for financing activities. The net increase in short-term borrowings
provided cash of $101.5 million in 1999 and $95.0 million in 1998 and $16.5
million in 1997. Cash was used to repay long-term debt of $8.4 million in 1999,
$22.4 million in 1998 and $31.5 million in 1997.
Funds are available from a number of sources, including the securities
portfolio, the core deposit base, Federal Home Loan Bank borrowings, and the
capability to securitize or package loans for sale. The present funding sources
provide more than adequate liquidity for the Corporation to meet its cash flow
needs.
Liquidity is enhanced by assets maturing or repricing within one year. Assets
maturing or repricing within one year were $1,300 million or 52.9% of interest
earning assets at year-end 1999. Liquidity is also enhanced by a significant
amount of stable core deposits from a variety of customers in several Ohio
markets served by the Corporation.
An asset/liability committee monitors and forecasts rate sensitive assets
and liabilities and develops strategies and pricing policies to influence the
acquisition of certain assets and liabilities. The purpose of these efforts is
to guard the Corporation from adverse impacts of unforeseen swings in interest
rates and to enhance the net income of the Corporation by accepting a limited
amount of interest rate risk, based on interest rate projections.
The following table shows interest rate sensitivity data for five different time
intervals as of December 31, 1999:
TABLE 11 - INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
(DOLLARS 0-3 3-12 1-3 3-5 OVER 5
IN THOUSANDS) MONTHS MONTHS YEARS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATE
SENSITIVE ASSETS:
Investment
securities(1) $ 26,424 $ 55,397 $ 192,649 $102,343 $246,517 $ 623,330
Loans(1) 524,926 693,096 343,496 179,938 92,492 1,833,948
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST
EARNING
ASSETS 551,350 748,493 536,145 282,281 339,009 2,457,278
- ------------------------------------------------------------------------------------------------
INTEREST BEARING
LIABILITIES:
Interest Bearing
Checking(2) 60,559 -- 181,676 -- -- 242,235
Savings
accounts(2) 137,687 -- 137,687 -- -- 275,374
Money market
checking 150,226 -- -- -- -- 150,226
Time deposits 372,437 408,659 224,546 48,384 2,568 1,056,594
Other 1,427 -- -- -- -- 1,427
- ------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 722,336 408,659 543,909 48,384 2,568 1,725,856
- ------------------------------------------------------------------------------------------------
Short-term
borrowings 348,199 -- -- -- -- 348,199
Long-term debt -- 2 4 5 65 76
- ------------------------------------------------------------------------------------------------
TOTAL INTEREST
BEARING
LIABILITIES 1,070,535 408,661 543,913 48,389 2,633 2,074,131
- ------------------------------------------------------------------------------------------------
INTEREST RATE
SENSITIVITY GAP (519,185) 339,832 (7,768) 233,892 336,376 383,147
CUMULATIVE RATE
SENSITIVITY GAP (519,185) (179,353) (187,121) 46,771 383,147
CUMULATIVE GAP AS
A PERCENTAGE OF
TOTAL INTEREST
EARNING ASSETS -21.13% -7.30% -7.61% 1.90% 15.59%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1)Investment securities and loans that are subject to prepayment are shown in
the table by the earlier of their repricing date or their expected repayment
dates and not by their contractual maturity.
(2)Management considers interest bearing checking accounts and savings accounts
to be core deposits and therefore, not as rate sensitive as other deposit
accounts and borrowed money. Accordingly, only 25% of interest bearing
checking accounts and 50% of savings accounts are considered to reprice
within one year. If all of the interest bearing checking accounts and savings
accounts were considered to reprice within one year, the one year cumulative
gap would change from a negative 7.30% to a negative 20.30%.
The interest rate sensitivity gap analysis provides a good overall picture of
the Corporation's static interest rate risk position. The Corporation's policy
is that the twelve month cumulative gap position should not exceed fifteen
percent of interest earning assets for three consecutive quarters. At December
31, 1999, the cumulative interest bearing liabilities maturing or repricing
within twelve months were $1,479 million compared to the cumulative interest
earning assets maturing or repricing within twelve months of $1,300 million. For
the twelve months, rate sensitive liabilities exceed rate sensitive assets by
$179 million or 7.3% of earning assets. This is expressed in the table as a
negative number because cumulative rate sensitive liabilities within twelve
months exceed cumulative rate sensitive assets within twelve months.
A negative twelve month cumulative rate sensitivity gap would suggest that the
Corporation's net interest margin would modestly decrease if interest rates were
to rise. However, 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.
C-9
<PAGE> 121
The cumulative twelve month interest rate sensitivity gap position at December
31, 1998 was a negative $148 million or 6.5% of interest earning assets compared
to a negative $179 million or a negative 7.3% of interest earning assets at
December 31, 1999. This change in the cumulative twelve month interest rate
sensitivity gap of a negative $31 million was primarily due to an increase in
short-term borrowings. The cumulative interest bearing liabilities maturing or
repricing within one year as a percentage of total interest earning assets was
60.2% at December 31, 1999 compared to 58.1% at December 31, 1998.
Management supplements the interest rate 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 Corporation
uses an earnings simulation model to analyze net interest income sensitivity to
movements in interest rates. This model is based on actual cash flows and
repricing characteristics for balance sheet instruments and incorporates
market-based assumptions regarding the impact of changing interest rates on the
prepayment rate of certain assets and liabilities. This model also includes
management's projections for activity levels of various balance sheet
instruments and noninterest fee income and operating expense. Assumptions based
on the historical behavior of deposit rates and balances in relation to changes
in interest rates are also incorporated into this earnings simulation model.
These assumptions are inherently uncertain and as a result, the model cannot
precisely measure net interest income or precisely predict the impact of changes
in interest rates on net interest income and net income. Actual results will
differ from simulated results due to timing, magnitude, and frequency of
interest rate changes as well as changes in market conditions and management
strategies.
Management uses a .50% change in market interest rates per quarter for a total
of 2.00% per year in evaluating the impact of changing interest rates
on net interest income and net income over a twelve month horizon. At December
31, 1999, the earnings simulation model projected that net income would decrease
by 1.6% using a rising interest rate scenario and increase by 1.1% using a
declining interest rate scenario over the next year. At December 31, 1998, the
earnings simulation model projected that net income would increase by .9% using
a rising interest rate scenario and decrease by .9% using a declining interest
rate scenario over the next year and at December 31, 1997, the earnings
simulation model projected that net income would increase by 2.2% using a rising
interest rate scenario and decrease by 2.2% using a declining interest rate
scenario over the next year. During the past two years, Park's balance sheet has
become more liability sensitive with the result that rising interest rates are
projected to slightly reduce net income.
CAPITAL: The Corporation's primary means of maintaining capital adequacy
is through net retained earnings. At December 31, 1999, the Corporation's equity
capital was $239.6 million, an increase of 1.7% over the equity capital at
December 31, 1998. Stockholders' equity at December 31, 1999 was 9.09% of total
assets compared to 9.58% of total assets at December 31, 1998.
Financial institution regulators have established guidelines for minimum capital
ratios for banks, thrifts and bank holding companies. The unrealized gain or
loss on available-for-sale securities is not included in computing regulatory
capital. The capital standard of risk-based capital to risk-based assets is
8.00% at December 31, 1999. At year-end 1999, the Corporation had a risk-based
capital ratio of 14.41% or capital above the minimum required by $114.7 million.
The capital standard of tier l capital to risk-based assets is 4% at December
31, 1999. Tier l capital includes stockholders' equity net of goodwill and any
other intangible assets. At year-end 1999, the Corporation had a tier l capital
to risk-based assets ratio of 13.15% or capital above the minimum required by
$163.6 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 1999, the Corporation had a leverage capital ratio of 9.05% or capital
above the minimum required by $131.2 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, 1999. The table below
indicates the capital ratios for each subsidiary and the Corporation at December
31, 1999:
TABLE 12 - CAPITAL RATIOS
- --------------------------------------------------------------------------------
TIER 1 TOTAL
DECEMBER 31, 1999 LEVERAGE RISK-BASED RISK-BASED
- --------------------------------------------------------------------------------
Park National Bank 6.30% 8.54% 10.93%
Richland Trust Company 6.01% 10.44% 11.70%
Century National Bank 5.97% 10.28% 11.54%
First-Knox National Bank 5.83% 8.28% 11.92%
Park National Corporation 9.05% 13.15% 14.41%
Minimum Capital Ratio 4.00% 4.00% 8.00%
Well Capitalized Ratio 5.00% 6.00% 10.00%
- --------------------------------------------------------------------------------
[GRAPH]
RISK-BASED CAPITAL RATIOS (December 31, 1999)
- --------------------------------------------------------------------------------
LEVERAGE TIER 1 TOTAL
- --------------------------------------------------------------------------------
Park 9.05% 13.15% 14.41%
Well-Capitalized 5.00% 6.00% 10.00%
Regulatory Minimum 4.00% 4.00% 8.00%
[GRAPH]
AVERAGE STOCKHOLDERS' EQUITY (millions)
1999 1998 1997 1996 1995
$235.5 $226.6 $207.0 $187.8 $168.4
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
C-10
<PAGE> 122
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 impact on financial results is Park's
ability to align its asset/liability management program to react to changes in
interest rates.
The following table summarizes five-year financial information. All per share
data have been retroactively restated for the 5% stock dividend paid on December
15, 1999.
TABLE 13 - CONSOLIDATED FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31,
(DOLLARS IN THOUSANDS, 1999 1998 1997 1996 1995
EXCEPT PER SHARE DATA)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income $ 191,920 $ 185,946 $ 180,288 $ 163,193 $ 150,288
Interest expense 76,063 78,295 77,032 69,155 64,347
Net interest income 115,857 107,651 103,256 94,038 85,941
Gain/(loss) on sale
of securities (3,608) 97 (7) (1,324) (634)
Noninterest income 26,696 23,872 20,708 17,984 16,683
Noninterest expense 67,540 64,309 62,408 59,112 56,501
Provision for loan losses 6,969 6,798 6,999 5,294 5,248
Net income 45,747 41,572 37,693 31,700 27,829
PER SHARE:
Net income - basic 4.69 4.24 3.82 3.23 2.82
Net income - diluted 4.67 4.22 3.81 3.22 2.81
Cash dividends declared 2.36 1.94 1.60 1.38 1.19
AVERAGE BALANCES:
Loans $ 1,715,050 $1,600,510 $ 1,527,694 $ 1,379,973 $ 1,318,275
Investment securities 643,649 575,339 548,320 472,107 421,089
Money market instruments
and other 490 2,678 8,132 39,573 17,325
- ---------------------------------------------------------------------------------------------------------
TOTAL EARNING ASSETS 2,359,189 2,178,527 2,084,146 1,891,653 1,756,689
- ---------------------------------------------------------------------------------------------------------
Noninterest bearing deposits 277,452 256,817 228,598 207,262 196,406
Interest bearing deposits 1,684,019 1,620,159 1,550,865 1,420,919 1,317,325
- ---------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 1,961,471 1,876,976 1,779,463 1,628,181 1,513,731
- ---------------------------------------------------------------------------------------------------------
Short-term borrowings 295,309 190,175 162,626 126,721 139,035
Long-term debt 1,254 15,099 46,652 46,497 33,413
Stockholders' equity 235,466 226,601 206,999 187,755 168,432
Total assets 2,517,489 2,335,483 2,219,582 2,011,795 1,872,999
RATIOS:
Return on average assets 1.82% 1.78% 1.70% 1.58% 1.49%
Return on average equity 19.43% 18.35% 18.21% 16.88% 16.52%
Net interest margin(1) 5.04% 5.05% 5.05% 5.09% 5.02%
Noninterest expense to
net revenue(1) 46.39% 48.01% 49.51% 52.34% 54.24%
Dividend payout ratio 50.41% 45.84% 41.93% 40.66% 38.45%
Average stockholders' equity
to average total assets 9.35% 9.70% 9.33% 9.33% 8.99%
Leveraged capital 9.05% 9.06% 8.91% 8.73% 9.06%
Tier 1 capital 13.15% 13.64% 13.46% 13.16% 14.06%
Risk-based capital 14.41% 14.92% 14.72% 14.42% 15.30%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1)Computed on a fully taxable equivalent basis
The following table is a summary of selected quarterly results of operations
for the years ended December 31, 1999 and 1998. Certain quarterly amounts have
been reclassified to conform to the year-end financial statement presentation
and share and per share data have been retroactively restated for the 5% stock
dividend paid on December 15, 1999.
TABLE 14 - QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
THREE MONTHS ENDED
(DOLLARS IN THOUSANDS, -------------------------------------------------------
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPT. 30 DEC. 31
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
Interest income $ 46,241 $ 46,884 $ 48,329 $ 50,466
Interest expense 18,343 18,145 19,226 20,349
Net interest income 27,898 28,739 29,103 30,117
Provision for loan losses 1,545 2,009 1,555 1,860
Loss on sale of securities -- (255) (707) (2,646)
Income before income taxes 16,524 16,872 16,687 14,353
Net income 11,598 12,003 11,800 10,346
Per share data:
Net income - basic 1.19 1.23 1.21 1.06
Net income - diluted 1.18 1.22 1.21 1.06
Weighted-average common
stock outstanding - basic 9,771,925 9,762,958 9,743,255 9,736,488
Weighted-average common
stock equivalent - diluted 9,810,600 9,796,100 9,780,011 9,786,099
- -----------------------------------------------------------------------------------------
1998:
Interest income $ 45,560 $ 46,450 $ 46,939 $ 46,997
Interest expense 19,235 19,604 20,089 19,367
Net interest income 26,325 26,846 26,850 27,630
Provision for loan losses 1,674 1,674 1,674 1,776
Gain on the sale of securities 97 -- -- --
Income before income taxes 15,305 15,815 15,561 13,832
Net income 10,583 10,949 10,766 9,274
Per share data:
Net income - basic 1.07 1.12 1.10 0.95
Net income - diluted 1.07 1.11 1.10 0.94
Weighted-average common
stock outstanding - basic 9,856,259 9,820,318 9,782,803 9,770,947
Weighted-average common
stock equivalent - diluted 9,903,490 9,867,825 9,834,681 9,817,211
- -----------------------------------------------------------------------------------------
</TABLE>
Park's common stock (symbol:PRK) is traded on the American Stock Exchange
(AMEX). At December 31, 1999, the Corporation had 2,780 stockholders of record.
The following table sets forth the high, low and closing sale prices of, and
dividends declared on the common stock for each quarterly period for the years
ended December 31, 1999 and 1998, as reported by AMEX. The sales prices and
dividends per share have been retroactively restated for the 5% stock dividend
paid on December 15, 1999.
TABLE 15 - MARKET AND DIVIDEND INFORMATION
- --------------------------------------------------------------------------------
CASH
DIVIDEND
LAST DECLARED
HIGH LOW PRICE PER SHARE
- --------------------------------------------------------------------------------
1999:
First Quarter $ 99.05 $ 87.33 $ 91.42 $ 0.57
Second Quarter 95.23 87.38 95.23 0.57
Third Quarter 96.19 90.72 96.19 0.57
Fourth Quarter 116.00 91.19 96.00 0.65
- --------------------------------------------------------------------------------
1998:
First Quarter $ 90.47 $ 80.95 $ 90.47 $ 0.46
Second Quarter 98.03 85.00 96.13 0.46
Third Quarter 102.14 90.00 99.05 0.46
Fourth Quarter 101.42 86.19 98.09 0.57
- --------------------------------------------------------------------------------
C-11
<PAGE> 123
STOCKHOLDERS INFORMATION
- --------------------------------------------------------------------------------
STOCK LISTING:
AMEX Symbol - PRK
CUSIP #700658107
GENERAL STOCKHOLDER INQUIRIES:
Park National Corporation
David C. Bowers, Secretary
50 North Third Street
Post Office Box 3500
Newark, Ohio 43058-3500
740/349-3708
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.
DIRECT DEPOSIT OF DIVIDENDS:
The Corporation's stockholders may have their dividend payments directly
deposited into their checking, savings or money market account. This
direct deposit of dividends is free for all stockholders. If you have any
questions or need an enrollment form, please contact the Corporation's
Stock Transfer Agent and Registrar indicated below.
STOCK TRANSFER AGENT AND REGISTRAR:
First-Knox National Bank
P.O. Box 871
One South Main Street
Mount Vernon, Ohio 43050-0871
800/837-5266
FORM 10-K:
Copies of Park National Corporation's Form 10-K for 1999, including
financial statements, may be obtained, without charge, by contacting the
Secretary as indicated above.
INTERNET ADDRESS:
www.parknationalcorp.com
E-MAIL:
[email protected]
C-12
<PAGE> 124
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, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Park National
Corporation and Subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
January 18, 2000
C-13
<PAGE> 125
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 1999 and 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 104,222 $100,291
INVESTMENT SECURITIES:
Securities available-for-sale, at fair value (amortized cost of $630,586 and
$634,809 at December 31, 1999 and 1998, respectively) 619,009 646,403
Securities held-to-maturity, at amortized cost (fair value of $4,451 and
$6,347 at December 31, 1999 and 1998, respectively) 4,321 6,064
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 623,330 652,467
- ---------------------------------------------------------------------------------------------------------------
Loans 1,850,710 1,654,003
Unearned loan interest (16,762) (12,491)
- ---------------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,833,948 1,641,512
- ---------------------------------------------------------------------------------------------------------------
Allowance for possible loan losses (41,266) (37,989)
- ---------------------------------------------------------------------------------------------------------------
NET LOANS 1,792,682 1,603,523
- ---------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Premises and equipment, net 26,542 26,755
Accrued interest receivable 14,226 14,356
Other 73,335 63,387
- ---------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 114,103 104,498
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,634,337 $2,460,779
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
C-14
<PAGE> 126
CONSOLIDATED BALANCE SHEETS (continued)
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
at December 31, 1999 and 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
DEPOSITS:
Noninterest bearing $ 289,291 $ 285,574
Interest bearing 1,725,856 1,654,204
- ---------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 2,015,147 1,939,778
- ---------------------------------------------------------------------------------------------------
BORROWINGS:
Short-term borrowings 348,199 246,659
Long-term debt 76 8,430
OTHER LIABILITIES:
Accrued interest payable 7,447 6,938
Other 23,888 23,284
- ---------------------------------------------------------------------------------------------------
TOTAL OTHER LIABILITIES 31,335 30,222
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,394,757 2,225,089
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, no par value (20,000,000 shares authorized;
10,031,135 shares issued in 1999 and 10,031,077 issued in 1998) 68,383 68,398
Accumulated other comprehensive income, net (7,525) 7,536
Retained earnings 199,736 177,050
Less: Treasury stock (291,301 shares in 1999 and
257,765 shares in 1998) (21,014) (17,294)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 239,580 235,690
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,634,337 $ 2,460,779
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
C-15
<PAGE> 127
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and 1997 (Dollars in
thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $150,892 $147,632 $142,500
Interest and dividends on:
Obligations of U.S. Government, its agencies
and other securities 35,675 33,290 33,229
Obligations of states and political subdivisions 5,323 4,872 4,099
Other interest income 30 152 460
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 191,920 185,946 180,288
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand and savings deposits 12,881 15,995 16,749
Time deposits 49,503 52,346 49,699
Interest on short-term borrowings 13,601 9,079 7,738
Interest on long-term debt 78 875 2,846
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 76,063 78,295 77,032
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 115,857 107,651 103,256
- -------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 6,969 6,798 6,999
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 108,888 100,853 96,257
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Income from fiduciary activities 5,662 5,081 5,192
Service charges on deposit accounts 7,673 6,823 6,308
Gain/(loss) on sales of securities (3,608) 97 (7)
Other service income 4,535 5,149 3,598
Other 8,826 6,819 5,610
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $ 23,088 $ 23,969 $ 20,701
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
C-16
<PAGE> 128
CONSOLIDATED STATEMENTS OF INCOME (continued)
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and
1997 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER EXPENSE:
Salaries and employee benefits $34,909 $31,738 $31,888
Data processing fees 5,160 4,518 5,306
Fees and service charges 3,666 3,344 3,732
Net occupancy expense of bank premises 3,643 3,351 3,339
Amortization of intangibles 2,379 2,787 2,019
Furniture and equipment expense 4,002 4,807 3,680
Insurance 747 786 774
Marketing 2,306 2,247 2,182
Postage and telephone 3,183 3,007 2,747
State taxes 1,747 1,729 1,957
Other 5,798 5,995 4,784
- -------------------------------------------------------------------------------
TOTAL OTHER EXPENSE 67,540 64,309 62,408
- -------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 64,436 60,513 54,550
Federal income taxes 18,689 18,941 16,857
- -------------------------------------------------------------------------------
NET INCOME $45,747 $41,572 $37,693
- -------------------------------------------------------------------------------
EARNINGS PER SHARE:
BASIC $ 4.69 $ 4.24 $ 3.82
DILUTED $ 4.67 $ 4.22 $ 3.81
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
C-17
<PAGE> 129
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and 1997 (Dollars in thousands,
except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK ACCUMULATED
-------------------- OTHER
SHARES RETAINED COMPREHENSIVE TREASURY
OUTSTANDING AMOUNT EARNINGS INCOME, NETSTOCK TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 9,822,159 $ 64,611 $ 132,648 $ 4,687 $ (2,985) $ 198,961
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (101,557) -- -- -- (6,249) (6,249)
Treasury stock reissued primarily for
stock options exercised 28,647 -- -- -- 1,522 1,522
Shares issued for dividend reinvestment plan
and stock options 113,337 2,325 -- -- -- 2,325
Cash payment for fractional shares in merger (630) (40) -- -- -- (40)
Tax benefit from exercise of stock options -- 1,379 -- -- -- 1,379
Net income -- -- 37,693 -- -- 37,693
Other comprehensive income, net of tax:
Unrealized net holding gain on securities
available-for-sale, net of income taxes of $1,256 2,332 2,332
- -----------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income 2,332
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 40,025
Cash dividends:
Corporation at $1.60 per share -- -- (14,905) -- -- (14,905)
Cash dividends declared at First-Knox, prior to merger -- -- (901) -- -- (901)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 9,861,956 68,275 154,535 7,019 (7,712) 222,117
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (130,439) -- -- -- (11,829) (11,829)
Treasury stock reissued primarily for
stock options exercised 39,481 -- -- -- 2,247 2,247
Shares issued for stock options 2,314 81 -- -- -- 81
Tax benefit from exercise of stock options -- 42 -- -- -- 42
Net income -- -- 41,572 -- -- 41,572
Other comprehensive income, net of tax:
Unrealized net holding gain on securities
available-for-sale, net of income taxes of $278 517 517
- -----------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income 517
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 42,089
Cash dividends:
Corporation at $1.94 per share -- -- (19,057) -- -- (19,057)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 9,773,312 $ 68,398 $ 177,050 $ 7,536 $(17,294) $ 235,690
- -----------------------------------------------------------------------------------------------------------------------------------
Treasury stock purchased (55,888) -- -- -- (5,147) (5,147)
Treasury stock reissued primarily for
stock options exercised 22,352 -- -- -- 1,427 1,427
Shares issued for stock options 652 22 -- -- -- 22
Tax benefit from exercise of stock options -- 14 -- -- -- 14
Cash payment for fractional shares in 5% stock dividend (594) (51) (51)
Net income -- -- 45,747 -- -- 45,747
Other comprehensive income, net of tax:
Unrealized net holding loss on securities
available-for-sale, net of income taxes of $(8,110) (15,061) (15,061)
- -----------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (15,061)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 30,686
Cash dividends:
Corporation at $2.36 per share -- -- (23,061) -- -- (23,061)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 9,739,834 $ 68,383 $ 199,736 $ (7,525) $(21,014) $ 239,580
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
C-18
<PAGE> 130
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
PARK NATIONAL CORPORATION AND SUBSIDIARIES
for the years ended December 31, 1999, 1998 and 1997 (Dollars in
thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 45,747 $ 41,572 $ 37,693
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 6,969 6,798 6,999
Amortization of loan costs and fees, net (1,069) (796) (788)
Provision for depreciation and amortization 3,541 4,491 3,273
Amortization of the excess of cost over net assets
of banks purchased 2,379 2,787 2,019
Accretion of investment security discounts, net (369) (1,357) (1,726)
Deferred income taxes 4,806 829 139
Realized investment security losses (gains) 3,608 (97) 7
Changes in assets and liabilities:
Increase in other assets (6,695) (11,762) (5,781)
Increase in other liabilities 367 338 2,949
- --------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 59,284 42,803 44,784
- --------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of available-for-sale securities 141,607 51,839 45,083
Proceeds from maturities of securities:
Held-to-maturity 1,743 1,727 2,973
Available-for-sale 170,829 133,674 141,765
Purchases of securities:
Available-for-sale (311,453) (296,672) (150,873)
Net increase in loans (195,059) (53,192) (111,284)
Purchase of loans -- -- (11,582)
Cash paid for branches (2,587) -- (6,748)
Purchases of premises and equipment, net (2,938) (3,442) (2,740)
- --------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (197,858) (166,066) (93,406)
- --------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Purchase of deposits 14,887 -- 49,192
Net increase in deposits 60,482 84,814 42,354
Net increase in short-term borrowings 101,540 95,035 16,513
Cash payment for fractional shares of common stock (51) -- (40)
Exercise of stock options 36 123 3,704
Purchase of treasury stock, net (3,720) (9,582) (4,727)
Repayment of long-term debt (8,354) (22,438) (31,507)
Cash dividends paid (22,315) (17,983) (15,047)
- --------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 142,505 129,969 60,442
- --------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 3,931 6,706 11,820
Cash and cash equivalents at beginning of year 100,291 93,585 81,765
- --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 104,222 $ 100,291 $ 93,585
- --------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
C-19
<PAGE> 131
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 or Park) 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, The Park National Bank (PNB), The Richland
Trust Company (RTC), Century National Bank (CNB), and The First-Knox National
Bank of Mount Vernon (FKNB), the Corporation is engaged in a general commercial
banking and trust business, primarily in Central Ohio. A new wholly owned
subsidiary of the Corporation, Guardian Finance Company (GFC), began operating
in May 1999. GFC is a consumer finance company located in Central Ohio. PNB
operates through two banking divisions with the Park National Division (PND)
headquartered in Newark, Ohio and the Fairfield National Division (FND)
headquartered in Lancaster, Ohio. FKNB also operates through two banking
divisions with the First-Knox National Division (FKND) headquartered in Mount
Vernon, Ohio and the Farmers and Savings Division (FSD) headquartered in
Loudonville, Ohio. All of the banking subsidiaries and their respective
divisions 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. See Note 19 for financial information on
the Corporation's banking subsidiaries.
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
presentation.
INVESTMENT SECURITIES
Investment securities are classified upon acquisition into one of three
categories: Held-to-maturity, available-for-sale, or trading (see Note 4).
Held-to-maturity securities are those securities that the Corporation has the
positive intent and ability to hold to maturity and are recorded at amortized
cost. Available-for-sale securities are those securities that would be available
to be sold in the future in response to the Corporation's liquidity needs,
changes in market interest rates, and asset-liability management strategies,
among others. Available-for-sale securities are reported at fair value, with
unrealized holding gains and losses excluded from earnings and are included in
other comprehensive income, net of applicable taxes. At December 31, 1999 and
1998, the Corporation did not hold any trading securities.
Gains and losses realized on the sale of investment securities have been
accounted for on the completed transaction method in the year of sale on an
"identified certificate" basis.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is generally provided on the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the lives of the respective leases or the estimated useful lives
of the improvements, whichever are the shorter periods. Upon the sale or other
disposal of the assets, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is recognized.
Maintenance and repairs are charged to expense as incurred while renewals and
improvements are capitalized.
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.
INCOME RECOGNITION
Income earned by the Corporation and its subsidiaries is recognized principally
on the accrual basis of accounting. Loan origination fees are amortized over the
life of the loans using the interest method on a loan by loan basis, and
origination costs are deferred and amortized if material. Certain fees,
principally service, are recognized as income when billed or collected.
The Corporation's subsidiaries suspend the accrual of interest when, in
management's opinion, the collection of all or a portion of interest has become
doubtful. Generally, when a loan is placed on non-accrual, the Corporation's
subsidiaries charge all previously accrued and unpaid interest against income.
In future periods, interest will be included in income to the extent received
only if complete principal recovery is reasonably assured.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is that amount believed adequate to
absorb estimated credit losses in the loan portfolio based on management's
evaluation of various factors including overall growth in the loan portfolio, an
analysis of individual loans, prior and current loss experience, and current and
anticipated economic conditions. A provision for loan losses is charged to
operations based on management's periodic evaluation of these and other
pertinent factors.
Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting
by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosure"
requires an allowance to be established as a component of the allowance for loan
losses for certain loans when it is probable that all amounts due pursuant to
the contractual terms of the loan will not be collected, and the recorded
investment in the loan exceeds the fair value. Fair value is measured using
either the present value of expected future cash flows based upon the initial
effective interest rate on the loan, the observable market price of the loan or
the fair value of the collateral if the loan is collateral dependent.
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.
C-20
<PAGE> 132
Such leases are accounted for as direct financing leases for financial reporting
purposes. Under the direct financing method, a receivable is recorded for the
total amount of the lease payments to be received.
Unearned lease income, representing the excess of the sum of the aggregate
rentals of the equipment, automobiles or aircraft over its cost is included in
income over the term of the lease under the interest method.
EXCESS OF COST OVER NET ASSETS OF BANKS PURCHASED
The excess of cost over net assets of the banks purchased is being amortized,
principally on the straight-line method, over periods ranging from seven to
fifteen years.
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash and cash equivalents include cash and cash items, amounts due from banks
and federal funds sold. Generally federal funds are purchased and sold for one
day periods.
Net cash provided by operating activities reflects cash payments as follows:
- --------------------------------------------------------------------------------
DECEMBER 31, 1999 1998 1997
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
Interest paid on deposits and other borrowings $75,554 $77,905 $77,105
- --------------------------------------------------------------------------------
Income taxes paid $17,947 $19,550 $14,104
- --------------------------------------------------------------------------------
INCOME TAXES
The Corporation accounts for income taxes using the asset and liability
approach. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
STOCK DIVIDEND
The Corporation's Board of Directors approved a 5% stock dividend in November
1999. The additional shares resulting from the dividend were distributed on
December 15, 1999 to stockholders of record as of December 3, 1999. The
consolidated financial statements, notes and other references to share and per
share data have been retroactively restated for the stock dividend.
ACCOUNTING CHANGES
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income", establishes reporting and display standards for
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances arising from nonowner sources. The statement requires the
Corporation's unrealized gains or losses on securities available-for-sale, to be
included in other comprehensive income. Since SFAS No. 130 only requires
additional information, it had no impact on the Corporation's financial position
or results of operations. Prior year financial statements have been reclassified
to conform with the new requirements. Comprehensive income is presented in the
Statements of Changes in Stockholders' Equity.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The provisions
of this statement require that derivative instruments be carried at fair value
on the balance sheet. The statement continues to allow derivative instruments to
be used to hedge various risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. The statement also provided for
offsetting changes in fair value or cash flows of both the derivative and the
hedged asset or liability to be recognized in earnings in the same period;
however, any changes in fair value or cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings and cannot be
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to be recognized in earnings. The provisions of this
statement become effective for quarterly and annual reporting beginning January
1, 2001. Although the statement allows for early adoption in any quarterly
period that began after June 1998, the Corporation has no plans to adopt the
provisions of SFAS No. 133 prior to the effective date. The Corporation did not
use any derivative instruments in 1999 and 1998 and as a result does not expect
that adoption of this statement will have any impact on the Corporation's
financial position, results of operations and cash flows.
2. ACQUISITIONS
On May 5, 1997, the Corporation merged with First-Knox Banc Corp.
(First-Knox), a $569 million bank holding company headquartered in Mount Vernon,
Ohio, in a transaction accounted for as a pooling-of-interests. Park issued
approximately 2.3 million shares of common stock to the stockholders of
First-Knox based upon an exchange ratio of .5914 shares of Park common stock for
each outstanding share of First-Knox common stock. The historical financial
statements of the Corporation have been restated to show Park and First-Knox on
a combined basis.
On September 24, 1999, Park National Division acquired a branch office
in Utica, Ohio from National City Bank. In addition to the fixed assets, the
purchase included $15 million of deposits. The excess of the cost over net
assets purchased was $2 million and is being amortized using the straight-line
method over seven years.
On December 8, 1997, Fairfield National Division acquired three branch offices
in Lancaster, Ohio from KeyBank National Association. In addition to the fixed
assets, the purchase included $49 million of deposits and $12 million of loans.
The excess of the cost over net assets purchased was $6 million and is being
amortized using the straight-line method over seven years.
On December 14, 1999, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with U.B. Bancshares, Inc. (UB), a $180 million
bank holding company headquartered in Bucyrus, Ohio, providing for a merger of
UB into the Corporation. Under terms of the UB Merger Agreement, the
stockholders of UB are expected to receive .554 shares of Park common stock for
each outstanding share of UB in a tax free exchange. The Corporation expects to
issue an aggregate of 325,500 shares of common stock to complete the merger
which will be accounted for as a pooling-of-interests. Completion of the merger
is subject to certain conditions, including the approval of bank regulators and
other governmental agencies, the approval of stockholders of UB, and other
conditions to closing customary of a transaction of this type. The UB merger is
expected to be completed during the second quarter of 2000.
On December 17, 1999, the Corporation entered into an Agreement and Plan of
Merger (the "Merger Agreement") with SNB Corp. (SNB), a $300 million bank
holding company headquartered in Greenville, Ohio, providing for a merger of SNB
into the Corporation. Under terms of the SNB Merger Agreement, the stockholders
of SNB are expected to receive 5.37 shares of Park common stock for each
outstanding share of SNB in a tax free exchange. The Corporation expects to
issue an aggregate of 835,500 shares of common stock to complete the merger
which will be accounted for as a pooling-of-interests. Completion of the merger
is subject to certain conditions, including the approval of bank regulators and
other governmental agencies, the approval of stockholders of SNB, and other
conditions to closing customary of a transaction of this type. The SNB merger is
expected to be completed during the second quarter of 2000.
C-21
<PAGE> 133
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 $20,487,000 and $16,851,000 at December 31, 1999 and 1998,
respectively. No other compensating balance arrangements were in existence at
year end.
4. INVESTMENT SECURITIES
The amortized cost and fair values of investment securities at December 31 are
as follows (in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING ESTIMATED
(IN THOUSANDS) COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999:
SECURITIES AVAILABLE-FOR-SALE
Obligations of U.S. Treasury and
other U.S. Government agencies $208,896 $ 98 $ 7,467 $201,527
Obligations of states and
political subdivisions 99,209 626 1,792 98,043
U.S. Government agencies'
asset-backed securities and
other asset-backed securities 298,433 246 3,431 295,248
Other equity securities 24,048 377 234 24,191
- ----------------------------------------------------------------------------------------
TOTAL $630,586 $ 1,347 $ 12,924 $619,009
- ----------------------------------------------------------------------------------------
1999:
SECURITIES HELD-TO-MATURITY
Obligations of states and
political subdivisions $ 4,290 $ 131 $ 2 $ 4,419
Other asset-backed securities 31 1 0 32
- ----------------------------------------------------------------------------------------
TOTAL $ 4,321 $ 132 $ 2 $ 4,451
- ----------------------------------------------------------------------------------------
1998:
SECURITIES AVAILABLE-FOR-SALE
Obligations of U.S. Treasury and
other U.S. Government agencies $172,150 $ 3,380 $ -- $175,530
Obligations of states and
political subdivisions 100,790 4,159 45 104,904
U.S. Government agencies'
asset-backed securities and
other asset-backed securities 341,247 3,574 237 344,584
Other equity securities 20,622 763 -- 21,385
- ----------------------------------------------------------------------------------------
TOTAL $634,809 $ 11,876 $ 282 $646,403
- ----------------------------------------------------------------------------------------
1998:
SECURITIES HELD-TO-MATURITY
Obligations of states and
political subdivisions $ 5,712 $ 283 $ 3 $ 5,992
Other asset-backed securities 352 3 -- 355
- ----------------------------------------------------------------------------------------
TOTAL $ 6,064 $ 286 $ 3 $ 6,347
- ----------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of investments in debt securities
at December 31, 1999 are shown below (in thousands) by contractual maturity
except for asset-backed securities which are shown based on expected maturities.
The average yield is computed on a tax equivalent basis using a 35 percent tax
rate.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
UNREALIZED WEIGHTED
AMORTIZED ESTIMATED AVERAGE AVERAGE
(DOLLARS IN THOUSANDS) COST FAIR VALUE MATURITY YIELD
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE-FOR-SALE
U.S. Treasury and agencies' notes:
Due within one year $ 10,576 $ 10,674 .9 years 7.38%
Due five through ten years 198,320 190,853 7.8 years 6.59%
- -----------------------------------------------------------------------------------------
TOTAL $208,896 $201,527 7.5 years 6.63%
- -----------------------------------------------------------------------------------------
Obligations of states and
political subdivisions:
Due within one year $ 3,328 $ 3,354 .6 years 8.16%
Due one through five years 22,116 22,384 3.1 years 7.64%
Due five through ten years 40,351 40,381 7.8 years 7.42%
Due over ten years 33,414 31,924 12.5 years 6.98%
- -----------------------------------------------------------------------------------------
TOTAL $ 99,209 $ 98,043 8.1 years 7.35%
- -----------------------------------------------------------------------------------------
U.S. Government agencies'
asset-backed securities and
other asset-backed securities:
Due within one year $ 14,975 $ 15,003 .7 years 6.68%
Due one through five years 270,317 267,517 3.6 years 6.77%
Due five through ten years 13,141 12,728 5.4 years 6.31%
- -----------------------------------------------------------------------------------------
TOTAL $298,433 $295,248 3.5 years 6.75%
- -----------------------------------------------------------------------------------------
SECURITIES HELD-TO-MATURITY
Obligations of state and
political subdivisions:
Due within one year $ 1,387 $ 1,430 .9 years 11.26%
Due one through five years 2,128 2,214 2.5 years 10.44%
Due five through ten years 630 630 8.0 years 7.63%
Due over ten years 145 145 10.9 years 7.63%
- -----------------------------------------------------------------------------------------
TOTAL $ 4,290 $ 4,419 3.1 years 10.20%
- -----------------------------------------------------------------------------------------
OTHER ASSET-BACKED SECURITIES:
Due one through five years $ 31 $ 32 3.6 years 8.70%
- -----------------------------------------------------------------------------------------
</TABLE>
Investment securities having a book value of $474,877,000 and $432,489,000 at
December 31, 1999 and 1998, respectively, were pledged to collateralize
government and trust department deposits in accordance with federal and state
requirements and to secure repurchase agreements sold.
In 1999, 1998 and 1997, gross gains of $335,000, $159,000, and $64,000 and gross
losses of $3,943,000, $62,000 and $71,000 were realized, respectively. Tax
benefits related to net securities losses were $1,263,000 in 1999, and $2,000 in
1997. Tax expense related to net securities gains in 1998 was $34,000.
5. LOANS
The composition of the loan portfolio is as follows:
- ---------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ---------------------------------------------------------------------
Commercial, financial and agricultural $ 236,718 $ 217,504
REAL ESTATE:
Construction 72,968 70,998
Residential 693,930 679,239
Commercial 305,193 280,789
Consumer, net 407,849 332,320
LEASES, NET 117,290 60,662
- ---------------------------------------------------------------------
TOTAL LOANS $1,833,948 $1,641,512
- ---------------------------------------------------------------------
Under the Corporation's credit policies and practices, all non-accrual and
restructured commercial, financial, agricultural, construction and commercial
real estate loans meet the definition of impaired loans under SFAS No. 114 and
118. Impaired loans as defined by SFAS No. 114 and 118 exclude certain consumer
loans, residential real estate loans and lease financing classified as
non-accrual. The majority of the loans deemed impaired were evaluated using the
fair value of the collateral as the measurement method.
C-22
<PAGE> 134
Non-accrual and restructured loans are summarized as follows:
- ------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------
Impaired loans:
Non-accrual $2,638 $2,150
Restructured 429 492
Total impaired loans 3,067 2,642
Other non-accrual loans -- 5
- ------------------------------------------------------------------
TOTAL NON-ACCRUAL AND RESTRUCTURED LOANS $3,067 $2,647
- ------------------------------------------------------------------
The allowance for credit losses related to impaired loans at December 31, 1999
and 1998 was $607,000 and $436,000, respectively. All impaired loans for both
periods were subject to a related allowance for credit losses.
The average balance of impaired loans was $2,576,000, $2,457,000 and $3,599,000
for 1999, 1998 and 1997, respectively.
Interest income on impaired loans is recognized after all past due and current
principal payments have been made, and collectibility is no longer doubtful. For
the years ended December 31, 1999, 1998, and 1997, the Corporation recognized
$321,000, $149,000 and $283,000, respectively, of interest income on impaired
loans, which included $307,000, $121,000 and $270,000, respectively, 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,
1999 and 1998, loans aggregating approximately $52,738,000 and $45,079,000,
respectively, were outstanding to such parties.
6. ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
Balance, January 1 $ 37,989 $ 35,595 $ 32,347
Provision for loan losses 6,969 6,798 6,999
Losses charged to the reserve (7,314) (7,392) (6,271)
Recoveries 3,622 2,988 2,520
- -------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $ 41,266 $ 37,989 $ 35,595
- -------------------------------------------------------------------------------
7. INVESTMENT IN FINANCING LEASES
The following is a summary of the components of the Corporation's affiliates'
net investment in direct financing leases:
- -------------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------
Total minimum payments to be received $ 86,991 $ 50,118
Estimated unguaranteed residual value of leased property 43,211 19,230
Less unearned income (12,912) (8,686)
- -------------------------------------------------------------------------------
TOTAL $ 117,290 $ 60,662
- -------------------------------------------------------------------------------
Minimum lease payments, in thousands, to be received as of December 31, 1999
are:
- -----------------------------------------------
(IN THOUSANDS)
- -----------------------------------------------
2000 $31,836
2001 21,393
2002 15,884
2003 11,731
2004 5,219
Thereafter 928
- -----------------------------------------------
TOTAL $86,991
- -----------------------------------------------
8. PREMISES AND EQUIPMENT
The major categories of premises and equipment and accumulated depreciation are
summarized as follows:
- --------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------
Land $ 6,550 $ 6,392
Buildings 27,019 26,203
Equipment, furniture and fixtures 29,491 27,514
Leasehold improvements 1,204 1,144
- --------------------------------------------------------------------------
TOTAL 64,264 61,253
- --------------------------------------------------------------------------
Less accumulated depreciation and amortization (37,722) (34,498)
- --------------------------------------------------------------------------
PREMISES AND EQUIPMENT, NET $ 26,542 $ 26,755
- --------------------------------------------------------------------------
Depreciation and amortization expense amounted to $3,541,000, $4,491,000 and
$3,273,000 for the three years ended December 31, 1999, 1998 and 1997,
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 excess of one year (in thousands):
- --------------------------------------------------
(IN THOUSANDS)
- --------------------------------------------------
2000 $ 451,644
2001 372,236
2002 284,994
2003 262,183
2004 240,270
Thereafter 212,500
- --------------------------------------------------
TOTAL $1,823,827
- --------------------------------------------------
Rent expense amounted to $704,000, $659,000 and $639,000, for the three years
ended December 31, 1999, 1998 and 1997, respectively.
C-23
<PAGE> 135
9. SHORT-TERM BORROWINGS
Short-term borrowings are as follows:
- -------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------
Securities sold under agreements to repurchase
and federal funds purchased $149,679 $160,616
Federal Home Loan Bank advances 190,100 80,000
Other short-term borrowings 8,420 6,043
- -------------------------------------------------------------------------
TOTAL SHORT-TERM BORROWINGS $348,199 $246,659
- -------------------------------------------------------------------------
The outstanding balances for all short-term borrowings as of December 31, 1999,
1998 and 1997 (in thousands) and the weighted-average interest rates as of and
paid during each of the years then ended are as follows:
- -------------------------------------------------------------------------
REPURCHASE DEMAND
AGREEMENTS FEDERAL NOTES
AND FEDERAL HOME LOAN DUE U.S.
FUNDS BANK TREASURY
(Dollars in thousands) PURCHASED ADVANCES AND OTHER
- -------------------------------------------------------------------------
1999:
ENDING BALANCE $149,679 $190,100 $ 8,420
HIGHEST MONTH-END BALANCE 188,269 197,600 10,044
AVERAGE DAILY BALANCE 157,993 133,418 3,898
WEIGHTED-AVERAGE INTEREST RATE:
AS OF YEAR-END 4.20% 5.82% 4.47%
PAID DURING THE YEAR 4.11% 5.18% 5.07%
- -------------------------------------------------------------------------
1998:
Ending balance $160,616 $ 80,000 $ 6,043
Highest month-end balance 182,957 104,300 6,043
Average daily balance 157,951 29,356 2,868
Weighted-average interest rate:
As of year-end 4.21% 6.00% 4.06%
Paid during the year 4.58% 5.83% 4.87%
- -------------------------------------------------------------------------
1997:
Ending balance $127,587 $ 18,900 $ 5,137
Highest month-end balance 161,172 86,000 5,137
Average daily balance 132,976 26,741 2,909
Weighted-average interest rate:
As of year-end 4.61% 6.25% 5.75%
Paid during the year 4.60% 5.49% 5.25%
- -------------------------------------------------------------------------
At December 31, 1999, Federal Home Loan Bank (FHLB) advances were collateralized
by the FHLB stock owned by the Corporation's affiliate banks and by residential
mortgage loans pledged under a blanket agreement by the Corporation's affiliate
banks.
10. LONG-TERM DEBT
Long-term debt is listed below:
- -----------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- -----------------------------------------------------------------------
FIXED RATE FEDERAL HOME LOAN BANK ADVANCES WITH
MONTHLY PRINCIPAL AND INTEREST PAYMENTS:
2.00% Advance due November 1, 2027 $ 38 $ 39
2.00% Advance due January 1, 2028 38 39
5.60% Advance due August 1, 2003 -- 1,443
5.70% Advance due May 1, 2004 -- 3,199
5.85% Advance due January 1, 2016 -- 3,710
- -----------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 76 $8,430
- -----------------------------------------------------------------------
At December 31, 1999, Federal Home Loan Bank (FHLB) advances were collateralized
by the FHLB stock owned by the Corporation's affiliate banks and by residential
mortgage loans pledged under a blanket agreement by the Corporation's affiliate
banks.
11. STOCK OPTION PLAN
The Park National Corporation 1995 Incentive Stock Option Plan ("the Park Plan")
was adopted April 17, 1995 and amended April 20, 1998. The Park 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 Park Plan is 735,000. At December 31,
1999, 420,214 common shares were available for future grants under this plan.
Incentive stock options may be granted at a price not less than the fair market
value at the date of the grant, and for an option term of up to five years. No
incentive stock options may be granted under the Park Plan after January 16,
2005.
In conjunction with the First-Knox Merger in 1997, the Corporation assumed the
1995 First-Knox Director's Stock Option and Stock Appreciation Rights Plan and
the 1990 First-Knox Stock Option and Stock Appreciation Rights Plan.
Additionally, in conjunction with the merger in 1997, all former First-Knox
Plans were terminated with respect to the granting of any additional options and
stock appreciation rights.
The Corporation's stock option activity and related information is summarized
below. All data has been restated, as applicable, for subsequent stock
dividends.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
STOCK OPTIONS STOCK APPRECIATION RIGHTS
----------------------------------------- ------------------------------------------
OUTSTANDING OUTSTANDING
------------------------ -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
AVAILABLE PRICE PER AVAILABLE PRICE PER
FOR GRANT NUMBER SHARE FOR GRANT NUMBER SHARE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1997 219,537 190,883 $ 30.43 36,388 27,791 $ 23.52
Granted (91,775) 91,775 59.20 -- -- --
Exercised -- (143,901) 26.72 -- (27,767) 23.52
Forfeited/Expired (80,511) (4,449) 56.26 (36,388) (24) 22.90
- --------------------------------------------------------------------------------------------------------------
December 31, 1997 47,251 134,308 $ 53.22 -- -- --
Authorized 525,000 -- -- -- -- --
Granted (91,719) 91,719 88.60 -- -- --
Exercised -- (37,910) 51.57 -- -- --
Forfeited/Expired 6,832 (6,832) 58.61 -- -- --
- --------------------------------------------------------------------------------------------------------------
December 31, 1998 487,364 181,285 $ 71.23 -- -- --
Granted (71,407) 71,407 91.36 -- -- --
Exercised -- (19,137) 56.60 -- -- --
Forfeited/Expired 4,257 (4,257) 84.91 -- -- --
- --------------------------------------------------------------------------------------------------------------
December 31, 1999 420,214 229,298 $ 78.47 -- -- --
- --------------------------------------------------------------------------------------------------------------
Range of exercise prices: $33.04 - $110.75
Weighted-average remaining contractual life: 3.4 Years
Exerciseable at year end: 222,333
Weighted-average exercise price of exerciseable options: $78.09
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Compensation expense related to stock appreciation rights was $0, $0 and
$339,000 in 1999, 1998 and 1997, respectively.
The Corporation has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock Based Compensation," requires the use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Corporation's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
C-24
<PAGE> 136
The fair value of these options was estimated at the date of grant using a
Black-Scholes options pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997 respectively: risk-free interest rates of
5.50%, 5.25% and 6.25%; a dividend yield of 2.50%, a volatility factor of the
expected market price of the Corporation's common stock of .213, .237 and .219
and a weighted-average expected option life of 4.0 years. The weighted-average
fair value of options granted were $18.04, $18.52 and $13.28 for 1999, 1998 and
1997, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, options valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The Corporation's pro-forma information follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, 1999 1998 1997
EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income as reported $ 45,747 $ 41,572 $ 37,693
Pro-forma net income 44,358 39,814 36,620
Basic earnings per share as reported 4.69 4.24 3.82
Pro-forma basic earnings per share 4.55 4.06 3.72
Diluted earnings per share as reported 4.67 4.22 3.81
Pro-forma diluted earnings per share 4.53 4.04 3.70
- ------------------------------------------------------------------------------------------
</TABLE>
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.
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $ 17,497 $ 16,498
Service cost 1,197 1,055
Interest cost 1,120 1,189
Actuarial (1,535) 2,096
Benefits paid (1,071) (3,341)
BENEFIT OBLIGATION AT END OF YEAR 17,208 17,497
- -------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 17,135 19,578
Actual return on plan assets 2,951 662
Company contributions 602 236
Benefits paid (1,071) (3,341)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR 19,617 17,135
Funded status of the plan (underfunded) 2,409 (362)
Unrecognized net actuarial loss (gain) (2,803) 314
Unrecognized prior service cost 9 3
Unrecognized net transaction asset (93) (157)
Accrued benefit cost $ (478) $ (202)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS:
Discount rate 7.64% 6.52%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 5.00%
- ----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- ----------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 1,197 $ 1,055 $ 942
Interest cost 1,120 1,189 1,098
Expected return on plan assets (1,369) (1,555) (1,375)
Amortization of prior service cost (6) (64) (6)
Recognized net actuarial loss (64) (62) (60)
Benefit cost $ 878 $ 563 $ 599
- ----------------------------------------------------------------------------------------
</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 $717,000, $724,000 and $586,000 for 1999, 1998
and 1997, respectively.
The Corporation has a Supplemental Executive Retirement Plan (SERP) covering
certain key officers of the Corporation and its subsidiaries with defined
pension benefits in excess of limits imposed by federal tax law. At December 31,
1999 and 1998, the accrued benefit cost for this plan totaled $520,000 and
$32,000, respectively. The expense for the Corporation was $480,000, $30,000,
and $14,000 for 1999, 1998, and 1997, respectively.
13. FEDERAL INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Corporation's deferred tax assets and liabilities are as follows:
- ----------------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ----------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Allowance for loan losses $14,443 $13,352
Unrealized holding loss on securities 4,052 --
Deferred loan fees 695 461
Deferred compensation 413 474
Other 3,697 3,259
- ----------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS 23,300 17,546
- ----------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Lease revenue reporting 12,816 6,951
Unrealized holding gain on securities -- 4,058
Fixed assets, principally due to depreciation 542 506
Other 6,148 5,541
- ----------------------------------------------------------------------------
TOTAL DEFERRED TAX LIABILITIES 19,506 17,056
- ----------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 3,794 $ 490
- ----------------------------------------------------------------------------
The components of the provision for federal income taxes are shown below:
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- -----------------------------------------------------------------------------
Currently payable $13,883 $18,112 $16,718
Deferred 4,806 829 139
- -----------------------------------------------------------------------------
TOTAL $18,689 $18,941 $16,857
- -----------------------------------------------------------------------------
C-25
<PAGE> 137
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, 1999,
1998, and 1997.
- --------------------------------------------------------------------------
DECEMBER 31 1999 1998 1997
- --------------------------------------------------------------------------
Statutory corporate tax rate 35.0% 35.0% 35.0%
Changes in rates resulting from:
Tax-exempt interest income (3.4%) (3.0%) (2.9%)
Tax credits (low income housing) (1.7%) (1.0%) (.9%)
Other (.9%) .3% (.3%)
- --------------------------------------------------------------------------
EFFECTIVE TAX RATE 29.0% 31.3% 30.9%
- --------------------------------------------------------------------------
The following is a summary of the income tax effect allocated to other
comprehensive income.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED DECEMBER 31, 1999 AMOUNT EXPENSE AMOUNT
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Unrealized losses on
available-for-sale securities $(26,779) $ (9,373) $(17,406)
Less: reclassification adjustment for
losses realized in net income 3,608 1,263 2,345
- -------------------------------------------------------------------------------------
Other comprehensive income $(23,171) $ (8,110) $(15,061)
- -------------------------------------------------------------------------------------
Year ended December 31, 1998
Unrealized gains on
available-for-sale securities $ 892 $ 312 $ 580
Less: reclassification adjustment for
gains realized in net income (97) (34) (63)
- -------------------------------------------------------------------------------------
Other comprehensive income $ 795 $ 278 $ 517
- -------------------------------------------------------------------------------------
Year ended December 31, 1997
Unrealized gains on
available-for-sale securities $ 3,581 $ 1,254 $ 2,327
Less: reclassification adjustment for
losses realized in net income 7 2 5
- -------------------------------------------------------------------------------------
Other comprehensive income $ 3,588 $ 1,256 $ 2,332
- -------------------------------------------------------------------------------------
</TABLE>
14. EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share" requires the reporting of basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31 1999 1998 1997
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NUMERATOR:
Net income $ 45,747 $ 41,572 $ 37,693
DENOMINATOR:
Basic earnings per share:
Weighted-average shares 9,753,656 9,807,582 9,855,119
Effect of dilutive securities - stock options 39,546 48,220 39,841
Diluted earnings per share:
Adjusted weighted-average shares
and assumed conversions 9,793,202 9,855,802 9,894,960
EARNINGS PER SHARE:
Basic earnings per share $ 4.69 $ 4.24 $ 3.82
Diluted earnings per share $ 4.67 $ 4.22 $ 3.81
- --------------------------------------------------------------------------------------------------
</TABLE>
15. DIVIDEND RESTRICTIONS
Bank regulators limit the amount of dividends a subsidiary bank can declare in
any calendar year without obtaining prior approval. At December 31, 1999,
approximately $20,798,000 of the total stockholders' equity of the bank
subsidiaries is available for the payment of dividends to the Corporation,
without approval by the applicable regulatory authorities.
C-26
<PAGE> 138
16. 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:
- ------------------------------------------------------------------
DECEMBER 31 (DOLLARS IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------
Loan commitments $289,448 $267,602
Unused credit card limits 96,193 96,710
Standby letters of credit 6,585 3,953
- ------------------------------------------------------------------
The loan commitments are generally for variable rates of interest.
The Corporation grants retail, commercial and commercial real estate loans to
customers primarily located in Central Ohio. The Corporation evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Corporation upon extension of credit, is
based on management's credit evaluation of the customer. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
Although the Corporation has a diversified loan portfolio, a substantial portion
of the borrowers' ability to honor their contracts is dependent upon the
economic conditions in each borrower's geographic location.
C-27
<PAGE> 139
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Corporation in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
INVESTMENT SECURITIES: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
LOANS RECEIVABLE: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for certain mortgage loans (e.g., one-to-four family residential)
are based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Corporation's loan
commitments and standby letters of credit are based on the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counter parties' credit standing.
DEPOSIT LIABILITIES: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.,
their carrying amounts). The carrying amounts for variable-rate, fixed-term
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
The fair value of financial instruments at December 31, 1999 and 1998 is as
follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
(IN THOUSANDS) CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and federal funds
sold $ 104,222 $ 104,222 $ 100,291 $ 100,291
Investment securities 623,330 623,460 652,467 652,750
Loans:
Commercial, financial
and agricultural 236,718 236,718 217,504 217,504
Real estate:
Construction 72,968 72,968 70,998 70,998
Residential 693,930 699,671 679,239 688,497
Commercial 305,193 303,724 280,789 281,162
Consumer, net 407,849 406,373 332,320 334,138
- ------------------------------------------------------------------------------------------------------
TOTAL LOANS 1,716,658 1,719,454 1,580,850 1,592,299
- ------------------------------------------------------------------------------------------------------
Allowance for
loan losses (41,266) -- (37,989) --
- ------------------------------------------------------------------------------------------------------
LOANS
RECEIVABLE, NET $ 1,675,392 $ 1,719,454 $ 1,542,861 $ 1,592,299
- ------------------------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
Noninterest bearing
checking $ 289,291 $ 289,291 $ 285,574 $ 285,574
Interest bearing checking 242,235 242,235 235,113 235,113
Savings 275,374 275,374 276,546 276,546
Money market accounts 150,226 150,226 159,722 159,722
Time deposits 1,056,594 1,057,518 981,305 988,152
Other 1,427 1,427 1,518 1,518
- ------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $ 2,015,147 $ 2,016,071 $ 1,939,778 $ 1,946,625
- ------------------------------------------------------------------------------------------------------
Short-term borrowings 348,199 348,199 246,659 246,659
Long-term debt 76 40 8,430 8,526
UNRECOGNIZED FINANCIAL
INSTRUMENTS:
Loan commitments -- (289) -- (268)
Standby letters of credit -- (33) -- (20)
- ------------------------------------------------------------------------------------------------------
</TABLE>
18. CAPITAL RATIOS
The following table reflects various measures of capital at December 31, 1999
and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
DECEMBER 31, 1999 1998
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total equity (1) $239,580 9.09% $235,690 9.58%
Tier 1 capital (2) 235,124 13.15% 215,990 13.64%
Total risk-based capital (3) 257,708 14.41% 236,356 14.92%
Leverage (4) 235,124 9.05% 215,990 9.06%
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Computed in accordance with generally accepted accounting principles,
including accumulated other comprehensive income.
(2) Stockholders' equity less certain intangibles and accumulated other
comprehensive income; computed as a ratio to risk-adjusted assets as
defined.
(3) Tier 1 capital plus qualifying loan loss allowance; computed as a ratio to
risk-adjusted assets, as defined.
(4) Tier 1 capital computed as a ratio to average total assets less certain
intangibles.
C-28
<PAGE> 140
The Corporation's Tier 1, total risk-based capital and leverage ratios are
well above both the required minimum levels of 4.00%, 8.00% and 4.00%,
respectively, and the well-capitalized levels of 6.00%, 10.00% and 5.00%,
respectively.
At December 31, 1999, and 1998, all of the Corporation's subsidiary
financial institutions met the well-capitalized levels under the capital
definitions prescribed in the FDIC Improvement Act of 1991.
19. SEGMENT INFORMATION
The Corporation's segments are its banking subsidiaries and their respective
divisions. The operating results of the banking subsidiaries and their
respective divisions are monitored closely by senior management and each
president of the subsidiary or division is held accountable for their results.
Information about reportable segments is listed below (in thousands). See Note 1
for a detailed description of individual banking subsidiaries and their
respective divisions
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS)
ALL
PND FND RTC CNB FKND FSD OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 41,448 $ 12,734 $ 17,739 $ 16,520 $ 23,095 $ 3,211 $ 1,110 $ 115,857
Provision for loan losses 710 755 1,039 1,410 2,353 646 56 6,969
Other income 12,290 2,081 1,261 2,280 4,213 343 620 23,088
Depreciation and amortization 1,092 406 483 489 814 103 154 3,541
Other expense 22,649 7,461 9,822 8,727 11,828 1,576 1,936 63,999
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 29,287 6,193 7,656 8,174 12,313 1,229 (416) 64,436
- -----------------------------------------------------------------------------------------------------------------------------------
Federal income taxes 8,876 1,984 2,571 2,486 3,548 326 (1,102) 18,689
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 20,411 $ 4,209 $ 5,085 $ 5,688 $ 8,765 $ 903 $ 686 $ 45,747
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1999:
Assets $ 949,212 $ 280,451 $ 435,220 $ 393,733 $ 541,724 $ 62,474 $ (28,477) $2,634,337
Loans 693,579 168,078 243,037 269,897 396,412 62,374 571 1,833,948
Deposits 691,356 219,598 354,521 316,702 394,084 57,598 (18,712) 2,015,147
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Results for the year ended December 31, 1998
Net interest income $ 39,877 $ 11,586 $ 16,018 $ 15,510 $ 20,910 $ 2,827 $ 923 $ 107,651
Provision for loan losses 2,880 600 1,602 480 1,116 120 -- 6,798
Other income 11,468 2,349 2,972 3,079 3,833 268 -- 23,969
Depreciation and amortization 1,119 354 558 648 1,513 149 150 4,491
Other expense 20,483 6,689 9,283 8,168 11,646 1,490 2,059 59,818
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 26,863 6,292 7,547 9,293 10,468 1,336 (1,286) 60,513
- -----------------------------------------------------------------------------------------------------------------------------------
Federal income taxes 8,530 2,038 2,541 2,961 2,927 376 (432) 18,941
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 18,333 $ 4,254 $ 5,006 $ 6,332 $ 7,541 $ 960 $ (854) $ 41,572
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1998:
Assets $ 865,974 $ 277,482 $ 413,590 $ 385,150 $ 484,965 $ 62,303 $ (28,685) $2,460,779
Loans 636,189 149,487 213,360 239,032 351,695 51,749 -- 1,641,512
Deposits 641,618 219,907 337,964 310,769 394,470 55,789 (20,739) 1,939,778
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Results for the year ended December 31, 1997
Net Interest Income $ 39,106 $ 9,676 $ 16,018 $ 14,590 $ 20,507 $ 2,569 $ 790 $ 103,256
Provision for loan losses 220 450 650 330 4,870 479 -- 6,999
Other income 10,648 1,740 2,383 2,571 3,148 211 -- 20,701
Depreciation and amortization 824 219 505 494 1,000 82 149 3,273
Other expense 19,138 5,046 9,531 7,928 15,144 1,579 769 59,135
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 29,572 5,701 7,715 8,409 2,641 640 (128) 54,550
- -----------------------------------------------------------------------------------------------------------------------------------
Federal income taxes 9,559 1,808 2,520 2,604 125 128 113 16,857
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 20,013 $ 3,893 $ 5,195 $ 5,805 $ 2,516 $ 512 $ (241) $ 37,693
- -----------------------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1997:
Assets $ 777,707 $ 250,324 $ 401,683 $ 353,816 $ 492,315 $ 63,322 $ (50,784) $2,288,383
Loans 589,044 137,567 229,658 247,663 340,888 47,107 -- 1,591,927
Deposits 578,050 211,004 330,922 301,967 384,278 56,946 (8,203) 1,854,964
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-29
<PAGE> 141
Reconciliation of financial information for the reportable segments to the
Corporation's consolidated totals.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
INTEREST DEPRECIATION OTHER INCOME
INCOME EXPENSE EXPENSE TAXES ASSETS DEPOSITS
- --------------------------------------------------------------------------------------------------------------------------
1999:
<S> <C> <C> <C> <C> <C> <C>
Totals for reportable
segments $ 114,747 $ 3,387 $ 62,063 $ 19,791 $ 2,662,814 $ 2,033,859
Elimination of
intersegment items -- -- -- -- (40,904) (18,712)
Parent Co. and GFC totals
- not eliminated 1,110 4 1,936 (1,102) 12,427 --
Other items -- 150 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
TOTALS $ 115,857 $ 3,541 $ 63,999 $ 18,689 $ 2,634,337 $ 2,015,147
- -----------------------------------------------------------------------------------------------------------------------------
1998:
Totals for reportable
segments $ 106,728 $ 4,341 $ 57,759 $ 19,373 $ 2,489,464 $ 1,960,517
Elimination of
intersegment items -- -- -- -- (35,764) (20,739)
Parent Co. totals
- not eliminated 923 -- 2,059 (432) 7,079 --
Other items -- 150 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Totals $ 107,651 $ 4,491 $ 59,818 $ 18,941 $ 2,460,779 $ 1,939,778
- -----------------------------------------------------------------------------------------------------------------------------
1997:
Totals for
reportable segments $ 102,466 $ 3,124 $ 58,366 $ 16,744 $ 2,339,167 $ 1,863,167
Elimination of
intersegment items -- -- -- -- (57,181) (8,203)
Parent Co. totals
- not eliminated 790 -- 769 113 6,397 --
Other items -- 149 -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Totals $ 103,256 $ 3,273 $ 59,135 $ 16,857 $ 2,288,383 $ 1,854,964
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
20. PARENT COMPANY STATEMENTS
The Parent Company statements should be read in conjunction with the
consolidated financial statements and the information set forth below.
Investments in subsidiaries are accounted for using the equity method of
accounting.
The effective tax rate for the Parent Company is substantially less than the
statutory rate due principally to tax-exempt dividends from subsidiaries.
Cash represents noninterest bearing deposits with a bank subsidiary.
Net cash provided by operating activities reflects cash payments for income
taxes of $652,000, $18,000 and $1,040,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999 and 1998, stockholders' equity reflected in the Parent
Company balance sheet includes $86.7 million and $82.4 million, respectively, of
undistributed earnings of the Corporation's subsidiaries which are restricted
from transfer as dividends to the Corporation.
BALANCE SHEETS
AT DECEMBER 31, 1999 AND 1998
- -------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998
- -------------------------------------------------------------------------
ASSETS:
Cash $ 25,148 $ 29,770
Investment in subsidiaries 166,692 170,927
Debentures receivable from subsidiary banks 20,000 12,000
Other investments 1,408 507
Dividends receivable from subsidiaries 25,500 21,375
Other assets 8,397 7,115
- -------------------------------------------------------------------------
TOTAL ASSETS $247,145 $241,694
- -------------------------------------------------------------------------
LIABILITIES:
Dividends payable $ 6,331 $ 5,586
Other liabilities 1,234 418
- -------------------------------------------------------------------------
TOTAL LIABILITIES 7,565 6,004
TOTAL STOCKHOLDERS' EQUITY 239,580 235,690
- -------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $247,145 $241,694
- -------------------------------------------------------------------------
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------
(IN THOUSANDS) 1999 1998 1997
- -------------------------------------------------------------------------------
INCOME:
Dividends from subsidiaries $ 34,500 $ 33,500 $ 45,097
Interest and dividends 960 923 790
Other 619 -- --
- --------------------------------------------------------------------------------
TOTAL INCOME 36,079 34,423 45,887
- --------------------------------------------------------------------------------
EXPENSE:
Amortization of intangibles -- 295 304
Other, net 1,767 1,764 465
- --------------------------------------------------------------------------------
TOTAL EXPENSES 1,767 2,059 769
- --------------------------------------------------------------------------------
INCOME BEFORE FEDERAL TAXES AND EQUITY
IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 34,312 32,364 45,118
Federal income tax benefit (expense) 1,074 432 (113)
- --------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS
OF SUBSIDIARIES 35,386 32,796 45,005
Equity in undistributed earnings
of subsidiaries 10,361 8,776 (7,312)
- --------------------------------------------------------------------------------
NET INCOME $ 45,747 $ 41,572 $ 37,693
- --------------------------------------------------------------------------------
C-30
<PAGE> 142
APPENDIX D
[Austin Associates, Inc. Letterhead]
March 13, 2000
CONFIDENTIAL
- ------------
Board of Directors
U.B. Bancshares, Inc.
401 South Sandusky Avenue
Bucyrus, OH 44820
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to U.B. Bancshares, Inc. ("U.B.") and its shareholders of the terms of the
Agreement and Plan of Merger dated as of December 13, 1999 ("Agreement") between
U.B. and Park National Corporation ("Park"). The Agreement provides for the
merger of U.B. with and into Park (the "Merger").
The financial terms of the Agreement provide for each outstanding share of U.B.
common stock to be converted into shares of Park common stock. The total number
of shares issued in the transaction will equal 325,500. The number of shares
issued to each U.B. common share is approximately .554.
In carrying out our engagement, we have reviewed and analyzed material bearing
upon the financial and operating condition of U.B. and Park, including but not
limited to the following: (i) the Agreement; (ii) the audited financial
statements of U.B. and Park for the periods ending December 31, 1995 through
1998; (iii) certain other publicly available information regarding U.B. and
Park; (iv) publicly available information regarding the performance of certain
other companies whose business activities were believed by Austin Associates to
be generally comparable to those of U.B. and Park; (v) the financial terms, to
the extent publicly available, of certain comparable transactions; and (vi) such
other analysis and information as we deemed relevant.
In our review and analysis, we relied upon and assumed the accuracy and
completeness of the financial and other information provided to us or publicly
available, and have not attempted to verify the same. We have made no
independent verification as to the status of individual loans made by Park or
U.B., and have instead relied upon representations and information concerning
loans of U.B. and Park in the aggregate. In rendering our opinion, we have
assumed that the transaction will be a tax-free reorganization. In addition, we
have assumed in the course of obtaining the necessary regulatory approvals for
the transaction, no condition will be imposed
D-1
<PAGE> 143
that will have a material adverse effect on the contemplated benefits of the
transaction to U.B. and its shareholders.
Based upon our analysis and subject to the qualifications described herein, we
believe that as of the date of this letter, the terms of the Agreement are fair,
from a financial point of view, to U.B. and its shareholders.
For our services in rendering this opinion, U.B. will pay us a fee and indemnify
us against certain liabilities.
/s/AUSTIN ASSOCIATES, INC.
AUSTIN ASSOCIATES, INC.
D-2
<PAGE> 144
APPENDIX E
OHIO REVISED CODE 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.
(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
E-1
<PAGE> 145
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.
(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;
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(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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