<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
SKY FINANCIAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
OHIO 6022 34-1372535
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code No.)
organization)
</TABLE>
221 SOUTH CHURCH STREET, BOWLING GREEN, OHIO 43402
(419) 327-6300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
MARTY E. ADAMS, PRESIDENT AND CHIEF OPERATING OFFICER
221 SOUTH CHURCH STREET
BOWLING GREEN, OHIO 43402
(419) 327-6300
(Name, address, including zip code,
& telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
M. PATRICIA OLIVER, W. GRANGER SOUDER, ESQ. J. ROBERT VAN KIRK, THOMAS S. MANSELL, ESQ.
ESQ. Sky Financial Group, ESQ. First Western Bancorp,
Squire, Sanders & Inc. Kirkpatrick & Lockhart Inc.
Dempsey L.L.P. 221 South Church Street LLP 101 East Washington
4900 Key Tower Bowling Green, Ohio 1500 Oliver Building Street
127 Public Square 43402 Pittsburgh, New Castle,
Cleveland, Ohio Pennsylvania 15222 Pennsylvania 16101
44114-1304
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES TO AMOUNT TO BE OFFERING AGGREGATE
BE REGISTERED REGISTERED (1) PRICE PER UNIT OFFERING PRICE (2)
<S> <C> <C> <C>
Common Stock....................................... 14,124,697 N.A. $396,564,576
<CAPTION>
TITLE OF EACH
CLASS OF AMOUNT OF
SECURITIES TO REGISTRATION
BE REGISTERED FEE (3)
<S> <C>
Common Stock....................................... $110,244.95
</TABLE>
(1) The number of shares of common stock, without par value, of Sky Financial
Group, Inc., an Ohio corporation to be registered pursuant to this
Registration Statement is based upon the number of shares of common stock,
par value $5.00 per share, of First Western Bancorp, Inc., a Pennsylvania
business corporation registered with the Federal Reserve Board as a bank
holding company, presently outstanding or reserved for issuance under
various plans or otherwise expected to be issued upon the consummation of
the proposed transaction to which this Registration Statement relates,
multiplied by the exchange ratio of 1.211 Sky Financial common shares for
each First Western common share.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act and solely
for the purpose of calculating the registration fee, the proposed maximum
aggregate offering price is equal to the market value of the securities to
be received by Sky Financial in the merger, which is equal to the product of
(i) $34, the average of the high and low sale prices of First Western common
shares quoted on the Nasdaq National Market System on May 20, 1999 and (ii)
11,663,664, the estimated maximum number of First Western common shares to
be canceled in the merger.
(3) The registration fee of $110,244.95 for the securities registered hereby has
been calculated pursuant to Rule 457(f) under the Securities Act, as
$396,564,576 multiplied by .000278. In accordance with Rule 457(b),
$103,476.76 previously paid by Sky Financial upon the filing of its
preliminary proxy materials on March 16, 1999 has been credited against the
registration fee payable in connection with this filing. The remaining fee
of $6,768.19 has been paid by Sky Financial.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO] [LOGO]
PROPOSED MERGER OF SKY FINANCIAL
AND FIRST WESTERN BANCORP
YOUR VOTE IS VERY IMPORTANT
As you may know, the boards of directors of Sky Financial Group, Inc. and
First Western Bancorp, Inc. have agreed on a merger intended to create a $7
billion financial services organization, which will be able to serve its
customers through 210 banking centers located throughout Ohio, western
Pennsylvania, West Virginia and Michigan.
FIRST WESTERN SHAREHOLDERS WILL RECEIVE 1.211 SKY FINANCIAL COMMON SHARES
FOR EACH FIRST WESTERN COMMON SHARE THEY OWN. SKY FINANCIAL SHAREHOLDERS WILL
CONTINUE TO OWN THEIR EXISTING COMMON SHARES AFTER THE MERGER. WE HAVE
STRUCTURED THE MERGER SO THAT SKY FINANCIAL, FIRST WESTERN AND OUR RESPECTIVE
SHAREHOLDERS WILL NOT RECOGNIZE ANY GAIN OR LOSS FOR FEDERAL INCOME TAX PURPOSES
IN THE MERGER, EXCEPT FOR TAX PAYABLE BECAUSE OF CASH RECEIVED BY FIRST WESTERN
SHAREHOLDERS INSTEAD OF FRACTIONAL SHARES. WE ESTIMATE THAT FIRST WESTERN
SHAREHOLDERS WILL OWN APPROXIMATELY 23% OF THE OUTSTANDING SKY FINANCIAL COMMON
SHARES AFTER THE MERGER.
BASED ON MARKET PRICES ON DECEMBER 11, 1998, THE LAST FULL TRADING DAY
BEFORE SKY FINANCIAL AND FIRST WESTERN ANNOUNCED THE MERGER, THE EXCHANGE OF
SHARES WOULD GIVE FIRST WESTERN SHAREHOLDERS $37.24 PER SHARE, WHICH IS A 23%
PREMIUM OVER THE PRICE OF FIRST WESTERN COMMON SHARES. BASED ON MARKET PRICES ON
MAY 20, 1999, THE LAST PRACTICABLE TRADING DAY FOR WHICH INFORMATION WAS
AVAILABLE PRIOR TO THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS, THE
EXCHANGE OF SHARES WOULD GIVE FIRST WESTERN SHAREHOLDERS $34.66 PER SHARE, WHICH
IS A 3% PREMIUM OVER THE PRICE OF FIRST WESTERN COMMON SHARES. FOR RISKS IN
CONNECTION WITH THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 12.
Sky Financial common shares are traded on the Nasdaq National Market System
under the trading symbol "SKYF." On December 11, 1998, the last full trading day
before we announced the proposed merger, the closing price of Sky Financial's
common stock was $30.75 per share and the closing price of First Western's
common stock was $30.25 per share. On May 20, 1999, the most recent practicable
date before the printing of this joint proxy statement/prospectus, the closing
price of Sky Financial's common stock was $28.625 per share and the closing
price of First Western's common stock was $33.75 per share.
Whether or not you plan to attend your shareholder meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If you are
a Sky Financial shareholder needing assistance in voting your shares, please
call the Shareholder Relations Department at Sky Financial at (800) 576-5007. If
you are a First Western shareholder needing assistance in voting your shares,
please call the Investor Relations Department at First Western at (724)
652-8550.
The dates, times and places of the shareholder meetings are:
FOR SKY FINANCIAL SHAREHOLDERS:
Wednesday, July 21, 1999
9:00 a.m.
Forum Conference & Education Center
1375 E. Ninth St.
Cleveland, Ohio
FOR FIRST WESTERN SHAREHOLDERS:
Tuesday, July 20, 1999
10:30 a.m.
The Centre Banquet Facility
304 E. North Street
New Castle, Pennsylvania
<TABLE>
<S> <C>
[SIG] [SIG]
David R. Francisco Thomas J. O'Shane
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
Sky Financial Group, Inc. First Western Bancorp, Inc.
</TABLE>
THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS ARE
NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated May 21, 1999 and is being
first mailed to shareholders on or about May 27, 1999.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Sky Financial filed a registration statement on Form S-4 to register with
the Securities and Exchange Commission the Sky Financial common shares to be
issued to First Western shareholders in the merger. This joint proxy
statement/prospectus is a part of that registration statement and constitutes a
prospectus of Sky Financial in addition to being a proxy statement of Sky
Financial for the Sky Financial special meeting and a proxy statement of First
Western for the First Western special meeting. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information. As allowed by Securities and Exchange Commission rules, this joint
proxy statement/ prospectus does not contain all the information contained in
the registration statement or in the exhibits and schedules to the registration
statement.
Both Sky Financial and First Western file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
we file at the Securities and Exchange Commission's public reference room at the
following location:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, DC 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference room. Our
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
Securities and Exchange Commission at http://www.sec.gov. In addition, our
filings can be inspected at the office of the National Association of Securities
Dealers, Inc., 1735 K Street, Washington, DC 20006.
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus to decide how to vote on the
merger. We have not authorized anyone to provide you with information that is
different from or in addition to what is contained in this joint proxy
statement/prospectus. Therefore, if anyone does give you information of this
sort, you should not rely on it. If you are in a jurisdiction where it is
unlawful to offer to exchange or sell or to ask for offers to exchange or buy
the securities offered by this joint proxy statement/prospectus or to ask for
proxies, or if you are a person to whom it is unlawful to direct those
activities, then the offer presented in this joint proxy statement/prospectus
does not extend to you. The information contained in this joint proxy
statement/prospectus speaks only as of its date unless the information
specifically indicates that another date applies.
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this joint proxy statement/prospectus, which means
that we can disclose important information to you by referring you to other
information we have filed with the Securities and Exchange Commission. The
information incorporated by reference is deemed to be part of this joint proxy
statement/prospectus, except for any information superseded by information in
this joint proxy statement/prospectus.
This joint proxy statement/prospectus incorporates by reference the
documents set forth below that each of us has previously filed with the
Securities and Exchange Commission. These documents contain
i
<PAGE>
important information about our companies. You should read this joint proxy
statement/prospectus together with the information incorporated by reference.
<TABLE>
<CAPTION>
PERIOD OR
SKY FINANCIAL SEC FILINGS (FILE NO. 0-18209) DATE FILED
- ----------------------------------------------------------- --------------
<S> <C> <C>
Annual Report on Form 10-K and Form 10-K/A................. Year ended: - December 31, 1998
Proxy Statement for 1999 Annual Meeting of Shareholders.... Filed on: - March 10, 1999
Quarterly Report on Form 10-Q.............................. Filed on: - May 17, 1999
Current Reports on Form 8-K................................ Filed on: - February 12, 1999
Registration Statement on Form 8-A (description of Sky - *January 23, 1990
Financial common shares)................................. Filed on:
Registration Statement on Form 8-A (description of Sky - *September 17, 1998
Financial preferred share purchase rights)............... Filed on:
</TABLE>
- ------------------------
* Filed under the name "Citizens Bancshares, Inc."
<TABLE>
<CAPTION>
PERIOD OR
FIRST WESTERN SEC FILINGS (FILE NO. 0-13882) DATE FILED
- ----------------------------------------------------------- --------------
<S> <C> <C>
Annual Report on Form 10-K and Form 10-K/A................. Year ended: - December 31, 1998
Quarterly Report on Form 10-Q.............................. Filed on: - May 14, 1999
</TABLE>
We are also incorporating by reference additional documents that we file
with the Securities and Exchange Commission between the initial filing of this
joint proxy statement/prospectus and the date of effectiveness of this joint
proxy statement/prospectus and between the date of this joint proxy
statement/prospectus and the dates of the Sky Financial special meeting and the
First Western special meeting. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
This joint proxy statement/prospectus incorporates by reference documents
which are not delivered with it. You can request a free copy of any or all of
these documents, including exhibits that are specifically incorporated by
reference into these documents, by writing to or calling the appropriate party
at the following address or telephone number:
<TABLE>
<S> <C>
W. Granger Souder, Jr., Corporate Kenneth J. Romig, Chief Financial Officer
Secretary
Sky Financial Group, Inc. First Western Bancorp, Inc.
221 South Church Street 101 East Washington Street
Bowling Green, Ohio 43402 P.O. Box 1488
(419) 327-6300 New Castle, Pennsylvania 16103-1488
(724) 652-8550
</TABLE>
If you would like to request documents from us, please do so by July 13,
1999 to receive the documents before the Sky Financial special meeting and the
First Western special meeting.
Sky Financial has supplied all information contained or incorporated by
reference in this joint proxy statement/prospectus relating to Sky Financial,
and First Western has supplied all such information relating to First Western.
WE BELIEVE THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS SOME FORWARD
LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND BUSINESS OF SKY FINANCIAL FOLLOWING THE CONSUMMATION OF THE
MERGER. THESE FORWARD LOOKING STATEMENTS INVOLVE SOME RISKS AND UNCERTAINTIES.
FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY THESE FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM
ii
<PAGE>
THE MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS OR
REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (3) COMPETITIVE
PRESSURE IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR
DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF SKY FINANCIAL AND
FIRST WESTERN ARE GREATER THAN EXPECTED; (5) CHANGES OCCUR IN THE INTEREST RATE
ENVIRONMENT THAT REDUCE MARGINS; AND (6) GENERAL ECONOMIC CONDITIONS, EITHER
NATIONALLY OR IN THE AREA IN WHICH THE COMBINED COMPANY WILL BE DOING BUSINESS,
ARE LESS FAVORABLE THAN EXPECTED. FURTHER INFORMATION ON OTHER FACTORS THAT
COULD AFFECT THE FINANCIAL RESULTS OF SKY FINANCIAL AFTER THE MERGER IS INCLUDED
IN THE SECURITIES AND EXCHANGE COMMISSION FILINGS INCORPORATED BY REFERENCE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION....................................................................... i
INCORPORATION BY REFERENCE................................................................................ i
QUESTIONS AND ANSWERS ABOUT THE SKY FINANCIAL/FIRST WESTERN MERGER........................................ 1
SUMMARY................................................................................................... 2
The Merger.............................................................................................. 2
The Companies........................................................................................... 5
Our Reasons for the Merger.............................................................................. 6
Board Recommendations to Shareholders................................................................... 6
Special Meetings........................................................................................ 6
Comparative Market Value Data........................................................................... 7
Comparison of Certain Unaudited Per Share Data.......................................................... 8
Selected Financial Data of Sky Financial (Historical)................................................... 9
Selected Financial Data of First Western (Historical)................................................... 10
Sky Financial and First Western Unaudited Pro Forma Combined Selected Financial Data.................... 11
RISK FACTORS.............................................................................................. 12
THE SPECIAL SHAREHOLDERS' MEETINGS........................................................................ 15
The Sky Financial Special Meeting....................................................................... 15
Purpose of the Sky Financial Special Meeting.......................................................... 15
Record Date; Voting Rights; Proxies................................................................... 15
Solicitation of Proxies............................................................................... 16
Quorum................................................................................................ 16
Required Vote......................................................................................... 16
The First Western Special Meeting....................................................................... 17
Purpose of the First Western Special Meeting.......................................................... 17
Record Date; Voting Rights; Proxies................................................................... 17
Solicitation of Proxies............................................................................... 18
Quorum................................................................................................ 18
Required Vote......................................................................................... 18
THE MERGER................................................................................................ 19
Background of the Merger................................................................................ 19
Sky Financial's Reasons for the Merger; Recommendation of the Sky Financial Board....................... 21
First Western's Reasons for the Merger; Recommendation of the First Western Board....................... 23
Fairness Opinions of Financial Advisors................................................................. 24
Board of Directors and Management of Sky Financial Following the Merger................................. 38
Board of Directors and Management of the Resulting Bank Following the Subsidiary Merger................. 38
Interests of First Western's Executive Officers and Directors in the Merger............................. 38
Material Federal Income Tax Consequences................................................................ 39
Accounting Treatment.................................................................................... 40
Effect on Employee Benefit Plans........................................................................ 41
Expenses of the Merger.................................................................................. 41
Regulatory Approvals.................................................................................... 41
Resale of Sky Financial Common Shares................................................................... 41
Stock Exchange Listing.................................................................................. 42
Dividends............................................................................................... 42
Dissenters' Rights...................................................................................... 42
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE MERGER AGREEMENT...................................................................................... 44
The Merger.............................................................................................. 44
Effective Date.......................................................................................... 44
Conversion of First Western Common Shares............................................................... 44
Conversion of First Western Stock Options............................................................... 45
Surrender of Certificates............................................................................... 45
Conditions to Completion of the Merger.................................................................. 46
Representations and Warranties.......................................................................... 47
Conduct of Business Pending the Merger.................................................................. 48
Termination of the Merger Agreement..................................................................... 50
Stock Option Agreement.................................................................................. 50
Amendment; Waiver....................................................................................... 52
DESCRIPTION OF SKY FINANCIAL CAPITAL STOCK................................................................ 52
General................................................................................................. 52
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS........................................................ 53
Introduction............................................................................................ 53
Authorized Shares....................................................................................... 53
Business Combinations................................................................................... 53
Dissenters' Rights...................................................................................... 54
Number of Directors..................................................................................... 55
Classification of the Board of Directors................................................................ 55
Nomination of Directors................................................................................. 56
Cumulative Voting....................................................................................... 56
Vacancies on the Board.................................................................................. 56
Removal of Directors.................................................................................... 57
Special Meetings of Shareholders........................................................................ 57
Corporate Action Without a Shareholder Meeting.......................................................... 57
Amendments to Articles of Incorporation................................................................. 58
Amendments to Code of Regulations and Bylaws............................................................ 58
Preemptive Rights....................................................................................... 58
Dividends............................................................................................... 59
Indemnification of Directors, Officers and Employees.................................................... 59
Limitation of Personal Liability of Directors........................................................... 60
Anti-takeover Protection................................................................................ 61
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS............................................... 64
EXPERTS................................................................................................... 71
LEGAL OPINIONS............................................................................................ 71
INDEMNIFICATION........................................................................................... 71
SHAREHOLDER PROPOSALS..................................................................................... 72
ANNEX A--Agreement and Plan of Merger..................................................................... A-1
ANNEX B--Stock Option Agreement........................................................................... B-1
ANNEX C--Fairness Opinion of McDonald Investments Inc..................................................... C-1
ANNEX D--Fairness Opinion of Sandler O'Neill & Partners, L.P.............................................. D-1
ANNEX E-- Dissenters' Rights of Sky Financial Shareholders Under Section 1701.85 of the Ohio Revised
Code............................................................................................. E-1
</TABLE>
v
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE SKY FINANCIAL/FIRST WESTERN MERGER
<TABLE>
<S> <C>
Q: WHY ARE SKY FINANCIAL AND FIRST WESTERN
PROPOSING TO MERGE?
A: We believe that the merger of Sky
Financial and First Western will
benefit the shareholders of each
company by creating a $7 billion
financial services organization, which
will be able to conduct its banking
business through 210 banking centers
located throughout Ohio, western
Pennsylvania, West Virginia and
Michigan. The merger will enhance our
capabilities to provide banking and
financial services to our customers,
strengthen the competitive position of
the combined organization, generate
significant cost savings and enhance
acquisition and other opportunities.
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed and dated proxy
card in the enclosed return envelope as
soon as possible, so that your shares
may be represented at the applicable
meeting to vote on the merger. The
shareholder meeting for Sky Financial
will take place on July 21, 1999 and
the shareholder meeting for First
Western will take place on July 20,
1999. The boards of directors of both
Sky Financial and First Western
unanimously recommend that you vote for
the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE
MAILED MY SIGNED PROXY?
A: Yes. Just send in a later-dated, signed
proxy card before your meeting or
attend your meeting in person and vote.
If you are a Sky Financial shareholder,
you may send a new proxy card to the
following address: The Bank of New
York, New York, New York 10203-0029,
Attention: Proxy Department.
If you are a First Western shareholder,
you may send a new proxy card to the
following address: Boston EquiServe
Division, 150 Royal Street, Canton,
Massachusetts 02021.
Q: IF MY SHARES ARE HELD IN "STREET NAME"
BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker may vote your shares only
if you provide instructions on how to
vote. Please tell your broker how you
would like him or her to vote your
shares. If you do not tell your broker
how to vote, your shares will not be
voted by your broker.
Q: SHOULD I SEND IN MY SHARE CERTIFICATES
NOW?
A: No. After the merger is completed, we
will send First Western shareholders
written instructions for exchanging
their share certificates.
Sky Financial shareholders will keep
their certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE
COMPLETED?
A: We are working to complete the merger
as quickly as possible. We hope to
complete the merger on or about July
31, 1999, assuming all applicable
governmental approvals have been
received by that date.
Q: WHAT IF I HAVE QUESTIONS?
A: If you are a Sky Financial shareholder,
please call the Shareholder Relations
Department at Sky Financial at (800)
576-5007.
If you are a First Western shareholder,
please call the Investor Relations
Department at First Western at (724)
652-8550.
</TABLE>
1
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that may
be important to you. You should carefully read this entire joint proxy
statement/prospectus and its annexes and the documents to which this document
refers before you decide how to vote. For a description of the documents to
which this document refers you should review "Where You Can Find More
Information" on page i.
THE MERGER
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THIS AGREEMENT BECAUSE IT IS THE
LEGAL DOCUMENT THAT GOVERNS THE MERGER.
WHAT SKY FINANCIAL SHAREHOLDERS AND FIRST WESTERN SHAREHOLDERS WILL RECEIVE IN
THE MERGER (SEE PAGE 44)
First Western shareholders will receive 1.211 Sky Financial common shares in
exchange for each First Western common share they own. We will not issue
fractional shares. Instead, First Western shareholders will receive a cash
payment for any fractional shares based on the market value of the Sky Financial
common shares at the time of the merger. Sky Financial shareholders will
continue to own their shares in Sky Financial, and, as a result of the merger,
First Western will be a wholly owned subsidiary of Sky Financial.
CONVERSION OF FIRST WESTERN STOCK OPTIONS (SEE PAGE 45)
Stock options to purchase First Western common shares will be automatically
converted into stock options to purchase Sky Financial common shares. The number
of Sky Financial common shares subject to these converted options and the
exercise price of these converted options will be adjusted as provided in the
merger agreement to give effect to the exchange ratio of 1.211 Sky Financial
common shares for each First Western common share.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (SEE PAGE 7)
Sky Financial common shares and First Western common shares are each listed
on the Nasdaq National Market System.
The following table presents trading information for the Sky Financial
common shares and the First Western common shares on December 11, 1998 and May
20, 1999. December 11, 1998 was the last full trading day prior to our
announcement of the signing of the merger agreement. May 20, 1999 was the last
practicable trading day for which information was available prior to the date of
this joint proxy statement/prospectus. You should read the information presented
below in conjunction with the "Comparative Market Value Data" on page 7.
<TABLE>
<CAPTION>
SKY FINANCIAL FIRST WESTERN
COMMON SHARES COMMON SHARES
(DOLLARS PER SHARE) (DOLLARS PER SHARE)
------------------------ ------------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
----------- ----- ----------- -----
December 11, 1998..... 31 1/2 30 5/8 30 1/2 27
May 20, 1999.......... 29 3/8 28 5/8 34 1/4 33 3/4
</TABLE>
TAX FREE TRANSACTION FOR SKY FINANCIAL AND FIRST WESTERN SHAREHOLDERS (SEE PAGE
39)
We have structured the merger so that Sky Financial, First Western and our
respective shareholders will not recognize any gain or loss for federal income
tax purposes in the merger, except for tax payable because of cash received by
First Western shareholders instead of fractional shares.
DIVIDEND POLICY (SEE PAGE 42)
Sky Financial and First Western will cooperate to assure that there will not
be a payment of both a Sky Financial dividend and a First Western dividend to a
First Western shareholder as a result of the merger. First Western has changed
its existing dividend payment policy to match the Sky Financial dividend record
and payment dates for 1999. Following completion of the merger, former First
Western shareholders will receive dividends, if any, declared by Sky Financial
as Sky Financial shareholders.
2
<PAGE>
TRANSACTION FAIR TO SHAREHOLDERS ACCORDING TO INVESTMENT BANKERS (SEE PAGE 24)
In deciding to approve the merger, our boards of directors considered the
opinions from our respective financial advisors as to the fairness from a
financial point of view of the exchange ratio under the merger agreement.
Sky Financial received an opinion from its financial advisor, McDonald
Investments Inc., that as of the date of that opinion, the exchange ratio
contemplated by the merger agreement was fair from a financial point of view to
the Sky Financial shareholders. For its financial advisory services provided to
Sky Financial, McDonald was paid a fee of approximately $500,000 plus expenses.
First Western received an opinion from its financial advisor, Sandler
O'Neill & Partners, L.P., that as of the date of that opinion, the exchange
ratio contemplated by the merger agreement was fair from a financial point of
view to the First Western shareholders. For its financial advisory services
provided to First Western, Sandler O'Neill will be paid a fee of approximately
$3,400,000.
The full texts of both opinions, which set forth the assumptions made,
matters considered and qualifications and limitations on the reviews undertaken,
are attached as Annexes C and D to this joint proxy statement/prospectus. WE
ENCOURAGE YOU TO READ THESE OPINIONS IN THEIR ENTIRETY.
WHAT WILL HAPPEN TO SKY FINANCIAL AND FIRST WESTERN AT THE TIME OF THE MERGER
(SEE PAGE 44)
At the time of the merger, a newly formed subsidiary of Sky Financial will
merge with and into First Western, with First Western being the surviving
corporation in that merger. As part of the merger, Sky Financial will issue Sky
Financial common shares to existing First Western shareholders in exchange for
their First Western common shares, and all the stock of First Western will then
be held by Sky Financial. Immediately after the merger, Sky Financial will
contribute to the capital of First Western all of the outstanding stock of The
Citizens Banking Company, and First Western Bank, National Association will then
be merged with and into The Citizens Banking Company, with The Citizens Banking
Company being the surviving corporation in that merger. This surviving
corporation will then continue as a wholly-owned subsidiary of First Western,
which itself will continue as a wholly-owned subsidiary of Sky Financial.
OWNERSHIP OF SKY FINANCIAL FOLLOWING THE MERGER (SEE PAGE 44)
As a result of the merger, Sky Financial will issue approximately 13,577,109
Sky Financial common shares to First Western shareholders. We estimate that
First Western shareholders will own approximately 23% of the outstanding Sky
Financial common shares after the merger.
BOARD OF DIRECTORS AND MANAGEMENT OF SKY FINANCIAL FOLLOWING THE MERGER (SEE
PAGE 38)
If the merger is completed, we expect that the current Sky Financial
management and First Western management will, for the most part, remain in
place. If the merger is completed, the size of the Sky Financial Board will
increase from 25 to 27 members and Sky Financial will cause the executive
committee of the Sky Financial Board to nominate for election Thomas J. O'Shane
and Robert C. Duvall to the Sky Financial Board and Thomas J. O'Shane to the
executive committee of the Sky Financial Board. We expect that, immediately
after the merger, Mr. O'Shane will enter into a 10-year employment agreement
with Sky Financial.
BOARD OF DIRECTORS AND MANAGEMENT OF THE RESULTING BANK FOLLOWING THE SUBSIDIARY
MERGER (SEE PAGE 38)
First Western Bank, National Association will merge with and into The
Citizens Banking Company immediately after the merger, assuming that we receive
all necessary regulatory approvals. We expect that six members of the First
Western Board will be selected by Sky Financial to serve as directors of the
resulting bank and members of the First Western Board who do not become members
of the resulting bank's board of directors will be given the opportunity to
serve on an advisory board to the resulting bank. In connection with the merger,
the resulting bank's name will be changed to Sky Bank.
3
<PAGE>
INTERESTS OF FIRST WESTERN'S EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER (SEE
PAGE 38)
In considering the recommendation of the First Western Board, you should be
aware that the executive officers and directors of First Western have incentive,
benefit and compensation agreements or plans that give them interests in the
merger that are different from or in addition to yours. The First Western Board
was aware of these interests of their executive officers and directors and
considered them, among other things, in approving the merger agreement and the
related transactions. Please refer to pages 38 and 39 for more information about
these interests.
Also, following the merger, Sky Financial will purchase directors' and
officers' insurance for the directors and officers of First Western and will
indemnify the directors and officers of First Western for events occurring
before the merger, including events that are related to the merger agreement.
CONDITIONS TO THE MERGER (SEE PAGE 46)
The completion of the merger depends upon meeting a number of conditions,
including the following, any of which may be waived:
- accuracy of the representations and warranties made in the merger
agreement;
- performance of obligations by Sky Financial and First Western under the
merger agreement;
- approval and adoption of the merger agreement by Sky Financial
shareholders;
- approval and adoption of the merger agreement by First Western
shareholders;
- receipt of required governmental approvals and expiration or termination
of all applicable statutory waiting periods relating to the merger;
- absence of any injunction or other order by any court or other
governmental entity which would prohibit or prevent the merger;
- effectiveness of the registration statement filed with the Securities and
Exchange Commission relating to the issuance of common shares by Sky
Financial in the merger; and
- receipt of all required permits and other authorizations under state
securities laws necessary to complete the transactions contemplated by the
merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 50)
We can mutually agree to terminate the merger agreement before we complete
the merger.
In addition, either of us acting alone can terminate the merger agreement
under the circumstances described on page 50.
STOCK OPTION AGREEMENT (SEE PAGE 50)
When we signed the merger agreement, we also entered into a stock option
agreement under which First Western granted Sky Financial an option to purchase
up to 19.9% of First Western common shares at a per share price of $28.50. Sky
Financial may only exercise its option if the merger agreement is terminated
under certain circumstances. First Western granted this option to Sky Financial
in order to increase the likelihood that we would complete the merger. The stock
option agreement could discourage other companies from trying or proposing to
combine with First Western before we complete the merger.
The stock option agreement is attached as Annex B to this joint proxy
statement/ prospectus. WE ENCOURAGE YOU TO READ THIS AGREEMENT IN ITS ENTIRETY.
REGULATORY MATTERS (SEE PAGE 41)
Sky Financial is preparing and will be filing the applications necessary to
obtain approval for the merger from the Federal Reserve Board, the Ohio
Department of Commerce (Division of Financial Institutions, Office of Banks and
Savings & Loans) and the Pennsylvania Department of Banking. Prior to completing
the merger, the waiting periods required by each of these governmental entities
must have expired.
POOLING OF INTERESTS ACCOUNTING TREATMENT (SEE PAGE 40)
We expect the merger to qualify as a pooling of interests, which means that
we will
4
<PAGE>
treat our companies as if they had always been one company for accounting and
financial reporting purposes.
DISSENTERS' RIGHTS FOR SKY FINANCIAL SHAREHOLDERS (SEE PAGE 42)
Holders of Sky Financial common shares, by complying with Section 1701.85 of
the Ohio General Corporation Law, may exercise dissenter's rights. Failure to
comply precisely with the requirements of Section 1701.85 will result in the
loss of dissenter's rights. HOLDERS OF SKY FINANCIAL COMMON SHARES WHO WANT TO
EXERCISE THEIR DISSENTERS' RIGHTS MUST NOT VOTE IN FAVOR OF THE MERGER AT THE
SKY FINANCIAL SPECIAL MEETING AND MUST SEND A WRITTEN DEMAND FOR PAYMENT FOR
THEIR SHARES WITHIN 10 DAYS AFTER THE SKY FINANCIAL SPECIAL MEETING. The full
text of Section 1701.85 is attached as Annex E to this joint proxy
statement/prospectus. WE ENCOURAGE YOU TO READ SECTION 1701.85 IN ITS ENTIRETY.
Under Pennsylvania law, First Western shareholders do not have dissenters'
rights in connection with the merger.
VOTES REQUIRED (SEE PAGES 16 AND 18)
A majority of the shares entitled to vote at the Sky Financial special
meeting must vote to approve the merger agreement for it to be adopted. A
majority of the issued and outstanding Sky Financial common shares must be
present in person or by proxy for any vote to be valid.
A majority of the votes cast by the shareholders entitled to vote at the
First Western special meeting must vote to approve the merger agreement for it
to be adopted. A majority of the issued and outstanding First Western common
shares must be present in person or by proxy for any vote to be valid.
LISTING OF SKY FINANCIAL COMMON SHARES (SEE PAGE 42)
Sky Financial will list the Sky Financial common shares to be issued in the
merger on the Nasdaq National Market System under the trading symbol "SKYF."
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (SEE PAGE 53)
The rights of holders of Sky Financial common shares are currently governed
by Ohio law and Sky Financial's articles of incorporation and code of
regulations. The rights of holders of First Western common shares are currently
governed by Pennsylvania law and First Western's articles of incorporation and
bylaws. When the merger is completed, holders of First Western common shares
will become holders of Sky Financial common shares.
See pages 53 through 63 to learn more about the material differences between
the rights of holders of Sky Financial common shares and the rights of holders
of First Western common shares.
THE COMPANIES
SKY FINANCIAL GROUP, INC.
221 South Church Street
Bowling Green, Ohio 43402
(419) 327-6300
Sky Financial is a diversified financial services holding company
headquartered in Bowling Green, Ohio. Sky Financial's banking affiliates
include:
- Mid Am Bank, Toledo, Ohio;
- The Citizens Banking Company, Salineville, Ohio; and
- The Ohio Bank, Findlay, Ohio.
Sky Financial's financial services affiliates include:
- Sky Asset Management Services, Inc., Clearwater, Florida;
- Sky Investments, Inc., Bryan, Ohio;
- Mid Am Credit Corp., Columbus, Ohio;
- Mid Am Private Trust, N.A., Cleveland, Ohio;
- Mid Am Financial Services, Inc., Carmel, Indiana;
- Simplicity Mortgage Consultants, Marion, Indiana;
- Mid Am Title Insurance Agency, Inc., Adrian, Michigan;
- Sky Technology Resources, Inc., Bowling Green, Ohio;
5
<PAGE>
- ValuNet, Inc., Lisbon, Ohio;
- Freedom Financial Life Insurance Company, Phoenix, Arizona; and
- Freedom Express, Inc., Salineville, Ohio.
At March 31, 1999, Sky Financial had total consolidated assets of
approximately $4.7 billion and total shareholders' equity of approximately $349
million. For the three months ended March 31, 1999, Sky Financial's return on
average total assets and return on average common shareholders' equity were
1.73% and 23.35%, respectively. Sky Financial common shares are traded on the
Nasdaq National Market System under the trading symbol "SKYF."
FIRST WESTERN BANCORP, INC.
101 East Washington Street
P.O. Box 1488
New Castle, Pennsylvania 16103-1488
(724) 652-8550
First Western is a Pennsylvania business corporation and is registered with
the Federal Reserve Board as a bank holding company. First Western provides
retail and commercial banking and trust services through 47 community banking
offices in western Pennsylvania and northeastern Ohio.
At March 31, 1999, First Western had total consolidated assets of
approximately $2.0 billion and total shareholders' equity of approximately $150
million. For the three months ended March 31, 1999, First Western's return on
average total assets and return on average common shareholders' equity were
1.03% and 14.36%, respectively. First Western common shares are traded on the
Nasdaq National Market System under the trading symbol "FWBI."
OUR REASONS FOR THE MERGER
We believe that the merger of Sky Financial and First Western will benefit
the shareholders of each company by creating a financial services organization
with total assets of approximately $6.7 billion, total deposits of approximately
$5.1 billion and shareholders' equity of approximately $471 million, which will
be able to serve its customers through 210 banking centers located throughout
Ohio, western Pennsylvania, West Virginia and Michigan. To review our reasons
for the merger in detail, as well as how we came to agree on the merger, see
pages 19 through 24.
BOARD RECOMMENDATIONS TO SHAREHOLDERS
TO SKY FINANCIAL SHAREHOLDERS:
The board of directors of Sky Financial believes that the merger is in your
best interests and unanimously recommends that you vote FOR the proposal to
approve and adopt the merger agreement.
TO FIRST WESTERN SHAREHOLDERS:
The board of directors of First Western believes that the merger is in your
best interests and unanimously recommends that you vote FOR the proposal to
approve and adopt the merger agreement.
SPECIAL MEETINGS
THE SKY FINANCIAL SPECIAL MEETING (SEE PAGE 15)
If you are a Sky Financial shareholder, you are entitled to vote at the
special meeting if you owned Sky Financial common shares as of the close of
business on May 24, 1999. As of May 24, 1999, a total of votes were
eligible to be cast at the Sky Financial special meeting. At the special
meeting, the shareholders will consider and vote upon a proposal to approve and
adopt the merger agreement.
THE FIRST WESTERN SPECIAL MEETING (SEE PAGE 17)
If you are a First Western shareholder, you are entitled to vote at the
special meeting if you owned First Western common shares as of the close of
business on May 24, 1999. As of May 24, 1999 a total of votes were
eligible to be cast at the First Western special meeting. At the special
meeting, the shareholders will consider and vote upon a proposal to approve and
adopt the merger agreement.
6
<PAGE>
COMPARATIVE MARKET VALUE DATA
Sky Financial common shares began trading on the Nasdaq National Market
System under the trading symbol "CICS" as of June 1, 1993, when Sky Financial
was known as Citizens Bancshares, Inc. On October 2, 1998, in connection with
the merger of Citizens Bancshares, Inc. and Mid Am, Inc. and pursuant to a name
change from Citizens Bancshares, Inc. to Sky Financial Group, Inc., the Nasdaq
National Market System trading symbol for Sky Financial common shares was
changed to "SKYF." First Western common shares are traded on the Nasdaq National
Market System under the trading symbol "FWBI." The information presented in the
following table reflects the last reported sale prices for Sky Financial and
First Western on December 11, 1998, the last trading day preceding our public
announcement of the merger and on May 20, 1999, the last practicable trading day
for which information was available shortly prior to the date of this joint
proxy statement/prospectus. No assurance can be given as to what the market
price of Sky Financial common shares will be if and when the merger is
consummated. We have calculated the equivalent per share basis by multiplying
the last reported sale price of Sky Financial common shares on the dates
indicated by the exchange ratio of 1.211.
SKY FINANCIAL GROUP, INC. AND FIRST WESTERN BANCORP, INC.
COMPARATIVE MARKET VALUE
<TABLE>
<CAPTION>
FIRST WESTERN
SKY EQUIVALENT
FINANCIAL FIRST WESTERN PER SHARE BASIS
------------ ------------- ---------------
<S> <C> <C> <C>
December 11, 1998................................................... $ 30.75 $ 30.25 $ 37.24
May 20, 1999........................................................ $ 28.625 $ 33.75 $ 34.66
</TABLE>
7
<PAGE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following table presents historical and pro forma per share data of Sky
Financial and First Western. The equivalent pro forma information was obtained
by multiplying the related pro forma combined amounts for Sky Financial by the
exchange ratio of 1.211. You should read this information together with our
historical and pro forma financial statements incorporated by reference or
included in this document. The comparative per share data does not include any
expenses which we expect to incur in connection with completing the merger and
integrating the operations of Sky Financial and First Western. We expect that
the merger will provide Sky Financial with financial benefits, including
operating cost savings and revenue enhancements. While the pro forma information
is helpful in showing the financial characteristics of Sky Financial after the
merger under one set of assumptions, it does not attempt to predict or suggest
future results.
The information in the following table is based on the historical financial
information that we have presented in the reports and other information that we
have filed with the Securities and Exchange Commission. We have incorporated
this material into this document by reference. See "Where You Can Find More
Information" on page i.
SKY FINANCIAL GROUP, INC.
FIRST WESTERN BANCORP, INC.
HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Historical
Sky Financial
Basic......................................... $ 1.14 $ 1.29 $ 0.39 $ 0.29 $ 0.45
Diluted....................................... 1.11 1.27 0.39 0.29 0.44
First Western
Basic......................................... 1.49 1.80 1.61 0.50 0.48
Diluted....................................... 1.47 1.77 1.58 0.49 0.47
Pro forma combined
Basic........................................... 1.16 1.34 0.61 0.32 0.44
Diluted......................................... 1.13 1.31 0.60 0.32 0.43
Equivalent amount of First Western (A)
Basic........................................... 1.41 1.62 0.74 0.39 0.53
Diluted......................................... 1.37 1.59 0.73 0.39 0.52
DIVIDENDS PER COMMON SHARE:
Historical
Sky Financial................................... $ 0.38 $ 0.51 $ 0.65 $ 0.145 $ 0.21
First Western................................... 0.49 0.56 0.70 0.15 0.15
Equivalent amount of First Western (A)............ 0.46 0.62 0.78 0.18 0.25
BOOK VALUE PER COMMON SHARE:
Historical
Sky Financial................................... $ 7.77 $ 8.45 $ 7.64 $ 7.64 $ 7.76
First Western................................... 11.16 12.47 13.37 12.92 13.46
Pro forma combined................................ 8.12 8.87 8.42 8.34 8.06
Equivalent amount of First Western (A)............ 9.83 10.74 10.20 10.10 9.76
</TABLE>
- ------------------------
(A) The equivalent pro forma per share data for First Western are computed by
multiplying pro forma combined information by 1.211, the exchange ratio.
8
<PAGE>
SELECTED FINANCIAL DATA OF SKY FINANCIAL (HISTORICAL)
The following table sets forth selected historical financial data of Sky
Financial and has been derived from its financial statements. The information is
only a summary and you should read it together with our historical financial
statements and related notes contained in the annual reports and other
information that we have filed with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page i.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.............................. $ 267,901 $ 307,848 $ 323,050 $ 347,531 $ 363,680 $ 89,242 $ 87,699
Interest expense............................. 110,690 144,520 150,936 166,917 176,556 43,573 41,315
--------- --------- --------- --------- --------- --------- ---------
Net interest income.......................... 157,211 163,328 172,114 180,614 187,124 45,669 46,384
Provision for credit losses.................. 4,988 6,472 7,713 10,928 24,968 1,976 2,360
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
credit losses.............................. 152,223 156,856 164,401 169,686 162,156 43,693 44,024
Other income................................. 42,735 46,612 62,244 82,167 97,214 23,032 24,509
Other expenses............................... 131,678 132,053 149,131 164,783 232,708 47,561 38,941
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes................... 63,280 71,415 77,514 87,070 26,662 19,164 29,592
Income taxes................................. 19,329 22,348 24,364 27,750 8,854 5,947 9,428
--------- --------- --------- --------- --------- --------- ---------
Net income................................... $ 43,951 $ 49,067 $ 53,150 $ 59,320 $ 17,808 $ 13,217 $ 20,164
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income available to common
shareholders............................... $ 41,034 $ 46,316 $ 50,743 $ 58,715 $ 17,808 $ 13,217 $ 20,164
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA(1):
Basic net income............................. $ 0.92 $ 1.03 $ 1.14 $ 1.29 $ 0.39 $ 0.29 $ 0.45
Diluted net income........................... $ 0.91 $ 1.01 $ 1.11 $ 1.27 $ 0.39 $ 0.29 $ 0.44
Cash dividends declared...................... $ 0.14 $ 0.23 $ 0.38 $ 0.51 $ 0.65 $ 0.15 $ 0.21
Book value at period end..................... $ 6.38 $ 7.31 $ 7.77 $ 8.45 $ 7.64 $ 8.22 $ 7.76
Weighted average shares outstanding basic.... 44,825 44,876 44,510 45,402 45,124 45,365 44,999
Weighted average shares outstanding
diluted.................................... 48,512 48,435 47,812 46,699 45,686 45,978 45,463
BALANCE SHEET DATA (YEAR END):
Total assets................................. $3,849,371 $4,088,793 $4,263,034 $4,562,303 $4,815,121 $4,615,725 $4,683,020
Securities available for sale................ 402,552 906,031 901,640 961,199 996,426 1,067,569 969,941
Securities held to maturity.................. 560,790 74,851 88,371 87,207 -- -- --
Loans, net of unearned income................ 2,581,681 2,694,889 2,932,396 3,144,439 3,355,881 3,145,954 3,337,426
Allowance for credit losses.................. 33,690 33,315 35,401 40,376 54,008 41,492 55,149
Deposits..................................... 3,198,225 3,436,990 3,551,726 3,662,941 3,832,662 3,714,961 3,740,219
Total shareholders' equity................... 326,639 362,953 377,195 387,278 343,842 371,375 349,225
SIGNIFICANT RATIOS:
Return on average assets..................... 1.17% 1.24% 1.28% 1.34% 0.38% 1.42% 1.73%
Return on average shareholders' equity....... 14.51 15.02 15.33 16.04 4.68 17.28 23.35
Average shareholders' equity to average
assets..................................... 8.60 8.75 8.81 8.53 8.08 8.21 7.39
Average loans as a percent of average
deposits................................... 77.73 79.68 80.94 86.48 87.21 86.57 90.09
Shareholders' equity as a percent of
period-end assets.......................... 8.49 8.88 8.85 8.49 7.14 8.05 7.46
Allowance for credit losses as a percent of
loans...................................... 1.30 1.24 1.21 1.28 1.61 1.32 1.65
Net charge-offs as percent of average
loans...................................... 0.17 0.26 0.20 0.19 0.35 0.11 0.14
Dividends declared as a percent of net
income..................................... 36.76 39.82 41.35 42.62 173.64 55.67 46.89
Net interest margin, fully taxable
equivalent................................. 4.57 4.51 4.55 4.48 4.37 4.42 4.40
Nonperforming loans to total loans........... 0.57 0.55 0.35 0.37 0.37 0.38 0.36
Allowance for credit losses to nonperforming
loans...................................... 228.44 225.44 347.72 348.25 431.68 349.55 455.02
</TABLE>
- ------------------------------
(1) Per share data has been restated to reflect the two-for-one stock split
declared on May 12, 1998, the three-for-two stock split declared in 1995 and
all mergers accounted for as poolings of interests.
9
<PAGE>
SELECTED FINANCIAL DATA OF FIRST WESTERN (HISTORICAL)
The following table sets forth selected historical financial data of First
Western and has been derived from its financial statements. The information is
only a summary and you should read it together with our historical financial
statements and related notes contained in the annual reports and other
information that we have filed with the Securities and Exchange Commission. See
"Where You Can Find More Information" on page i.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.............................. $ 99,167 $ 119,832 $ 125,483 $ 127,323 $ 139,733 $ 31,394 $ 35,483
Interest expense............................. 46,613 64,872 67,214 67,619 77,633 16,756 18,756
--------- --------- --------- --------- --------- --------- ---------
Net interest income.......................... 52,554 54,960 58,269 59,704 62,100 14,638 16,727
Provision for credit losses.................. 3,650 3,982 8,288 4,836 4,000 1,000 1,125
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
credit losses.............................. 48,904 50,978 49,981 54,868 58,100 13,638 15,602
Other income................................. 8,649 11,021 15,714 17,231 17,241 5,628 4,180
Other expenses............................... 35,275 38,027 42,264 42,995 50,646 11,428 12,341
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes................... 22,278 23,972 23,431 29,104 24,695 7,838 7,441
Income taxes................................. 6,718 7,226 6,304 8,822 6,772 2,219 2,128
--------- --------- --------- --------- --------- --------- ---------
Net income................................... $ 15,560 $ 16,746 $ 17,127 $ 20,282 $ 17,923 $ 5,619 $ 5,313
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Basic net income............................. $ 1.34 $ 1.44 $ 1.49 $ 1.80 $ 1.61 $ 0.50 $ 0.48
Diluted net income........................... $ 1.32 $ 1.42 $ 1.47 $ 1.77 $ 1.58 $ 0.49 $ 0.47
Cash dividends declared...................... $ 0.41 $ 0.46 $ 0.49 $ 0.56 $ 0.70 $ 0.15 $ 0.15
Book value at period-end..................... $ 9.10 $ 10.45 $ 11.16 $ 12.47 $ 13.37 $ 12.92 $ 13.46
Weighted average shares outstanding basic.... 11,636 11,649 11,510 11,242 11,150 11,149 11,155
Weighted average shares outstanding
diluted.................................... 11,783 11,773 11,669 11,446 11,369 11,376 11,390
BALANCE SHEET DATA (YEAR-END):
Total assets................................. $1,454,573 $1,603,264 $1,695,778 $1,744,077 $2,227,351 $1,704,657 $2,012,709
Securities available for sale................ 67,670 246,980 201,282 324,521 868,699 376,245 752,136
Securities held to maturity.................. 336,397 259,565 276,559 232,824 -- 216,750 --
Loans, net of unearned income................ 978,562 1,024,106 989,910 1,046,363 1,131,206 1,001,977 1,109,379
Allowance for credit losses.................. 12,943 14,148 16,054 18,077 18,297 18,133 18,312
Deposits..................................... 1,029,409 1,177,683 1,148,903 1,192,339 1,488,756 1,138,032 1,348,952
Total shareholders' equity................... 106,079 121,688 127,721 138,842 149,021 144,190 150,233
SIGNIFICANT RATIOS:
Return on average assets..................... 1.12% 1.06% 1.02% 1.19% 0.90% 1.32% 1.03%
Return on average common shareholders'
equity..................................... 15.19 14.79 14.06 15.40 12.37 16.15 14.36
Average shareholders' equity to average
assets..................................... 7.37 7.16 7.27 7.75 7.29 8.19 7.15
Average loans as a percent of average
deposits................................... 89.64 90.32 93.54 90.24 80.13 93.37 79.60
Shareholders' equity as a percent of
period-end assets.......................... 7.29 7.59 7.53 7.96 6.69 8.46 7.46
Allowance for credit losses as a percent of
loans...................................... 1.32 1.38 1.44 1.66 1.60 1.77 1.64
Net charge-offs as a percent of average
loans...................................... 0.20 0.27 0.59 0.27 0.35 0.36 0.40
Dividends declared as a percent of net
income..................................... 31.25 32.18 33.30 31.38 43.54 29.73 31.43
Net interest margin, fully taxable
equivalent................................. 4.12 3.78 3.78 3.80 3.48 3.80 3.64
Nonperforming loans to total loans........... 0.29 0.48 0.52 0.25 0.17 0.28 0.21
Allowance for credit losses to nonperforming
loans...................................... 450.19 285.30 311.91 686.29 949.01 622.39 782.80
</TABLE>
10
<PAGE>
SKY FINANCIAL AND FIRST WESTERN
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
The following table sets forth selected unaudited pro forma condensed
combined financial data of Sky Financial and First Western giving effect to the
merger as of the beginning of the earliest period presented, after giving effect
to the pro forma adjustments. The merger is expected to be accounted for as a
pooling-of-interests. You should read this selected unaudited pro forma
financial data together with the "Unaudited Pro Forma Condensed Combined
Financial Statements" and the related notes on pages 64 through 70. The pro
forma information is not necessarily indicative of the actual financial
condition that would have existed or the results that would have been achieved
had the merger been consummated on the date indicated or that may be achieved in
the future.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.............................. $ 230,383 $ 238,066 $ 246,751 $ 59,723 $ 62,491
Provision for loan losses........................ 16,001 15,764 28,968 2,976 3,485
Net income....................................... 70,277 79,602 35,731 18,836 25,477
Net income available to common shareholders...... 67,870 78,997 35,731 18,836 25,477
PER COMMON SHARE DATA:
Net income--basic................................ $ 1.16 $ 1.34 $ 0.61 $ 0.32 $ 0.44
Net income--diluted.............................. 1.13 1.31 0.60 0.32 0.43
Book value at period end......................... 8.12 8.87 8.42 8.34 8.06
Weighted average shares outstanding--basic....... 58,449 59,016 58,627 58,866 58,508
Weighted average shared outstanding-- diluted.... 61,943 60,560 59,454 59,754 59,256
BALANCE SHEET DATA (AT PERIOD-END):
Total assets..................................... $ 5,958,812 $ 6,306,380 $ 7,042,472 $ 6,320,382 $ 6,707,629
Net loans........................................ 4,019,361 4,191,323 4,507,728 4,142,676 4,392,697
Total deposits................................... 4,700,629 4,855,280 5,321,418 4,852,993 5,089,171
Total shareholders' equity....................... 504,916 526,120 492,863 488,032 471,358
RATIOS:
Return on average assets......................... 1.21% 1.30% 0.53% 1.21% 1.51%
Return on average common equity.................. 16.60 15.87 6.81 14.74 20.65
Average total equity to average assets........... 8.37 8.31 7.84 8.21 7.32
</TABLE>
11
<PAGE>
RISK FACTORS
In addition to other information in this joint proxy statement/prospectus or
incorporated in this joint proxy statement/prospectus by reference, you should
consider carefully the following factors before making a decision on the merger.
WE MAY NOT BE ABLE TO ACHIEVE THE EXPECTED INTEGRATION AND COST SAVINGS WHICH
COULD ADVERSELY AFFECT OUR EARNINGS AND FINANCIAL CONDITION.
Sky Financial and First Western expect to achieve cost savings following the
merger. By the year 2000, we believe the cost savings should be approximately
$11,000,000 annually. Difficulties may arise, however, in the integration of the
business and operation of the combined entity. As a result, we may not be able
to achieve the cost savings and synergies that we expect will result from the
merger. Achieving cost savings is dependent on restructuring First Western's
balance sheet, consolidating certain operational and functional areas,
eliminating duplicative positions and closing certain branch facilities.
Additional operational savings are dependent upon the integration of the banking
businesses of Sky Financial and First Western, the conversion of data systems
and the standardization of business practices. Actual savings in 1999 may be
materially less than expected if the merger is delayed beyond July 31, 1999, the
integration of both companies' operations is delayed beyond what is anticipated
or the conversion to a single data system is not accomplished on a timely basis.
WE MAY NOT BE ABLE TO RETAIN MANAGEMENT LEVEL EMPLOYEES AND EMPLOYEES WITH
TECHNICAL BACKGROUNDS WHICH COULD ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND
SUPPORT OUR FINANCIAL SERVICES BUSINESS.
We may not be able to retain some management level employees and some
employees with technical backgrounds as a result of the merger. The market for
these employees is becoming increasingly competitive and we have occasionally
experienced delays in hiring these personnel. Our failure or inability to
recruit, train and retain adequate numbers of qualified personnel on a timely
basis could affect our ability to fully develop and support our financial
services business.
SINCE THE MARKET PRICE OF SKY FINANCIAL COMMON SHARES WILL VARY, FIRST WESTERN
SHAREHOLDERS CANNOT BE SURE OF THE MARKET VALUE OF THE SKY FINANCIAL COMMON
SHARES THEY WILL RECEIVE IN THE MERGER.
At the time the merger is completed, each First Western common share will be
converted into the right to receive 1.211 Sky Financial common shares. Absent
certain circumstances, this exchange ratio will not be adjusted in the event of
any increase or decrease in the price of the Sky Financial common shares or the
First Western common shares. As a result, the value of the Sky Financial common
shares received by First Western shareholders in the merger will vary with
fluctuations in the value of the Sky Financial common shares. On December 11,
1998, the last full trading day before we announced the merger, the closing
price of Sky Financial's common stock was $30.75 per share. On May 20, 1999, the
most recent practicable date before the printing of this joint proxy
statement/prospectus, the closing price of Sky Financial's common stock was
$28.625 per share.
In addition, the stock market has recently experienced extreme price and
volume fluctuations. These fluctuations have particularly affected the market
prices of the securities of many bank holding companies. These broad market
fluctuations could adversely affect the market price of Sky Financial's common
shares. If the market price of Sky Financial's common shares decreases, the
value of the Sky Financial common shares you own would decrease.
CHANGES IN INTEREST RATES COULD ADVERSELY AFFECT SKY FINANCIAL'S EARNINGS AND
FINANCIAL CONDITION.
Sky Financial's earnings and financial condition are dependent to a large
degree upon net interest income, which is the difference between interest earned
from loans and investments and interest paid on deposits and borrowings. In the
early 1990's, many banking organizations experienced historically high interest
rate spreads, meaning the difference between the interest rates earned on loans
and investments and the interest rates paid on deposits and borrowings. More
recently, however, interest
12
<PAGE>
rate spreads have generally narrowed due to changing market conditions and
competitive pricing pressures, and there can be no assurance that these rate
spreads will not narrow even further. This narrowing of interest rate spreads
could adversely affect Sky Financial's earnings and financial condition.
In addition, there can be no assurance that interest rates will continue to
remain low. High interest rates could adversely affect Sky Financial's mortgage
banking business because higher interest rates could cause customers to request
fewer mortgage refinancings and purchase money mortgage originations.
COMPUTER SYSTEM FAILURES OR MISCALCULATIONS RESULTING FROM AN INABILITY TO
INTERPRET DATES BEYOND 1999 COULD MATERIALLY AND ADVERSELY AFFECT OUR
OPERATIONS.
Any computer equipment that uses two digits instead of four to specify the
year will be unable to interpret dates beyond the year 1999. This "year 2000"
issue could result in system failures or miscalculations causing disruptions of
operations. The three major areas that could be affected critically are
financial and operating systems, equipment and third-party relationships with
suppliers and customers. Each of us has developed plans to address this
exposure.
The three critical areas affected and our accomplishments to date are shown
below:
<TABLE>
<CAPTION>
AREA ACCOMPLISHED TO DATE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Financial and operating systems - Systems assessed
- Detailed plans have been or continue to be
developed
- Conversion commenced
Equipment - Systems assessed
- Detailed plans have been or continue to be
developed
- Conversion commenced
Third-party relationship with suppliers and - Communicating with critical suppliers and
customers customers to ascertain whether they are
addressing potential year 2000 issues
</TABLE>
Although we cannot give you any assurance, we believe that our internal
systems will be year 2000 compliant. The failure of major suppliers and
customers to achieve year 2000 compliance could materially and adversely affect
Sky Financial's and First Western's results of operations.
OFFICERS AND DIRECTORS OF FIRST WESTERN MAY HAVE INTERESTS IN THE MERGER THAT
MAY CREATE POTENTIAL CONFLICTS OF INTEREST BECAUSE THEY HAVE SEVERANCE AND OTHER
AGREEMENTS PROVIDING FOR PAYMENTS.
When considering the recommendations of the board of directors of First
Western, you should be aware that some executive officers of First Western and
some members of the First Western Board may have interests in the merger that
are different from yours. These interests exist because of rights they have
under employment agreements, severance agreements and a stock option plan. These
interests may create potential conflicts of interest, and these persons may have
conflicts of interest with respect to the merger. Our boards of directors were
aware of these possible conflicts of interest of First Western's directors and
officers when they approved the merger. See "The Merger--Interests of First
Western's Executive Officers and Directors in the Merger" on page 38.
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<PAGE>
THE STOCK OPTION AGREEMENT MAY DISCOURAGE OTHER COMPANIES FROM TRYING TO COMBINE
WITH FIRST WESTERN.
The merger agreement provides for a stock option agreement that could
discourage other companies from trying to or proposing to combine with First
Western in an alternative transaction before we complete the merger. Such an
alternative transaction involving First Western may be more advantageous to
First Western's shareholders than the merger.
If Sky Financial exercised the option, First Western could, by satisfying
the option, experience a material negative impact on its earnings and financial
condition. This might discourage other companies from trying to or proposing to
combine with First Western. If the option was to become exercisable, the option
also might, for a period of time, prevent a third party from completing a
pooling of interests transaction with First Western. This also could discourage
other companies from trying to combine with First Western.
SKY FINANCIAL'S AMENDED AND RESTATED ARTICLES OF INCORPORATION, CODE OF
REGULATIONS AND SHAREHOLDER RIGHTS PLAN CONTAIN PROVISIONS THAT MAY HAVE THE
EFFECT OF DISCOURAGING A THIRD PARTY FROM MAKING AN ACQUISITION OF SKY FINANCIAL
BY MEANS OF A TENDER OFFER, PROXY CONTEST OR OTHERWISE.
The amended and restated articles of incorporation and code of regulations
of Sky Financial, among other things:
- classify the Sky Financial Board into three classes with directors of each
class serving for a staggered three-year period;
- provide that directors may be removed only for cause and only by the
affirmative vote of 80% of the Sky Financial Board;
- require the affirmative vote of at least 75% of the voting power of the
Sky Financial shares entitled to vote in order to amend the Sky Financial
code of regulations with respect to the number, classification, election,
term of office or removal of the directors of the Sky Financial Board;
- permit the Sky Financial Board to fill vacancies and newly created
directorships on the Sky Financial Board; and
- restrict the ability of shareholders to call special meetings.
These provisions could make the removal of incumbent directors more difficult
and time-consuming and may have the effect of discouraging a tender offer or
other takeover attempt not previously approved by the Sky Financial Board. See
"Material Differences in the Rights of Shareholders" on page 54.
The Sky Financial Board has declared a dividend of one preferred share
purchase right for each Sky Financial common share outstanding pursuant to a
shareholder rights plan. This right will also be attached to each Sky Financial
common share subsequently issued, including the Sky Financial common shares to
be issued to First Western shareholders in exchange for the First Western common
shares in the merger. If triggered, the shareholder rights plan would cause
substantial dilution to a person or group of persons that acquires more than 10%
of Sky Financial's outstanding common shares on terms not approved by the Sky
Financial Board. This shareholder rights plan could discourage or make more
difficult a merger, tender offer or other similar transaction with Sky
Financial. See "Material Differences in the Rights of Shareholders" on page 53.
14
<PAGE>
THE SPECIAL SHAREHOLDERS' MEETINGS
THE SKY FINANCIAL SPECIAL MEETING
PURPOSE OF THE SKY FINANCIAL SPECIAL MEETING
We are providing this joint proxy statement/prospectus to holders of Sky
Financial common shares as part of the Sky Financial Board's solicitation of
proxies for the special meeting of Sky Financial shareholders to be held on July
21, 1999 at 9:00 a.m., at the Forum Conference & Education Center, 1375 E. Ninth
St., Cleveland, Ohio, including any adjournments or reschedulings of that
special meeting. This joint proxy statement/prospectus and the accompanying
proxy card are first being mailed to shareholders of Sky Financial on or about
May 27, 1999.
At the Sky Financial special meeting, Sky Financial shareholders will
consider and vote upon a proposal to approve and adopt the merger agreement and
to approve the related transactions. No other business will be transacted at the
Sky Financial special meeting.
Along with each copy of this joint proxy statement/prospectus mailed to
holders of Sky Financial common shares, we are sending a form of proxy for use
at the Sky Financial special meeting. Sky Financial is also sending this joint
proxy statement/prospectus to holders of First Western common shares as a
prospectus in connection with the issuance of Sky Financial common shares in
exchange for First Western common shares in the merger.
THE SKY FINANCIAL BOARD HAS APPROVED THE MERGER AGREEMENT AND THE RELATED
TRANSACTIONS, INCLUDING THE ISSUANCE OF SKY FINANCIAL COMMON SHARES IN EXCHANGE
FOR FIRST WESTERN COMMON SHARES IN THE MERGER, AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE MERGER AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The Sky Financial Board has fixed the close of business on May 24, 1999 as
the record date for determining shareholders of Sky Financial entitled to notice
of and to vote at the Sky Financial special meeting. Only holders of Sky
Financial common shares who are holders at the close of business on the Sky
Financial record date will be entitled to notice of and to vote at the Sky
Financial special meeting.
As of May 24, 1999, there were Sky Financial common shares issued and
outstanding, each of which entitles its holder to one vote. Shareholders may
vote either in person or by proxy. Sky Financial common shares held in the
treasury of Sky Financial or any of its subsidiaries do not have voting rights.
All Sky Financial common shares represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies and on such other matters as may
properly come before the Sky Financial special meeting. If your shares are
represented by more than one properly executed proxy, the proxy bearing the most
recent date will be voted at the Sky Financial special meeting. IF YOUR PROXY
CARD IS SIGNED AND DATED BUT DOES NOT SHOW HOW YOU WANT TO VOTE, YOUR SKY
FINANCIAL COMMON SHARES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
Only shareholders of record on the Sky Financial record date are eligible to
give their proxies. If you give the proxy we are soliciting, you may revoke it
at any time before it is exercised by:
- sending a written, signed and dated revocation to the principal executive
offices of Sky Financial at 221 South Church Street, Bowling Green, Ohio
43402;
- signing and returning a later-dated proxy; or
- appearing in person at the Sky Financial special meeting and advising the
secretary of your intent to vote your shares.
Inspectors of election appointed for the meeting will tabulate votes cast by
proxy or in person at the Sky Financial special meeting and will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions and broker non-votes as shares that are present and entitled to
15
<PAGE>
vote for purposes of determining the presence of a quorum, but abstentions and
broker non-votes will have the same effect as votes against the merger
agreement.
SOLICITATION OF PROXIES
Sky Financial will bear its own cost of solicitation of proxies, except that
First Western and Sky Financial have agreed to share equally all printing,
mailing and delivery expenses in connection with this joint proxy
statement/prospectus. Proxies may be solicited by mail, telephone, telegraph,
telex, telecopier and advertisement and in person. Solicitation may be made in
the same manner by directors, officers and other representatives of Sky
Financial who will not be additionally compensated for their solicitation
efforts but may be reimbursed for out-of-pocket expenses in connection with
these efforts. Sky Financial will reimburse brokerage houses, fiduciaries,
nominees and others for their out-of-pocket expenses incurred in forwarding
proxy materials to beneficial owners of shares held in their names.
QUORUM
To have a quorum at the Sky Financial special meeting, we must have the
holders of a majority of the issued and outstanding Sky Financial common shares
entitled to vote present either in person or by properly executed proxy.
Abstentions and broker non-votes will be counted in establishing a quorum.
REQUIRED VOTE
Under Ohio law and Sky Financial's articles of incorporation, shareholder
approval and adoption of the merger agreement requires the affirmative vote of
the holders of at least a majority of outstanding Sky Financial common shares
entitled to vote at the Sky Financial special meeting. For any such vote to be
valid, a quorum must be present at the Sky Financial special meeting. If fewer
Sky Financial common shares are present in person or by proxy than necessary to
constitute a quorum, we expect to adjourn or postpone the Sky Financial special
meeting to allow additional time for obtaining additional proxies or votes. At
any subsequent reconvening of the Sky Financial special meeting, all proxies
obtained before the adjournment or postponement will be voted in the same manner
the proxies would have been voted at the original convening of the Sky Financial
special meeting, except for any proxies which have been effectively revoked or
withdrawn, even if they were effectively voted on the same or any other matter
at a previous meeting.
As of April 30, 1999, directors and executive officers of Sky Financial and
their respective affiliates beneficially owned an aggregate of 3,519,971 Sky
Financial common shares, including shares which may be acquired within 60 days
after such date upon exercise of employee or director stock options. This number
amounts to less than 7.83% of the Sky Financial common shares outstanding on
that date.
A properly executed proxy marked "abstain" will not be voted on the approval
and adoption of the merger agreement but will count toward determining whether a
quorum is present. Brokers who hold Sky Financial common shares in "street name"
for the beneficial owners of such shares cannot vote these shares on the
approval and adoption of the merger agreement without specific instructions from
the beneficial owners. Therefore, if you are the beneficial owner of Sky
Financial common shares held by a broker in "street name," you should sign, date
and return your proxy card to the broker in the envelope provided by the broker.
Because approval and adoption of the merger agreement requires the affirmative
vote of the holders of at least a majority of outstanding Sky Financial common
shares entitled to vote, an abstention or, if your shares are held in "street
name," your failure to instruct your broker how to vote, will have the same
effect as a vote against the merger agreement.
THE MATTERS TO BE CONSIDERED AT THE SKY FINANCIAL SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE SHAREHOLDERS OF SKY FINANCIAL. THEREFORE, IF YOU ARE A
SKY FINANCIAL SHAREHOLDER, WE URGE YOU TO READ AND CONSIDER CAREFULLY THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS. WE ALSO URGE YOU TO
COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD USING THE
ENCLOSED POSTAGE-PAID ENVELOPE.
16
<PAGE>
THE FIRST WESTERN SPECIAL MEETING
PURPOSE OF THE FIRST WESTERN SPECIAL MEETING
We are providing this joint proxy statement/prospectus to holders of First
Western common shares as part of the First Western Board's solicitation of
proxies for the special meeting of First Western shareholders to be held on July
20, 1999 at 10:30 a.m., at The Centre Banquet Facility, 304 E. North Street, New
Castle, Pennsylvania, including any adjournments or reschedulings of that
special meeting. This joint proxy statement/prospectus and the accompanying
proxy card are first being mailed to shareholders of First Western on or about
May 27, 1999.
At the First Western special meeting, First Western shareholders will
consider and vote upon a proposal to approve and adopt the merger agreement and
to approve the related transactions. No other business will be transacted at the
First Western special meeting.
Along with each copy of this joint proxy statement/prospectus mailed to
holders of First Western common shares, we are sending a form of proxy for use
at the First Western special meeting. Sky Financial is also sending this joint
proxy statement/prospectus to holders of First Western common shares as a
prospectus in connection with the issuance of Sky Financial common shares in
exchange for First Western common shares in the merger.
THE FIRST WESTERN BOARD HAS APPROVED THE MERGER AGREEMENT AND THE RELATED
TRANSACTIONS AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The First Western Board has fixed the close of business on May 24, 1999 as
the record date for determining shareholders of First Western entitled to notice
of and to vote at the First Western special meeting. Only holders of First
Western common shares who are holders at the close of business on the First
Western record date will be entitled to notice of and to vote at the First
Western special meeting.
As of May 24, 1999, there were First Western common shares issued and
outstanding, each of which entitles the holder thereof to one vote. Shareholders
may vote either in person or by proxy. First Western common shares held in the
treasury of First Western or any of its subsidiaries do not have voting rights.
All First Western common shares represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. If your shares are represented
by more than one properly executed proxy, the proxy bearing the most recent date
will be voted at the First Western special meeting. IF YOUR PROXY CARD DOES NOT
SHOW HOW YOU WANT TO VOTE, YOUR FIRST WESTERN COMMON SHARES WILL BE VOTED FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
If you give the proxy we are soliciting, you may revoke it at any time
before it is exercised by giving written notice to the Secretary of First
Western, by signing and returning a later-dated proxy or by voting in person at
the First Western special meeting. You should note that just attending the First
Western special meeting without voting in person will not revoke an otherwise
valid proxy.
Judges of election appointed for the meeting will tabulate votes cast in
person or by proxy at the First Western special meeting and will determine
whether or not a quorum is present. The judges of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the shareholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will be considered
as present but not entitled to vote with respect to that matter.
17
<PAGE>
SOLICITATION OF PROXIES
First Western will bear its own cost of solicitation of proxies, except that
First Western and Sky Financial have agreed to share equally all printing,
mailing and delivery expenses in connection with this joint proxy
statement/prospectus. In addition to solicitation by mail, directors, officers
and employees of First Western may solicit proxies personally or by telephone,
facsimile transmission or otherwise. These directors, officers and employees
will not be additionally compensated for their solicitation efforts but may be
reimbursed for out-of-pocket expenses incurred in connection with these efforts.
First Western will reimburse brokerage houses, fiduciaries, nominees and others
for their out-of-pocket expenses incurred in forwarding proxy materials to
beneficial owners of shares held in their names. In addition, First Western has
engaged Corporate Investor Communications, Inc. to act as its proxy solicitor
and has agreed to pay it $6,000 plus expenses for such services.
FIRST WESTERN SHAREHOLDERS SHOULD NOT SEND FIRST WESTERN COMMON SHARE
CERTIFICATES WITH THEIR PROXY CARDS.
QUORUM
To have a quorum at the First Western special meeting, we must have the
holders of a majority of the issued and outstanding First Western common shares
entitled to vote present either in person or by properly executed proxy. First
Western common shares that are marked "abstain" will be counted as shares
present for the purposes of determining the presence of a quorum.
REQUIRED VOTE
Under Pennsylvania law and First Western's articles of incorporation,
shareholder approval and adoption of the merger agreement requires the
affirmative vote of a majority of the votes cast by the shareholders entitled to
vote at the First Western special meeting. For any such vote to be valid, a
quorum must be present at the First Western special meeting. If fewer First
Western common shares are present in person or by proxy than necessary to
constitute a quorum, we expect to adjourn or postpone the First Western special
meeting to allow additional time for obtaining additional proxies or votes. At
any subsequent reconvening of the First Western special meeting, all proxies
obtained before the adjournment or postponement will be voted in the same manner
the proxies would have been voted at the original convening of the First Western
special meeting, except for any proxies which have been effectively revoked or
withdrawn, even if they were effectively voted on the same or any other matter
at a previous meeting.
As of April 30, 1999, directors and executive officers of First Western and
their respective affiliates beneficially owned an aggregate of 510,068 First
Western common shares, including shares which may be acquired within 60 days
after such date upon exercise of employee or director stock options. This number
amounts to less than 4.6% of the First Western common shares outstanding on that
date.
A properly executed proxy marked "abstain" will not be voted on the approval
and adoption of the merger agreement but will count toward determining whether a
quorum is present. Brokers who hold First Western common shares in "street name"
for the beneficial owners of such shares cannot vote these shares on the
approval and adoption of the merger agreement without specific instructions from
the beneficial owners. Because approval and adoption of the merger agreement
requires the affirmative vote of a majority of the votes cast on such matter, an
abstention or, if your shares are held in "street name," your failure to
instruct your broker how to vote, will have no effect in determining whether the
merger agreement will be approved and adopted.
THE MATTERS TO BE CONSIDERED AT THE FIRST WESTERN SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE SHAREHOLDERS OF FIRST WESTERN. THEREFORE, IF YOU ARE A
FIRST WESTERN SHAREHOLDER, WE URGE YOU TO READ AND CONSIDER CAREFULLY THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS. WE ALSO URGE YOU TO
COMPLETE, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD USING THE
ENCLOSED POSTAGE-PAID ENVELOPE.
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<PAGE>
THE MERGER
The following summary of the material terms of the merger is not complete
and is qualified in its entirety by reference to the merger agreement which is
set forth in Annex A, attached to and incorporated by reference in this joint
proxy statement/prospectus. WE URGE ALL SHAREHOLDERS TO READ THE MERGER
AGREEMENT IN ITS ENTIRETY.
BACKGROUND OF THE MERGER
On November 14, 1998, Mr. Marty E. Adams, President and Chief Operating
Officer of Sky Financial, and Mr. Thomas J. O'Shane, Chairman and Chief
Executive Officer of First Western, met and had preliminary discussions about
the possibility of a strategic business combination involving Sky Financial and
First Western. These discussions continued on November 17, 1998 and although no
specific terms were discussed, Messrs. Adams and O'Shane agreed that, in view of
the competitive environment in the banking and financial services industry in
the Midwest and generally, and in view of the trend toward consolidation taking
place, a strategic business combination between the two companies would
strengthen the competitive position of the combined institution, generate
significant cost savings and enhance acquisition and other opportunities.
On November 18, 1998, Sky Financial held its regular meeting of the board of
directors. The Sky Financial Board had general discussions regarding the
potential merger with First Western, First Western's market area, Sky
Financial's capacity to pay and the earnings prospects of such a business
combination.
On November 19, 1998, Mr. Adams met with Mr. O'Shane and First Western's
financial advisor, Sandler O'Neill & Partners, L.P. During this discussion, a
confidentiality agreement was entered into between Sky Financial and First
Western to facilitate the exchange of information. Also, First Western provided
financial information to Sky Financial.
On December 2, 1998, Sky Financial retained McDonald Investments Inc. as its
financial advisor with a view toward assisting Sky Financial with the
negotiation of an exchange ratio and in providing a fairness opinion to Sky
Financial in connection with a possible business combination involving Sky
Financial and First Western.
On December 4, 1998, the Sky Financial Board's executive committee held a
special meeting in which it reviewed with its financial advisor the financial
aspects, exchange ratio and price terms of a possible acquisition of First
Western. At this meeting the Sky Financial Board's executive committee
authorized Mr. Adams to negotiate the exchange ratio and price terms for this
transaction.
On December 7, 1998, Mr. Adams, on behalf of Sky Financial, made a proposal
to First Western's financial advisors of a possible exchange ratio and price
terms for the acquisition of First Western. Following discussions among
representatives of Sandler O'Neill, Mr. O'Shane and Mr. Adams, a revised
exchange ratio was submitted by Mr. Adams during the evening of December 7,
1998.
On December 9, 1998, the First Western Board held a special meeting at which
it discussed, with its legal and financial advisors, various aspects of a
potential merger with Sky Financial, including Mr. Adams' proposal and certain
terms and conditions of such a transaction.
On the evening of December 10, 1998, a special meeting of the Sky Financial
Board was held to consider the terms of a potential acquisition of First
Western. McDonald made a presentation on the financial aspects of the merger and
rendered a fairness opinion, that as of that date, the exchange ratio was fair
to the shareholders of Sky Financial from a financial point of view.
After an extensive discussion, the Sky Financial Board unanimously
determined, based upon consideration of the various factors discussed below,
that the proposed acquisition of First Western was in
19
<PAGE>
the best interests of Sky Financial and its shareholders. The Sky Financial
Board unanimously approved the merger proposal and its related transactions.
On December 11, 1998, representatives from each of Sky Financial and First
Western negotiated the terms of the merger agreement.
The First Western Board held a second special meeting on December 13, 1998,
during which it discussed the merger proposal and its related transactions in
extensive detail. At that meeting, First Western's legal counsel reviewed the
terms of the merger agreement and the stock option agreement, and various
aspects of the merger proposal and its related transactions. In addition,
Sandler O'Neill made a presentation to the First Western Board and rendered its
opinion as to the fairness, from a financial point of view, of the exchange
ratio to First Western shareholders.
After a thorough discussion and consideration of the various factors
discussed below, the First Western Board unanimously determined that the
proposed merger with Sky Financial was in the best interests of First Western
and its shareholders. Accordingly, the First Western Board unanimously approved
the merger proposal and its related transactions. See "--First Western's Reasons
for the Merger; Recommendation of the First Western Board."
On December 14, 1998, the merger agreement was executed by Messrs. Adams and
O'Shane. Sky Financial and First Western issued a joint press release announcing
the merger agreement on December 14, 1998. The stock option agreement between
Sky Financial and First Western was executed on December 15, 1998.
During the course of negotiations, First Western prepared nonpublic
estimates reflecting their management's views as to the possible future
performance of First Western and furnished these estimates to Sky Financial.
These estimates reflected a projected net income of $21.8 million for the year
ending December 31, 1999 and a projected net income of $24.7 million for the
year ending December 31, 2000. These estimates were based on assumptions
relating to the interest rate environment, loan portfolio growth, asset growth
and deposit growth which management believed to be reasonable at the time.
Management's belief as to the reasonableness of its estimates and of the
assumptions underlying the estimates is based upon the use of industry data,
management's history of operations of First Western and the significant time and
resources management devoted to developing such estimates. These estimates were
considered by Sky Financial in developing their projection of the net income
which might be available to the pro forma company from the combined operations
of First Western and Sky Financial. Sky Financial's analysis resulted in an
estimate of net income of approximately $122 million in 2000 and an estimated
cumulative average growth rate of approximately 11% from 2000 through 2003.
While these estimates were based on numerous variables and assumptions that are
inherently uncertain, including, amongst other, factors relative to the general
economic and competitive conditions facing Sky Financial and First Western, they
were believed by Sky Financial's management and McDonald to be based on
reasonable assumptions given industry conditions and their knowledge of the
operations of First Western and Sky Financial at the time.
The estimates were not prepared with a view to public disclosure or
compliance with published guidelines established by the Securities and Exchange
Commission or the American Institute of Certified Public Accountants regarding
projections. They are mentioned in this document solely because the parties
furnished these estimates to each other during the merger negotiations under the
terms of a confidentiality agreement among the parties. In addition, because the
estimates are inherently subject to significant economic and competitive
uncertainties and contingencies beyond each company's control, there can be no
assurance that the estimates will be realized. Actual results may be higher or
lower than those estimated. Neither party's auditor nor any other independent
accountants has compiled, examined or performed any procedures with respect to
the estimates, nor have they expressed any opinion or any other form of
assurance on the accuracy of the information or its achievability, and
20
<PAGE>
assume no responsibility for, and disclaim any association with, the foregoing
prospective financial information.
FIRST WESTERN'S NEGOTIATIONS WITH ANOTHER PARTY
In early November 1998, prior to any discussion regarding a possible
combination between Sky Financial and First Western, Mr. O'Shane met with the
chief executive officer of another financial institution, in fulfillment of an
appointment that had been previously scheduled. At that meeting, the other
institution expressed a serious interest in a possible business combination with
First Western. Mr. O'Shane agreed to consider the matter and meet again.
At a second meeting on November 9, 1998, Mr. O'Shane entered into more
detailed discussions with this other institution. After considerable discussion,
Mr. O'Shane agreed to schedule a third meeting, at which time he would provide
certain financial information, subject to the condition that both companies
entered into a confidentiality agreement. Following the execution of that
agreement, but prior to the third meeting, Mr. O'Shane entered into discussions
with Sky Financial, as described above.
Mr. O'Shane met with the other institution's chief executive officer on two
other occasions--on November 16, with each party's financial advisor present,
and November 25, 1998--and once more by telephone, on December 4, 1998. During
these meetings, the parties discussed the potential terms upon which the other
financial institution would be willing to make an offer for a business
combination for First Western. During this time period, Mr. O'Shane was also
engaged in discussions with representatives of Sky Financial. Based on these
discussions, Mr. O'Shane and First Western's financial advisor concluded that
the value to be received by First Western's shareholders under the Sky Financial
proposal was higher than what the other institution was prepared to offer.
Subsequently, First Western terminated its discussions with the other financial
institution and the First Western Board concluded that a combination with Sky
Financial was in the best interests of First Western, its employees,
shareholders and customers as described above.
The First Western Board did not seek offers from other third parties and
limited discussion to Sky Financial and one third party because the First
Western Board put significant emphasis on the business and operating philosophy
of any potential merger partner. The First Western Board considered the impact
of the merger on the shareholders, the communities and customers that First
Western serves, and the impact on the employees at First Western. The First
Western Board did not seek to auction the company because it believed that the
interests of all the constituencies mentioned were best served by pursuing a
strategic alliance with a company with similar operating philosophy and
strategic objectives. First Western pursued a partner that could provide
enhancement to shareholder value through improvement in earnings, geographic
expansion into complementary market and integration of strong management teams.
The First Western Board also considered the possibility of the combined company
as a participant in future consolidations.
SKY FINANCIAL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE SKY FINANCIAL
BOARD
The board of directors and management of Sky Financial believe that the
merger is fair and in the best interests of the Sky Financial shareholders. At
its December 10, 1998 meeting, the Sky Financial Board approved the merger
proposal and its related transactions. We have set forth below all the material
factors that the Sky Financial Board considered in reaching its decision to
approve the merger proposal and to recommend that Sky Financial's shareholders
vote to approve and adopt the merger agreement:
- the consistency of the merger with Sky Financial's strategic objectives;
21
<PAGE>
- the Sky Financial Board's familiarity with and review of its and First
Western's business, financial condition, results of operations and
prospects, including but not limited to its potential growth, development,
productivity and profitability;
- the current prospective environment in which each of Sky Financial and
First Western operates, including national and local conditions, the
competitive environment for banks and other financial institutions
generally, the increased regulatory burden on financial institutions
generally and the trend toward consolidation and increased competition in
the financial services industry both in the Midwest and elsewhere;
- the Sky Financial Board's review, based in part on presentations by their
respective management and advisors, of the business, financial condition,
results of operations and management of First Western, and the recent
performance of First Western common shares and Sky Financial common shares
on both an historical and prospective basis, the strategic fit between the
parties, the enhanced opportunities for operating efficiencies that could
result from the merger, including cost savings of approximately 5% of
combined non-interest expense or $11 million, and the respective
contributions the parties would bring to a combined institution;
- the belief that the merger would further the respective strategic plans of
Sky Financial;
- the opportunity that the merger provides to strengthen and deepen the
management team of the combined entity by integrating the already strong
management teams at both Sky Financial and First Western;
- the expectation that the merger will generally be a tax-free transaction
to Sky Financial and its shareholders and to First Western and its
shareholders and will qualify for pooling-of-interests accounting
treatment, see "--Material Federal Income Tax Considerations" and
"--Accounting Treatment";
- the recognition of various financial benefits accompanying the merger,
including the belief that the merger would be 1.9% accretive to projected
earnings per share in the first full year of post-merger operations, that
the combined organization would be well capitalized and have strong asset
quality and that the combined organization may have a higher potential for
earnings and book value multiples expansion;
- the recognition of the complementary nature of the markets served and the
products offered by Sky Financial and First Western and the expectation
that the merger would provide economies of scale, expanded product
offerings, expanded opportunities for cross-selling, cost savings
opportunities and enhanced opportunities for growth, including an expanded
pool of acquisition targets;
- the similarity between Sky Financial's and First Western's philosophy and
commitments to their respective employees, suppliers, creditors and
customers, and the effect of the merger on those constituencies and other
community and societal considerations;
- the review by the Sky Financial Board with its legal and financial
advisors of the provisions of the merger agreement and the stock option
agreement;
- the financial presentation and opinion of McDonald rendered to the Sky
Financial Board as to the fairness, from a financial point of view, of the
exchange ratio to Sky Financial shareholders; and
- the belief of the Sky Financial Board, after consultation with its legal
counsel, that the regulatory approvals necessary to consummate the merger
could be obtained, see "--Regulatory Approvals."
22
<PAGE>
Because of the variety of factors considered in connection with its
evaluation of the merger, the Sky Financial Board did not find it practicable
to, and did not, quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. Individual members of the Sky
Financial Board may have assigned different weights to different factors.
THE SKY FINANCIAL BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SKY
FINANCIAL COMMON SHARES VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
FIRST WESTERN'S REASONS FOR THE MERGER; RECOMMENDATION OF THE FIRST WESTERN
BOARD
The board of directors and management of First Western believe that the
merger is fair and in the best interests of the First Western shareholders. The
First Western Board considered the following material factors in deciding to
approve the merger proposal and its related transactions, and recommending that
First Western's shareholders vote to approve and adopt the merger agreement:
- the exchange ratio and corresponding value to be paid to First Western
shareholders, such value being recognized as the implied offer
consideration of $37.24 per share based upon market prices on December 11,
1998, the last full trading day before Sky Financial and First Western
announced the merger, which is a 23% premium over the price of First
Western common shares;
- the financial presentation and opinion of Sandler O'Neill rendered to the
First Western Board as to the fairness, from a financial point of view, of
the exchange ratio to First Western shareholders;
- the implied enhancement to shareholders in underlying earnings and
dividends per share as a result of the transaction;
- the enhanced opportunities for cost savings and other operating
efficiencies that could result from a merger;
- the familiarity with and review of Sky Financial's business, results of
operations, financial condition, competitive position and prospects;
- the current economic competitive environment for banking, the increased
regulatory burden on financial institutions and an industry trend toward
consolidation;
- the potential expansion of products and services resulting from the
merger;
- the recognition that the companies serve complementary geographic markets;
- the commitments of both companies to their employees, customers and
communities;
- the opportunity for integration of the strong management teams at both
companies;
- the expectation that the merger will generally be a tax-free transaction
to both companies and their shareholders;
- the review by the First Western Board with its legal and financial
advisors of the terms and conditions of the merger agreement and the stock
option agreement; and
- the belief of the First Western Board, after consultation with its legal
counsel, that the regulatory approvals necessary to consummate the merger
could be obtained.
The First Western Board recognizes that such a recommendation requires the
evaluation of multiple factors. In its discussions, the First Western Board did
not prioritize the factors listed above, nor did it assign different weights to
the factors. Individual members of the First Western Board may have assigned
different weights to different factors.
23
<PAGE>
THE FIRST WESTERN BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF SHARES OF
FIRST WESTERN COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS
MCDONALD INVESTMENTS INC.
MERGER--GENERAL. Pursuant to an engagement letter dated December 2, 1998
between Sky Financial and McDonald, Sky Financial retained McDonald to act as
its sole financial advisor in connection with the merger and related matters. As
part of its engagement, McDonald agreed, if requested by Sky Financial, to
render an opinion with respect to the fairness, from a financial point of view,
to the holders of Sky Financial common shares, of the exchange ratio as set
forth in the merger agreement. McDonald is a nationally recognized specialist in
the financial services industry, in general, and in Midwestern banks and thrifts
in particular. McDonald is regularly engaged in evaluations of similar
businesses and in advising institutions with regard to mergers and acquisitions,
as well as raising debt and equity capital for such institutions. Sky Financial
selected McDonald as its financial advisor based upon its qualifications,
expertise and reputation in such capacity.
On December 14, 1998, McDonald delivered its oral opinion that the exchange
ratio was fair to Sky Financial shareholders, from a financial point of view, as
of December 14, 1998. McDonald also delivered to the Sky Financial Board a
written opinion dated as of December 14, 1998, confirming its oral opinion as of
such date. No limitations were imposed by Sky Financial on McDonald with respect
to the investigations made or the procedures followed in rendering its opinion.
THE FULL TEXT OF MCDONALD'S WRITTEN OPINION TO THE SKY FINANCIAL BOARD,
DATED DECEMBER 14, 1998, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND EXTENT OF REVIEW BY MCDONALD, IS ATTACHED AS ANNEX C AND IS
INCORPORATED HEREIN BY REFERENCE. IT SHOULD BE READ CAREFULLY AND IN ITS
ENTIRETY IN CONJUNCTION WITH THIS JOINT PROXY STATEMENT/PROSPECTUS. THE
FOLLOWING SUMMARY OF MCDONALD'S OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION. MCDONALD'S OPINION IS ADDRESSED TO
THE SKY FINANCIAL BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF SKY FINANCIAL AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SKY
FINANCIAL SPECIAL MEETING.
McDonald, in connection with rendering its December 14, 1998 opinion:
- reviewed Mid Am Inc.'s and Citizens Bancshares, Inc.'s Annual Reports to
Shareholders and Annual Reports on Form 10-K for each of the years ended
December 31, 1997, December 31, 1996 and December 31, 1995, including the
audited financial statements contained therein; and Mid Am, Inc.'s and
Citizens Bancshares, Inc.'s Quarterly Reports on Form 10-Q for the three
month periods ended September 30, 1998, June 30, 1998 and March 31, 1998;
and Sky Financial's registration statement on Form S-4 dated September 16,
1998;
- reviewed First Western's Annual Reports to Shareholders and Annual Reports
on Form 10-K for each of the years ended December 31, 1997, December 31,
1996 and December 31, 1995, including the audited financial statements
contained therein; and First Western's Quarterly Reports on Form 10-Q for
the three month periods ended September 30, 1998, June 30, 1998 and March
31, 1998;
- reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Sky Financial and First Western provided to us or
publicly available;
- participated in meetings and telephone conferences with members of senior
management of Sky Financial concerning the financial condition, business,
assets, financial forecasts and prospects of Sky Financial and First
Western, as well as other matters we believed relevant to our inquiry;
24
<PAGE>
- reviewed certain stock market information for the Sky Financial common
shares and First Western common shares and compared it with similar
information for certain companies, the securities of which are publicly
traded;
- compared the results of operations and financial condition of Sky
Financial and First Western with that of certain companies which we deemed
to be relevant for purposes of this opinion;
- reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions which we deemed to be relevant for purposes of
this opinion;
- reviewed the merger agreement dated December 14, 1998 and its schedules
and exhibits and certain related documents; and
- performed such other reviews and analyses as we have deemed appropriate.
The oral and written opinions provided by McDonald to Sky Financial were
necessarily based upon economic, monetary, financial market and other relevant
conditions as of the dates thereof.
In connection with its review and arriving at its opinion, McDonald relied
upon the accuracy and completeness of the financial information and other
pertinent information provided by Sky Financial to McDonald for purposes of
rendering its opinion. McDonald did not assume any obligation to independently
verify any of the provided information as being complete and accurate in all
material respects. With regard to the financial forecasts established and
developed for Sky Financial and First Western with the input of the respective
managements, as well as projections of cost savings, revenue enhancements and
operating synergies, McDonald assumed that these materials had been reasonably
prepared on bases reflecting the best available estimates and judgments of Sky
Financial and First Western as to the future performance of the separate and
combined entities and that the projections provided a reasonable basis upon
which McDonald could formulate its opinion. Neither Sky Financial nor First
Western publicly discloses such internal management projections of the type
utilized by McDonald in connection with McDonald's role as financial advisor to
Sky Financial with respect to review of the merger. Therefore, such projections
cannot be assumed to have been prepared with a view towards public disclosure.
The projections were based upon numerous variables and assumptions that are
inherently uncertain, including, amongst others, factors relative to the general
economic and competitive conditions facing Sky Financial and First Western.
Accordingly, actual results could vary significantly from those set forth in the
respective projections.
McDonald does not claim to be an expert in the evaluation of loan portfolios
or the allowance for loan losses with respect thereto and therefore assumes that
such allowances for Sky Financial and First Western are adequate to cover such
losses. In addition, McDonald does not assume responsibility for the review of
individual credit files, did not make an independent evaluation, appraisal or
physical inspection of the assets or individual properties of Sky Financial or
First Western, nor was McDonald provided with such appraisals. Furthermore,
McDonald assumes that the merger will be consummated in accordance with the
terms set forth in the merger agreement, without any waiver of any material
terms or conditions by Sky Financial and that obtaining the necessary regulatory
approvals for the merger will not have an adverse effect on either separate
institution or combined entity. Moreover, in each analysis that involves per
share data for Sky Financial, McDonald adjusted the data to reflect full
dilution, i.e., the exercise of all outstanding options and/or warrants
utilizing the treasury stock method. In particular, McDonald assumes that the
merger will be recorded as a "pooling-of-interests" in accordance with generally
accepted accounting principles.
25
<PAGE>
In connection with rendering its opinion to the Sky Financial Board,
McDonald performed a variety of financial and comparative analyses which are
briefly summarized below. Such summary of analyses does not purport to be a
complete description of the analyses performed by McDonald. Moreover, McDonald
believes that these analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered by it, without considering
all such analyses and factors, could create an incomplete understanding of the
scope of the process underlying the analyses and, more importantly, the opinion
derived from them. The preparation of a financial advisor's opinion is a complex
process involving subjective judgments and is not necessarily susceptible to
partial analyses or a summary description of such analyses. In its full
analysis, McDonald also accounted for the assessment of general economic,
financial market and other financial conditions. Furthermore, McDonald drew from
its past experience in similar transactions, as well as its experience in the
valuation of securities and its general knowledge of the banking industry as a
whole. Any estimates in McDonald's analyses were not necessarily indicative of
future results or values which may significantly diverge more or less favorably
from such estimates. Estimates of company valuations do not purport to be
appraisals nor to necessarily reflect the prices at which companies or their
respective securities actually may be sold. Most notably, none of the analyses
performed by McDonald were assigned a greater significance by McDonald than any
other in deriving its opinion.
COMPARABLE COMPANY ANALYSIS: McDonald reviewed and compared actual stock
market data and actual and estimated selected financial information for First
Western with corresponding information for 27 publicly traded midwestern banks
with assets between $1 billion and $5 billion, (the "First Western Peer Group").
The First Western Peer Group is listed below (ranked by asset size):
<TABLE>
<S> <C>
1) Sky Financial Group, Inc., Bowling Green, 15) Brenton Banks Inc., Des Moines, IA
OH
2) Citizens Banking Corp., Flint, MI 16) First Financial Corp., Terre Haute, IN
3) AMCORE Financial Inc., Rockford, IL 17) Irwin Financial Corp., Columbus, IN
4) First Financial Bancorp., Hamilton, OH 18) Grand Premier Financial, Wauconda, IL
5) 1st Source Corp., South Bend, IN 19) Mid-America Bancorp, Louisville, KY
6) Corus Bankshares Inc., Chicago, IL 20) Mississippi Valley Bancshares, St. Louis,
MO
7) Park National Corp., Newark, OH 21) Wintrust Financial Corp., Lake Forest, IL
8) F&M Bancorp., Kaukauna, WI 22) BancFirst Ohio Corp., Zanesville, OH
9) First Commerce Bancshares Inc., Lincoln, 23) First Merchants Corp., Muncie, IN
NE
10) Community Trust Bancorp, Pikeville, KY 24) National City Bancorp., Minneapolis, MN
11) Republic Bancorp Inc., Owosso, MI 25) Independent Bank Corp., Ionia, MI
12) Area Bancshares Corp., Owensboro, KY 26) Pinnacle Banc Group Inc., Oak Brook, IL
13) National City Bancshares Inc., 27) Midwest Banc Holdings Inc., Melrose Park,
Evansville, IN IL
14) Chemical Financial Corp., Midland, MI
</TABLE>
26
<PAGE>
The table below represents a summary analysis of the First Western Peer
Group based on market prices as of December 8, 1998 and the latest publicly
available financial data based on September 30, 1998:
<TABLE>
<CAPTION>
MEAN MEDIAN FIRST WESTERN
--------- ----------- ---------------
<S> <C> <C> <C>
Price to Last Twelve Month Earnings.......................... 19.1x 18.3x 16.6x
Price to 1998 Est. Earnings.................................. 18.2x 17.7x 17.2x
Price to 1999 Est. Earnings.................................. 15.9x 15.4x 15.2x
Price to Book Value.......................................... 234% 217% 211%
Price to Tangible Book Value................................. 257% 233% 361%
Dividend Yield............................................... 1.95% 2.21% 2.14%
Return on Average Assets..................................... 1.29% 1.30% 1.03%
Return on Average Equity..................................... 13.92% 13.48% 13.56%
Leverage Ratio............................................... 8.82% 8.60% 4.03%
Efficiency Ratio............................................. 59.0% 58.8% 54.2%
</TABLE>
McDonald reviewed and compared actual stock market data and actual and
estimated selected financial information for Sky Financial with corresponding
information for 10 publicly traded midwestern banks with assets between $3
billion and $10 billion, (the "Sky Financial Peer Group"). The Sky Financial
Peer Group is listed below (ranked by asset size):
<TABLE>
<S> <C>
1) TCF Financial Corp., Minneapolis, MN 6) Old National Bancorp, Evansville, IN
2) Provident Financial Group Inc., 7) Community First Bankshares, Fargo, ND
Cincinnati, OH
3) CNB Bancshares Inc., Evansville, IN 8) First Midwest Bancorp Inc., Itasca, IL
4) UMB Financial Corp., Kansas City, MO 9) Citizens Banking Corp., Flint, MI
5) FirstMerit Corp., Akron, OH 10) AMCORE Financial Inc., Rockford, IL
</TABLE>
The following table below represents a summary analysis of the Sky Financial
Peer Group based on market prices as of December 8, 1998 and the latest publicly
available financial data based on September 30, 1998:
<TABLE>
<CAPTION>
MEAN MEDIAN SKY FINANCIAL
--------- ----------- ---------------
<S> <C> <C> <C>
Price to Last Twelve Month Earnings................ 19.2x 17.9x 27.8x
Price to 1998 Est. Earnings........................ 16.6x 16.4x 24.1x
Price to 1999 Est. Earnings........................ 14.9x 15.1x 17.2x
Price to Book Value................................ 242% 246% 365%
Price to Tangible Book Value....................... 280% 283% 398%
Dividend Yield..................................... 2.22% 2.25% 2.68%
Return on Average Assets........................... 1.20% 1.10% 1.38%
Return on Average Equity........................... 13.74% 13.46% 16.91%
Leverage Ratio..................................... 7.79% 8.18% 7.50%
Efficiency Ratio................................... 58.9% 57.5% 65.1%
</TABLE>
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<PAGE>
COMPARABLE TRANSACTION ANALYSIS: McDonald reviewed and compared actual
information for comparable pending or closed transactions it deemed pertinent to
the merger, including 15 bank merger and/or acquisition transactions with
seller's assets between $1 billion and $5 billion (the "Nationwide
Transactions"). The following is a list of the Nationwide Transactions (seller
in italics):
B&T, Winston-Salem, NC/MAINSTREET FINANCIAL, MARTINSVILLE, VA
FirstMerit Corp, Akron, OH/SIGNAL CORP, WOOSTER, OH
City Holding Company, Cross Lanes, WV/HORIZON BANCORP INC, BECKLEY, WV
Banknorth Group Inc., Burlington, VT/EVERGREEN BANCORP, GLENS FALLS, NY
Old Kent Financial, Grand Rapids, MI/FIRST EVERGREEN CORP, EVERGREEN PARK,
IL
Star Banc Corp, Cincinnati, OH/TRANS FINANCIAL, BOWLING GREEN, KY
Mercantile Bancorp, St. Louis, MO/FIRSTBANK OF IL, SPRINGFIELD, IL
First Midwest Bancorp, Naperville, IL/HERITAGE FINANCIAL SERVICES, TINLEY
PARK, IL
Mercantile Bancorp, St. Louis, MO/CBT CORP, PADUCAH, KY
Union Planters, Memphis, TN/PEOPLES FIRST CORP, PADUCAH, KY
Banco Bilbao Vizcaya, Mayagues, PR/PONCEBANK, PONCE, PR
Investor Group/EAST-WEST BANK, SAN MARINO, CA
CNB Bancshares Inc, Evansville, IN/PINNACLE FINANCIAL, ST. JOSEPH, MI
National City Corp., Cleveland, OH/FORT WAYNE NATIONAL CORP, FORT WAYNE, IN
Union Planters Corp, Memphis, TN/CAPITAL BANCORP, MIAMI, FL
The following table represents a summary analysis of the Nationwide
Transactions indicated based on the announced transaction value:
<TABLE>
<CAPTION>
MEAN MEDIAN FIRST WESTERN
--------- ----------- ---------------
<S> <C> <C> <C>
Price to Last Twelve Month Earnings........................... 23.6x 23.4x 22.7x
Price to Book Value........................................... 290% 300% 293%
Price to Tangible Book Value.................................. 323% 340% 481%
Price to Assets............................................... 26.8% 26.4% 19.7%
</TABLE>
CONTRIBUTION ANALYSIS: McDonald analyzed the contribution of each company
to the pro forma company relative to the approximate ownership of the pro forma
company. The analysis indicated that Sky Financial shareholders would hold
approximately 76.9% of the pro forma diluted shares. Sky Financial's approximate
contributions are listed below by category:
<TABLE>
<CAPTION>
SKY FINANCIAL
---------------
<S> <C>
Assets.................................................................. 68.4%
Loans................................................................... 74.7%
Deposits................................................................ 71.2%
Equity.................................................................. 72.4%
Tangible Equity......................................................... 80.4%
Last Twelve Month Earnings.............................................. 73.0%
1998 Estimated Earnings................................................. 76.1%
1999 Estimated Earnings................................................. 81.1%
</TABLE>
ACCRETION/DILUTION ANALYSIS: On the basis of financial projections and
estimates of on-going cost savings accruing to the pro forma company provided to
McDonald by management, as well as estimated one-time costs related to the
transaction, McDonald compared pro forma equivalent earnings, cash dividends,
book value and tangible book value to the stand-alone projections of Sky
Financial.
28
<PAGE>
The accretion/dilution analysis demonstrated, among other things, that the
merger would result in:
- slight dilution to earnings for Sky Financial shareholders in 1999,
because it was assumed that the closing would occur late in the third
quarter of 1999, and accretion beginning in 2000 and continuing over the
period of the analysis;
- similar cash dividends for Sky Financial shareholders, assuming the Sky
Financial Board maintained its dividend policy;
- dilution to book value for Sky Financial shareholders over the period of
the analysis; and
- dilution to tangible book value to Sky Financial shareholders over the
period of the analysis.
DISCOUNTED CASH FLOW ANALYSIS: McDonald performed a discounted cash flow
analysis with regard to First Western on a stand-alone basis. This analysis
utilized a range of discount rates of 12% to 20% and a range of earnings
terminal multiples of 16.0x to 24.0x. The analysis resulted in a range of
present values of $26.26 to $51.26 per share for First Western on a stand-alone
basis. As indicated above, this analysis was based on Sky Financial and First
Western senior management estimates and is not necessarily indicative of actual
value or actual future results and does not purport to reflect the prices at
which any securities may trade at the present or at any time in the future.
McDonald noted that the discounted cash flow analysis was included because it is
a widely used valuation methodology, but noted that the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, including earnings growth rates, dividend payout rates, terminal values
and discount rates.
OTHER ANALYSES: McDonald also reviewed certain other information including
pro forma estimated balance sheet composition and pro forma financial
performance.
NO OTHER COMPANY USED AS A COMPARISON IN THE ABOVE ANALYSES IS IDENTICAL TO
SKY FINANCIAL, FIRST WESTERN OR THE COMBINED ENTITY AND NO OTHER TRANSACTION IS
IDENTICAL TO THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE RESULTS OF THE
FOREGOING IS NOT PURELY MATHEMATICAL; RATHER, IT INVOLVES COMPLEX CONSIDERATIONS
AND JUDGMENTS CONCERNING DIFFERENCES IN FINANCIAL MARKET AND OPERATING
CHARACTERISTICS OF THE COMPANIES AND OTHER FACTORS THAT COULD AFFECT THE PUBLIC
TRADING VOLUME OF THE COMPANIES TO WHICH SKY FINANCIAL, FIRST WESTERN AND THE
COMBINED ENTITY ARE BEING COMPARED.
IN CONNECTION WITH DELIVERY OF ITS OPINION, DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/ PROSPECTUS, MCDONALD PERFORMED PROCEDURES TO UPDATE, AS
NECESSARY, CERTAIN OF THE ANALYSES DESCRIBED ABOVE AND REVIEWED THE ASSUMPTIONS
ON WHICH SUCH ANALYSES DESCRIBED ABOVE WERE BASED AND THE FACTORS CONSIDERED IN
CONNECTION THEREWITH. MCDONALD DID NOT PERFORM ANY ANALYSES IN ADDITION TO THOSE
DESCRIBED ABOVE IN UPDATING THE OPINION.
For its financial advisory services provided to Sky Financial, McDonald was
paid a fee of $500,000 at the time of signing of the merger agreement. In
addition, Sky Financial has agreed to reimburse McDonald for all reasonable
out-of-pocket expenses, incurred by it on Sky Financial's behalf, as well as
indemnify McDonald against certain liabilities, including any which may arise
under the federal securities laws.
McDonald is a member of all principal securities exchanges in the United
States and the conduct of its broker-dealer activities has from time to time
purchased securities from, and sold securities to, Sky Financial and/or First
Western. As a market maker, McDonald may also have purchased and sold the
securities of Sky Financial and/or First Western for McDonald's own account and
for the accounts of its customers.
29
<PAGE>
SANDLER O'NEILL & PARTNERS, L.P.
By letter agreement dated December 1, 1998, First Western retained Sandler
O'Neill as an independent financial advisor in connection with First Western's
consideration of a possible business combination with Sky Financial. Sandler
O'Neill is a nationally recognized investment banking firm whose principal
business specialty is financial institutions. In the ordinary course of its
investment banking business, Sandler O'Neill is regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions and other corporate transactions. Sandler O'Neill is
familiar with First Western, having previously served as the company's financial
advisor on other matters.
Sandler O'Neill acted as financial advisor to First Western in connection
with the merger and participated in certain of the negotiations leading to the
merger agreement. At the request of the First Western Board, representatives of
Sandler O'Neill attended the December 9, 1998 and December 13, 1998 meetings of
the First Western Board at which the First Western Board considered and approved
the merger agreement. At the December 13th meeting, Sandler O'Neill delivered to
the First Western Board its oral opinion, subsequently confirmed in writing,
that, as of such date, the exchange ratio was fair to the First Western
shareholders from a financial point of view. Sandler O'Neill has also delivered
to the First Western Board a written opinion dated the date of this joint proxy
statement/prospectus (the "Sandler Opinion"), which is substantially identical
to the December 13, 1998 opinion. THE FULL TEXT OF THE SANDLER OPINION IS
ATTACHED AS ANNEX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS. THE SANDLER
OPINION OUTLINES THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED
AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY SANDLER O'NEILL
IN RENDERING THE OPINION. THE SANDLER OPINION IS INCORPORATED BY REFERENCE INTO
THIS DESCRIPTION OF THE OPINION AND THIS DESCRIPTION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE SANDLER OPINION. FIRST WESTERN SHAREHOLDERS ARE
URGED TO CAREFULLY READ THE SANDLER OPINION IN CONNECTION WITH THEIR
CONSIDERATION OF THE PROPOSED MERGER.
THE SANDLER OPINION WAS PROVIDED TO THE FIRST WESTERN BOARD FOR ITS
INFORMATION IN CONSIDERING THE MERGER. THE SANDLER OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE EXCHANGE RATIO TO FIRST WESTERN SHAREHOLDERS FROM A
FINANCIAL POINT OF VIEW. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF
FIRST WESTERN TO ENGAGE IN THE MERGER OR ANY OTHER ASPECT OF THE MERGER AND IT
IS NOT A RECOMMENDATION TO ANY FIRST WESTERN SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE FIRST WESTERN SPECIAL MEETING WITH RESPECT TO THE
MERGER OR ANY OTHER RELATED MATTER.
In rendering its December 13, 1998 opinion, Sandler O'Neill performed a
variety of financial analyses. The following is a summary of the material
analyses performed by Sandler O'Neill, but is not a complete description of all
the analyses underlying Sandler O'Neill's opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances. The process, therefore, is not
necessarily susceptible to a partial analysis or summary description. Sandler
O'Neill believes that its analyses must be considered as a whole and that
selecting portions of the factors and analyses considered without considering
all factors and analyses, or attempting to ascribe relative weights to some or
all such factors and analyses, could create an incomplete view of the evaluation
process underlying its opinion.
In performing its analyses, Sandler O'Neill made numerous assumptions with
respect to industry performance, business and economic conditions and various
other matters, many of which cannot be predicted and are beyond the control of
First Western, Sky Financial and Sandler O'Neill. The analyses performed by
Sandler O'Neill are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses. Sandler O'Neill prepared its analyses solely for the purpose of
rendering its opinion and provided such analyses to the First Western Board at
the December 13th meeting. Estimates on the values of companies do not purport
to be appraisals or necessarily reflect the prices at which companies or their
securities may actually be
30
<PAGE>
sold. Such estimates are inherently subject to uncertainty and actual values may
be materially different. Accordingly, Sandler O'Neill's analyses do not
necessarily reflect the value of First Western common stock or Sky Financial
common stock or the prices at which First Western common stock or Sky Financial
common stock may be sold at any time.
SUMMARY OF PROPOSAL. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of Sky Financial common stock
on December 11, 1998 of $30.75 and the exchange ratio of 1.211, Sandler O'Neill
calculated an implied transaction value per share of First Western common stock
of $37.24. The implied aggregate transaction value was $425 million, based upon
approximately 11,400,000 fully diluted shares of First Western common stock
outstanding, which was determined using the treasury stock method at $37.24.
Based upon the implied transaction value and First Western's September 30, 1998
financial information, Sandler O'Neill calculated the following ratios:
<TABLE>
<S> <C>
Implied Value / Tangible book value per share......................... 4.79x
Implied Value / Book value per share.................................. 2.80x
Implied Value / LTM earnings per share................................ 22.0x
Implied Value / Total Deposits........................................ 27.9%
Tangible Book Premium / Core Deposits................................. 23.4%
</TABLE>
For purposes of Sandler O'Neill's analyses, earnings per share were based on
fully diluted earnings per share.
STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the reported
trading prices and volume of First Western common stock and Sky Financial common
stock, and the relationship between the movements in the prices of First Western
common stock and Sky Financial common stock, respectively, to movements in
certain stock indices, including the Standard & Poor's 500 Index, the NASDAQ
Bank Index and selected composite peer groups of publicly traded commercial
banks identified as the Regional Group and Peer Group, respectively, below.
During the one-year period ended December 11, 1998, First Western common stock
outperformed the NASDAQ Bank Index and the Regional Group, and underperformed
the Standard & Poor's 500 Index. During the one-year period ended December 11,
1998, Sky Financial common stock outperformed the NASDAQ Bank Index and the Peer
Group and underperformed the Standard & Poor's 500 Index.
COMPARABLE COMPANY ANALYSIS. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
First Western and two different groups of commercial banks. The first group
consisted of First Western and the following 14 publicly traded regional
commercial banks (the "Regional Group"): U.S. Trust Corp., Susquehanna
Bancshares, Inc., F.N.B. Corporation, First Commonwealth Financial, Trust Co. of
New Jersey, TrustCo Bank Corp. of NY, USBANCORP Inc., S&T Bancorp, Inc., BSB
Bancorp, Inc., National Penn Bancshares, Inc., JeffBanks, Inc., BT Financial
Corp., Community Bank System, Inc. and United National Bancorp. Sandler O'Neill
also compared First Western to a group of 10 publicly traded commercial banks
that had a return on average equity based on last twelve months' earnings of
greater than 17.0% and a price to tangible book value of greater than 200% (the
"Highly Valued Group"). The Highly Valued Group included the following
institutions: Westamerica Bancorp., Silicon Valley Bancshares, TrustCo Bank
Corp. of NY, Park National Corp., Southwest Bancorp. of Texas, Santa Barbara
Bancorp, Hamilton Bancorp Inc., Investors Financial Services, Irwin Financial
Corp. and GBC Bancorp. The analysis compared First Western data and the median
data for each of the Regional Group and the Highly Valued Group as of and for
each of the years ended December 31,
31
<PAGE>
1993 through December 31, 1997 and as of and for the twelve months ended
September 30, 1998. The table below sets forth the comparative data as of and
for the twelve months ended September 30, 1998.
<TABLE>
<CAPTION>
FIRST WESTERN REGIONAL GROUP HIGHLY VALUED GROUP
--------------- -------------- -------------------
<S> <C> <C> <C>
TOTAL ASSETS.............................................. $ 2,203,139 $ 2,203,139 $ 1,848,578
ANNUAL GROWTH RATE OF TOTAL ASSETS........................ 29.92% 11.18% 17.26%
TANGIBLE EQUITY / TOTAL ASSETS............................ 3.92% 7.30% 7.16%
INTANGIBLE ASSETS / TOTAL EQUITY.......................... 41.64% 4.97% 1.21%
NET LOANS / TOTAL ASSETS.................................. 49.71% 61.97% 56.78%
CASH & SECURITIES / TOTAL ASSETS.......................... 44.16% 34.51% 39.49%
GROSS LOANS / TOTAL DEPOSITS.............................. 73.24% 87.85% 69.03%
TOTAL BORROWINGS / TOTAL ASSETS........................... 21.94% 13.05% 7.78%
NONPERFORMING ASSETS / TOTAL ASSETS....................... 0.11% 0.44% 0.42%
LOAN LOSS RESERVE / GROSS LOANS........................... 1.66% 1.31% 2.28%
NET INTEREST MARGIN....................................... 3.61% 4.32% 4.66%
LOAN LOSS PROVISION / AVERAGE ASSETS...................... 0.21% 0.27% 0.28%
NON INTEREST INCOME / AVERAGE ASSETS...................... 0.80% 0.80% 0.98%
NON INTEREST EXPENSE / AVERAGE ASSETS..................... 2.40% 2.95% 2.78%
EFFICIENCY RATIO.......................................... 54.16% 56.91% 48.71%
RETURN ON AVERAGE ASSETS.................................. 1.03% 1.07% 1.49%
RETURN ON AVERAGE EQUITY.................................. 13.56% 13.36% 18.92%
PRICE / TANGIBLE BOOK VALUE PER SHARE..................... 357.60% 243.17% 365.95%
PRICE / EARNINGS PER SHARE................................ 16.42x 16.64x 19.38x
MARKET CAPITALIZATION / ASSETS............................ 14.01% 16.90% 23.65%
DIVIDEND YIELD............................................ 2.16% 2.51% 0.89%
DIVIDEND PAYOUT RATIO..................................... 35.50% 40.93% 12.60%
</TABLE>
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for Sky
Financial and Citizens Bancshares, Inc. and Mid Am, Inc., before consummation of
their merger, to two different groups of commercial banking institutions. The
first group consisted of Citizens and Mid Am and the following seven publicly
traded commercial banks (the "Peer Group"): Provident Financial Group, Inc.,
FirstMerit Corp., First Financial Bancorp., Park National Corp., BancFirst Ohio
Corp., Second Bancorp, Inc. and Peoples Bancorp, Inc. Sandler O'Neill also
compared Sky Financial to a group of eleven publicly traded commercial banks
that had a return on average equity of greater than 16%, based on last twelve
months' earnings, and a price to tangible book value of greater than 250% (the
"Large Highly Valued Group"). The Large Highly Valued Group included: Commerce
Bancorp, Inc., Westamerica Bancorp., Silicon Valley Bancshares, TrustCo Bank
Corp. of NY, Park National Corp., Chittenden Corp., Southwest Bancorp. of Texas,
National Penn Bancshares, Inc., Santa Barbara Bancorp, Investors Financial
Services and Irwin Financial Corp. The analysis utilized publicly available
financial information for Citizens and Mid Am as of and for each of the years
ended December 31, 1993 through December 31, 1997 and as of and for the twelve
months ended September 30, 1998. The analysis also compared Sky Financial pro
forma balance sheet data and performance ratios as of and for the nine months
ending September 30, 1998, calculated from financial information provided by Sky
Financial, to the median data for each of
32
<PAGE>
the Peer Group and the Large Highly Valued Group as of and for the twelve months
ending September 30, 1998. The table below sets forth the comparative data as of
September 30, 1998.
<TABLE>
<CAPTION>
LARGE
HIGHLY
SKY PEER VALUED
FINANCIAL GROUP GROUP CITIZENS MID AM
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS............................... $ 4,748,666 $ 2,239,113 $ 2,048,781 $ 1,840,306 $ 2,308,812
ANNUAL GROWTH RATE OF TOTAL ASSETS......... 5.16% 15.91% 17.11% 75.27% 3.38%
TANGIBLE EQUITY / TOTAL ASSETS............. 7.61% 8.58% 7.05% 7.87% 6.98%
INTANGIBLE ASSETS / TOTAL EQUITY........... 4.74% 9.31% 1.70% 3.40% 5.06%
NET LOANS / TOTAL ASSETS................... 69.00% 66.54% 55.44% 61.86% 74.41%
CASH & SECURITIES / TOTAL ASSETS........... 24.55% 29.01% 37.95% 32.01% 24.24%
GROSS LOANS / TOTAL DEPOSITS............... 87.36% 91.57% 64.38% 81.09% 94.64%
TOTAL BORROWINGS / TOTAL ASSETS............ 11.90% 10.86% 9.18% 12.64% 13.91%
NONPERFORMING ASSETS / TOTAL ASSETS........ 0.24% 0.27% 0.46% 0.20% 0.27%
LOAN LOSS RESERVE / GROSS LOANS............ 1.38% 1.37% 2.23% 1.76% 1.15%
NET INTEREST MARGIN........................ 4.93% 4.51% 4.73% 4.34% 4.51%
LOAN LOSS PROVISION / AVERAGE ASSETS....... 0.21% 0.31% 0.24% 0.28% 0.21%
NON INTEREST INCOME / AVERAGE ASSETS....... 0.89% 0.99% 0.99% 0.71% 2.95%
NON INTEREST EXPENSE / AVERAGE ASSETS...... 4.92% 3.05% 3.07% 2.22% 3.56%
EFFICIENCY RATIO........................... 63.45% 55.71% 57.20% 45.49% 67.52%
RETURN ON AVERAGE ASSETS................... 1.19% 1.31% 1.43% 1.28% 1.31%
RETURN ON AVERAGE EQUITY................... 12.92% 14.74% 18.43% 14.37% 16.23%
PRICE / TANGIBLE BOOK VALUE PER SHARE...... 318.92% 3.87% 413.74% 4.04%
PRICE / EARNINGS PER SHARE................. 21.85x 20.95x 27.99x 22.9x
MARKET CAPITALIZATION / ASSETS............. 27.89% 23.63% 33.53% 27.89%
DIVIDEND YIELD............................. 1.97% 1.94% 1.80% 2.32%
DIVIDEND PAYOUT RATIO...................... 43.24% 39.87% 50.28% 53.06%
</TABLE>
No company included in the above analysis is identical to First Western or
Sky Financial. Additionally, because the merger of Citizens and Mid Am was not
effected until October 2, 1998, the financial information presented for Sky
Financial in the above comparable group analysis does not reflect any actual
results of that merger. Further, an analysis of comparable companies is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values or
merger transaction values, as the case may be, of First Western and Sky
Financial and the companies to which they are being compared.
33
<PAGE>
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed certain
other merger and acquisition transactions announced from January 1, 1998 to
December 9, 1998 involving publicly traded commercial banking institutions as
acquired institutions with transaction values greater than $15 million. Sandler
O'Neill reviewed 196 transactions announced nationwide ("Nationwide
Transactions") and 15 transactions announced in Pennsylvania and Ohio ("Regional
Transactions"). Sandler O'Neill reviewed the ratios of announced deal price to
last twelve months' earnings, deal price to book value, deal price to tangible
book value, tangible book premium to core deposits, deal price to total deposits
and deal price to total assets and computed high, low, mean and median ratios
and premiums for the respective groups of transactions. These multiples were
applied to First Western's financial information as of and for the twelve months
ended September 30, 1998. As illustrated in the following table, Sandler O'Neill
derived an imputed range of values per share of First Western common stock of
$23.53 to $54.93 based upon the median multiples for Nationwide Transactions and
$23.13 to $59.72 based upon the median multiples for Regional Transactions. As
calculated by Sandler O'Neill, the implied value of the merger to First Western
shareholders was $37.24.
<TABLE>
<CAPTION>
NATIONWIDE REGIONAL TRANSACTIONS
TRANSACTIONS
---------------------- ----------------------
MEDIAN IMPLIED MEDIAN IMPLIED
MULTIPLE VALUE MULTIPLE VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Deal price/LTM EPS.................................... 22.67x $ 38.38 27.38x $ 46.35
Deal price/Book value................................. 2.94x 39.16 2.98x 39.64
Deal price/Tangible book value........................ 3.03x 23.53 2.98x 23.13
Deal price/Total deposits............................. 33.01% 44.22 36.17% 48.46
Tangible book premium/Core deposits................... 25.86% 40.43 29.85% 45.49
Deal price/Total assets............................... 28.30% 54.93 30.77% 59.72
</TABLE>
No companies involved in the transactions included in the above analysis are
identical to First Western and Sky Financial and no transaction included in the
above analysis is identical to the merger. Accordingly, an analysis of the
results of the foregoing analysis is not mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values or merger transaction values, as the case may be, of
First Western and Sky Financial and the companies to which they are being
compared.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of First Western through December 31, 2003 under various
circumstances, assuming First Western's current dividend payout ratio and that
First Western performed in accordance with the earnings forecasts of its
management. To approximate the terminal value of First Western common stock at
December 31, 2003, Sandler O'Neill applied price to earnings multiples ranging
from 10x to 25x and applied multiples of tangible book value ranging from 150%
to 400%. The dividend income streams and terminal values were then discounted to
present values using different discount rates ranging from 9% to 15% chosen to
reflect different assumptions regarding required rates of return of holders or
prospective buyers of First Western common stock. As illustrated in the
following table, this analysis indicated an imputed range of values per share of
First Western common stock of $16.06 to $48.40 when applying the price/earnings
multiples
34
<PAGE>
and $16.15 to $50.80 when applying multiples of tangible book value. As
calculated by Sandler O'Neill, the implied value of the merger to First Western
shareholders was $37.24.
<TABLE>
<CAPTION>
PRICE/EARNINGS TANGIBLE BOOK VALUE
MULTIPLES MULTIPLES
-------------------- --------------------
DISCOUNT RATE 10X 25X 1.5X 4.0X
- ------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
9%..................................................... $ 20.89 $ 48.40 $ 21.24 $ 50.80
11..................................................... 19.10 44.11 19.36 46.02
13..................................................... 17.50 40.27 17.67 41.72
15..................................................... 16.06 36.82 16.15 37.85
</TABLE>
In connection with its analysis, Sandler O'Neill considered and discussed
with the First Western Board how the present value analysis would be affected by
changes in the underlying assumptions, including variations with respect to the
growth rate of assets, net interest spread, non-interest income, non-interest
expenses and dividend payout ratio. Sandler O'Neill noted that the discounted
dividend stream and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, and the results thereof are not
necessarily indicative of actual values or future results.
PRO FORMA MERGER ANALYSIS. Sandler O'Neill analyzed certain potential pro
forma effects of the merger, based upon the exchange ratio of 1.211, First
Western's and Sky Financial's projected income statements and balance sheets,
and assumptions regarding the economic environment, accounting and tax treatment
of the merger, charges associated with the merger, operating efficiencies and
other adjustments discussed with senior managements of First Western and Sky
Financial. This analysis indicated that in the first full year following the
merger, the merger would be slightly accretive to Sky Financial's earnings per
share and cash earnings per share and slightly dilutive to Sky Financial's
tangible book value per share. The analysis also indicated that, from a First
Western shareholder's perspective, as compared to the projected stand-alone
performance of First Western, the merger would be 13.7% accretive to First
Western's earnings per share, 8.0% accretive to First Western's cash earnings
per share, 34.6% accretive to First Western's dividends per share and 7.4%
dilutive to First Western's tangible book value per share. The actual results
achieved by Sky Financial may vary from projected results and the variations may
be material.
CONTRIBUTION ANALYSIS. Sandler O'Neill reviewed the relative contributions
to, among other things, total assets, total net loans, total goodwill, total
deposits, total borrowings, total liabilities, total equity, total tangible
equity, year to date net income, projected 1999 net income, projected 1999 cash
earnings and market capitalization to be made by First Western and Sky Financial
to the combined institution based on data at and for the six months ended June
30, 1998. The data for Sky Financial used in this
35
<PAGE>
analysis was calculated based upon financial information provided by Sky
Financial. This analysis indicated that the implied contributions to the
combined entity were as follows:
<TABLE>
<CAPTION>
SKY FINANCIAL FIRST WESTERN
--------------- ---------------
<S> <C> <C>
Total assets..................................................... 68.9% 31.1%
Total net loans.................................................. 75.0 25.0
Total goodwill................................................... 23.9 76.1
Total deposits................................................... 71.0 29.0
Total borrowings................................................. 57.2 42.8
Total liabilities................................................ 68.7 31.3
Total equity..................................................... 70.6 29.4
Total tangible common equity..................................... 79.9 20.1
YTD net income................................................... 74.8 25.2
Projected 1999 net income........................................ 79.4 20.6
Projected 1999 cash earnings..................................... 78.1 21.9
Market capitalization............................................ 80.4 19.6
Percentage of pro forma shares owned............................. 76.9 23.1
</TABLE>
In connection with rendering its December 13, 1998 opinion, Sandler O'Neill
reviewed, among other things: (1) the merger agreement and exhibits thereto; (2)
the stock option agreement; (3) certain publicly available financial statements
of First Western and other historical financial information provided by First
Western that Sandler O'Neill deemed relevant; (4) certain publicly available
financial statements of Sky Financial filed under the company's former name,
Citizens Bancshares, Inc., Mid Am and The Ohio Bank and other historical
financial information provided by Sky Financial that Sandler O'Neill deemed
relevant; (5) certain financial analyses and forecasts of First Western prepared
by and/or reviewed with management of First Western and the views of senior
management of First Western regarding First Western's past and current business,
operations, results thereof, financial condition and future prospects; (6)
certain financial analyses and forecasts of Sky Financial prepared by and/or
reviewed with management of Sky Financial and the views of senior management of
Sky Financial regarding Sky Financial's business, operations, results thereof,
financial condition and future prospects; (7) the pro forma impact of the
merger; (8) the publicly reported historical price and trading activity for
First Western's and Sky Financial's common stock, including a comparison of
certain financial and stock market information for First Western, Sky Financial
and Mid Am with similar publicly available information for certain other
companies the securities of which are publicly traded; (9) the financial terms
of recent business combinations in the commercial banking industry, to the
extent publicly available; (10) the current market environment generally and the
banking environment in particular; and (11) such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as Sandler O'Neill considered relevant.
In connection with rendering the Sandler Opinion, Sandler O'Neill confirmed
the appropriateness of its reliance on the analyses used to render its December
13, 1998 opinion by performing procedures to update certain of such analyses and
by reviewing the assumptions upon which such analyses were based and the other
factors considered in rendering its opinion.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with it, and Sandler O'Neill did not assume any
responsibility or liability for independently verifying the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of First Western or Sky
Financial or any of their respective subsidiaries, or the collectibility of any
such assets, nor was it furnished with any such evaluations or appraisals.
Sandler O'Neill is not an expert in the evaluation of allowances for loan losses
and it has not made an independent evaluation of the adequacy of the allowance
for loan losses
36
<PAGE>
of First Western or Sky Financial, nor has it reviewed any individual credit
files relating to First Western or Sky Financial. With First Western's consent,
Sandler O'Neill has assumed that the respective allowances for loan losses for
both First Western and Sky Financial are adequate to cover such losses and will
be adequate on a pro forma basis for the combined entity. In addition, Sandler
O'Neill has not conducted any physical inspection of the properties or
facilities of First Western or Sky Financial.
The 1999 earnings projections for First Western and Sky Financial used by
Sandler O'Neill in its analyses were based upon the 1999 budget projections
provided by First Western and Sky Financial and on consensus earnings estimates
as published by IBES. For periods after 1999, Sandler O'Neill relied upon First
Western's estimates of earnings per share for the year 2000 and applied an
annual growth rate of net income of 10% for periods thereafter. With respect to
Sky Financial, Sandler O'Neill relied upon earnings projections for the five
years ending December 31, 2003 provided by Sky Financial. With respect to all
financial projections prepared by or reviewed with each company's management and
used by Sandler O'Neill in its analyses, Sandler O'Neill assumed that they had
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of First Western and Sky Financial and that such
performances will be achieved. Sandler O'Neill expressed no opinion as to such
financial projections or the assumptions on which they were based. Neither First
Western nor Sky Financial publicly discloses internal management projections of
the type used by Sandler O'Neill in its analyses described herein and therefore
such projections were not prepared with a view towards public disclosure. The
projections were based on numerous variables and assumptions which are
inherently uncertain and accordingly, actual results could vary materially from
those set forth in such projections.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the merger agreement
and all related agreements are true and correct, that each party to such
agreements will perform all of the covenants required to be performed by such
party under such agreements and that the conditions precedent in the merger
agreement are not waived. Sandler O'Neill also assumed, with First Western's
consent, that there has been no material change in First Western's and Sky
Financial's assets, financial condition, results of operations, business or
prospects since the date of the last publicly filed financial statements
available to it, that First Western and Sky Financial will remain as going
concerns for all periods relevant to its analyses, and that the merger will be
accounted for as a pooling of interests and will qualify as a tax-free
reorganization for federal income tax purposes.
First Western has agreed to pay Sandler O'Neill a transaction fee of 0.85%
of the aggregate transaction value in connection with the merger, a substantial
portion of which is contingent upon the closing of the merger. Based upon the
closing price of Sky Financial common stock on March 9, 1999, First Western will
pay Sandler O'Neill a transaction fee of approximately $3,400,000, of which
$700,000 has been paid and the balance will be paid when the merger is closed.
Sandler O'Neill has also received a fee of $300,000 for rendering its fairness
opinion, which will be credited against that portion of the transaction fee that
becomes payable upon the closing of the merger. First Western has also agreed to
reimburse Sandler O'Neill for its reasonable out-of-pocket expenses incurred in
connection with its engagement and to indemnify Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including liabilities under the securities laws.
Sandler O'Neill has in the past provided certain other financial services to
First Western and has received compensation for such services. Sandler O'Neill
has in the past provided certain financial advisory services to Sky Financial
and its subsidiaries, including acting as Citizens' financial advisor in
connection with its merger with Mid Am and its acquisition of The Ohio Bank, and
expects to continue to provide similar investment banking services to Sky
Financial, and has received, and expects to
37
<PAGE>
continue to receive, compensation for such services. In addition, Sandler
O'Neill currently provides and may in the future provide other investment
banking services to Sky Financial and will receive compensation for such
services. In the ordinary course of its business as a broker-dealer, Sandler
O'Neill may purchase securities from and sell securities to First Western and
Sky Financial and may actively trade the debt and equity securities of First
Western and Sky Financial for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
BOARD OF DIRECTORS AND MANAGEMENT OF SKY FINANCIAL FOLLOWING THE MERGER
If the merger is completed, we expect that the current Sky Financial
management and First Western management will, for the most part, remain in
place. If the merger is completed, the size of the Sky Financial Board will
increase from 25 to 27 members and Sky Financial will cause the executive
committee of the Sky Financial Board to nominate for election Thomas J. O'Shane
and Robert C. Duvall to the Sky Financial Board and Thomas J. O'Shane to the
executive committee of the Sky Financial Board. We expect that Mr. O'Shane will
enter into a 10-year employment agreement with Sky Financial.
BOARD OF DIRECTORS AND MANAGEMENT OF THE RESULTING BANK FOLLOWING THE SUBSIDIARY
MERGER
Promptly after the merger, Sky Financial will contribute to the capital of
First Western all of the outstanding stock of The Citizens Banking Company, a
wholly-owned subsidiary of Sky Financial, which will then become a wholly-owned
subsidiary of First Western. Assuming the receipt of all necessary regulatory
approvals, First Western Bank, National Association, a wholly-owned subsidiary
of First Western, will then merge with and into The Citizens Banking Company,
which will be the surviving corporation in that merger. The surviving
corporation will then continue as a wholly-owned subsidiary of First Western,
which itself will continue as a wholly-owned subsidiary of Sky Financial. We
expect that six members of the First Western Board will be selected by Sky
Financial to serve as directors of the resulting bank. We also expect that
members of the First Western Board who do not become members of the resulting
bank's board of directors will be given the opportunity to serve on an advisory
board to the resulting bank. In connection with the merger, the resulting bank's
name will be changed to Sky Bank.
INTERESTS OF FIRST WESTERN'S EXECUTIVE OFFICERS AND DIRECTORS IN THE MERGER
On the effective date of the merger, Sky Financial will increase the size of
its board of directors to 27 members. Sky Financial will cause its executive
committee to appoint Thomas J. O'Shane and one additional First Western
representative to the Sky Financial Board. Furthermore, Mr. O'Shane will serve
on the Sky Financial Board's Executive Committee.
Several First Western executives have employment contracts which contain
change in control provisions which will be triggered as a result of the merger.
Those executives include Thomas J. O'Shane, Steven R. Sant, Richard L. Stover,
and John A. Zercher. These change in control provisions require the company to
make a lump sum payment to the executive if, following the merger, the
executives' duties or position is diminished, compensation is reduced or if the
executive is required to relocate. The lump sum payment is equal to the present
value of three times the executive's salary, bonus and value of fringe benefits
paid prior to the change in control. These agreements also provide for the
continuation of retirement and health benefits until the executive reaches the
age of 65. Furthermore, any such lump sum payment shall be "grossed up" to
include any excise tax payable on this lump sum payment, if any.
By operation of the change in control provision, Mr. Stover will receive a
payment of $906,741 and Mr. O'Shane shall receive a payment of $1,522,248 after
the completion of the merger. Mr. Sant and Mr. Zercher will forfeit their
employment contracts, and in lieu thereof, will receive replacement
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employment agreements. Mr. Sant's and Mr. Zercher's employment agreements are
each for a term of three years, contain a covenant not-to-compete, and include a
change in control provision which would provide a payment of two times average
annual compensation in the event of a change of control of Sky Financial. Mr.
Sant will serve as the Executive Vice President/Retail of The Citizens Banking
Company and Mr. Zercher will serve as the Executive Vice President of Sky
Technology Resources, Inc.
Thomas S. Mansell, Senior Vice President, Legal Counsel and Corporate
Secretary of First Western will receive a severance payment of $278,456 and will
continue to receive health benefits until he reaches the age of 65.
Under the terms of the First Western Incentive Stock Option Plan the vesting
of all outstanding options will be accelerated as a result of the merger. Each
First Western option that is outstanding and unexercised will be converted into
an option to purchase a number of Sky Financial common shares that is equal to
the number of First Western common shares purchasable multiplied by 1.211 with a
per share exercise price equal to the exercise price per share of the original
First Western option divided by 1.211. Executive officers and directors of First
Western had a total of 329,678 options under this option plan.
THOMAS J. O'SHANE EMPLOYMENT AGREEMENT
Sky Financial expects to enter into a 10 year employment agreement with
Thomas J. O'Shane immediately after the merger. Under the proposed agreement,
Mr. O'Shane will receive an annual base salary of no less than $275,000 per
annum and an opportunity to receive an annual, performance based bonus of at
least 50% of his base salary. In addition, Sky Financial will award Mr. O'Shane
stock options consistent with his position pursuant and subject to Sky
Financial's stock option plan. Mr. O'Shane will be eligible to participate in
all retirement, welfare and other benefit plans of Sky Financial to the same
extent as other Sky Financial executives.
Sky Financial may terminate the agreement upon Mr. O'Shane's death or
disability or for "cause," and Mr. O'Shane may terminate the agreement for "good
reason," as these terms are defined in the agreement. If Mr. O'Shane's
employment is terminated without "cause" or for "good reason" then he will be
entitled to the following payments from Sky Financial:
- his accrued base salary through the date of termination;
- the amount, if any, of the deferred portion of awards granted pursuant to
employee benefit plans;
- the amount of the base salary and bonuses based on the average bonus paid
in the most recent two years remaining under the original term of the
agreement had it not been terminated; and
- all reasonable legal fees and expenses incurred by Mr. O'Shane as a result
of such termination.
In addition, Sky Financial will provide Mr. O'Shane continued participation
in its group health plan to the extent permitted by the plan or if prohibited,
with substantially similar coverage for a period not to exceed the original term
of the agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The merger is structured to qualify as a taxfree reorganization under
Section 368 of the Internal Revenue Code of 1986, as amended, so that neither
Sky Financial nor First Western recognize any gain or loss as a result of the
merger. It is anticipated that the First Western shareholders will not recognize
any gain or loss upon the exchange of their First Western common shares for
newly issued Sky Financial common shares, except for cash received in lieu of
fractional shares. Assuming the merger is treated as a tax-free reorganization,
the federal income tax basis of the Sky Financial common shares received by the
shareholders of First Western, including fractional shares that are treated for
federal
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income tax purposes as distributed to First Western shareholders and then
surrendered for cash, will be the same as the federal income tax basis of the
First Western common shares surrendered in the exchange and the holding period
of the Sky Financial common shares received by the First Western shareholders,
including fractional shares that are treated for federal income tax purposes as
distributed to First Western shareholders and then surrendered for cash, will
include the holding period of the First Western common shares surrendered in the
exchange, provided that the First Western common shares were held as a capital
asset on the date of the exchange.
First Western shareholders who receive cash in lieu of Sky Financial
fractional common shares as a result of the exchange will be treated for federal
income tax purposes as if the fractional share interest had been issued in the
merger and then had been redeemed by Sky Financial for cash, which will result
in their realization of income for federal income tax purposes. Assuming that:
- the payment of cash in lieu of Sky Financial fractional common shares is
solely for the purpose of avoiding the expense and inconvenience of
issuing fractional shares and does not represent separately bargained-for
consideration,
- the total cash consideration paid to First Western shareholders instead of
issuing Sky Financial fractional common shares will not exceed one percent
of the total consideration issued to the First Western shareholders in the
merger, and
- the Sky Financial fractional share interests of each First Western
shareholder will be aggregated and no First Western shareholder will
receive cash in an amount equal to or greater than the value of one full
Sky Financial common share,
the cash payment will be treated for federal income tax purposes as having been
received in exchange for the constructively redeemed fractional share. The
amount of income realized on this exchange will be equal to the difference
between the cash received and the federal income tax basis allocated to the
fractional share for federal income tax purposes, and the income will be taxed
as long-term capital gain if the First Western common shares surrendered by the
First Western shareholder were held as a capital asset and for a period
exceeding one year.
The discussion of federal income taxes is included herein for general
information only. EACH FIRST WESTERN AND SKY FINANCIAL SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO
HIM OR HER OF THE PROPOSED MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE
AND LOCAL INCOME AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
We expect that the merger will be accounted for as a pooling-of-interests in
accordance with generally accepted accounting principles. The pro forma results
of this accounting treatment are shown in the "Unaudited Pro Forma Condensed
Combined Financial Statements" on pages 64 through 70.
As noted above, as a condition to each party's obligation to consummate the
merger, Sky Financial must receive a letter from Crowe, Chizek and Company LLP
stating that the merger will qualify as a pooling-of-interests transaction under
generally accepted accounting principles. Under the pooling-of-interests method
of accounting, the historical basis of the assets and liabilities of Sky
Financial and First Western will be combined at the effective date of the merger
and carried forward at their previously recorded amounts and the shareholders'
equity accounts of Sky Financial and First Western will be combined on Sky
Financial's consolidated balance sheet. Income and other financial statements of
Sky Financial issued after consummation of the merger will be restated
retroactively to reflect the consolidated operations of Sky Financial and First
Western as if the merger had taken place prior to the periods covered by these
financial statements. In order for the merger to qualify for
pooling-of-interests accounting treatment, 90% or more of the outstanding First
Western common shares
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must be exchanged for Sky Financial common shares with substantially similar
terms. Other criteria must also be satisfied in order for the merger to qualify
as a pooling-of-interests, some of which criteria cannot be satisfied until
after the effective time of the merger. For example, a company is generally
precluded from using pooling accounting for a just-completed merger if treasury
shares acquired within six-months after the effective time of the merger, when
combined with shares otherwise considered to preclude pooling treatment exceed
10% of the number of shares issued in the merger, unless the acquisition of such
shares is part of a previously-established systematic plan meeting appropriate
criteria. Furthermore, in order to qualify for pooling-of-interests accounting
treatment, no affiliate of either Sky Financial or First Western may reduce his
or her risk relative to Sky Financial common shares until financial results
covering at least 30 days of post-merger combined operations have been
published. In the event these conditions are not met, the merger would not be
consummated unless the condition was waived by Sky Financial and First Western.
EFFECT ON EMPLOYEE BENEFIT PLANS
One component of First Western's employee benefit plans is its pension or
defined benefit plan. Sky Financial does not have a defined benefit plan, and
First Western believes that it will terminate its pension plan prior to the
merger, freezing benefits and participation as of June 30, 1999. Such action
will vest all benefits as of that date. The termination of the pension plan will
not become effective until the Internal Revenue Service has issued a favorable
determination letter. Termination of the pension plan will not change any
annuity payments currently being made to retirees nor will it change the amount
current participants have accrued to date and will be entitled to receive at
their retirement. However, no further pension benefits will accrue.
First Western employees will continue to participate in the First Western
employee benefit plans after the effective time of the merger until Sky
Financial determines that First Western employees may participate in the Sky
Financial employee benefit plans and that all or some of the First Western
employee benefit plans should be terminated or merged into certain Sky Financial
employee benefit plans. Each First Western employee will be credited with years
of First Western plus predecessor service if credited on First Western's
employee benefit records for purposes of eligibility and vesting in the Sky
Financial employee benefit plans.
EXPENSES OF THE MERGER
Sky Financial and First Western will each bear its own expenses incurred in
connection with the merger and the related transactions, including without
limitation, all fees of its respective legal counsel, financial advisors and
accountants. Sky Financial will also be responsible for all expenses incident to
obtaining requisite regulatory approvals.
REGULATORY APPROVALS
Sky Financial is preparing and will be filing the application necessary to
obtain approval for the merger from the Federal Reserve Board. The merger may
not be consummated for 30 days after approval by the Federal Reserve Board,
during which time the United States Department of Justice may bring an action
challenging the merger on antitrust grounds. Sky Financial is also preparing and
will be filing the applications necessary to obtain approval for the merger from
the Ohio Department of Commerce (Division of Financial Institutions, Office of
Banks and Savings & Loans) and the Pennsylvania Department of Banking. Sky
Financial has no reason to believe that these regulatory approvals will not be
obtained.
RESALE OF SKY FINANCIAL COMMON SHARES
No restrictions on the sale or other transfer of the Sky Financial common
shares issued pursuant to the merger will be imposed solely as a result of the
merger, except for restrictions on the transfer of
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shares issued to any First Western shareholder who may be deemed to be an
"affiliate" of First Western for purposes of Rule 145 under the Securities Act
of 1933. Generally, "affiliates" of First Western would include officers,
directors and significant shareholders of First Western. The merger agreement
requires First Western to cause persons who could be considered to be
"affiliates" to enter into an agreement with Sky Financial stating that these
"affiliates" will not sell, pledge, transfer or otherwise dispose of the Sky
Financial common shares they acquire except in compliance with the Securities
Act of 1933 and the rules and regulations thereunder. Sales of Sky Financial
common shares by affiliates of Sky Financial are subject to similar transfer
restrictions.
First Western affiliates may resell the Sky Financial common shares they
receive in the merger only:
- in transactions permitted by Rule 145 promulgated under the Securities Act
of 1933;
- pursuant to an effective registration statement; or
- in transactions exempt from registration.
Rule 145, as currently in effect, restricts the manner in which affiliates
may resell and also restricts the number of shares that affiliates, and others
with whom they might act in concert, may sell within any three month period.
STOCK EXCHANGE LISTING
Sky Financial common shares to be issued in connection with the merger will
be authorized for listing on the Nasdaq National Market System under the symbol
"SKYF."
DIVIDENDS
Sky Financial and First Western will cooperate to assure that there will not
be a payment of both a Sky Financial dividend and a First Western dividend to a
First Western shareholder as a result of the merger. Sky Financial and First
Western will cooperate to assure that the First Western shareholders receive the
dividend, if any, declared by First Western rather than the dividend, if any,
declared by Sky Financial if the effective date of the merger occurs at the end
of a fiscal quarter.
First Western has changed its existing dividend payment policy to match the
Sky Financial dividend record and payment dates for 1999. In order to achieve
this result, on December 13, 1998, First Western declared a dividend payable on
January 4, 1999 to First Western shareholders of record on December 24, 1998
equal to two-thirds of what its normal dividend for its fiscal dividend quarter
ended January 31, 1999 would have been.
The selection of the effective date of the merger will not cause the First
Western shareholders to lose a quarterly or a portion of a quarterly dividend.
Following completion of the merger, former First Western shareholders will
receive dividends, if any, declared by Sky Financial as Sky Financial
shareholders.
DISSENTERS' RIGHTS
SKY FINANCIAL. Shareholders of Sky Financial are entitled to certain
dissenters' rights pursuant to Section 1701.85 of the Ohio General Corporation
Law. Section 1701.85 generally provides that shareholders of Sky Financial will
not be entitled to these rights absent compliance with Section 1701.85 and
failure to take any one of the required steps may result in the termination or
waiver of these rights. Specifically, any Sky Financial shareholder who is
entitled to vote on the merger and who does not vote his or her shares in favor
of the merger may be entitled to be paid the "fair cash value" for his or her
Sky Financial common shares after the effective time of the merger. To be
entitled to this payment, the shareholder must deliver a written demand for
payment to Sky Financial on or before the tenth day
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following the Sky Financial special meeting and must otherwise comply with
Section 1701.85. Any written demand must specify the shareholder's name and
address, the number and class of shares held by him or her on the record date,
and the amount claimed as the "fair cash value" of such Sky Financial common
shares. We have attached the text of Section 1701.85 to this joint proxy
statement/ prospectus as Annex E for specific information on the procedure to be
followed in exercising dissenters' rights. WE ENCOURAGE YOU TO READ SECTION
1701.85 IN ITS ENTIRETY.
If Sky Financial so requests, within fifteen days of the request, dissenting
shareholders must submit their share certificates to Sky Financial for
endorsement that demand for appraisal has been made. Failure to comply with the
request could terminate the dissenting shareholders' rights. Sky Financial will
promptly return these certificates to the dissenting shareholders. If Sky
Financial and any dissenting shareholder cannot agree upon the "fair cash value"
of these Sky Financial common shares, either may, within three months after
service of demand by the shareholder, file a petition in the Court of Common
Pleas of Wood County, Ohio for a determination of the "fair cash value" of these
Sky Financial common shares. This court may appoint one or more appraisers to
determine the "fair cash value" and if this court approves the appraisers'
report, judgment will be entered, and the costs of the proceedings, including
reasonable compensation of the appraisers, will be assessed or apportioned as
this court considers equitable.
BECAUSE PROXY CARDS WHICH DO NOT CONTAIN VOTING INSTRUCTIONS WILL, UNLESS
REVOKED, BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT, SKY FINANCIAL
SHAREHOLDERS WHO WISH TO EXERCISE THEIR DISSENTERS' RIGHTS MUST EITHER NOT SIGN
OR NOT RETURN THEIR PROXY CARDS OR, IF THEY SIGN AND RETURN THEIR PROXY CARDS,
VOTE AGAINST OR ABSTAIN FROM VOTING ON THE ADOPTION OF THE MERGER AGREEMENT.
FIRST WESTERN. Under Pennsylvania law, a shareholder may dissent from, and
receive payment of the fair value of his or her shares in the event of certain
mergers, consolidations, share exchanges, asset transfers and corporate
divisions. However, no dissenters' rights are available with respect to shares
which, at the applicable record date, were either listed on a national
securities exchange or held of record by more than 2,000 shareholders, unless
the holders of these shares are required by the terms of the merger or
consolidation to accept any consideration other than shares of the surviving
corporation, shares of stock of another corporation or such shares and cash in
lieu of fractional shares. Because First Western's shares are listed on a
national securities exchange and are held by more than 2,000 shareholders, and
because the enumerated exceptions do not apply, First Western shareholders are
not entitled to dissenters' rights with respect to the merger.
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THE MERGER AGREEMENT
The following is a description of certain material terms of the merger
agreement and the stock option agreement. Complete copies of the merger
agreement and stock option agreement are attached as Annexes A and B to this
joint proxy statement/prospectus and are incorporated into this joint proxy
statement/prospectus by reference. WE ENCOURAGE YOU TO READ ALL OF THE MERGER
AGREEMENT AND THE STOCK OPTION AGREEMENT.
THE MERGER
Under the merger agreement, a newly formed subsidiary of Sky Financial will
merge with and into First Western, with First Western surviving as a
wholly-owned subsidiary of Sky Financial. Promptly after the merger, Sky
Financial will contribute to the capital of First Western all of the outstanding
stock of The Citizens Banking Company, a wholly-owned subsidiary of Sky
Financial, which will then become a wholly-owned subsidiary of First Western.
Assuming the receipt of all necessary regulatory approvals, First Western Bank,
National Association, a wholly-owned subsidiary of First Western, will then
merge with and into The Citizens Banking Company, which will be the surviving
corporation in that merger. The surviving corporation will then continue as a
wholly-owned subsidiary of First Western, which itself will continue as a
wholly-owned subsidiary of Sky Financial.
At the effective time of the merger, Sky Financial will issue approximately
13,577,109 Sky Financial common shares to existing First Western shareholders in
exchange for their First Western common shares. The Sky Financial shares issued
to First Western shareholders will constitute approximately 23% of the
outstanding Sky Financial common shares after the merger. Because Sky Financial
and First Western are corporations that were formed under Ohio and Pennsylvania
law, respectively, the merger must be completed in accordance with Ohio and
Pennsylvania law.
EFFECTIVE DATE
The merger will become effective on the date we file the articles of merger
with the Department of State of the Commonwealth of Pennsylvania. We plan to
file the articles of merger as soon as possible after all of the conditions
described in the merger agreement have been satisfied.
CONVERSION OF FIRST WESTERN COMMON SHARES
On the effective date of the merger, each outstanding First Western common
share will be converted into 1.211 Sky Financial common shares. If you would
have the right to receive a fraction of a Sky Financial common share as a result
of that conversion, you will receive, instead of a fraction of a Sky Financial
common share, a cash payment in an amount equal to the product of the fractional
Sky Financial common share and the last sale price of Sky Financial common
shares as reported by the Nasdaq National Market System, for the last trading
day immediately preceding the effective date of the merger. The Bank of New York
or such other person or persons selected by Sky Financial and reasonably
satisfactory to First Western will serve as exchange agent and will be
responsible for sending you any cash payment you have a right to receive.
In addition, if you are a holder of First Western common shares that are
converted to Sky Financial common shares as a part of the merger, we will also
issue to you and attach to each Sky Financial common share a preferred share
purchase right under Sky Financial's shareholder rights plan, which will not be
evidenced by a separate certificate. On the effective date of the merger, if you
are a holder of First Western common shares, you will no longer have any rights
as a holder of those shares, but you will, upon proper surrender of your First
Western common share certificates, have the rights of a holder of Sky Financial
common shares. For a comparison of the rights you have as a holder of First
Western common shares to the rights you will have as a holder of Sky Financial
common shares, read "Material Differences in the Rights of Shareholders"
beginning on page 53.
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CONVERSION OF FIRST WESTERN STOCK OPTIONS
On the effective date of the merger, if you hold an option to purchase First
Western common shares, that option will be converted into the right to purchase
a number of Sky Financial common shares equal to the number of First Western
common shares you had the option to purchase multiplied by 1.211. The product of
this formula will be rounded to the nearest whole number to determine the number
of shares you will have the right to purchase. The exercise price for the
options for each Sky Financial common share you receive for your First Western
options will be equal to the aggregate exercise price for the First Western
options divided by the number of full Sky Financial common shares subject to
this option. The product of this formula will be rounded to the nearest whole
cent to determine the exercise price. Accordingly, upon completion of the
merger, Sky Financial would issue 547,588 Sky Financial common shares if all
outstanding First Western stock options were exercised and all vesting period
requirements were satisfied.
SURRENDER OF CERTIFICATES
After the effective time of the merger, each holder of an outstanding
certificate or certificates for First Western common shares converted into Sky
Financial common shares will be entitled to receive a certificate or
certificates representing the number of whole Sky Financial common shares into
which the holder's First Western common shares were converted and, if
applicable, a cash payment in lieu of any fractional share. Each holder of First
Western common shares will surrender the outstanding certificate(s) to Sky
Financial's designated exchange agent, the Bank of New York.
If you are a First Western shareholder, promptly after the effective time of
the merger, the exchange agent will send you transmittal materials which you
should use when surrendering your First Western common share certificates to the
exchange agent. After you surrender your First Western common share
certificate(s) for cancellation to the exchange agent, together with a completed
letter of transmittal and any other documents reasonably requested, you will be
entitled to receive that number of whole Sky Financial common shares that you
have the right to receive under the merger agreement. The surrendered First
Western common share certificate(s) will be canceled. You should not surrender
your certificates for exchange until you receive the letter of transmittal and
instructions from the exchange agent.
If you own First Western common shares, the transfer of which has not been
registered in the transfer records of First Western, you may nevertheless
exchange these shares for Sky Financial common shares if you provide the
exchange agent with the certificate representing your First Western common
shares, along with all documents required by Sky Financial to evidence and
effect the transfer and to evidence that any applicable stock transfer taxes
have been paid.
After the consummation of the merger, there will be no transfers of any
First Western common shares on the stock transfer books of First Western. If,
after the consummation of the merger, certificates and letters of transmittal
for First Western common shares are properly presented to the exchange agent,
the exchange agent will cancel these certificates and exchange them for the
consideration specified in the merger agreement, subject to applicable law and
to the extent that Sky Financial has not paid such consideration to a public
official pursuant to applicable abandoned property laws.
IF YOU ARE A FIRST WESTERN SHAREHOLDER, YOU SHOULD NOT SEND IN YOUR
CERTIFICATES UNTIL YOU RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE
AGENT.
IF YOU ARE A SKY FINANCIAL SHAREHOLDER, YOU SHOULD NOT SEND IN YOUR
CERTIFICATES AT ALL.
AFTER THE EFFECTIVE TIME OF THE MERGER, WE WILL PROMPTLY MAIL DETAILED
INSTRUCTIONS, INCLUDING A TRANSMITTAL FORM, AS TO THE METHOD OF EXCHANGING
CERTIFICATES FORMERLY REPRESENTING FIRST WESTERN COMMON SHARES FOR CERTIFICATES
REPRESENTING SKY FINANCIAL COMMON SHARES, TO HOLDERS OF FIRST WESTERN COMMON
SHARES.
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CONDITIONS TO COMPLETION OF THE MERGER
CONDITIONS TO SKY FINANCIAL'S OBLIGATION AND FIRST WESTERN'S OBLIGATION TO
COMPLETE THE MERGER. The obligations of Sky Financial and First Western to
complete the merger are subject to the satisfaction of certain conditions,
including:
- Sky Financial shareholders must approve and adopt the merger agreement;
- First Western shareholders must approve and adopt the merger agreement;
- we must receive the required regulatory approvals and all applicable
statutory waiting periods relating to the merger must expire or be
terminated;
- there may not be any injunction or other order by any court or
governmental entity prohibiting or preventing the merger;
- the registration statement relating to the issuance of Sky Financial
common shares in the merger must be effective;
- we must receive all required permits and other authorizations under state
securities laws necessary to complete the transactions contemplated by the
merger; and
- Sky Financial must have received a letter from its independent auditors
confirming that the auditors agree with management's conclusion that the
merger will qualify for "pooling-of-interests" accounting treatment under
generally accepted accounting principles.
CONDITIONS TO FIRST WESTERN'S OBLIGATION TO COMPLETE THE MERGER. The
obligation of First Western to complete the merger is further subject to the
satisfaction of several conditions, including:
- Sky Financial must perform its obligations under the merger agreement in
all material respects;
- representations and warranties of Sky Financial contained in the merger
agreement must be true and correct when made and as if made on the
effective date of the merger, except where the failure of these
representations and warranties to be true and correct would not have a
material adverse effect on Sky Financial;
- First Western must receive a legal opinion from Squire, Sanders & Dempsey
L.L.P., counsel to Sky Financial, that the merger will constitute a
"reorganization" for federal income tax purposes and that no gain or loss
will be recognized by First Western shareholders who receive shares of Sky
Financial, other than the gain or loss recognized as to cash received in
lieu of fractional shares;
- First Western must receive a legal opinion from Squire, Sanders & Dempsey
L.L.P., counsel to Sky Financial, stating that Sky Financial is duly
organized and in good standing, that the merger agreement was duly
executed by, and is binding and enforceable against Sky Financial, that
the Sky Financial common shares to be issued will be authorized, fully
paid and nonassessable and that upon the filing of the articles of merger
in Pennsylvania, the merger will be effective; and
- First Western must receive a fairness opinion from Sandler O'Neill &
Partners, L.P., financial advisor to First Western, stating that the
merger consideration is fair to the shareholders of First Western from a
financial point of view.
CONDITIONS TO OBLIGATIONS OF SKY FINANCIAL TO COMPLETE THE MERGER. The
obligation of Sky Financial to complete the merger is further subject to the
satisfaction of several conditions, including:
- First Western must perform its obligations under the merger agreement in
all material respects;
- representations and warranties of First Western contained in the merger
agreement must be true and correct when made and as if made on the
effective date of the merger, except where the
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failure of these representations and warranties to be true and correct
would not have a material adverse effect on First Western;
- Sky Financial must receive a legal opinion from Kirkpatrick & Lockhart
LLP, counsel to First Western, stating that First Western is duly
organized and in good standing, that the merger agreement was duly
executed by, and is binding and enforceable against First Western and that
upon the filing of the articles of merger in Pennsylvania, the merger will
be effective;
- Sky Financial must receive executed affiliate agreements from each
affiliate of First Western; and
- Sky Financial must receive a fairness opinion from McDonald Investments,
Inc., financial advisor to Sky Financial, stating that the merger
consideration is fair to the shareholders of Sky Financial from a
financial point of view.
Each of us could, to the extent permitted by applicable law, decide to waive
certain of the conditions to our obligation to complete the merger even though
one or more of these conditions have not been met. In the case of mutual
conditions, however, both of us would have to decide to waive a condition to our
obligations to complete the merger. We cannot guarantee that the conditions to
the merger will be satisfied or waived, or that the merger will be completed at
all.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains some customary representations and warranties
made both by Sky Financial and by First Western, including representations and
warranties relating to:
- due organization and good standing;
- capitalization;
- subsidiaries;
- corporate power and authorization to enter into the transactions
contemplated by the merger agreement;
- governmental filings, reviews and approvals required in connection with
the transactions contemplated by the merger agreement;
- filings with the Securities and Exchange Commission;
- financial statements;
- litigation;
- regulatory matters;
- compliance with laws;
- absence of default under any material contracts or agreements;
- brokerage fees;
- certain laws regarding takeovers;
- environment;
- taxes;
- risk management instruments;
- corporate books and records;
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- insurance coverage;
- accounting treatment;
- disclosure statements made in the representations and warranties sections
of the merger agreement;
- year 2000 compliance;
- absence of certain material changes or events;
- loans;
- allowance for loan losses;
- repurchase agreements; and
- deposit insurance with the Federal Deposit Insurance Corporation.
In addition, First Western made certain additional representations and
warranties to Sky Financial relating to:
- employee benefit plans and plan compliance;
- labor matters;
- absence of undisclosed liabilities; and
- properties owned and leased by First Western.
The representations and warranties in the merger agreement will not survive
the effective date of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
CONDUCT OF BUSINESS BY FIRST WESTERN UNTIL THE EFFECTIVE TIME OF THE
MERGER. From December 14, 1998 until the effective date of the merger, unless
Sky Financial otherwise consents in writing, First Western and its subsidiaries
must:
- conduct their business in the ordinary course;
- use their reasonable efforts to preserve intact their present business
organizations and assets;
- use their reasonable efforts to preserve their relationships with
customers, suppliers, employees and business associates; and
- not voluntarily take any action which, at the time taken, is reasonably
likely to have an adverse effect upon First Western's ability to perform
any of its material obligations under the merger agreement.
In addition, except as otherwise provided in the merger agreement, during
this period First Western and its subsidiaries may not:
- issue or sell any shares of capital stock, permit such shares to become
outstanding, or authorize the creation of additional shares of capital
stock;
- permit any additional shares of their capital stock to become subject to
new grants of employee or director stock options or similar rights;
- make, declare, pay or set aside for payment any dividend, other than in
accordance with past practices;
- adjust, split, combine, redeem, purchase or acquire any shares of their
capital stock;
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- enter into or amend or renew any employment, consulting, severance or
similar agreements with directors, officers or employees;
- increase employee compensation, severance or other benefits;
- enter into, establish, adopt or amend any employee benefit plan or
arrangement with respect to any director, officer or employee;
- acquire or sell or otherwise dispose of capital assets or any other assets
other than in the ordinary course of business;
- amend their organizational documents;
- implement or adopt any change in their accounting principles, practices or
methods;
- enter into, amend, modify or terminate any material contract;
- settle any material claim, action or proceeding;
- take any action that would disqualify the merger as a
"pooling-of-interests" for accounting purposes or as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code;
- take any action that is intended or is reasonably likely to result in any
representations or warranties in the merger agreement being untrue, any
conditions in the merger agreement not being satisfied or a material
violation of any provision of the merger agreement;
- except pursuant to applicable law or regulation, implement or adopt any
material change in their 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 other than in the ordinary
course of business; or
- agree or commit to do any of the foregoing.
CONDUCT OF BUSINESS BY SKY FINANCIAL UNTIL THE EFFECTIVE TIME OF THE
MERGER. From December 14, 1998 until the effective date of the merger, unless
First Western otherwise consents in writing, Sky Financial and its subsidiaries
must:
- conduct their business in the ordinary course;
- use their reasonable efforts to preserve their present business
organizations and assets;
- use their reasonable efforts to preserve their relationships with
customers, suppliers, employees and business associates; and
- not voluntarily take any action which, at the time taken, is reasonably
likely to have an adverse effect upon Sky Financial's ability to perform
any of its material obligations under the merger agreement.
In addition, except as otherwise provided in the merger agreement, during
this period Sky Financial and its subsidiaries may not:
- fail to use reasonable efforts to preserve intact their business
organizations and assets and maintain their existing relations with
customers, suppliers, employees and business associates;
- make, declare, pay or set aside for payment any dividend other than the
normal quarterly dividends in accordance with past practice;
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- implement or adopt any change in their accounting principles, practices or
methods;
- settle any material claim, action or proceeding;
- take any action that would disqualify the merger as a
"pooling-of-interests" for accounting purposes or as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code;
- take any action that is intended or is reasonably likely to result in any
representations or warranties in the merger agreement being untrue, any
conditions in the merger agreement not being satisfied or a material
violation of any provision of the merger agreement;
- except pursuant to applicable law or regulation, fail to follow their
existing policies or practices with respect to managing their exposure to
interest rates and other risks or fail to use commercially reasonable
means to avoid any material increase in their aggregate exposure to
interest rate risks; or
- agree or commit to do any of the foregoing.
TERMINATION OF THE MERGER AGREEMENT
TERMINATION. We can terminate the merger agreement without completing the
merger if each of our boards of directors agrees, by a majority vote, to
terminate it. Either of us acting alone can terminate the merger agreement if:
- the other party breaches a representation or warranty or breaches a
covenant or agreement contained in the merger agreement which cannot be
cured within 30 days of giving notice of the breach to the breaching
party, provided that the breach would be reasonably likely to result in a
material adverse effect on the other party;
- the merger has not been completed on or before September 30, 1999;
- the approval of any governmental entity required for consummation of the
merger has been denied by final nonappealable action;
- any of the conditions to our obligations to complete the merger have not
been met including the approval and adoption of the merger agreement by
the Sky Financial shareholders; or
- the First Western shareholders do not approve and adopt the merger
agreement.
First Western, acting alone, can terminate the merger agreement if the
average closing price of Sky Financial common shares over a 10 day period, as
defined in the merger agreement, is lower than $25.00 and the average closing
price is more than 10% lower than the average closing prices of an index of a
preselected peer group of financial institutions, unless Sky Financial agrees to
issue additional merger consideration to compensate for the lower share value.
STOCK OPTION AGREEMENT
On December 15, 1998, Sky Financial entered into a stock option agreement
with First Western that grants Sky Financial a binding option to purchase up to
19.9% of the outstanding First Western common shares at an exercise price of
$28.50 per share in certain circumstances. First Western entered into the stock
option agreement as an inducement for Sky Financial to enter into the merger
agreement.
The stock option agreement is intended to increase the likelihood that the
merger will be completed in accordance with the terms of the merger agreement.
Therefore, some aspects of the stock option agreement may have the effect of
discouraging persons who might now or at any other time prior to the effective
date of the merger be interested in acquiring all of or a significant interest
in
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First Western from considering or proposing such an acquisition. The acquisition
of First Western by a party other than Sky Financial could cause Sky Financial's
option to become exercisable. The existence of the option could significantly
increase the cost to a potential acquirer of acquiring First Western compared to
the cost if the stock option agreement had not been entered into. This increased
cost might discourage a potential acquirer from considering or proposing an
acquisition or might result in a potential acquirer having to pay a lower per
share price to acquire First Western than it might otherwise have proposed to
pay. Moreover, following consultation with their own independent accountants,
Sky Financial and First Western believe that the exercise or repurchase of Sky
Financial's option is likely to prohibit any other acquirer of First Western
from accounting for that acquisition using the "pooling-of-interests" accounting
method for a period of two years. Our financial advisors tell us that a stock
option agreement is within the customary range of actions companies take to
ensure completion of negotiated merger agreements.
Sky Financial may exercise the binding option at any time upon the
occurrence of any of the following events:
- First Western enters into an agreement with any person to merge,
consolidate or acquire all or substantially all of the assets of First
Western or for the purchase or acquisition of securities representing 20%
or more of the voting power of First Western;
- any person, other than First Western, Sky Financial or certain fiduciaries
of either party, acquires beneficial ownership or the right to acquire
beneficial ownership of 20% or more of the outstanding First Western
common shares after the date of the stock option agreement;
- First Western willfully breaches the stock option agreement in any
material respect, which breach shall not have been cured within 15 days
after notice;
- any person makes a bona fide takeover proposal to First Western by public
announcement or written communication that is or becomes the subject of
public disclosure, and, following such bona fide takeover proposal, the
First Western shareholders vote not to approve and adopt the merger
agreement;
- First Western breaches the merger agreement between Sky Financial and
First Western following a bona fide takeover proposal and First Western
does not cure the breach prior to the date Sky Financial sends First
Western notice of its intention to exercise the option;
- the First Western shareholders fail to approve the merger agreement at a
meeting held for that purpose or the meeting was not held or was canceled
after a public announcement that a person has made, or disclosed an
intention to make, a proposal to engage in an acquisition transaction; or
- the First Western Board withdraws or modifies its recommendation that
First Western approve the transactions contemplated by the merger
agreement, or First Western or its subsidiaries authorize, recommend or
propose an agreement to enter into an acquisition transaction.
Sky Financial's binding option may be terminated in any of the following
manners:
- by mutual consent of Sky Financial and First Western;
- by either Sky Financial or First Western if the Federal Reserve Board
issues an order denying approval of the merger of Sky Financial and First
Western or if any other governmental entity issues a final permanent order
enjoining or otherwise prohibiting consummation of the merger;
- by either Sky Financial or First Western if the merger has not been
consummated on or before September 30, 1999; or
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- by either Sky Financial or First Western if no purchase event has occurred
and either company's shareholders fail to approve the merger.
A copy of the stock option agreement is attached to this joint proxy
statement/prospectus as Annex B and is incorporated herein by reference. WE
ENCOURAGE YOU TO READ THE STOCK OPTION AGREEMENT IN ITS ENTIRETY.
AMENDMENT; WAIVER
The merger agreement may be amended in writing if signed by both Sky
Financial and First Western. Either of us may extend the time for performance,
waive any inaccuracies in the representations and warranties or waive compliance
with any agreements or conditions under the merger agreement by a writing signed
by the party against whom the waiver or extension is to be effective. We may
amend the merger agreement or give each other waivers at any time before or
after the First Western shareholders and the Sky Financial shareholders approve
the merger agreement. However, after the Sky Financial special meeting and the
First Western special meeting, we cannot make any amendment or give any waiver
that by law requires further approval by the First Western shareholders or Sky
Financial shareholders unless we have obtained those approvals.
DESCRIPTION OF SKY FINANCIAL CAPITAL STOCK
GENERAL
The following is a summary of the material terms of the Sky Financial
capital stock. If you would like to review copies of the Sky Financial
certificate of incorporation and code of regulations, these documents are on
file with the Securities and Exchange Commission. For further information on the
rights of holders of Sky Financial common shares, see "Material Differences in
the Rights of Shareholders."
Sky Financial has authorized 150,000,000 common shares, without par value,
of which 45,082,890 shares are issued and 57,063 shares are held in treasury.
Each outstanding Sky Financial common share is duly authorized, validly issued,
fully paid and nonassessable. The holders of Sky Financial common shares have
one vote per share on each matter on which shareholders are entitled to vote.
Each Sky Financial common share has an associated preferred share purchase right
pursuant to Sky Financial's existing shareholder rights plan. Directors are
elected for staggered, three year terms. Specifically, the Sky Financial Board
is divided into three classes, one of which is elected annually. On liquidation
or dissolution of Sky Financial, the holders of Sky Financial common shares are
entitled to share ratably in the assets that remain after creditors have been
paid.
In addition, Sky Financial has authorized 10,000,000 serial preferred
shares, none of which are currently outstanding. The terms of the serial
preferred shares are to be established by the Sky Financial Board; therefore, if
Sky Financial were to issue serial preferred shares in the future, holders
thereof might have preference over the holders of Sky Financial common shares in
the event of a liquidation or dissolution and may have other rights which are
superior to or in addition to the rights of holders of Sky Financial common
shares. Serial preferred shares have a par value of $10.00 per share. Sky
Financial common shares have no par value. Holders of Sky Financial common
shares have no preemptive rights, subscription rights or conversion rights.
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The Sky Financial Board determines whether to declare dividends and the
amount of any dividends declared. Such determinations by the Sky Financial Board
take into account Sky Financial's financial condition, results of operations and
other relevant factors. While management expects to maintain its policy of
paying regular cash dividends, no assurances can be given that any dividends
will be declared, or, if declared, what the amount of such dividends will be.
See "The Merger--Dividends."
The Bank of New York is the transfer agent and registrar for Sky Financial
common shares and will be the exchange agent for the merger.
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
INTRODUCTION
On the effective date of the merger, each First Western common share, other
than treasury shares, will be converted into 1.211 Sky Financial common shares.
As a result, shareholders of First Western, a Pennsylvania corporation, will
become shareholders of Sky Financial, an Ohio corporation, and Ohio law, the Sky
Financial articles of incorporation and the Sky Financial code of regulations
will govern the rights of these new Sky Financial shareholders. The following is
a summary of certain similarities and material differences between the rights of
Sky Financial shareholders and First Western shareholders. These differences
arise from differences between various provisions of Ohio and Pennsylvania law,
as well as differences between the Sky Financial articles of incorporation and
code of regulations and the First Western articles of incorporation and bylaws.
Although it is impractical to compare all of the aspects in which Ohio and
Pennsylvania law and the companies' charter documents differ with respect to
shareholders' rights, the following discussion summarizes the material
significant differences between them.
This is a summary of the material provisions of Ohio and Pennsylvania law
and the Sky Financial and First Western charter documents as they affect the
rights of Sky Financial and First Western shareholders. We encourage you to read
the relevant provisions of Ohio and Pennsylvania law, the Sky Financial articles
of incorporation and code of regulations and the First Western articles of
incorporation and bylaws.
AUTHORIZED SHARES
SKY FINANCIAL. The Sky Financial articles of incorporation provide for
150,000,000 Sky Financial common shares, without par value, and 10,000,000 Sky
Financial preferred shares, par value $10.00 per share. No serial preferred
shares are currently outstanding. If Sky Financial serial preferred shares were
to be issued, the rights of holders of Sky Financial common shares would be
subordinated in certain respects to the rights of holders of Sky Financial
serial preferred shares.
FIRST WESTERN. The First Western articles of incorporation provide for
20,000,000 First Western common shares, par value $5.00 per share, and 4,000,000
First Western preferred shares, without par value. No First Western preferred
shares have been issued nor may any be issued pursuant to the merger agreement.
BUSINESS COMBINATIONS
SKY FINANCIAL. Under Ohio law, to effectuate a merger, the directors and
the shareholders of the corporation that is being merged must adopt the merger
agreement. For shareholder adoption, at least two thirds of the shares entitled
to vote must vote in favor of the merger agreement, unless the corporation's
articles of incorporation provide otherwise; however, a corporation's articles
may not provide for approval by less than a majority of the shares entitled to
vote. In addition, if the articles require adoption by a particular class of
shareholders, those shareholders must also adopt the merger
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agreement as specified in the articles. Under the Sky Financial articles of
incorporation, for shareholder approval of a merger agreement, a majority of
shares entitled to vote must be voted in favor of the merger agreement.
Under Ohio law, the directors and shareholders of a domestic surviving
corporation in a merger must also adopt the merger agreement if:
- the articles or code of regulations of the surviving corporation require
adoption of the merger agreement by shareholders;
- the merger agreement conflicts with or changes the articles or code of
regulations of the surviving corporation;
- the merger agreement authorizes any action that would otherwise require
adoption by shareholders;
- the merger involves the issuance or transfer of shares by the surviving
corporation to the shareholders of the acquired corporation, and as a
result of the transfer and immediately after consummation of the merger,
the transferred shares would entitle these new shareholders to exercise at
least one-sixth or more of the voting power of the surviving corporation
in the election of directors; and
- the merger agreement changes the directors of the surviving corporation in
such a manner that shareholder approval is required.
This merger involves the exchange of Sky Financial common shares for First
Western common shares, and as a result of the exchange, the new Sky Financial
shareholders will be able to exercise more than one-sixth of the voting power in
the election of Sky Financial directors. Consequently, Sky Financial's
shareholders must also approve the merger agreement.
FIRST WESTERN. Under Pennsylvania law, to effectuate a merger or
consolidation, both the board of directors and the shareholders of each
Pennsylvania corporation that is a party to the merger or consolidation must
approve the merger agreement. The shareholder vote required for adoption of the
merger agreement is a majority of the votes cast by all shareholders entitled to
vote. The First Western articles of incorporation require the same shareholder
vote as Pennsylvania law when the board of directors has previously approved the
merger agreement.
DISSENTERS' RIGHTS
SKY FINANCIAL. Under Ohio law, upon compliance with certain requirements
and procedures, a dissenting shareholder has the right to receive the fair cash
value for his or her shares if the shareholder objects to, among other things,:
- certain amendments to the articles of incorporation;
- the sale lease, exchange, transfer or other disposition of substantially
all the assets of the corporation; or
- certain mergers and consolidations.
In a merger, upon compliance with certain requirements and procedures, the
dissenting shareholders of a domestic corporation that is being merged into
another corporation and the shareholders of a domestic surviving corporation
whose adoption of the merger agreement is required are entitled to dissenters'
rights. A shareholder entitled to dissenters' rights may exercise these rights
if:
- the merger requires shareholder adoption of the merger agreement;
- the dissenting shareholder holds shares of the corporation as of the
record date for the shareholder meeting at which the merger agreement is
submitted;
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- the dissenting shareholder does not vote his or her shares in favor of the
merger agreement; and
- not more than ten days after the date of the meeting at which the
shareholder vote was taken, the dissenting shareholder delivers to the
corporation a written demand for payment to him or her of the fair cash
value of his or her shares. The demand must state the dissenting
shareholder's address, the number and class of dissenting shares, and the
amount claimed by the dissenting shareholder as the fair cash value of the
shares.
Because Ohio law requires Sky Financial shareholders to adopt the merger
agreement, Sky Financial shareholders are entitled to dissenter's rights upon
compliance with Ohio law.
FIRST WESTERN. Under Pennsylvania law, a shareholder may dissent from, and
receive payment of the fair value of his or her shares in the event of certain
mergers, consolidations, share exchanges, asset transfers and corporate
divisions. However, no dissenters' rights are available with respect to shares
which, at the applicable record date, were either listed on a national
securities exchange or held of record by more than 2,000 shareholders, unless
the holders of such shares are required by the terms of the merger or
consolidation to accept any consideration other than shares of the surviving
corporation, shares of stock of another corporation or such shares and cash in
lieu of fractional shares. Because First Western's shares are listed on a
national securities exchange and are held by more than 2,000 shareholders, and
because the enumerated exceptions do not apply, First Western shareholders are
not entitled to dissenters' rights with respect to this merger.
NUMBER OF DIRECTORS
SKY FINANCIAL. Under Ohio law, a corporation's articles of incorporation or
code of regulations determines the number of directors, but, in most
circumstances, the number may not be less than three. Unless the corporation has
less than three shareholders and the articles of incorporation and code of
regulations are silent, the number of directors is three. Unless the articles of
incorporation or code of regulations provides otherwise, the shareholders may
fix or change the number of directors at a shareholder meeting for the election
of directors by the affirmative vote of a majority of the shares represented at
the meeting and entitled to vote. The Sky Financial code of regulations provides
for no less than five and no more than thirty-five directors and currently sets
the number at twenty-five. This number will be changed from twenty-five to
twenty-seven directors in anticipation of the merger. To change the number of
directors on the Sky Financial Board, the Sky Financial code of regulations
requires the vote of 80% of the directors then in office.
FIRST WESTERN. Under Pennsylvania law, a corporation's bylaws or articles
of incorporation dictate the number of directors and the method for changing the
number of directors. If the bylaws and articles of incorporation are silent,
Pennsylvania law sets the number of directors at three. The First Western bylaws
require a minimum of five board members. Under the First Western bylaws, the
number of directors may be changed by resolution of a majority of the full board
of directors or by resolution of the shareholders.
CLASSIFICATION OF THE BOARD OF DIRECTORS
SKY FINANCIAL. Under Ohio law, a corporation's articles of incorporation or
bylaws may provide for the classification of directors into either two or three
classes so long as no director serves a term of office greater than three years.
The Sky Financial code of regulations classifies the board of directors into
three classes with approximately one-third of the directors elected each year.
Consequently, for shareholders to change a majority of the directors on the
board requires two annual meetings.
FIRST WESTERN. Under Pennsylvania law, a corporation's articles of
incorporation may provide for the classification of directors. Unless the
articles of incorporation provide otherwise, all classes must be as nearly equal
in number as possible, the term of office of at least one class must expire in
each year
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and the members of a class may not be elected for a period longer than four
years. The First Western bylaws divided the board of directors into three
classes as nearly equal in number as possible, but the bylaws were recently
amended to provide for one year terms as each current term expires. The term of
office of one class expires each year.
NOMINATION OF DIRECTORS
SKY FINANCIAL. Under the Sky Financial code of regulations, either the
board of directors or any shareholder entitled to vote in the election of
directors may nominate a candidate for the board of directors. Shareholder
nominations must be made in writing and must include the written consent of each
proposed nominee to serve as a director if elected. Shareholder nominations and
the required consents must be received at Sky Financial's principal executive
offices no less than 60 and no more than 90 days prior to the shareholder
meeting at which directors are to be elected. If, however, notice of the meeting
is mailed or disclosed to shareholders less than 75 days before the meeting
date, shareholder nominations and required consents must be received by the
close of business on the 15(th) day after notice is mailed or public disclosure
is made.
FIRST WESTERN. Under the First Western bylaws, either the board of
directors or any shareholder entitled to vote in the election of directors may
nominate a candidate for the board of directors. Shareholder nominations must be
made in writing and must include to the extent known by the notifying
shareholder:
- the name and address of each nominee;
- the principal occupation of each nominee;
- the total number of shares that will be voted for each nominee;
- the name and residence of the nominating shareholder; and
- the number of shares owned by the nominating shareholder.
Shareholders should mail or deliver nominations for an election to be held
at the annual meeting to First Western's Chairman by January 31. For any other
meeting at which elections are to be held, shareholders should mail or deliver
their nominations no later than 45 days prior to the meeting. If, however, less
than 21 days notice of the meeting is given to shareholders, nominations must be
mailed or delivered no later than the close of business on the 7(th) day
following the day on which notice of the meeting was mailed.
CUMULATIVE VOTING
SKY FINANCIAL. Under Ohio law, shareholders have the right to make a
request, in accordance with applicable procedures, to cumulate their votes in
the election of directors unless a corporation's articles of incorporation are
amended, in accordance with applicable procedures, to eliminate that right. Sky
Financial's articles of incorporation have been amended in accordance with the
applicable Ohio law procedures to eliminate cumulative voting in the election of
directors.
FIRST WESTERN. Under Pennsylvania law, shareholders have cumulative voting
rights unless the corporation's articles of incorporation provide otherwise. The
First Western articles of incorporation provide for cumulative voting rights in
the election of directors.
VACANCIES ON THE BOARD
SKY FINANCIAL AND FIRST WESTERN. Under Ohio and Pennsylvania law, unless a
corporation's articles of incorporation or code of regulations or bylaws provide
otherwise, the remaining directors of a corporation may fill any vacancy in the
board by the vote of a majority of the remaining directors.
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Directors elected to fill a vacancy serve the balance of the unexpired term. The
First Western bylaws generally correspond to Pennsylvania law regarding
vacancies on the board.
REMOVAL OF DIRECTORS
SKY FINANCIAL. Under Ohio law, where shareholders do not have cumulative
voting rights, unless the corporation's articles of incorporation or code of
regulations provides otherwise, shareholders may remove directors from office
without cause by the vote of a majority of shares entitled to elect directors in
place of those removed. The Sky Financial code of regulations provides, however,
that a director may be removed only for cause and only by the affirmative vote
of 80% of the Sky Financial Board.
FIRST WESTERN. Under Pennsylvania law, unless a shareholder-adopted bylaw
provides otherwise, the holders of a majority of the shares entitled to vote at
an election of directors may remove any director with or without cause, subject
to several exceptions. The exceptions are as follows:
- if a shareholder-adopted bylaw creates a classified board, shareholders
may remove a director only for cause, however if the shareholders act by
unanimous vote or consent, they may remove the board of directors at any
time with or without cause;
- if the corporation has cumulative voting, and less than the entire board
of directors is to be removed, then no director may be removed with or
without cause if the votes cast against his or her removal would be
sufficient to elect him or her if cumulatively voted at an election of the
entire board of directors, or if there are classes of directors, at an
election of the class of directors of which he or she is a part; and
- a corporation's articles of incorporation may not prohibit the right of
shareholders to remove directors for cause.
The First Western bylaws do not alter the Pennsylvania law provisions regarding
removal of directors.
SPECIAL MEETINGS OF SHAREHOLDERS
SKY FINANCIAL. Pursuant to Ohio law and the Sky Financial code of
regulations, any of the following persons may call a special meeting of
shareholders: the Chairman, the Chief Executive Officer, the President, the
Chief Operating Officer, any Executive Vice President, the directors by action
at a meeting, a majority of the directors acting without a meeting and holders
of Sky Financial common shares representing at least 50% of the outstanding
shares entitled to vote at the special meeting.
FIRST WESTERN. Pursuant to Pennsylvania law and the First Western articles
of incorporation and bylaws, either the board of directors or shareholders
entitled to cast at least 20% of the votes that all shareholders are entitled to
cast at the special meeting may call a special meeting of shareholders.
CORPORATE ACTION WITHOUT A SHAREHOLDER MEETING
SKY FINANCIAL. Under Ohio law, unless a corporation's articles of
incorporation or code of regulations prohibits action by shareholders without a
meeting, shareholders may act without a meeting on any action required or
permitted to be taken at a shareholder meeting, provided that all shareholders
entitled to notice of the meeting sign a writing authorizing the action, and the
shareholders file this writing with the corporation.
FIRST WESTERN. Pennsylvania law has a similar provision to Ohio law
allowing shareholder action without a meeting by the unanimous written consent
of the shareholders. In addition, Pennsylvania law allows shareholder action
without a meeting by partial written consent of shareholders, if the bylaws
specifically provide for it. The First Western articles of incorporation
specifically prohibit any action by written consent. Any shareholder action must
be taken at an annual or special meeting duly noticed and called.
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AMENDMENTS TO ARTICLES OF INCORPORATION
SKY FINANCIAL. Under Ohio law, shareholders may adopt amendments to the
articles of incorporation by the affirmative vote of two-thirds of the shares
entitled to vote on the proposal unless the corporation's articles of
incorporation provide for a greater or lesser vote; however, the articles of
incorporation must require the vote of at least a majority of shares entitled to
vote. The Sky Financial articles of incorporation provide that, except for
specific provisions relating to an amendment with respect to Sky Financial
serial preferred shares, shareholders may amend the articles of incorporation by
the vote of a majority of the outstanding shares of Sky Financial voting as a
class. If, however, the amendment to the articles of incorporation is
inconsistent with or would have the effect of amending the code of regulations,
then adoption of the amendment would require the same vote as would be required
to amend the code of regulations.
FIRST WESTERN. Under Pennsylvania law, except for certain types of
amendments that do not require shareholder approval, amending the articles of
incorporation requires two separate steps. First, an amendment must be proposed
either by a resolution adopted by the board of directors or by a petition of
holders of at least 10% of the shares entitled to vote on the amendment. Second,
unless a specific provision of Pennsylvania law or the articles of incorporation
require a different vote, adoption of an amendment proposal requires the
affirmative vote of a majority of votes cast by all shareholders entitled to
vote. The First Western articles of incorporation are silent on the issue of
amending the articles of incorporation; therefore, Pennsylvania law governs this
issue.
AMENDMENTS TO CODE OF REGULATIONS AND BYLAWS
SKY FINANCIAL. Under Ohio law, shareholders may amend or adopt regulations
consistent with the law and the corporation's articles of incorporation, by the
affirmative vote of a majority of shares entitled to vote if done at a
shareholder meeting. For shareholders to amend the code of regulations without a
meeting requires the affirmative vote of the holders of two-thirds of the shares
entitled to vote on the proposal. Ohio law provides that a corporation's
articles of incorporation or code of regulations may increase or decrease the
required shareholder vote, but may not allow approval by less than a majority of
the voting power. With one exception the Sky Financial code of regulations
requires the vote of only a majority of shares entitled to vote to amend the
code of regulations. The exception: any amendment with respect to the number,
classification, election, term of office or removal of directors requires the
affirmative vote of at least 75% of the shares entitled to vote unless the
amendment has been recommended by at least two-thirds of the Sky Financial
Board.
FIRST WESTERN. Under Pennsylvania law, the shareholders entitled to vote
have the power to adopt, amend and repeal bylaws. In addition but subject to
certain exceptions, the corporation's bylaws may also grant the power to amend
bylaws to the board of directors, subject to the power of shareholders to change
any such action. Finally, under Pennsylvania law, if a bylaw specifies a
percentage of shareholder votes for certain action, amendment of that bylaw
requires at least the vote required for action under that bylaw. The First
Western bylaws vest the power to amend the bylaws in the shareholders and in the
directors if a majority of the whole board votes for the amendment and at least
ten days written notice of the proposed amendment has been given to each
director prior to the meeting.
PREEMPTIVE RIGHTS
SKY FINANCIAL. Under Ohio law, subject to certain limitations, shareholders
have preemptive rights unless the corporation's articles of incorporation
provide otherwise. If shareholders are entitled to preemptive rights, a
corporation offering its shares for cash must provide those shareholders with
the opportunity to purchase the offered shares in proportion to their current
holdings at a fixed price before the corporation may offer the shares for sale
to the public. Sky Financial's articles of incorporation have eliminated
preemptive rights for shareholders.
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<PAGE>
FIRST WESTERN. Under Pennsylvania law, shareholders do not have preemptive
rights unless the corporation's articles of incorporation specifically provide
for them. The First Western articles of incorporation are silent on the issue of
preemptive rights; therefore, First Western shareholders are not entitled to
preemptive rights.
DIVIDENDS
SKY FINANCIAL. Under Ohio law, directors may declare dividends on
outstanding shares of the corporation. The dividends may be paid in cash,
property or shares of the corporation so long as the dividends do not exceed the
combination of the surplus of the corporation and the difference between:
- the reduction in surplus that results from the immediate recognition of
the transition obligations under statement of financial accounting
standards no. 106 (SFAS no. 106), issued by the financial accounting
standards board; and
- the aggregate amount of the transition obligation that would have been
recognized as of the date of the declaration of a dividend if the
corporation had elected to amortize its recognition of the transition
obligation under SFAS no. 106.
Ohio law and the Sky Financial articles of incorporation place other
restrictions on the payment of dividends, including the following:
- dividends may not be paid to shareholders of any class in violation of the
rights of shareholders of any other class;
- dividends may not be paid when the corporation is insolvent or when there
is reasonable ground to believe that payment of the dividend would result
in insolvency; and
- if any portion of a dividend is paid out of capital surplus, the
corporation must notify each shareholder receiving the dividend of the
kind of surplus out of which the dividend is being paid.
FIRST WESTERN. Under Pennsylvania law, the board of directors may, unless
otherwise provided in the bylaws, declare and pay distributions to shareholders.
The corporation may not, however, make distributions if after the distribution:
- the corporation would not be able to pay its debts as they become due in
the usual course of its business; or
- the total assets of the corporation would be less than the sum of its
total liabilities plus the amount that would be needed to satisfy the
preferential rights upon dissolution of shareholders whose preferential
rights are superior to those receiving the distribution.
The First Western articles of incorporation and bylaws are silent on the issue
of distributions; therefore, Pennsylvania law controls this issue.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
SKY FINANCIAL. Under Ohio law, generally a corporation may indemnify any
director, officer, employee or agent for reasonable expenses incurred in
connection with the defense or settlement of any threatened, pending or
completed action or suit related to the person's position with the corporation
if he or she acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation. With respect
to a criminal action or proceeding, the person must also have had no reasonable
cause to believe his or her conduct was unlawful. Ohio law requires a
corporation to indemnify any person for reasonable expenses incurred if he or
she was successful in the defense of any action, suit or proceeding or part
thereof. Ohio law and the Sky Financial code of regulations prohibit
indemnification of a person finally judged to have been knowingly fraudulent or
deliberately dishonest or who has acted with willful misconduct or in violation
of
59
<PAGE>
applicable law. Finally, Ohio law requires a corporation to provide expenses to
a person in advance of final disposition of the action, suit or proceeding if
the person undertakes to repay any advanced amounts if it is ultimately
determined that he or she is not entitled to indemnification. The Sky Financial
code of regulations provides for indemnification to the fullest extent permitted
by law. In addition, Sky Financial has entered into indemnification agreements
that expand the indemnification rights of certain directors and executive
officers. Pursuant to these agreements, indemnitees would receive the highest
available of the following:
- benefits provided by Sky Financial's code of regulations as of the date of
the indemnification agreement;
- benefits provided by Sky Financial's code of regulations in effect at the
time the indemnification expenses are incurred;
- benefits allowable under Ohio law in effect on the date of the
indemnification agreement;
- benefits allowable under the law of the jurisdiction under which Sky
Financial exists at the time the indemnifiable expenses are incurred;
- benefits available under liability insurance obtained by Sky Financial;
- benefits that would have been available to the indemnitees under a
Citizens Bancshares, Inc. insurance policy that expired on May 8, 1986; or
- such other benefits otherwise available to the indemnitees.
The indemnification rights granted under these agreements are subject, however,
to certain restrictions, including a provision that a corporation may not
indemnify a person if a court determines by clear and convincing evidence that
the person acted or failed to act with deliberate intent to cause injury to, or
with reckless disregard for the best interests of, Sky Financial and a provision
that a corporation may not indemnify a person for any civil money penalty,
judgment, liability or legal expense resulting from any proceeding instituted by
the Office of the Comptroller of the Currency.
FIRST WESTERN. Under Pennsylvania law, generally a corporation may
indemnify any person for reasonable expenses incurred in connection with any
threatened, pending or completed action or suit related to the person's position
with the corporation if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation. With respect to a criminal action or proceeding, the person must
also have had no reasonable cause to believe his or her conduct was unlawful.
Pennsylvania law requires a corporation to indemnify any representative of the
corporation for reasonable expenses incurred if he or she was successful in the
defense of any action, suit or proceeding or part thereof. Pennsylvania law
prohibits indemnification where a court determines that a person's act or
failure to act constituted willful misconduct or recklessness. The First Western
bylaws require indemnification of directors and officers to the fullest extent
permitted by law and permit such indemnification with respect to other persons.
In addition, the First Western bylaws require the corporation to advance
expenses to directors and officers where the director or officer undertakes to
repay all amounts advanced if it is ultimately determined that he or she is not
entitled to indemnification. Advancement of expenses is permitted to all others
upon the same undertaking.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
SKY FINANCIAL. Under Ohio law, a director of an Ohio corporation shall not
be found to have violated his or her fiduciary duties to the corporation or its
shareholders unless there is proof by clear and convincing evidence that the
director has not acted in good faith, in a manner he or she reasonably believes
to be in or not opposed to the best interests of the corporation, or with the
care that an ordinarily prudent person in a like position would use under
similar circumstances. In addition, under
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<PAGE>
Ohio law, a director is liable in damages for any action or failure to act as a
director only if it is proved by clear and convincing evidence that such act or
omission was undertaken either with deliberate intent to cause injury to the
corporation or with reckless disregard for the best interests of the
corporation, unless the corporation's articles of incorporation or code of
regulations make this provision inapplicable by specific reference. The Sky
Financial articles of incorporation and code of regulations do not make this
provision inapplicable.
FIRST WESTERN. Pennsylvania law provides that a corporation's bylaws may
contain a provision eliminating or limiting the personal liability of directors
for monetary damages for any action taken unless the director breaches or fails
to perform the duties of his or her office and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. However, a
corporation's bylaws may not limit the personal liability of a director for
violating a criminal statute or for any tax law violations on the federal, state
and local levels. The First Western bylaws provide for limitation of a
director's personal liability according to Pennsylvania law.
ANTI-TAKEOVER PROTECTION
CONTROL SHARE ACQUISITION PROVISIONS
SKY FINANCIAL AND FIRST WESTERN. A control share acquisition is the
acquisition, directly or indirectly, by a person of shares that, when added to
the voting power the person already has, would entitle the person to cast, for
the first time, a percentage of votes within particular ranges as defined by
statute. Both Ohio and Pennsylvania law contain control share acquisition
provisions that apply to a corporation unless the corporation's articles of
incorporation or bylaws state that the control share acquisition provision does
not apply. The Ohio control share acquisition provision prohibits a control
share acquisition unless the shareholders of the corporation approve the
acquisition by vote of a majority of shares represented at the meeting and of a
majority of disinterested shares represented at the meeting. Pennsylvania law
denies voting rights to control shares unless shareholders adopt a resolution to
restore voting rights to the control shares by the affirmative vote of a
majority of disinterested shares and of all voting shares. Pennsylvania law
defines control shares as:
- voting shares the acquisition of which result in a control share
acquisition;
- beneficially owned shares acquired by a person within 180 days of the day
the person makes a control-share acquisition; and
- beneficially owned shares acquired by a person with the intention of
making a control share acquisition.
The Sky Financial articles of incorporation and the First Western bylaws
provide that the relevant statutory control share acquisition provisions do not
apply to Sky Financial and First Western, respectively.
TRANSACTIONS INVOLVING INTERESTED SHAREHOLDERS
SKY FINANCIAL. Under Ohio law, an issuing public corporation is prohibited
from entering into a "Chapter 1704 transaction," as defined herein, with the
direct or indirect beneficial owner of 10% or more of the corporation's shares
for at least three years after the shareholder attains 10% ownership unless,
before the shareholder attains 10% ownership, the board of directors approves
either the Chapter 1704 transaction or the purchase of shares resulting in 10%
ownership. A Chapter 1704 transaction is broadly defined to include, among other
things:
- a merger or consolidation involving the corporation and the 10%
shareholder;
- a sale or purchase of substantial assets between the corporation and the
10% shareholder;
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<PAGE>
- a reclassification, recapitalization or other transaction proposed by the
10% shareholder that results in an increase in the proportion of shares
beneficially owned by the 10% shareholder; and
- the receipt by the 10% shareholder of a loan, guarantee, other financial
assistance or tax benefit not received proportionately by all
shareholders.
Ohio law restricts these types of transactions between a corporation and a 10%
shareholder even after the three year period. At that time, such a transaction
may proceed only if:
- the board of directors had approved the purchase of shares that gave the
shareholder his 10% ownership;
- the transaction is approved by the holders of shares of the corporation
with at least two-thirds of the voting power of the corporation, or such
other percent as the articles of incorporation specify, and at least a
majority of the disinterested shares; or
- the transaction results in shareholders other than the 10% shareholder
receiving a prescribed fair price plus interest for their shares.
Sky Financial is currently subject to this provision of Ohio law.
FIRST WESTERN. Pennsylvania law prohibits a corporation from engaging in a
business combination with the beneficial owner of 20% or more of the
corporation's shares, an "interested shareholder," for 5 years from the time the
shareholder acquires the stock, unless certain conditions are met. A registered
corporation that has not opted out of certain statutory provisions may engage in
a business combination with an interested shareholder within the five-year
period if:
- the interested shareholder's stock purchase was approved by the
corporation's board of directors before the share acquisition date;
- the business combination itself was approved by the corporation's board of
directors before the share acquisition date;
- the business combination is approved by the affirmative vote of all of the
holders of all of the outstanding common shares; or
- the business combination is approved by the affirmative vote of the
majority of disinterested shareholders no earlier than three months after
the share acquisition date, provided the interested shareholder is the
beneficial owner of 80% of the voting shares of the corporation and
provided the price paid to all shareholders meets statutory criteria
establishing a formula price.
After the expiration of the five-year period, the business combination will
be permitted if:
- approved by a majority of disinterested directors; or
- approved by the affirmative vote of the shareholders provided the price to
be paid meets the formula price.
The formula price is the higher of the price paid by the interested
shareholder any time within five years before the announcement date of the
combination or the share acquisition date, whichever is higher, or the market
value of the stock as of the announcement date or the share acquisition date,
whichever is higher, plus interest on United States Treasury securities, less
dividends paid on stock. This provision of Pennsylvania law applies to First
Western.
ANTI-GREENMAIL PROVISIONS
SKY FINANCIAL. Under the Ohio law, subject to certain exceptions, a
corporation may recover any profit realized from the disposition of equity
securities by a person who, within eighteen months before
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disposition, made a proposal or publicly disclosed the intention or possibility
of making a proposal to acquire control of the corporation. Ohio law allows a
corporation to opt out of this provision by specifically stating in its articles
of incorporation or code of regulations that this provision does not apply. Sky
Financial is currently subject to this provision of Ohio law.
FIRST WESTERN. Under Pennsylvania law, unless a corporation has opted out,
certain profits realized by a person or group that acquires voting control over
at least 20% of a registered corporation, a "controlling person," pursuant to
the disposition of equity securities of the registered corporation, belong to
and are recoverable by the corporation. The corporation may recover any profits
realized from the disposition of any equity security that:
- was acquired by the controlling person within 24 months before or 18
months after the person became a controlling person; and
- was transferred within 18 months after the person became a controlling
person.
First Western's bylaws opt out of this provision of Pennsylvania law.
SHAREHOLDER RIGHTS PLAN
SKY FINANCIAL. Sky Financial has a shareholder rights plan that was adopted
July 21, 1998. This plan may make it more difficult for a potential acquirer to
effect a non-negotiated business combination with Sky Financial.
FIRST WESTERN. First Western does not have a shareholder rights plan.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
December 31, 1998 and the pro forma condensed combined income statements for
each of the three years in the period ended December 31, 1998, give effect to
the merger, expected to be accounted for as a pooling-of-interests. The pro
forma information is based on the historical consolidated financial statements
of Sky Financial and First Western under the assumptions and adjustments set
forth in the accompanying notes. The pro forma condensed combined financial
statements have been prepared by the managements of Sky Financial and First
Western based on their respective consolidated financial statements. Pro forma
per share amounts are based on the conversion rate of 1.211 Sky Financial common
shares for each First Western common share in the merger.
The pro forma condensed combined financial statements include results of
operations as if the merger had been consummated as of the beginning of the
earliest period presented. The pro forma condensed combined balance sheet
reflects preliminary estimates by Sky Financial and First Western of
merger-related charges to be incurred in connection with the consummation of the
merger; however, the pro forma condensed combined income statements do not
reflect these charges nor the cost savings anticipated to result from the
merger. The current estimate of merger-related charges is considered preliminary
based on the due diligence that has been performed to date by management in
connection with the merger and is subject to change. The actual charges incurred
may be higher or lower than what is currently estimated. Merger-related charges
are contingent upon consummation of the merger and would be recognized in the
period in which the merger closes.
You should read the pro forma condensed combined financial statements
together with the historical consolidated financial statements, including the
respective notes, of Sky Financial and First Western incorporated by reference.
Pro forma financial statements are presented for informational purposes only and
are not necessarily indicative of the results of operations or combined
financial position that would have resulted had the merger been consummated as
of the beginning of the earliest period indicated, nor are they necessarily
indicative of future results of operations or combined financial position.
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<PAGE>
SKY FINANCIAL GROUP, INC.
FIRST WESTERN BANCORP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1999
(In thousands)(Unaudited)
<TABLE>
<CAPTION>
SKY FINANCIAL
AND
FIRST WESTERN
SKY FIRST PRO FORMA PRO FORMA
FINANCIAL WESTERN ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks............................ $ 153,997 $ 46,973 $ 200,970
Federal funds sold and interest-bearing deposits... 37,085 3,967 41,052
Securities......................................... 969,941 752,136 1,722,077
Loans, net......................................... 3,297,679 1,095,018 4,392,697
Premises and equipment............................. 87,441 22,292 109,733
Accrued interest receivable and other assets....... 136,877 92,323 $ 11,900(1) 241,100
------------ ------------ ----------- ----------------
Total assets................................... $4,683,020 $ 2,012,709 $ 11,900 $ 6,707,629
------------ ------------ ----------- ----------------
------------ ------------ ----------- ----------------
LIABILITIES
Deposits........................................... $3,740,219 $ 1,348,952 $ 5,089,171
Federal funds purchased and repurchase
agreements....................................... 215,098 226,532 441,630
Other debt and Federal Home Loan Bank advances..... 317,471 265,887 583,358
Accrued interest payable and other liabilities..... 61,007 21,105 $ 40,000(1) 122,112
------------ ------------ ----------- ----------------
Total liabilities.............................. 4,333,795 1,862,476 40,000 6,236,271
SHAREHOLDERS' EQUITY............................... 349,225 150,233 (28,100)(1) 471,358
------------ ------------ ----------- ----------------
Total liabilities and shareholders' equity......... $4,683,020 $ 2,012,709 $ 11,900 $ 6,707,629
------------ ------------ ----------- ----------------
------------ ------------ ----------- ----------------
</TABLE>
- ------------------------
(1) Preliminary estimates of merger-related charges are as follows:
<TABLE>
<S> <C>
Severance and other employee-related costs......... $ 10,000
Branch closings and consolidations costs........... 8,500
Transaction costs.................................. 6,000
Other merger and integration related costs......... 15,500
---------
Total pre tax costs................................ 40,000
Less: Tax expense.................................. 11,900
---------
$ 28,100
---------
---------
</TABLE>
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<PAGE>
SKY FINANCIAL GROUP, INC.
FIRST WESTERN BANCORP, INC.
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
SKY FINANCIAL
AND
FIRST WESTERN
SKY FIRST PRO FORMA PRO FORMA
FINANCIAL WESTERN ADJUSTMENTS COMBINED
------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees................................ $ 73,238 $ 22,420 $ 95,658
Securities and other................................. 14,461 13,063 27,524
------------ ------------ --------
Total interest income.............................. 87,699 35,483 123,182
INTEREST EXPENSE
Deposits............................................. 33,703 12,493 46,196
Borrowings........................................... 7,612 6,263 $ 620(1) 14,495
------------ ------------ ------ --------
Total interest expense............................. 41,315 18,756 620 60,691
------------ ------------ ------ --------
NET INTEREST INCOME.................................. 46,384 16,727 (620) 62,491
PROVISION FOR LOAN LOSSES............................ 2,360 1,125 3,485
------------ ------------ ------ --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................. 44,024 15,602 (620) 59,006
OTHER INCOME......................................... 24,509 4,180 28,689
OTHER EXPENSES....................................... 38,941 12,341 (620)(1) 50,662
------------ ------------ ------ --------
INCOME BEFORE INCOME TAXES........................... 29,592 7,441 37,033
INCOME TAXES......................................... 9,428 2,128 11,556
------------ ------------ ------ --------
NET INCOME........................................... $ 20,164 $ 5,313 $ 25,477
------------ ------------ ------ --------
------------ ------------ ------ --------
EARNINGS PER COMMON SHARE
Basic................................................ $ 0.45 $ 0.48 $ 0.44
Diluted.............................................. 0.44 0.47 0.43
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic................................................ 44,999 11,155 58,508
Diluted.............................................. 45,463 11,390 59,256
</TABLE>
- ------------------------
(1) Reclassification of interest expense on First Western's trust preferred
securities from other expenses to conform classification with that of Sky
Financial.
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<PAGE>
SKY FINANCIAL GROUP, INC.
FIRST WESTERN BANCORP, INC.
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
SKY FINANCIAL
AND
FIRST WESTERN
SKY FIRST PRO FORMA PRO FORMA
FINANCIAL WESTERN ADJUSTMENTS COMBINED
------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees................................ $ 72,061 $ 22,434 $ 94,495
Securities and other................................. 17,181 8,960 26,141
------------ ------------ --------
Total interest income.............................. 89,242 31,394 120,636
INTEREST EXPENSE
Deposits............................................. 36,624 11,199 47,823
Borrowings........................................... 6,949 5,557 $ 584(1) 13,090
------------ ------------ ------ --------
Total interest expense............................. 43,573 16,756 584 60,913
------------ ------------ ------ --------
NET INTEREST INCOME.................................. 45,669 14,638 (584) 59,723
PROVISION FOR LOAN LOSSES............................ 1,976 1,000 2,976
------------ ------------ ------ --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................. 43,693 13,638 (584) 56,747
OTHER INCOME......................................... 23,032 5,628 28,660
OTHER EXPENSES....................................... 47,561 11,428 (584)(1) 58,405
------------ ------------ ------ --------
INCOME BEFORE INCOME TAXES........................... 19,164 7,838 27,002
INCOME TAXES......................................... 5,947 2,219 8,166
------------ ------------ ------ --------
NET INCOME........................................... $ 13,217 $ 5,619 $ 18,836
------------ ------------ ------ --------
------------ ------------ ------ --------
EARNINGS PER COMMON SHARE
Basic................................................ $ 0.29 $ 0.50 $ 0.32
Diluted.............................................. 0.29 0.49 0.32
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic................................................ 45,365 11,149 58,866
Diluted.............................................. 45,978 11,376 59,754
</TABLE>
- ------------------------
(1) Reclassification of interest expense on First Western's trust preferred
securities from other expenses to conform classification with that of Sky
Financial.
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<PAGE>
SKY FINANCIAL GROUP, INC.
FIRST WESTERN BANCORP, INC.
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
SKY FINANCIAL
AND
FIRST WESTERN
SKY FIRST PRO FORMA PRO FORMA
FINANCIAL WESTERN ADJUSTMENTS COMBINED
------------ ---------- ------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees................................. $ 296,682 $ 90,546 $ 387,228
Securities and other.................................. 66,998 49,187 116,185
------------ ---------- --------
Total interest income............................... 363,680 139,733 503,413
INTEREST EXPENSE
Deposits.............................................. 146,385 52,745 199,130
Borrowings............................................ 30,171 24,888 $ 2,473(1) 57,532
------------ ---------- ------ --------
Total interest expense.............................. 176,556 77,633 2,473 256,662
------------ ---------- ------ --------
NET INTEREST INCOME................................... 187,124 62,100 (2,473) 246,751
PROVISION FOR LOAN LOSSES............................. 24,968 4,000 -- 28,968
------------ ---------- ------ --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES... 162,156 58,100 (2,473) 217,783
OTHER INCOME.......................................... 97,214 17,241 114,455
OTHER EXPENSES........................................ 232,708 50,646 (2,473)(1) 280,881
------------ ---------- ------ --------
INCOME BEFORE INCOME TAXES............................ 26,662 24,695 -- 51,357
INCOME TAXES.......................................... 8,854 6,772 15,626
------------ ---------- ------ --------
NET INCOME............................................ $ 17,808 $ 17,923 $ -- $ 35,731
------------ ---------- ------ --------
------------ ---------- ------ --------
EARNINGS PER COMMON SHARE
Basic................................................. $ 0.39 $ 1.61 $ -- $ 0.61
Diluted............................................... 0.39 1.58 -- 0.60
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic................................................. 45,124 11,150 58,627
Diluted............................................... 45,686 11,369 59,454
</TABLE>
- ------------------------
(1) Reclassification of interest expense on First Western's trust preferred
securities from other expenses to conform classification with that of Sky
Financial.
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<PAGE>
SKY FINANCIAL GROUP, INC.
FIRST WESTERN BANCORP, INC.
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
SKY FINANCIAL
AND
FIRST WESTERN
SKY FIRST PRO FORMA PRO FORMA
FINANCIAL WESTERN ADJUSTMENTS COMBINED
------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees............................... $ 281,902 $ 89,831 $ 371,733
Securities and other................................ 65,629 37,492 103,121
------------ ------------ --------
Total interest income............................. 347,531 127,323 474,854
INTEREST EXPENSE
Deposits............................................ 142,216 47,464 189,680
Borrowings.......................................... 24,701 20,155 $ 2,252(1) 47,108
------------ ------------ ------ --------
Total interest expense............................ 166,917 67,619 2,252 236,788
------------ ------------ ------ --------
NET INTEREST INCOME................................. 180,614 59,704 (2,252) 238,066
PROVISION FOR LOAN LOSSES........................... 10,928 4,836 -- 15,764
------------ ------------ ------ --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................ 169,686 54,868 (2,252) 222,302
OTHER INCOME........................................ 82,167 17,231 99,398
OTHER EXPENSES...................................... 164,783 42,995 (2,252)(1) 205,526
------------ ------------ ------ --------
INCOME BEFORE INCOME TAXES.......................... 87,070 29,104 -- 116,174
INCOME TAXES........................................ 27,750 8,822 36,572
------------ ------------ ------ --------
NET INCOME.......................................... $ 59,320 $ 20,282 $ -- $ 79,602
------------ ------------ ------ --------
------------ ------------ ------ --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS......... $ 58,715 $ 20,282 $ -- $ 78,997
------------ ------------ ------ --------
------------ ------------ ------ --------
EARNINGS PER COMMON SHARE
Basic............................................... $ 1.29 $ 1.80 $ -- $ 1.34
Diluted............................................. 1.27 1.77 -- 1.31
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic............................................... 45,402 11,242 59,016
Diluted............................................. 46,699 11,446 60,560
</TABLE>
- ------------------------
(1) Reclassification of interest expense on First Western's trust preferred
securities from other expenses to conform classification with that of Sky
Financial.
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SKY FINANCIAL GROUP, INC.
FIRST WESTERN BANCORP, INC.
PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share data) (Unaudited)
<TABLE>
<CAPTION>
SKY FINANCIAL
AND
FIRST WESTERN
SKY FIRST PRO FORMA
FINANCIAL WESTERN COMBINED
------------ ---------- ----------------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees............................................... $ 257,355 $ 92,321 $ 349,676
Securities and other................................................ 65,695 33,162 98,857
------------ ---------- --------
Total interest income............................................. 323,050 125,483 448,533
INTEREST EXPENSE
Deposits............................................................ 137,288 46,111 183,399
Borrowings.......................................................... 13,648 21,103 34,751
------------ ---------- --------
Total interest expense............................................ 150,936 67,214 218,150
------------ ---------- --------
NET INTEREST INCOME................................................. 172,114 58,269 230,383
PROVISION FOR LOAN LOSSES........................................... 7,713 8,288 16,001
------------ ---------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES................. 164,401 49,981 214,382
OTHER INCOME........................................................ 62,244 15,714 77,958
OTHER EXPENSES...................................................... 149,131 42,264 191,395
------------ ---------- --------
INCOME BEFORE INCOME TAXES.......................................... 77,514 23,431 100,945
INCOME TAXES........................................................ 24,364 6,304 30,668
------------ ---------- --------
NET INCOME.......................................................... $ 53,150 $ 17,127 $ 70,277
------------ ---------- --------
------------ ---------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS......................... $ 50,743 $ 17,127 $ 67,870
------------ ---------- --------
------------ ---------- --------
EARNINGS PER COMMON SHARE
Basic............................................................... $ 1.14 $ 1.49 $ 1.16
Diluted............................................................. 1.11 1.47 1.13
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic............................................................... 44,510 11,510 58,449
Diluted............................................................. 47,812 11,669 61,943
</TABLE>
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EXPERTS
Crowe, Chizek and Company LLP has audited the consolidated financial
statements of Sky Financial as of December 31, 1998 and 1997 and for the years
ended December 31, 1998, 1997 and 1996, incorporated by reference in this joint
proxy statement/prospectus, as set forth in its report which is also
incorporated by reference. We have incorporated by reference the financial
statements audited by Crowe, Chizek and Company LLP based on their report given
upon their authority as experts in accounting and auditing.
The consolidated financial statements of First Western Bancorp, Inc.
incorporated in this joint proxy statement/prospectus by reference from First
Western's Annual Report on Form 10-K for the year ended December 31, 1998 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended March 31, 1999 and 1998, which is incorporated herein by reference,
Deloitte & Touche LLP have applied limited procedures in accordance with
professional standards for a review of such information. However, as stated in
their report included in the Corporation's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and incorporated by reference herein, they did not
audit and they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Deloitte & Touche LLP are not subject to the liability provisions of Section 11
of the Securities Act of 1933 for their report on the unaudited interim
financial information because such report is not a "report" or a "part" of the
registration statement prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act of 1933.
LEGAL OPINIONS
Squire, Sanders & Dempsey L.L.P. has rendered a legal opinion stating that
Sky Financial has duly authorized the issuance of the Sky Financial common
shares offered hereby and that the common shares, when issued in accordance with
the merger agreement, will be duly issued and outstanding and fully paid and
non-assessable.
INDEMNIFICATION
The code of regulations of Sky Financial provides that Sky Financial will
indemnify any director or officer of Sky Financial or any person who is or has
served at the request of Sky Financial as a director, officer or trustee of
another corporation, joint venture, trust or other enterprise and his or her
heirs, executors and administrators against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement, actually or reasonably incurred
because he or she is or was such director, officer or trustee in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative. This indemnification is to the full
extent and according to the procedures and requirements of Ohio law.
In addition, Sky Financial has entered into indemnification agreements with
each of its directors and executive officers which expand the indemnitees'
rights in the event that Ohio law and Sky Financial's code of regulations are
further changed. The indemnification rights available under the agreements are
subject to certain exclusions, including a provision that no indemnification
shall be made if a court determines by clear and convincing evidence that the
indemnitee has acted or failed to act with deliberate intent to cause injury to,
or with reckless disregard for the best interests of, Sky Financial and a
provision that a corporation may not indemnify a person for any civil money
penalty, judgment, liability or legal expense resulting from any proceeding
instituted by the Office of the Comptroller of the Currency.
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Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Sky
Financial pursuant to the foregoing provisions, Sky Financial has been informed
that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
SHAREHOLDER PROPOSALS
The Sky Financial 2000 annual meeting of shareholders is scheduled to be
held in April 2000. Any shareholder who intends to present a proposal at the
2000 annual meeting and who wishes to have the proposal included in Sky
Financial's proxy statement and form of proxy for that meeting must deliver the
proposal to Sky Financial's executive offices, 221 South Church Street, Bowling
Green, Ohio 43402, by November 20, 1999. Sky Financial must receive notice of
all other shareholder proposals for the 2000 annual meeting no less than sixty
days nor more than ninety days prior to the Annual Meeting; provided, however,
on the fifteenth day following the earlier of the date on which such notice of
the date of the meeting was mailed or such public disclosure was made. If notice
is not received by Sky Financial within this time frame, Sky Financial will
consider such notice untimely. Sky Financial reserves the right to vote in its
discretion all of the common shares for which it has received proxies for the
2000 annual meeting with respect to any untimely shareholder proposals.
The date for the First Western 2000 annual meeting of shareholders has not
yet been scheduled pending the consideration by the First Western shareholders
of the merger at the First Western special meeting as described in this joint
proxy statement/prospectus. In the event that the First Western 2000 annual
meeting of shareholders is held, proposals of shareholders intended to be
presented at that meeting must have been received by November 19, 1999, for
inclusion in First Western's proxy statement and form of proxy relating to the
2000 annual meeting of shareholders.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF
DECEMBER 14, 1998
AS AMENDED AND RESTATED
AS OF APRIL 19, 1999
BY AND AMONG
SKY FINANCIAL GROUP, INC.,
FIRST WESTERN BANCORP, INC.
AND
FIRST WESTERN ACQUISITION CORPORATION
<PAGE>
TABLE OF CONTENTS
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RECITALS........................................................................................................ 1
ARTICLE I Certain Definitions
1.01 CERTAIN DEFINITIONS.................................................................................. 1
ARTICLE II The Merger
2.01 THE FWB MERGER....................................................................................... 5
2.02 THE CAPITAL CONTRIBUTION............................................................................. 5
2.03 THE SUBSIDIARY MERGER................................................................................ 5
2.04 EFFECTIVENESS OF THE FWB MERGER...................................................................... 6
2.05 EFFECTIVE DATE AND EFFECTIVE TIME.................................................................... 6
ARTICLE III Consideration; Exchange Procedures
3.01 MERGER CONSIDERATION................................................................................. 6
3.02 RIGHTS AS STOCKHOLDERS; STOCK TRANSFERS.............................................................. 6
3.03 FRACTIONAL SHARES.................................................................................... 6
3.04 EXCHANGE PROCEDURES.................................................................................. 7
3.05 ANTI-DILUTION PROVISIONS............................................................................. 7
3.06 OPTIONS.............................................................................................. 8
ARTICLE IV Actions Pending Acquisition
4.01 FORBEARANCES OF FWB.................................................................................. 8
4.02 FORBEARANCES OF SFG.................................................................................. 10
ARTICLE V Representations and Warranties
5.01 DISCLOSURE SCHEDULES................................................................................. 11
5.02 STANDARD............................................................................................. 11
5.03 REPRESENTATIONS AND WARRANTIES OF FWB................................................................ 11
5.04 REPRESENTATIONS AND WARRANTIES OF SFG................................................................ 20
ARTICLE VI Covenants
6.01 REASONABLE BEST EFFORTS.............................................................................. 26
6.02 STOCKHOLDER APPROVALS................................................................................ 27
6.03 REGISTRATION STATEMENT............................................................................... 27
6.04 PRESS RELEASES....................................................................................... 28
6.05 ACCESS; INFORMATION.................................................................................. 28
6.06 ACQUISITION PROPOSALS................................................................................ 28
6.07 AFFILIATE AGREEMENTS................................................................................. 29
6.08 TAKEOVER LAWS........................................................................................ 29
6.09 CERTAIN POLICIES..................................................................................... 29
6.10 NASDAQ LISTING....................................................................................... 29
6.11 REGULATORY APPLICATIONS.............................................................................. 29
6.12 INDEMNIFICATION...................................................................................... 30
6.13 OPPORTUNITY OF EMPLOYMENT; EMPLOYEE BENEFITS......................................................... 30
6.14 NOTIFICATION OF CERTAIN MATTERS...................................................................... 31
6.15 DIVIDEND COORDINATION................................................................................ 31
6.16 SFG BOARD REPRESENTATION............................................................................. 31
6.17 RESULTING BANK BOARD OF DIRECTORS.................................................................... 31
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6.18 FORMATION OF ADVISORY BOARD.......................................................................... 31
6.19 ACCOUNTING AND TAX TREATMENT......................................................................... 31
6.20 NO BREACHES OF REPRESENTATIONS AND WARRANTIES........................................................ 31
6.21 CONSENTS............................................................................................. 31
6.22 INSURANCE COVERAGE................................................................................... 31
6.23 CORRECTION OF INFORMATION............................................................................ 31
6.24 CONFIDENTIALITY...................................................................................... 32
6.25 SUPPLEMENTAL ASSURANCES.............................................................................. 32
6.26 EMPLOYMENT AGREEMENT................................................................................. 32
ARTICLE VII Conditions to Consummation of the Merger
7.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER........................................... 32
7.02 CONDITIONS TO OBLIGATION OF FWB...................................................................... 33
7.03 CONDITIONS TO OBLIGATION OF SFG...................................................................... 34
ARTICLE VIII Termination
8.01 TERMINATION.......................................................................................... 35
8.02 EFFECT OF TERMINATION AND ABANDONMENT; ENFORCEMENT OF AGREEMENT...................................... 36
ARTICLE IX Miscellaneous
9.01 SURVIVAL............................................................................................. 36
9.02 WAIVER; AMENDMENT.................................................................................... 36
9.03 COUNTERPARTS......................................................................................... 36
9.04 GOVERNING LAW........................................................................................ 36
9.05 EXPENSES............................................................................................. 36
9.06 NOTICES.............................................................................................. 37
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES................................................... 37
9.08 INTERPRETATION; EFFECT............................................................................... 38
9.09 WAIVER OF JURY TRIAL................................................................................. 38
EXHIBIT A Form of Stock Option Agreement
EXHIBIT B Form of FWB Affiliate Agreement
EXHIBIT C Procedure Regarding Section 8.01(e) of the Agreement
</TABLE>
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AGREEMENT AND PLAN OF MERGER, dated as of December 14, 1998, and amended and
restated as of April 19, 1999 (this "AGREEMENT"), is by and among Sky Financial
Group, Inc. ("SFG"), First Western Bancorp, Inc. ("FWB") and First Western
Acquisition Corporation ("TRANSITORY SUB").
RECITALS
A. FWB. FWB is a Pennsylvania corporation, having its principal place of
business in New Castle, Pennsylvania.
B. SFG. SFG is an Ohio corporation, having its principal place of business
in Bowling Green, Ohio.
C. TRANSITORY SUB. Transitory Sub is a Pennsylvania corporation that has
been newly organized as a wholly owned subsidiary of SFG. Its sole purpose is to
participate in the transactions contemplated by this Agreement.
D. STOCK OPTION AGREEMENT. As an inducement to the willingness of SFG to
continue to pursue the transactions contemplated by this Agreement, FWB intends
to grant to SFG an option pursuant to a stock option agreement, in substantially
the form of EXHIBIT A.
E. INTENTIONS OF THE PARTIES. It is the intention of the parties to this
Agreement that the business combinations contemplated hereby be accounted for
under the "pooling-of-interests" accounting method and that each be treated as a
"reorganization" under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE").
F. BOARD ACTION. The respective Boards of Directors of each of SFG and FWB
have determined that it is in the best interests of their respective companies
and their stockholders 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
CERTAIN 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 FWB or any of its
Subsidiaries or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets or deposits of, FWB
or any of its Subsidiaries, other than the transactions contemplated by this
Agreement.
"AGREEMENT" means this Agreement, as amended or modified from time to time
in accordance with Section 9.02.
"AGREEMENT TO MERGE" has the meaning set forth in Section 2.03.
"BANK" means First Western Bank, National Association, a wholly-owned
subsidiary of FWB.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"CAPITAL CONTRIBUTION" has the meaning set forth in Section 2.02.
"CBC" means The Citizens Banking Company, an Ohio banking corporation which
is a wholly-owned subsidiary of SFG.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPENSATION AND BENEFIT PLANS" has the meaning set forth in Section
5.03(m).
"CONSULTANTS" has the meaning set forth in Section 5.03(m).
"COSTS" has the meaning set forth in Section 6.12(a).
"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 FWB 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 PBCL.
"DSCP" means the Department of State of the Commonwealth of Pennsylvania.
"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 2.05.
"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 Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean Water Act, the
Federal Clean Air Act, and the 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.
"FDIC" means the Federal Deposit Insurance Corporation.
"FFIEC" means Federal Financial Institutions Examination Committee.
"FWB" has the meaning set forth in the preamble to this Agreement.
"FWB ARTICLES" means the Articles of Incorporation of FWB.
"FWB AFFILIATE" has the meaning set forth in Section 6.07(a).
"FWB BOARD" means the Board of Directors of FWB.
"FWB BY-LAWS" means the By-Laws of FWB.
"FWB COMMON STOCK" means the common stock, par value $5.00 per share, of
FWB.
"FWB MEETING" has the meaning set forth in Section 6.02.
"FWB MERGER" has the meaning set forth in Section 2.01.
"FWB PREFERRED STOCK" means the preferred stock, without par value, of FWB.
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"FWB SEC DOCUMENTS" has the meaning set forth in Section 5.03(g).
"FWB STOCK" means FWB Common Stock and FWB Preferred Stock.
"FWB STOCK OPTION" has the meaning set forth in Section 3.06.
"FWB STOCK PLANS" means the option plans and agreements of FWB and its
Subsidiaries pursuant to which rights to purchase FWB Common Stock are
outstanding immediately prior to the Effective Time pursuant to the Incentive
Stock Option Plan for Key Officers and the Equity Compensation Plan for
Non-Employee Directors of First Western Bancorp, Inc. and First Western Bank,
National Association.
"GOVERNMENTAL AUTHORITY" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.12(a).
"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.
"LIEN" means any charge, mortgage, pledge, security interest, restriction,
claim, lien, or encumbrance.
"MATERIAL ADVERSE EFFECT" means, with respect to SFG or FWB, any effect that
(i) is material and adverse to the financial position, results of operations or
business of SFG and its Subsidiaries taken as a whole, or FWB and its
Subsidiaries taken as a whole, respectively, or (ii) would materially impair the
ability of either SFG or FWB 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 or restructuring charges taken in connection with the Merger, in
each case in accordance with generally accepted accounting principles, (c)
changes resulting from expenses (such as legal, accounting and investment
bankers' fees) incurred 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" collectively refers to the FWB Merger, the Capital Contribution and
the Subsidiary Merger, as set forth in Section 2.01, Section 2.02 and Section
2.03, respectively.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.01.
"NASDAQ" means The NASDAQ Stock Market, Inc.'s National Market System.
"NEW CERTIFICATE" has the meaning set forth in Section 3.04.
"NASD" means The National Association of Securities Dealers.
"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.
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"PBGC" means the Pension Benefit Guaranty Corporation.
"PBCL" means the Pennsylvania Business Corporation Law of 1988, as amended.
"PDB" means the Pennsylvania Department of Banking.
"PERSON" means any individual, bank, corporation, partnership, 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 6.03.
"PROXY STATEMENT" has the meaning set forth in Section 6.03.
"REGISTRATION STATEMENT" has the meaning set forth in Section 6.03.
"REGULATORY AUTHORITY" has the meaning set forth in Section 5.03(i).
"REPLACEMENT OPTION" has the meaning set forth in Section 3.06.
"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.
"RESULTING BANK" has the meaning set forth in Section 2.03.
"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.
"SFG" has the meaning set forth in the preamble to this Agreement.
"SFG ARTICLES" means the Articles of Incorporation of SFG, as amended.
"SFG BOARD" means the Board of Directors of SFG.
"SFG CODE" means the Code of Regulations of SFG, as amended.
"SFG COMMON STOCK" means the common stock, without par value, of SFG.
"SFG MEETING" has the meaning set forth in Section 6.02.
"SFG SEC DOCUMENTS" has the meaning set forth in Section 5.04(g).
"SFG STOCK" means the SFG Common Stock and SFG serial preferred stock.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules
and regulations thereunder.
"STOCK OPTION AGREEMENT" has the meaning set forth in Recital D.
"SUBSIDIARY" and "SIGNIFICANT SUBSIDIARY" have the meanings ascribed to them
in Rule 1-02 of Regulation S-X of the SEC.
"SUBSIDIARY MERGER" has the meaning set forth in Section 2.03.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.01.
"TAKEOVER LAWS" has the meaning set forth in Section 5.03(o).
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"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 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.
"TRANSITORY SUB" has the meaning set forth in the preamble to this
Agreement.
"TREASURY STOCK" shall mean shares of FWB Stock held by FWB or any of its
Subsidiaries or by SFG or any of its Subsidiaries, in each case other than in a
fiduciary capacity or as a result of debts previously contracted in good faith.
ARTICLE II
THE MERGER
2.01 THE FWB MERGER. At the Effective Time, 1) Transitory Sub, a newly
formed Pennsylvania corporation, all of the stock of which is owned by SFG,
shall be merged with and into FWB (the "FWB MERGER"), 2) the separate corporate
existence of Transitory Sub shall cease and the outstanding shares of Transitory
Sub held by SFG will be converted to, and become, all of the outstanding shares
of FWB, and 3) FWB shall survive and continue to exist as a Pennsylvania
corporation (FWB, as the surviving corporation in the FWB Merger, sometimes
being referred to herein as the "SURVIVING CORPORATION"). The Articles of
Incorporation of FWB, as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation of the Surviving Corporation; and the
Bylaws of FWB, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation. SFG 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 FWB Stock as provided for in this Agreement (the "MERGER
CONSIDERATION"), (ii) adversely affect either the tax treatment of FWB's
stockholders 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 THE CAPITAL CONTRIBUTION. Immediately after the Effective Time, SFG
will contribute to the capital of FWB, as its wholly owned direct subsidiary,
all of the outstanding capital stock of CBC (the "CAPITAL CONTRIBUTION"). CBC
will then be a wholly owned subsidiary of FWB.
2.03 THE SUBSIDIARY MERGER. At the time specified by CBC in its
certificate of merger filed with the OSS (which shall not be earlier than the
Effective Time and shall be after the Capital Contribution), Bank shall merge
with and into CBC (the "SUBSIDIARY MERGER") pursuant to an agreement to merge
(the "AGREEMENT TO MERGE") to be executed by Bank and CBC and filed with the
OSS, the OCC and the PBD, as required. Upon consummation of the Subsidiary
Merger, the separate corporate existence of Bank shall cease and CBC shall
survive and continue to exist as a state banking corporation (CBC, as the
resulting bank in the Subsidiary Merger, sometimes being referred to herein as
the "RESULTING BANK"). (The FWB Merger, the Capital Contribution and the
Subsidiary Merger shall sometimes collectively be referred to herein as the
"MERGER".)
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2.04 EFFECTIVENESS OF THE FWB MERGER. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the FWB Merger shall become
effective upon the occurrence of the filing in the office of the DSCP of
articles of merger in accordance with Section 1928 of the PBCL, or such later
date and time as may be set forth in such filings.
2.05 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 FWB Merger (the "EFFECTIVE DATE") to occur on (i) 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, at the election of SFG, on the last business day of the
month in which such third business day occurs or, if such third business day
occurs within the last three business days of such month, on the last business
day of the succeeding month; 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 FWB 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 FWB Merger and without any
action on the part of any Person:
(a) OUTSTANDING FWB COMMON STOCK AND FWB RIGHTS. Each share, excluding
Treasury Stock and Dissenting Shares, of FWB Common Stock issued and
outstanding immediately prior to the Effective Time shall become and be
converted into 1.211 shares of SFG Common Stock (the "Exchange Ratio"). The
Exchange Ratio shall be subject to adjustment as set forth in Section 3.05.
One preferred share purchase right issuable pursuant to the Shareholder
Rights Agreement dated as of July 21, 1998 between SFG and CBC or any other
purchase right issued in substitution thereof (the "SFG Rights") shall be
issued together with and shall attach to each share of SFG Common Stock
issued pursuant to this Section 3.01(a).
(b) TREASURY SHARES. Each share of FWB 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 SFG STOCK. Each share of SFG Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding and unaffected by the FWB Merger.
3.02 RIGHTS AS STOCKHOLDERS; STOCK TRANSFERS. At the Effective Time,
holders of FWB Common Stock shall cease to be, and shall have no rights as,
stockholders of FWB, other than to receive any dividend or other distribution
with respect to such FWB 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 the Effective Time,
there shall be no transfers on the stock transfer books of FWB or the Surviving
Corporation of any shares of FWB Stock.
3.03 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of SFG Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the FWB Merger; instead,
SFG shall pay to each holder of FWB Common Stock who would otherwise be entitled
to a fractional share of SFG 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 SFG Common Stock to which the
holder would be entitled by the last sale
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price of SFG Common Stock, as reported by the NASDAQ (as reported in THE WALL
STREET JOURNAL or, if not reported therein, in another authoritative source),
for the NASDAQ trading day immediately preceding the Effective Date.
3.04 EXCHANGE PROCEDURES. (a) At or prior to the Effective Time, SFG shall
deposit, or shall cause to be deposited, with the Bank of New York (in such
capacity, the "EXCHANGE AGENT"), for the benefit of the holders of certificates
formerly representing shares of FWB Common Stock ("OLD CERTIFICATES"), for
exchange in accordance with this Article III, certificates representing the
shares of SFG Common Stock ("NEW CERTIFICATES") and an estimated amount of cash
(such cash and New Certificates, together with any dividends or distributions
with a 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 FWB Common Stock.
(b) As promptly as practicable after the Effective Date, SFG shall send or
cause to be sent to each former holder of record of shares of FWB Common Stock
immediately prior to the Effective Time transmittal materials for use in
exchanging such stockholder's Old Certificates for the consideration set forth
in this Article III. SFG shall cause the New Certificates into which shares of a
stockholder's FWB 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
stockholder upon delivery to the Exchange Agent of Old Certificates representing
such shares of FWB Common Stock (or an indemnity affidavit reasonably
satisfactory to SFG and the Exchange Agent, if any of such certificates are
lost, stolen or destroyed) owned by such stockholder. 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 FWB 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 SFG 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 FWB Common
Stock converted in the FWB Merger into the right to receive shares of such SFG
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 theretofor
had become payable with respect to shares of SFG 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
stockholders of FWB for six months after the Effective Time shall be paid to
SFG. Any stockholders of FWB who have not theretofor complied with this Article
III shall thereafter look only to SFG for payment of the shares of SFG Common
Stock, cash in lieu of any fractional shares and unpaid dividends and
distributions on SFG Common Stock deliverable in respect of each share of FWB
Common Stock such stockholder holds as determined pursuant to this Agreement, in
each case, without any interest thereon.
3.05 ANTI-DILUTION PROVISIONS. In the event SFG changes (or establishes a
record date for changing) the number of shares of SFG 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 SFG Common Stock and the record date therefor shall
be prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
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3.06 OPTIONS. (a) At the Effective Time, each outstanding option to
purchase shares of FWB Common Stock under the FWB Stock Plans (each, a "FWB
STOCK OPTION"), whether vested or unvested, shall be converted into an option to
acquire, on the same terms and conditions as were applicable under such FWB
Stock Option, the number of shares of SFG Common Stock equal to (i) the number
of shares of FWB Common Stock subject to the FWB Stock Option, multiplied by
(ii) the Exchange Ratio (such product rounded to the nearest whole number) (a
"REPLACEMENT OPTION"), at an exercise price per share (rounded to the nearest
whole cent) equal to (y) the aggregate exercise price for the shares of FWB
Common Stock which were purchasable pursuant to such FWB Stock Option divided by
(z) the number of full shares of SFG Common Stock subject to such Replacement
Option in accordance with the foregoing. Notwithstanding the foregoing, each FWB
Stock Option which is intended to be an "incentive stock option" (as defined in
Section 422 of the Code) shall be adjusted in accordance with the requirements
of Section 424 of the Code. At or prior to the Effective Time, FWB shall use its
best efforts, including using its best efforts to obtain any necessary consents
from optionees, with respect to the FWB Stock Plans to permit the replacement of
the outstanding FWB Stock Options by SFG pursuant to this Section and to permit
SFG to assume the FWB Stock Plans. FWB shall further take all action necessary
to amend the FWB Stock Plans to eliminate automatic grants or awards thereunder
following the Effective Time. At the Effective Time, SFG shall assume the FWB
Stock Plans; provided, that such assumption shall be only in respect of the
Replacement Options and that SFG shall have no obligation with respect to any
awards under the FWB Stock Plans other than the Replacement Options and shall
have no obligation to make any additional grants or awards under such assumed
FWB Stock Plans.
(b) At all times after the Effective Time, SFG shall reserve for issuance
such number of shares of SFG Common Stock as necessary so as to permit the
exercise of the Replacement Options in the manner contemplated by this Agreement
and the instruments pursuant to which the corresponding FWB Stock Options were
granted. SFG shall make all filings required under federal and state securities
laws no later than the Effective Time so as to permit the exercise of such
options and the sale of the shares received by the optionee upon such exercise
at and after the Effective Time and SFG shall continue to make such filings
thereafter as may be necessary to permit the continued exercise of options and
subsequent sale of such shares.
ARTICLE IV
ACTIONS PENDING ACQUISITION
4.01 FOREBEARANCES OF FWB. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement and/or disclosed on the
Disclosure Schedule, without the prior written consent of SFG, FWB will not, and
will cause each of its Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of FWB and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable
efforts 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 affect
upon FWB's ability to perform any of its material obligations under this
Agreement.
(b) CAPITAL STOCK. Other than pursuant to Rights Previously Disclosed
and outstanding on the date hereof and options for up to 60,000 shares of
FWB Common Stock to be issuable under FWB's Stock Plans, (i) issue, sell or
otherwise permit to become outstanding, or authorize the creation of, any
additional shares of FWB Stock or any Rights, (ii) enter into any agreement
with respect to the foregoing, or (iii) permit any additional shares of FWB
Stock to become subject to new grants of employee or director stock options,
other Rights or similar stock-based employee rights.
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(c) DIVIDENDS, ETC. (i) Make, declare, pay or set aside for payment
any dividend, other than (A) quarterly cash dividends on FWB Stock in an
amount not to exceed the per share amount declared and paid in its most
recent quarterly cash dividend, with record and payment dates as indicated
in Section 6.15 hereof, and (B) dividends from wholly owned Subsidiaries to
FWB, or (ii) directly or indirectly adjust, split, combine, redeem,
reclassify, 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 FWB or its
Subsidiaries (other than the normal extension of the four existing change of
control agreements with senior 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, (iii) to satisfy
Previously Disclosed contractual obligations existing as of the date hereof,
or (iv) for grants of awards to newly hired employees consistent with past
practice. FWB shall have available, to facilitate retention of FWB
employees, a bonus pool of up to $1 million for key employees of FWB for use
or commitment prior to the Closing Date, it being understood and agreed that
the designation of such employees and the amount of the bonus payable to
each of them shall be subject to the prior reasonable approval of SFG.
(e) BENEFIT PLANS. Enter into, establish, adopt or amend ((i) except
for a proposed amendment regarding early retirement under the existing
defined contribution plan which in any event will not materially increase
FWB's funding obligation thereunder, (ii) as may be required by applicable
law, (iii) to satisfy Previously Disclosed contractual obligations existing
as of the date hereof or (iv) the regular annual renewal of insurance
contracts) 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 FWB 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.
(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. 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.
(h) GOVERNING DOCUMENTS. Amend the FWB Articles, FWB By-Laws or the
articles of incorporation or by-laws (or similar governing documents) of any
of FWB's Subsidiaries, except for immaterial by-law amendments Previously
Disclosed to SFG.
(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. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material contract (as
defined in Section 5.03(k)) or amend or modify in any material respect any
of its existing material contracts, except for a proposed contract with
Marshall & Islay for trust accounting services.
(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
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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 FWB and its Subsidiaries,
taken as a whole.
(l) 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.
(m) RISK MANAGEMENT. Except pursuant to 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 other than
in the ordinary course of business.
(o) COMMITMENTS. Agree or commit to do any of the foregoing.
4.02 FORBEARANCES OF SFG. From the date hereof until the Effective Time,
except as expressly contemplated by this Agreement, without the prior written
consent of FWB, SFG will not, and will cause each of its Subsidiaries not to:
(a) ORDINARY COURSE. Conduct the business of SFG and its Subsidiaries
other than in the ordinary and usual course or fail to use reasonable
efforts 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 affect
upon SFG's ability to perform any of its material obligations under this
Agreement.
(b) PRESERVATION. Fail to use reasonable efforts to preserve intact in
any material respect their business organizations and assets and maintain
their rights, franchises and existing relations with customers, suppliers,
employees and business associates.
(c) EXTRAORDINARY DIVIDENDS. Make, declare, pay or set aside for
payment any dividend other than normal quarterly dividends in accordance
with past practice.
(d) 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.
(e) 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 SFG and its Subsidiaries, taken as a whole.
(f) 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
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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; provided, however, that nothing contained herein shall limit the
ability of SFG to exercise its rights under the Stock Option Agreement.
(g) RISK MANAGEMENT. Except pursuant to applicable law or regulation,
(i) fail to follow its existing policies or practices with respect to
managing its exposure to interest rate and other risk, or (ii) fail to use
commercially reasonable means to avoid any material increase in its
aggregate exposure to interest rate risk.
(h) COMMITMENTS. Agree or commit to do any of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 DISCLOSURE SCHEDULES. On or prior to the date hereof, SFG has
delivered to FWB a schedule and FWB has delivered to SFG 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 5.04 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. FWB'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 FWB arising solely from actions taken in compliance with a written
request of SFG.
5.02 STANDARD. No representation or warranty of FWB or SFG contained in
Section 5.03 or 5.04 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 fact,
circumstance or event, individually or taken together with all other facts,
events or circumstances inconsistent with any representation or warranty
contained in Section 5.03 or 5.04 has had, or is reasonably likely to have, a
Material Adverse Effect.
5.03 REPRESENTATIONS AND WARRANTIES OF FWB. 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, FWB hereby represents
and warrants to SFG:
(a) ORGANIZATION, STANDING AND AUTHORITY. FWB is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania 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. FWB 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. Bank is duly qualified to do business and is in good standing in
the Commonwealth of Pennsylvania 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.
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(b) CAPITAL STRUCTURE OF FWB. As of November 30, 1998, the authorized
capital stock of FWB consisted solely of 20,000,000 shares of FWB Common
Stock, of which 11,863,813 shares were outstanding as of November 30, 1998
(of which 685,273 shares are held as Treasury Stock and 42,858 shares are
unallocated shares held in FWB's Employee Stock Ownership Plan ("ESOP")) and
4,000,000 shares of FWB Preferred Stock, of which none were outstanding as
of November 30, 1998. The outstanding shares of FWB Common Stock have been
duly authorized, are validly issued and outstanding, fully paid and
nonassessable, and are not subject to any preemptive rights (and were not
issued in violation of any preemptive rights). As of November 30, 1998,
except as Previously Disclosed in its Disclosure Schedule, (i) there were no
shares of FWB Common Stock authorized and reserved for issuance, (ii) FWB
did not have any Rights issued or outstanding with respect to FWB Common
Stock, and (iii) FWB did not have any commitment to authorize, issue or sell
any FWB Common Stock or Rights, except pursuant to this Agreement and the
Stock Option Agreement. The number of shares of FWB Common Stock which were
issuable and reserved for issuance upon exercise of FWB Stock Options as of
November 30, 1998 were Previously Disclosed in FWB's Disclosure Schedule.
(c) SUBSIDIARIES. (i)(A) FWB 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, it owns, directly or
indirectly, 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 its rights to vote or to dispose
of such securities and (F) except as Previously Disclosed, all the equity
securities of each Subsidiary held by FWB or its Subsidiaries are fully paid
and nonassessable (except pursuant to 12 U.S.C. Section 55) and are owned by
FWB or its Subsidiaries free and clear of any Liens.
(ii) FWB 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 FWB'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 FWB
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; FWB has the corporate power and authority to execute, deliver and
perform its obligations under this Agreement and the Stock Option Agreement;
and Bank has the corporate power and authority to consummate the Subsidiary
Merger and the Agreement to Merge in accordance with the terms of this
Agreement.
(e) CORPORATE AUTHORITY. Subject to receipt of the requisite adoption
of this Agreement by the holders of a majority of the outstanding shares of
FWB Common Stock entitled to vote thereon (which is the only stockholder
vote required thereon), this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby have been authorized by all
necessary corporate action of FWB and the FWB Board prior to the date
hereof. The Agreement to Merge, when executed by Bank, shall have been
approved by the Board of Directors of Bank and by the FWB Board, as the sole
stockholder of Bank. This Agreement is a valid and legally
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binding obligation of FWB, 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 FWB Board has received the written opinion of
Sandler O'Neill & Partners, L.P. to the effect that as of the date hereof
the consideration to be received by the holders of FWB Common Stock in the
FWB Merger is fair to the holders of FWB 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 FWB or any of its
Subsidiaries in connection with the execution, delivery or performance by
FWB of this Agreement or the Stock Option Agreement or to consummate the
Merger except for (A) filings of applications, notices and the Agreement to
Merge, as applicable, with federal and state banking authorities, (B)
filings with the SEC and state securities authorities, and (C) the filing of
the articles of merger with the DSCP pursuant to the PBCL. As of the date
hereof, FWB 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 receipt of the regulatory and stockholder approvals
referred to 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 Stock
Option 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 FWB or of any of its
Subsidiaries or to which FWB or any of its Subsidiaries or properties is
subject or bound, (B) constitute a breach or violation of, or a default
under, the FWB Articles or the FWB By-Laws, 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 REPORTS AND SEC DOCUMENTS; MATERIAL ADVERSE EFFECT. (i)
FWB's Annual Reports on Form 10-K for the fiscal years ended December 31,
1995, 1996 and 1997 and all other reports, registration statements,
definitive proxy statements or information statements filed or to be filed
by it or any of its Subsidiaries subsequent to December 31, 1997 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, "FWB SEC DOCUMENTS") with the SEC,
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 SEC Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, the financial
position of FWB and its Subsidiaries as of its date, and each of the
statements of income and changes in stockholders' equity and cash flows or
equivalent statements in such FWB SEC Documents (including any related notes
and schedules thereto) fairly presents, or will fairly present, the results
of operations, changes in stockholders' equity and cash flows, as the case
may be, of FWB 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.
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(ii) Since December 31, 1997, FWB and its Subsidiaries have not
incurred any material liability not disclosed in FWB's SEC Documents,
other than in the ordinary course of business consistent with past
practice.
(iii) Since December 31, 1997, except as disclosed in the FWB SEC
Documents, (A) FWB 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) and (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 FWB.
(h) LITIGATION. No litigation, claim or other proceeding before any
court or governmental agency is pending against FWB or any of its
Subsidiaries and, to FWB's knowledge, no such litigation, claim or other
proceeding has been threatened.
(i) REGULATORY MATTERS.
(i) Neither FWB nor any of its Subsidiaries or properties is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from, any
federal or state governmental 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 (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 it 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 FWB and its Subsidiaries:
(i) is 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 FWB's knowledge, no
suspension or cancellation of any of them is threatened; and
(iii) has received, since December 31, 1997, no notification or
communication from any Governmental Authority (A) asserting that FWB 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 FWB's knowledge, do any grounds for any of the
foregoing exist).
(k) MATERIAL CONTRACTS; DEFAULTS. Except for this Agreement, the Stock
Option Agreement, those agreements and other documents filed as exhibits to
the FWB SEC Documents, neither it
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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). Neither
it nor any of its Subsidiaries 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. No action has been taken by FWB 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, except for a fee to be paid to Sandler
O'Neill & Partners, L.P.
(m) EMPLOYEE BENEFIT PLANS. (i) Section 5.03(m)(i) of FWB's Disclosure
Schedule contains a complete and accurate list of all existing bonus,
incentive, deferred compensation, pension, retirement, profit-sharing,
thrift, savings, employee stock ownership, stock bonus, stock purchase,
restricted stock, stock option, severance, welfare and fringe benefit plans,
employment or severance agreements and all similar practices, policies and
arrangements maintained or contributed to by FWB or any of its Subsidiaries
and in which any employee or former employee (the "EMPLOYEES"), consultant
or former consultant (the "CONSULTANTS") or director or former director (the
"DIRECTORS") of FWB or any of its Subsidiaries participates or to which any
such Employees, Consultants or Directors are a party (the "COMPENSATION AND
BENEFIT PLANS"). Neither FWB nor any of its Subsidiaries has any commitment
to create any additional Compensation and Benefit Plan or to 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 FWB 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 FWB, threatened legal action, suit or claim relating to the
Compensation and Benefit Plans other than routine claims for benefits
thereunder. Neither FWB 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 FWB 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
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be incurred by FWB 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")
which is considered one employer with FWB under Section 4001(a)(14) of
ERISA or Section 414(b) or (c) of the Code (an "ERISA AFFILIATE PLAN").
None of FWB, 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 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 FWB's knowledge, no condition exists that presents
a material risk that such proceedings will be instituted. To the
knowledge of FWB, 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
FWB or any of its Subsidiaries is a party have been timely made or have
been reflected on FWB'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 FWB, 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.
(v) Neither FWB 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. There has been no communication to Employees
by FWB 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) FWB 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, FWB has provided or made available to SFG, true and complete
copies of existing: (A) Compensation
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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) the
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 or Form 5330
filed within the past year with the IRS; and (I) most recent
nondiscrimination tests performed under ERISA and the Code (including
401(k) and 401(m) tests).
(viii) Except as disclosed on Section 5.03(m)(viii) of FWB'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 FWB's Disclosure
Schedule, neither FWB 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 FWB'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 SFG, FWB 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 FWB 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 FWB 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
FWB 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 FWB 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 FWB's knowledge,
threatened, nor is FWB 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.
(o) TAKEOVER LAWS. FWB has taken all action required to be taken by it
in order to exempt this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby from, and this Agreement, the
Stock Option Agreement and the transactions contemplated hereby and thereby
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") applicable to it, including, without limitation, the Commonwealth of
Pennsylvania, and including, without limitation, Subchapters D (Section
2538), E, F, G, H, I and J of Chapter 25 of the PBCL.
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(p) ENVIRONMENTAL MATTERS. To FWB's knowledge, neither the conduct nor
operation of FWB 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, violates or violated Environmental Laws and to FWB's
knowledge, no condition has existed or event has occurred with respect to
any of them or any such property that, with notice or the passage of time,
or both, is reasonably likely to result in liability under Environmental
Laws. To FWB's knowledge, neither FWB nor any of its Subsidiaries has
received any notice from any person or entity that FWB 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.
(q) TAX MATTERS. (i) All Tax Returns that are required to be filed by
or with respect to FWB and its Subsidiaries have been duly filed, (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 been
examined by the Internal Revenue Service or the appropriate state, local or
foreign taxing authority or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired,
(iv) all deficiencies asserted or assessments made as a result of such
examinations have been paid in full, (v) 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 (vi) no
waivers of statutes of limitation have been given by or requested with
respect to any Taxes of FWB or its Subsidiaries. FWB has made or will make
available to SFG true and correct copies of the United States federal income
Tax Returns filed by FWB and its Subsidiaries for each of the three most
recent fiscal years ended on or before December 31, 1997. Neither FWB nor
any of its Subsidiaries has any liability with respect to income, franchise
or similar Taxes that accrued on or before the end of the most recent period
covered by FWB's SEC Documents filed prior to the date hereof in excess of
the amounts accrued with respect thereto that are reflected in the financial
statements included in FWB's SEC Documents filed on or prior to the date
hereof. As of the date hereof, neither FWB nor any of its Subsidiaries has
any reason to believe that any conditions exist that might prevent or impede
the FWB Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
(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.
(iii) FWB and its Subsidiaries will not be liable for any taxes as a
result of any Covered Transaction.
(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 FWB's own
account, or for the account of one or more of FWB's Subsidiaries or their
customers (all of which are listed on FWB'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 FWB 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 FWB nor its
Subsidiaries, nor to FWB's knowledge any other party thereto, is in breach
of any of its obligations under any such agreement or arrangement.
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(s) BOOKS AND RECORDS. The books and records of FWB and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Securities
Exchange Act of 1934, as amended, and there are no material inaccuracies or
discrepancies of any kind contained or reflected therein and they fairly
reflect the substance of events and transactions included therein.
(t) INSURANCE. FWB's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by FWB or its Subsidiaries.
FWB and its Subsidiaries are insured with reputable insurers against such
risks and in such amounts as the management of FWB reasonably has determined
to be prudent in accordance with industry practices. All such insurance
policies are in full force and effect; FWB 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 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 5.03 not misleading.
(w) YEAR 2000. Neither FWB nor any of its Subsidiaries has received,
or has reason to believe that it will receive, a rating of less than
"satisfactory" on any Office of the Comptroller of the Currency or other
Regulatory Authority Year 2000 Report of Examination. FWB has disclosed to
SFG 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. FWB has not, on a consolidated basis,
suffered a change in its business, financial condition or results of
operations since December 31, 1997, except as disclosed in the FWB SEC
Documents, that has had a Material Adverse Effect on FWB.
(y) ABSENCE OF UNDISCLOSED LIABILITIES. Neither FWB nor any of its
Subsidiaries has any liability (contingent or otherwise) that is material to
FWB on a consolidated basis, or that, when combined with all liabilities as
to similar matters would be material to FWB on a consolidated basis, except
as disclosed in the FWB Financial Statements.
(z) PROPERTIES. FWB 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 on the FWB Financial Statements as being owned by FWB as of
December 31, 1997 or acquired after such date, except (i) statutory liens
for amounts not yet due and payable, (ii) pledges to secure deposits and
other liens incurred 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 materially impair
business operations at such properties, (iv) dispositions and encumbrances
in the ordinary course of business, and (v) liens on properties acquired in
foreclosure or on account of debts previously contracted. All leases
pursuant to which FWB or any of its Subsidiaries, as lessee, leases real or
personal property (except for leases that have expired by their terms or
that FWB or any such Subsidiary has agreed to terminate since the date
hereof) are valid without default thereunder by the lessee or, to FWB's
knowledge, the lessor.
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(aa) LOANS. Each loan reflected as an asset in the FWB financial
statements as of December 31, 1997 and each balance sheet date subsequent
thereto, other than loans the unpaid balance of which does not exceed $1
million 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
interests 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, as
of December 31, 1997, Bank is not a party to a loan, including any loan
guaranty, with any director, executive officer or 5% shareholder of FWB 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(b) of the Federal Reserve Act, as
amended, or to 12 C.F.R. Section 563.43, comply therewith.
(bb) ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses
reflected on the FWB Financial Statements, as of their respective dates, is
adequate in all material respects 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 FWB or any of its Subsidiaries has purchased securities subject to an
agreement to resell, if any, FWB 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 SFG. 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, SFG hereby represents
and warrants to FWB as follows :
(a) ORGANIZATION, STANDING AND AUTHORITY. SFG is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Ohio. SFG 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. SFG is registered as a bank holding company under the BHCA. CBC
is a state banking association duly organized, validly existing and in good
standing under the laws of the State of Ohio. CBC 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.
(b) SFG STOCK. (i) As of November 30, 1998, the authorized capital
stock of SFG consists of 160,000,000 shares, of which 150,000,000 shares are
SFG Common Stock, of which 45,095,083 shares were outstanding as of November
30, 1998, and 10,000,000 shares are SFG serial preferred stock, par value
$10.00 per share, of which no shares are outstanding as of November 30,
1998. As of November 30, 1998, except as set forth in its Disclosure
Schedule, SFG does not have any Rights issued or outstanding with respect to
SFG Common Stock and SFG does not have any commitment to authorize, issue or
sell any SFG Common Stock or Rights, except pursuant to this Agreement. The
outstanding shares of SFG Common Stock have been duly authorized and are
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validly issued and outstanding, fully paid and nonassessable, and subject to
no preemptive rights (and were not issued in violation of any preemptive
rights).
(ii) The shares of SFG Common Stock to be issued in exchange for
shares of FWB Common Stock in the FWB 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) SUBSIDIARIES. SFG has Previously Disclosed a list of all its
Subsidiaries together with the jurisdiction or organization of each
Subsidiary. Each of SFG'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 is 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 and it owns, directly
or indirectly, all the issued and outstanding equity securities of each of
its Significant Subsidiaries.
(d) CORPORATE POWER. Each of SFG 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 SFG has the
corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate the transactions contemplated hereby and thereby.
(e) CORPORATE AUTHORITY; AUTHORIZED AND EFFECTIVE AGREEMENT. Subject
in the case of this Agreement to receipt of the requisite adoption of this
Agreement by the holders of a majority of the outstanding shares of SFG
Common Stock entitled to vote thereon, this Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby have been
authorized by all necessary corporate action of SFG and the SFG Board prior
to the date hereof and no stockholder approval is required on the part of
SFG. The Agreement to Merge, when executed by CBC, shall have been approved
by the Board of Directors of CBC and by the SFG Board, as the sole
stockholder of CBC. This Agreement is a valid and legally binding agreement
of SFG, 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).
(f) 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 SFG or any of its
Subsidiaries in connection with the execution, delivery or performance by
SFG of this Agreement or to consummate the Merger except for (A) the filing
of applications, notices, or the Agreement to Merge, as applicable, with the
federal and state banking authorities; (B) the filing and declaration of
effectiveness of the Registration Statement; (C) the filing of the articles
of merger with the DSCP pursuant to the PBCL; (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 SFG Common Stock in the FWB Merger; and (E) receipt of the
approvals set forth in Section 7.01(b). As of the date hereof, SFG 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
SFG
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or of any of its Subsidiaries or to which SFG 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 SFG 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.
(g) FINANCIAL REPORTS AND SEC DOCUMENTS; MATERIAL ADVERSE EFFECT. (i)
SFG's supplemental consolidated financial statements as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31,
1997, as filed with the SEC on SFG's Current Report on Form 8-K dated
October 15, 1998 (which include the financial statements of Mid Am, Inc.,
Citizens Bancshares, Inc., Century Financial Corporation and Unibank),
copies of which have been delivered to FWB, 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, 1997 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, "SFG 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 SFG SEC
Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the financial position of SFG and its
Subsidiaries as of its date, and each of the statements of income or results
of operations and changes in stockholders' equity and cash flows or
equivalent statements in such SFG SEC Documents (including any related notes
and schedules thereto) fairly presents, or will fairly present, the results
of operations, changes in shareholders' equity and cash flows, as the case
may be, of SFG 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 in the case
of unaudited statements.
(ii) The Ohio Bank and the Unibank financial statements as of
December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, copies of which have been delivered to FWB, (A)
complied or will comply in all material respects with generally accepted
accounting principles, 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.
(iii) Each of Mid Am Inc.'s ("MID AM") and Citizens Bancshares,
Inc.'s ("CITIZENS") Annual Reports on Form 10-K for the fiscal years
ended December 31, 1995, 1996 and 1997 and all other reports,
registration statements, definitive proxy statements or information
statements filed or to be filed by either of them or any of their
respective Subsidiaries subsequent to December 31, 1997 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, "THE MID AM/CITIZENS SEC
DOCUMENTS") with the SEC, 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 SEC Document (including the related notes and schedules thereto)
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fairly presents, or will fairly present, the financial position of each
of Mid Am and Citizens, respectively, and their respective Subsidiaries
as of its date, and each of the statements of income and changes in
stockholders' equity and cash flows or equivalent statements in such Mid
Am/Citizens SEC Documents (including any Mid Am/Citizens related notes
and schedules thereto) fairly presents, or will fairly present, the
results of operations, changes in stockholders' equity and cash flows, as
the case may be, of each of Mid Am and Citizens, respectively, and their
respective 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.
(iv) To SFG's knowledge (without any independent investigation),
Century Financial Corporation's ("CENTURY") Annual Reports on Form 10-K
for the fiscal years ended December 31, 1995, 1996 and 1997 and all other
reports, registration statements, definitive proxy statements or
information statements filed or to be filed by it or any of its
Subsidiaries subsequent to December 31, 1997 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, "CENTURY SEC DOCUMENTS") with the SEC, 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 Century SEC Document (including
the related notes and schedules thereto) fairly presents, or will fairly
present, the financial position of Century and its Subsidiaries as of its
date, and each of the statements of income and changes in stockholders'
equity and cash flows or equivalent statements in such Century SEC
Documents (including any related notes and schedules thereto) fairly
presents, or will fairly present, the results of operations, changes in
stockholders' equity and cash flows, as the case may be, of Century 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.
(v) Since December 31, 1997, 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 SFG, except as disclosed in the SFG, Mid Am/Bancshares and
Century SEC Documents.
(h) LITIGATION; REGULATORY ACTION. (i) No litigation, claim or other
proceeding before any court or governmental agency is pending against SFG or
any of its Subsidiaries and, to the best of SFG's knowledge, no such
litigation, claim or other proceeding has been threatened.
(ii) Neither SFG nor any of its Subsidiaries or properties is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from a
Regulatory Authority, nor has SFG or any of its Subsidiaries been advised
by a Regulatory Authority that such agency 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.
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(i) COMPLIANCE WITH LAWS. Each of SFG and its Subsidiaries:
(i) is 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; and
(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
conduct their businesses substantially as presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in
full force and effect and, to the best of its knowledge, no suspension or
cancellation of any of them is threatened; and
(iii) has received, since December 31, 1996, no notification or
communication from any Governmental Authority (A) asserting that SFG 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 SFG's knowledge, do any grounds for any of the
foregoing exist).
(j) BROKERAGE AND FINDER'S FEES. Except for fees payable to its
financial advisor, McDonald Investments, Inc. ("MCDONALD"), SFG 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.
(k) TAKEOVER LAWS. SFG has taken all action required to be taken by it
in order to exempt this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby from, and this Agreement, the
Stock Option Agreement and the transactions contemplated hereby and thereby
are exempt from, the requirements of any Takeover Laws applicable to SFG.
(l) ENVIRONMENTAL MATTERS. To SFG's knowledge, neither the conduct nor
operation of SFG 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, violated Environmental Laws and to SFG's knowledge no
condition has existed or event has occurred with respect to any of them or
any such property that, with notice or the passage of time, or both, is
reasonably likely to result in liability under Environmental Laws. To SFG's
knowledge, neither SFG nor any of its Subsidiaries has received any notice
from any person or entity that SFG 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.
(m) TAX MATTERS. (i) All Tax Returns that are required to be filed by
or with respect to SFG and its Subsidiaries have been duly filed, (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 been
examined by the Internal Revenue Service or the appropriate state, local or
foreign taxing authority or the period for assessment of the Taxes in
respect of which such Tax Returns were required to be filed has expired,
(iv) all deficiencies asserted or assessments made as a result of such
examinations have been paid in full, (v) 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
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currently pending, and (vi) no waivers of statutes of limitation have been
given by or requested with respect to any Taxes of SFG or its Subsidiaries.
Neither SFG nor any of its Subsidiaries has any liability with respect to
income, franchise or similar Taxes that accrued on or before the end of the
most recent period covered by SFG's SEC Documents filed prior to the date
hereof in excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in SFG's SEC Documents filed
on or prior to the date hereof. As of the date hereof, SFG has no reason to
believe that any conditions exist that might prevent or impede the FWB
Merger from qualifying as a reorganization with the meaning of Section
368(a) of the Code.
(n) BOOKS AND RECORDS. The books and records of SFG and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, have been maintained in accordance with sound business
practices and the requirements of Section 13(b)(2) of the Securities
Exchange Act of 1934, as amended, and there are no material inaccuracies or
discrepancies of any kind contained or reflected therein, and they fairly
present the substance of events and transactions included therein.
(o) INSURANCE. SFG's Disclosure Schedule sets forth all of the
insurance policies, binders, or bonds maintained by SFG or its Subsidiaries.
SFG and its Subsidiaries are insured with reputable insurers against such
risks and in such amounts as the management of SFG reasonably has determined
to be prudent in accordance with industry practices. All such insurance
policies are in full force and effect; SFG and its Subsidiaries are not in
material default thereunder; and all claims thereunder have been filed in
due and timely fashion.
(p) ACCOUNTING TREATMENT. As of the date hereof, SFG is aware of no
reason why the Merger will fail to qualify for "pooling-of-interests"
accounting treatment and is aware of no reason why any other merger of SFG
consummated within the prior two years will fail to so qualify.
(q) CONTRACTS. Neither SFG nor any of its Subsidiaries 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.
(r) 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.
(s) 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 SFG's own
account, or for the account of one or more of its Subsidiaries or their
customers, were entered into (i) in accordance with prudent business
practices and all applicable laws, rules, regulations and regulatory
policies and with counterparties believed to be financially responsible at
the time; and each of them constitutes the valid and legally binding
obligation of SFG 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 SFG nor
its Subsidiaries, nor to SFG's knowledge any other party thereto, is in
breach of any of its obligations under any such agreement or arrangement in
any material respect.
(t) YEAR 2000. Neither SFG nor any of its Subsidiaries has received,
or has reason to believe that it will receive, a rating of less than
"satisfactory" on any Year 2000 Report of Examination of
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any Regulatory Authority. SFG has disclosed to FWB 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.
(u) MATERIAL ADVERSE CHANGE. SFG has not, on a consolidated basis,
suffered a change in its business, financial condition or results of
operations since December 31, 1997 that has had a Material Adverse Effect on
SFG, except as described in the SFG, Mid Am/Citizens and Century SEC
Documents.
(v) LOANS. Each loan reflected as an asset in the SFG financial
statements as of December 31, 1997 and each balance sheet date subsequent
thereto, other than loans the unpaid balance of which does not exceed $1
million 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
interests 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, as
of December 31, 1997, CBC is not a party to a loan, including any loan
guaranty, with any director, executive officer or 5% shareholder of SFG 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(b) of the Federal Reserve Act, as
amended, or to 12 C.F.R. Section 563.43, comply therewith.
(w) ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses reflected
on the SFG financial statements, as of their respective dates, is adequate
in all material respects under the requirements of generally accepted
accounting principles to provide for reasonably anticipated losses on
outstanding loans.
(x) REPURCHASE AGREEMENTS. With respect to all agreements pursuant to
which SFG or any of its Subsidiaries has purchased securities subject to an
agreement to resell, if any, SFG 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.
(y) DEPOSIT INSURANCE. The deposits of CBC are insured by the FDIC in
accordance with the FDIA, and CBC has 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 FWB and SFG agrees to use their 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.
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6.02 STOCKHOLDER APPROVALS. FWB agrees to take, in accordance with
applicable law and the FWB Articles and FWB By-Laws, all action necessary to
convene an appropriate meeting of its stockholders to consider and vote upon the
adoption of this Agreement and any other matters required to be approved or
adopted by FWB's stockholders for consummation of the FWB Merger (including any
adjournment or postponement, the "FWB MEETING"), as promptly as practicable
after the Registration Statement is declared effective. The FWB Board shall
recommend that its stockholders adopt this Agreement at the FWB Meeting unless
otherwise necessary under the applicable fiduciary duties of the FWB Board, as
determined by the FWB Board in good faith after consultation with and based upon
advice of independent legal counsel. SFG agrees to take, in accordance with
applicable law, the SFG Articles and SFG Code, all action necessary to convene
an appropriate meeting of its stockholders to consider and vote upon the
adoption of this Agreement and any other matters required to be approved or
adopted by SFG's stockholders for consummation of the FWB Merger (including any
adjournment or postponement, the "SFG MEETING"), as promptly as practicable
after the Registration Statement is declared effective. The SFG Board shall
recommend that its stockholders adopt this Agreement at the SFG Meeting unless
otherwise necessary under the applicable fiduciary duties of the SFG Board, as
determined by the SFG Board in good faith after consultation with and based upon
advice of independent legal counsel.
6.03 REGISTRATION STATEMENT. (a) SFG 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 SFG with the SEC in connection with the
issuance of SFG Common Stock in the FWB Merger (including the proxy statement
and prospectus and other proxy solicitation materials of FWB constituting a part
thereof (the "PROXY STATEMENT") and all related documents). FWB agrees to
cooperate, and to cause its Subsidiaries to cooperate, with SFG, its counsel and
its accountants, in preparation of the Registration Statement and the Proxy
Statement; and PROVIDED that FWB and its Subsidiaries have cooperated as
required above, SFG agrees to file the Proxy Statement and the Registration
Statement (together, the "PROXY/PROSPECTUS") with the SEC as promptly as
reasonably practicable. Each of FWB and SFG 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. SFG 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. FWB agrees to furnish to SFG all information concerning FWB, its
Subsidiaries, officers, directors and stockholders as may be reasonably
requested in connection with the foregoing.
(b) Each of FWB and SFG 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 not misleading, and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to the FWB stockholders and at the time of the FWB 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 or any statement which, in the light of the circumstances under
which such statement is made, will be false or misleading with respect to any
material fact, or which will omit to state any material fact necessary in order
to make the statements therein not false or misleading or necessary to correct
any statement in any earlier statement in the Proxy Statement or any amendment
or supplement thereto. Each of FWB and SFG further agrees that 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 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 Proxy Statement.
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(c) SFG agrees to advise FWB, promptly after SFG 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 stop order or the suspension
of the qualification of SFG 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.
6.04 PRESS RELEASES. Each of FWB and SFG 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 NASDAQ
rules.
6.05 ACCESS; INFORMATION. (a) Each of FWB and SFG agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, it shall afford the other party and the other party'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 any party may reasonably request and, during such period, it
shall furnish promptly to such other party (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 it as the other may reasonably request.
(b) Each agrees that it will not, and will cause its representatives not to,
use any information obtained pursuant to this Section 6.05 (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 Section
6.05 (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,
each party shall promptly furnish the other with copies of all monthly and other
interim financial statements produced in the ordinary course of business as the
same shall become available.
6.06 ACQUISITION PROPOSALS. FWB 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 FWB 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 SFG 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. FWB
shall promptly (within 24 hours) advise SFG following the receipt by FWB of any
Acquisition Proposal
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and the substance thereof (including the identity of the person making such
Acquisition Proposal), and advise SFG of any material developments with respect
to such Acquisition Proposal immediately upon the occurrence thereof.
6.07 AFFILIATE AGREEMENTS. (a) Not later than the 15th day prior to the
mailing of the Proxy Statement, FWB shall deliver to SFG 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 FWB Meeting, deemed to be an "affiliate" of FWB (each, a "FWB
AFFILIATE") as that term is used in Rule 145 under the Securities Act or SEC
Accounting Series Releases 130 and 135. FWB shall use its reasonable best
efforts to cause each person who may be deemed to be a FWB Affiliate to execute
and deliver to FWB on or before the date of mailing of the Proxy Statement an
agreement in the form attached hereto as Exhibit B.
6.08 TAKEOVER LAWS. No party hereto shall take any action that would cause
the transactions contemplated by this Agreement or the Stock Option 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.
6.09 CERTAIN POLICIES. Prior to the Effective Date, FWB shall, consistent
with generally accepted accounting principles and on a basis mutually
satisfactory to it and SFG, modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) so as to be applied on a basis that is consistent with that
of SFG; PROVIDED, HOWEVER, that FWB shall not be obligated to take any such
action pursuant to this Section 6.09 unless and until SFG acknowledges that all
conditions to its obligation to consummate the Merger have been satisfied and
certifies to FWB that SFG's representations and warranties, subject to Section
5.02, are true and correct as of such date and that SFG is otherwise material in
compliance with this Agreement. FWB's representations, warranties and covenants
contained in this Agreement shall not be deemed to be untrue or breached in any
respect for any purpose as a consequence of any modifications or changes
undertaken solely on account of this Section 6.09.
6.10. NASDAQ LISTING. SFG shall file a listing application, or a NASDAQ
Notification Form for Change in the Number of Shares Outstanding, as required by
NASDAQ, with respect to the shares of SFG Common Stock to be issued to the
holders of FWB Common Stock in the Merger.
6.11 REGULATORY APPLICATIONS. (a) SFG and FWB 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 SFG and FWB 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.
(b) Each party agrees, upon request, to furnish the other party with all
information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably
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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.
6.12 INDEMNIFICATION. (a) Following the Effective Date, SFG shall
indemnify, defend and hold harmless the present directors, officers and
employees of FWB and its Subsidiaries (each, an "INDEMNIFIED PARTY") against all
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 FWB is permitted to indemnify (and advance expenses to) its
directors, officers, and employees under the laws of the State of Pennsylvania,
the FWB Articles and the FWB By-Laws 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
Pennsylvania law, the FWB Articles and the FWB By-Laws shall be made by
independent counsel (which shall not be counsel that provides material services
to SFG) selected by SFG and reasonably acceptable to such officer, director or
employee.
(b) For a period of three years from the Effective Time, SFG 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 FWB or any of its Subsidiaries (determined as of the Effective
Time) (as opposed to FWB) 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 SFG may substitute therefor policies providing at least comparable
coverage containing terms and conditions no less favorable than those in effect
on the date hereof; and PROVIDED, FURTHER, that officers and directors of FWB or
any Subsidiary may be required to make application and provide customary
representations and warranties to SFG's insurance carrier for the purpose of
obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under Section
6.12(a), upon learning of any claim, action, suit, proceeding or investigation
described above, shall promptly notify SFG thereof; PROVIDED that the failure so
to notify shall not affect the obligations of SFG under Section 6.12(a) unless
and to the extent that SFG is actually prejudiced as a result of such failure.
(d) If SFG 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 of
its assets to any entity, then and in each case, proper provision shall be made
so that the successors and assigns of SFG shall assume the obligations set forth
in this Section 6.12.
6.13 OPPORTUNITY OF EMPLOYMENT; EMPLOYEE BENEFITS. The existing employees
of FWB shall have the opportunity to continue as employees of SFG or one of its
Subsidiaries, on the Closing Date; subject, however, to the right of SFG and its
Subsidiaries to terminate any such employees either (i) for "cause" or (ii)
pursuant to the procedures set forth in the SFG Workforce Redesign Process
previously disclosed to FWB. It is understood and agreed that nothing in this
Section 6.13 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, FWB employees shall continue to participate in the FWB employee benefit
plans in effect at the Effective Time unless and until SFG, in its sole
discretion, shall determine that FWB employees shall, subject to applicable
eligibility requirements, participate in employee benefit plans of SFG and that
all or some of the FWB plans shall be terminated or merged into certain employee
benefit plans of SFG. Notwithstanding the foregoing, each FWB employee shall be
credited with years of FWB (or predecessor) service for purposes of eligibility
and vesting in the employee benefit plans of SFG.
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6.14 NOTIFICATION OF CERTAIN MATTERS. Each of FWB and SFG shall give
prompt notice to the other of any fact, event or circumstance known to it 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.
6.15 DIVIDEND COORDINATION. It is agreed by the parties hereto that they
will cooperate to assure that as a result of the FWB Merger, during any
applicable period, there shall not be a payment of both a SFG and a FWB
dividend. The parties further agree that if the Effective Closing Date is at the
end of a fiscal quarter, then they will cooperate to assure that the FWB
shareholders receive the dividend, if any, declared by FWB rather than the
dividend for that period, if any, declared by SFG. FWB intends to change its
existing dividend payment policy such that for 1999 its dividends shall be
declared with record and payment dates the same as SFG's. To accomplish this
program, FWB shall declare a dividend equal to 2/3's of what its normal dividend
for its fiscal dividend quarter ended January 31, 1999 would have been, which
dividend shall be payable January 4, 1999 to shareholders of record on December
24, 1998. In no event will the selection of the Effective Date cause the
stockholders of FWB to lose a quarterly or a portion of a quarterly dividend.
6.16 SFG BOARD REPRESENTATION. SFG shall cause its Executive Committee to
nominate for election Thomas J. O'Shane and Robert C. Duvall to the SFG Board
and Thomas J. O'Shane to the Executive Committee, which nominees shall be
recommended by FWB and selected by SFG in its discretion. Additional matters
regarding future representation are as set forth in a letter dated of even date
herewith from SFG.
6.17 RESULTING BANK BOARD OF DIRECTORS. Following the consummation of the
Subsidiary Merger, it is contemplated that six (6) members of the FWB Board of
Directors will be selected by SFG to serve as directors of the Resulting Bank to
be recommended by FWB and to be selected by SFG in its reasonable discretion.
6.18 FORMATION OF ADVISORY BOARD. Following the consummation of the
Subsidiary Merger, the members of the FWB Board of Directors who do not become
members of the Resulting Bank's Board of Directors shall be given the
opportunity to serve on an advisory board to the Resulting Bank.
6.19 ACCOUNTING AND TAX TREATMENT. Each of SFG and FWB 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 FWB or the shareholders of FWB to characterize the Merger as a tax-free
reorganization under Section 368(a) of the Code, and each of SFG and FWB 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 SFG or FWB (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.
6.20 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 SFG and FWB 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.
6.21 CONSENTS. Each of SFG and FWB shall use its best efforts to obtain
any required consents to the transactions contemplated by this Agreement.
6.22 INSURANCE COVERAGE. FWB shall cause the policies of insurance listed
in the Disclosure Schedule to remain in effect between the date of this
Agreement and the Closing Date.
6.23 CORRECTION OF INFORMATION. Each of SFG and FWB shall promptly correct
and supplement any information furnished under this Agreement so that such
information shall be correct and complete
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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.
6.24 CONFIDENTIALITY. Except for the use of information in connection with
the Registration Statement described in Section 7.1 hereof and any other
governmental filings required in order to complete the transactions contemplated
by this Agreement, all information (collectively, the "INFORMATION") received by
each of FWB and SFG, pursuant to the terms of this Agreement shall be kept in
strictest confidence; provided that, subsequent to the filing of the
Registration Statement with the Securities and Exchange Commission, this Section
6.24 shall not apply to information included in the Registration Statement or to
be included in the official proxy/prospectus to be sent to the shareholders of
FWB and SFG under Section 6.03. FWB and SFG agree that the Information will be
used only for the purpose of completing the transactions contemplated by this
Agreement. FWB and SFG agree to hold the Information in strictest confidence and
shall not use, and shall not disclose directly or indirectly any of such
Information except when, after and to the extent such Information (i) is or
becomes generally available to the public other than through the failure of FWB
or SFG to fulfill its obligations hereunder, (ii) was already known to the party
receiving the Information on a nonconfidential basis prior to the disclosure or
(iii) is subsequently disclosed to the party receiving the Information on a
nonconfidential basis by a third party having no obligation of confidentiality
to the party disclosing the Information. It is agreed and understood that the
obligations of FWB and SFG contained in this Section 6.24 shall survive the
Closing. In the event the transactions contemplated by this Agreement are not
consummated, FWB and SFG agree to return all copies of the Information provided
to the other promptly.
6.25 SUPPLEMENTAL ASSURANCES. (a) On the date the Registration Statement
becomes effective and on the Effective Date, FWB shall deliver to SFG 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 FWB, 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, SFG shall deliver to FWB 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 FWB) 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.
6.26 EMPLOYMENT AGREEMENT. As a result of the FWB Merger, Thomas J.
O'Shane, Chief Executive Officer of FWB, shall be entitled to payment under an
existing change in control agreement. Immediately thereafter, SFG shall enter
into a new 10-year employment agreement at a base compensation of $275,000 per
year plus a 50% incentive compensation opportunity under SFG's incentive
compensation plan and an appropriate amount of stock options for the new
position on terms and conditions mutually satisfactory to SFG and the said Chief
Executive Officer.
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 SFG and FWB to consummate the Merger is subject
to the fulfillment or written waiver by SFG and FWB prior to the Effective Time
of each of the following conditions:
(a) STOCKHOLDER APPROVALS. This Agreement shall have been duly adopted
by the requisite vote of the stockholders of SFG and FWB.
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(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 shall contain (i)
any conditions, restrictions or requirements which the SFG Board reasonably
determines would either before or after the Effective Time have a Material
Adverse Effect on SFG and its Subsidiaries taken as a whole after giving
effect to the consummation of the Merger, or (ii) any conditions,
restrictions or requirements that are not customary and usual for approvals
of such type and which the SFG Board reasonably determines would either
before or after the Effective Date be unduly burdensome.
(c) NO INJUNCTION. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
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 SFG Common Stock to be issued in the FWB
Merger shall have been received and be in full force and effect.
(f) ACCOUNTING TREATMENT. SFG shall have received from Crowe, Chizek
and Company, LLP, SFG's independent auditors, a letter, dated the date of or
shortly prior to each of the mailing date of the Proxy Statement and the
Effective Date, stating its opinion that the Merger shall qualify for
pooling-of-interests accounting treatment.
7.02 CONDITIONS TO OBLIGATION OF FWB. The obligation of FWB to consummate
the Merger is also subject to the fulfillment or written waiver by FWB prior to
the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of SFG 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 the date of this Agreement or
some other date shall be true and correct as of such date), and FWB shall
have received a certificate, dated the Effective Date, signed on behalf of
SFG by the Chief Executive Officer and the Chief Financial Officer of SFG to
such effect.
(b) PERFORMANCE OF OBLIGATIONS OF SFG. SFG shall have performed in all
material respects all obligations required to be performed by them under
this Agreement at or prior to the Effective Time, and FWB shall have
received a certificate, dated the Effective Date, signed on behalf of SFG by
the Chief Executive Officer and the Chief Financial Officer of SFG to such
effect.
(c) TAX OPINION. FWB shall have received an opinion of counsel to SFG,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the FWB
Merger constitutes a "reorganization" within the meaning of Section 368 of
the Code and (ii) no gain or loss will be recognized by stockholders of FWB
who receive shares of SFG Common Stock in exchange for shares of FWB 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 SFG's independent auditors
may require and rely upon representations contained in letters from FWB and
SFG.
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(d) OPINION OF SFG'S COUNSEL. FWB shall have received an opinion of
Squire, Sanders & Dempsey L.L.P., counsel to SFG, dated the Effective Date,
to the effect that, on the basis of the facts, representations and
assumptions set forth in the opinion, (i) SFG is a corporation duly
organized and in good standing under the laws of the State of Ohio, (ii)
this Agreement has been duly executed by SFG and constitutes the binding
obligation of SFG, enforceable in accordance with its terms against SFG,
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, (iii) that, assuming approval of SFG's stockholders, the
SFG Common Stock to be issued as Merger Consideration, when issued, shall be
duly authorized, fully paid and non-assessable, and (iv) that, assuming
approval of SFG's stockholders, upon the filing of the articles of merger
with the DSCP, the FWB Merger shall become effective.
(e) FAIRNESS OPINION. FWB shall have received a fairness opinion from
Sandler O'Neill & Partners, L.P., financial advisor to FWB, dated as of a
date reasonably proximate to the date of the Proxy Statement, stating that
the Merger Consideration is fair to the stockholders of FWB from a financial
point of view.
7.03 CONDITIONS TO OBLIGATION OF SFG. The obligation of SFG to consummate
the Merger is also subject to the fulfillment or written waiver by SFG prior to
the Effective Time of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of FWB 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 the date of this Agreement or
some other date shall be true and correct as of such date) and SFG shall
have received a certificate, dated the Effective Date, signed on behalf of
FWB by the Chief Executive Officer and the Chief Financial Officer of FWB to
such effect.
(b) PERFORMANCE OF OBLIGATIONS OF FWB. FWB 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 SFG shall have received a
certificate, dated the Effective Date, signed on behalf of FWB by the Chief
Executive Officer and the Chief Financial Officer of FWB to such effect.
(c) OPINION OF FWB'S COUNSEL. SFG shall have received an opinion of
Kirkpatrick and Lockhart, LLP counsel to FWB, dated the Effective Date, to
the effect that, on the basis of the facts, representations and assumptions
set forth in the opinion, (i) FWB is a corporation duly organized and in
good standing under the laws of the Commonwealth of Pennsylvania, (ii) this
Agreement has been duly executed by FWB and constitutes a binding obligation
on FWB, enforceable in accordance with its terms against FWB, 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, assuming approval of FWB's stockholders, upon
the filing of the articles of merger with the DSCP, the FWB Merger shall
become effective.
(d) AFFILIATE AGREEMENTS. SFG shall have received the agreements
referred to in Section 6.07 from each affiliate of FWB.
(e) FAIRNESS OPINION. SFG shall have received a fairness opinion from
McDonald, dated as of a date reasonably proximate to the date of the Proxy
Statement, stating that the Merger Consideration is fair to the stockholders
of SFG from a financial point of view.
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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 SFG and FWB, 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 SFG or FWB, if
its Board of Directors so determines by vote of a majority of the members of
its entire Board, 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 5.02), 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; 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 (whether under (i) or (ii)) 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 SFG or FWB, if
its Board of Directors so determines by vote of a majority of the members of
its entire Board, in the event that the FWB Merger is not consummated by
September 30, 1999, except to the extent that the failure of the FWB 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 FWB or SFG, if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, 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 FWB stockholders fail to adopt this
Agreement at the FWB Meeting; or (iii) any of the closing conditions have
not been met as required by Article VII hereof.
(e) SFG COMMON STOCK. By FWB in accordance with the procedures set
forth in Exhibit C hereto if its Board of Directors so determines by a vote
of the majority of its entire Board of Directors in the event the Average
NMS Closing Price (as defined below) of SFG Common Stock is (i) lower than
$25.00 AND (ii) is more than ten percent (10%) lower than the average of the
NMS Closing Prices of an index of selected, publicly traded, peer group
commercial financial institutions set forth on Exhibit C hereto, unless SFG
determines to issue additional Merger Consideration such that the condition
set forth in (i) above will no longer exist. For purposes of this Section
8.01(e), the term "NMS CLOSING PRICE" shall mean the price per share of the
last sale of SFG Common Stock reported on the NASDAQ National Market System
at the close of the trading day by the National Association of Securities
Dealers, Inc. The term "AVERAGE NMS CLOSING PRICE" shall mean the arithmetic
mean of the NMS Closing Prices for the ten (10) trading days immediately
preceding the fifth (5th) trading day prior to the receipt of final federal
regulatory approval of the Merger.
(f) DUE DILIGENCE. By SFG, if after SFG conducts its due diligence
inquiry of FWB for up to thirty days following the date hereof, the SFG
Board determines in good faith, within fifteen days thereafter, that the due
diligence inquiry has revealed one or more matters that (i) are inconsistent
with any of the representations and warranties of FWB and which have had,
constitute or are reasonably likely to have a Material Adverse Effect on
FWB, or (ii) in the reasonable judgment of the SFG Board either (A) is of
such significance as to constitute or have or be
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reasonably likely to have a Material Adverse Effect on FWB, or (B) deviates
materially and adversely from the financial statements for the fiscal year
ended December 31, 1997 of FWB.
(g) DUE DILIGENCE. By FWB, if after FWB conducts its due diligence
inquiry of SFG for up to thirty days following the date hereof, the FWB
Board determines in good faith, within fifteen days thereafter, that the due
diligence inquiry has revealed one or more matters that (i) are inconsistent
with any of the representations and warranties of SFG and which have had,
constitute or are reasonably likely to have a Material Adverse Effect on
SFG, or (ii) in the reasonable judgment of the FWB Board either (A) is of
such significance as to constitute or have or be reasonably likely to have a
Material Adverse Effect on SFG, or (B) deviates materially and adversely
from the financial statements for the fiscal year ended December 31, 1997 of
SFG.
(h) FAILURE TO EXECUTE AND DELIVER STOCK OPTION AGREEMENT. By SFG, if
at any time prior to the close of business, Eastern Standard Time on
December 15, 1998, FWB shall not have executed and delivered the Stock
Option Agreement to SFG.
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 willful breach of this Agreement 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 6.12, 6.13, 6.16, 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 6.03(b), 6.04,
6.05(b), 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 FWB
Meeting, this Agreement may not be amended if it would violate the PBCL 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 FWB and SFG.
All fees to be paid to Regulatory Authorities and the SEC in connection with the
transactions contemplated by this Agreement shall be borne by SFG.
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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 FWB, to:
First Western Bancorp, Inc.
101 E. Washington
New Castle, Pennsylvania 16101
Attn: Thomas J. O'Shane, Chairman and CEO
With a copy to:
First Western Bancorp, Inc.
101 E. Washington
New Castle, Pennsylvania 16101
Attn: Thomas Mansell, General Counsel
With a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attn: J. Robert Van Kirk, Esq.
If to SFG or to Transitory Sub, to:
Sky Financial Group, Inc.
10 E. Main Street
Salineville, OH 43945
Attn: Marty E. Adams, President and COO
With a copy to:
Sky Financial Group, Inc.
221 S. Church Street
Bowling Green, OH 43402
Attn: W. Granger Souder, General Counsel
With a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Attention: M. Patricia Oliver, Esq.
9.07 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement,
any separate agreement entered into by the parties on even date herewith, and
any Stock Option Agreement entered into represent the entire understanding of
the parties hereto with reference to the transactions contemplated hereby and
thereby and this Agreement supersedes any and all other oral or written
agreements heretofore made (other than any such separate agreement or Stock
Option Agreement). Nothing in this Agreement, whether express or implied, is
intended to confer upon any person, other than the
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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.
[the rest of this page is intentionally left blank]
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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.
<TABLE>
<S> <C> <C>
FIRST WESTERN BANCORP, INC.
By: /s/ THOMAS J. O'SHANE
-----------------------------------------
Name: Thomas J. O'Shane
Title: Chairman and CEO
SKY FINANCIAL GROUP, INC.
By: /s/ MARTY E. ADAMS
-----------------------------------------
Name: Marty E. Adams
Title: President and COO
FIRST WESTERN ACQUISITION CORPORATION
By: /s/ MARTY E. ADAMS
-----------------------------------------
Name: Marty E. Adams
Title: CEO
</TABLE>
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ANNEX B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Agreement"), effective as of this 15th day of
December, 1998, by and between Sky Financial Group, Inc., an Ohio corporation
("Grantee"); and First Western Bancorp, Inc., a Pennsylvania corporation
("Grantor");
WITNESSETH:
A. Grantor and Grantee have entered into an Agreement and Plan of Merger
dated as of December 14, 1998 (the "Merger Agreement"), providing for their
affiliation with one another.
B. As further inducement for the parties to consummate the transactions
contemplated by the Merger Agreement, Grantor wishes to grant Grantee the Option
described herein.
C. The Board of Directors of Grantor has approved the grant of the Option
and the Merger Agreement prior to the date hereof.
NOW, THEREFORE, the parties agree as follows:
1. DEFINITIONS. Capitalized terms not defined herein shall have the
meanings set forth in the Merger Agreement.
"Applicable Price" shall mean the highest of (i) the highest price per share
of Grantor Common Stock paid for any such share by the person or groups
described in the definition of a Repurchase Event, (ii) the price per share of
Grantor Common Stock received by holders of Grantor Common Stock in connection
with any merger or other business combination transaction which is a Purchase
Event, or (iii) the highest closing sales price per share of Grantor Common
Stock quoted on the National Association of Securities Dealers Automated
Quotations National Market System ("NASDAQ/NMS") (or if Grantor Common Stock is
not quoted on NASDAQ/NMS, the highest bid price per share as quoted on the
principal trading market or securities exchange on which such shares are traded
as reported by a recognized source chosen by a Grantee) during the 60 business
days preceding the Request Date; provided, however, that in the event of a sale
of less than all of Grantor's assets, the Applicable Price shall be the sum of
the price paid in such sale for such assets and the current market value of the
remaining assets of Grantor as determined by a nationally recognized investment
banking firm selected by Grantee, divided by the number of shares of Grantor
Common Stock outstanding at the time of such sale. If the consideration to be
offered, paid or received pursuant to either of the foregoing clauses (i) or
(ii) shall be other than in cash, the value of such consideration shall be
determined in good faith by an independent nationally recognized investment
banking firm selected by Grantee and reasonably acceptable to Grantor, which
determination shall be conclusive for all purposes of this Agreement.
"Bank" shall mean a financial institution subsidiary of a party.
"Burdensome Condition" shall mean, in connection with the grant of a
requisite regulatory approval or otherwise, imposition by a governmental entity
of any condition or restriction upon the party or one of its Subsidiaries (as
defined herein) which would reasonably be expected to either (i) have a material
adverse effect after the effective time of the Merger Agreement on the present
or prospective consolidated financial condition, business or operating results
of the party, or (ii) prevent the parties from realizing the major portion of
the economic benefits of the transactions contemplated by the Merger Agreement
that they currently anticipate obtaining.
"Commission" shall mean the Securities and Exchange Commission.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Grantee" shall mean Sky Financial Group, Inc.
"Grantor" shall mean First Western Bancorp, Inc.
"Grantor Common Stock" shall mean the respective shares of common stock of
the same class for which First Western Bancorp, Inc. is granting an Option under
this Agreement.
"Merger Agreement" shall mean the definitive agreement executed by Sky
Financial Group, Inc. and First Western Bancorp, Inc. pursuant to which the
parties hereto intend to affiliate.
"Option" shall mean the option granted by First Western Bancorp, Inc. to Sky
Financial Group, Inc. under this Agreement.
"Person" shall have the meanings specified in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act.
"Purchase Event" shall mean any of the following events or transactions
occurring after the date of this Agreement with respect to the Grantor:
(i) the Grantor or any of its Subsidiaries (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC") (each hereinafter individually referred to as a "Subsidiary"
and collectively, as the "Subsidiaries")), without having received the
Grantee's prior written consent, shall have entered into an agreement
with, or the Board of Directors of Grantor shall have recommended that
the shareholders of Grantor approve or accept a transaction with any
person (x) to merge or consolidate, or enter into any similar
transaction, except as contemplated by the Merger Agreement, (y) to
purchase, lease or otherwise acquire all or substantially all of the
assets of the Grantor or any of its Subsidiaries, or (z) to purchase or
otherwise acquire (including by way of merger, consolidation, share
exchange or any similar transaction) securities representing 20% or more
of the voting power of such Grantor or any of its Subsidiaries (other
than pursuant to this Agreement);
(ii) any person (other than the Grantor or its Bank in a fiduciary capacity,
or Grantee or a Grantee Bank in a fiduciary capacity) shall have
acquired beneficial ownership or the right to acquire beneficial
ownership of 20% or more of the outstanding shares of such Grantor
Common Stock after the date of this Agreement (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder);
(iii) Grantor shall have willfully breached this Agreement in any material
respect, which breach shall not have been cured within fifteen (15)
days after notice thereof is given by Grantor to Grantee;
(iv) any person other than Grantee shall have made a bona fide Takeover
Proposal to the Grantor by public announcement or written communication
that is or becomes the subject of public disclosure, and following such
bona fide Takeover Proposal, the shareholders of the Grantor vote not
to adopt the Merger Agreement;
(v) Grantor shall have breached the Merger Agreement following a bona fide
Takeover Proposal to such Grantor or any of its Subsidiaries, which
breach would entitle a Grantee to terminate the Merger Agreement and
such breach shall not have been cured prior to the Notice Date (as
defined below);
(vi) the shareholders of Grantor shall have voted and failed to approve the
Merger Agreement and the Merger at a meeting which has been held for
that purpose or any adjournment or postponement thereof, or such
meeting shall not have been held in violation of the Merger Agreement
or shall have been canceled prior to termination of the Merger
Agreement if,
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prior to such meeting (or if such meeting shall not have been held or
shall have been canceled, prior to such termination), it shall have
been publicly announced that any person (other than Grantee or any of
its Subsidiaries) shall have made, or disclosed an intention to make, a
proposal to engage in an acquisition transaction; or
(vii) the Grantor Board of Directors shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse in any respect to Grantee, its recommendation that the
shareholders of Grantor approve the transactions contemplated by the
Merger Agreement, or Grantor or any Grantor Subsidiary or group of
Grantor Subsidiaries that is, or would on an aggregate basis
constitute, a Significant Subsidiary shall have authorized,
recommended, proposed (or publicly announced its intention to
authorize, recommend or propose) an agreement to engage in an
acquisition transaction with any person other than Grantee or a Grantee
Subsidiary.
If more than one of the transactions giving rise to a Purchase Event under
this Agreement is undertaken or effected, then all such transactions shall be
deemed to give rise only to one Purchase Event with respect to the Option, which
Purchase Event shall be deemed continuing for all purposes hereunder until all
such transactions are abandoned.
"Repurchase Event" shall mean if (i) any person (other than the Grantee or
any subsidiary of the Grantee) shall have acquired actual ownership or control,
or any "group" (as such term is defined under the Exchange Act) shall have been
formed which shall have acquired actual ownership or control, of 35% or more of
the then outstanding shares of Grantor Common Stock, or (ii) any Purchase Event
shall be consummated.
"Takeover Proposal" shall mean any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving Grantor 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, or 15% or more of
the consolidated assets, of the Grantor or any of its Subsidiaries, other than
the transactions contemplated by the Merger Agreement. If Grantor receives an
unsolicited Takeover Proposal, it shall notify Grantee promptly of the receipt
of such Takeover Proposal, it being understood, however, that the giving of such
notice by Grantor shall not be a condition to the right of Grantee to exercise
the Option.
2. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, Grantor hereby
grants to Grantee an unconditional, irrevocable Option to purchase up to
19.9% (i.e., 2,269,357 shares as of the date of this Agreement) of Grantor
Common Stock at an exercise price of $28.50 per share payable in cash as
provided in Section 4. In the event the Grantor issues or agrees to issue
any shares of Grantor Common Stock (other than as permitted under the Merger
Agreement at a price less than the exercise price per share set forth in
this section (as adjusted pursuant to Section 6), the exercise price of the
Option shall be such lesser price.
3. EXERCISE OF OPTION.
(a) Unless the Grantee shall have breached in any material respect any
material covenant, representation or warranty contained in this Agreement
or the Merger Agreement and such breach shall not have been cured, the
Grantee may exercise the Option, in whole or part, at any time or from
time to time if a Purchase Event shall have occurred with respect to the
Grantor and be continuing; provided that to the extent the Option shall
not have been exercised, it shall terminate and be of no further force
and effect (i) on the effective date of the transaction contemplated by
the Merger Agreement, or (ii) upon termination of the Merger Agreement in
accordance with the provisions thereof (other than a termination
resulting from a willful
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<PAGE>
breach by the Grantor of the Merger Agreement or following the occurrence
of a Purchase Event, failure of the Grantor's shareholders to approve the
Merger Agreement by the vote required under applicable law or under the
respective Grantor's articles), or (iii) 12 months after termination of
the Merger Agreement due to a willful breach by the Grantor of the Merger
Agreement or, following the occurrence of a Purchase Event, failure of
the Grantor's shareholders to approve the Merger Agreement by the vote
required under applicable law or under the Grantor's articles. Any
exercise of the Option shall be subject to compliance with applicable
provisions of law.
(b) In the event the Grantee wishes to exercise the Option, it shall send to
the Grantor a written notice (the date of which being herein referred to
as the "Notice Date") specifying (i) the total number of shares it will
purchase pursuant to such exercise, and (ii) a place and date not earlier
than three (3) business days nor later than 60 business days after the
Notice Date for the closing of such purchase ("Closing Date"). If prior
notification to or approval of any federal or state regulatory agency is
required in connection with such purchase, the Grantee shall promptly
file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise
would run pursuant to this section shall run instead from the date on
which any required notification period has expired or been terminated or
any requisite approval has been obtained and any requisite waiting period
shall have passed.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) At the closing referred to in Section 3, the Grantee shall pay to the
Grantor the aggregate purchase price for the shares of Grantor Common
Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by the
Grantor. Grantor shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates
under this Section 4 in the name of the Grantee or its assignee,
transferee or designee.
(b) At such closing, simultaneously with the delivery of funds as provided
in Section 4(a), the Grantor shall deliver to the Grantee a certificate
or certificates representing the number of shares of Grantor Common Stock
purchased by the Grantee, and the Grantee shall deliver to the Grantor a
letter agreeing that Grantee will not offer to sell or otherwise dispose
of such shares in violation of applicable law or the provisions of this
Agreement.
(c) Certificates for Grantor Common Stock delivered at a closing hereunder
shall be endorsed with a restrictive legend which shall read
substantially as follows:
The transfer of the shares represented by this certificate
is subject to certain provisions of a Stock Option
Agreement dated December , 1998, between the registered
holder hereof and [Grantor] (a copy of which agreement is
on file at the principal office of [Grantor]). A copy of
such agreement will be provided to the holder hereof
without charge within five days after receipt by [Grantor]
of a written request therefor. The shares evidenced by
this certificate have not been registered under the
Securities Act of 1933 and may not be sold, pledged,
transferred, or hypothecated except pursuant to an opinion
of counsel satisfactory to the corporation that such
transfer is lawful.
The above legend shall be removed or modified as appropriate by delivery
of substitute certificate(s) without such legend if the Grantee shall have
delivered to the Grantor a copy of a
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<PAGE>
letter from the staff of the Commission, or an opinion of counsel, in form
and substance satisfactory to Grantor, to the effect that such legend is not
required for purposes of the Securities Act of 1933, as amended.
5. REPRESENTATIONS.
The Grantor represents, warrants and covenants to the Grantee as
follows:
(a) Grantor agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares
of Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or
by any other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Grantor; (iii) promptly to take all
action as may from time to time be required (including (x) complying with
all applicable premerger notification, reporting and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), or the Change in Bank
Control Act of 1978, as amended, or any state or other federal banking
law, prior approval of or notice of the Federal Reserve Board or to any
state or other federal regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Grantee in preparing
such applications or notices and providing such information to the
Federal Reserve Board or such state or other federal regulatory authority
as they may require) in order to permit the Grantee to exercise the
Option and Grantor duly and effectively to issue shares of Common Stock
pursuant thereto; and (iv) promptly to take all action provided herein to
protect the rights of the Grantee against dilution.
(b) The shares to be issued upon due exercise, in whole or in part, of the
Option, when paid for as provided herein, will be duly authorized,
validly issued and fully paid.
(c) Grantor has full corporate power and authority to execute, deliver and
perform this Agreement and all corporate action necessary for execution,
delivery and performance of this Agreement has been duly taken by such
party.
(d) Neither the execution and delivery of this Agreement nor consummation of
the transactions contemplated hereby (assuming all appropriate
shareholder and regulatory approvals) will violate or result in any
violation of or be in conflict with or constitute a default under any
term of the articles, regulations or by-laws of such party or any
agreement, instrument, judgment, decree, statute, rule or order
applicable to such party.
6. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
The Grantor agrees that, in the event of any change in its Grantor
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like, the type
and number of shares subject to the Option, and the purchase price per
share, as the case may be, shall be adjusted appropriately. The Grantor
agrees that, in the event that any additional shares of its Grantor Common
Stock are issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement), the number of shares of
its Grantor Common Stock subject to the Option shall be adjusted so that,
after such issuance, it equals the same percentage (as that on the date of
this Agreement) of the number of shares of Grantor Common Stock then issued
and outstanding without giving effect to any shares subject to or issued
pursuant to the Option. Nothing contained in this Section 6 shall be deemed
to authorize the Grantor to breach any provision of the Merger Agreement.
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<PAGE>
7. REGISTRATION RIGHTS.
If requested by the Grantee, the Grantor shall as expeditiously as
possible file a registration statement on a form of general use under the
Securities Act of 1933 if necessary in order to permit the sale or other
disposition of the shares of Grantor Common Stock that have been acquired
upon exercise of the Option in accordance with the intended method of sale
or other disposition requested by the Grantee. The Grantee shall provide all
information reasonably requested by the Grantor for inclusion in any
registration statement to be filed hereunder. The Grantor will use its best
efforts to cause such registration statement first to become effective and
then to remain effective for such period not in excess of 180 days from the
day such registration statement first becomes effective as may be reasonably
necessary to effect such sales or other dispositions. The first registration
effected under this Section 7 shall be at the Grantor's expense, except for
underwriting commissions and the fees and disbursements of the Grantee's
counsel attributable to the registration of such Grantor Common Stock. A
second registration may be requested hereunder at the Grantee's expense. In
no event shall Grantor be required to effect more than two registrations
hereunder. The filing of any registration statement hereunder may be delayed
for such period of time as may reasonably be required to facilitate any
public distribution by the Grantor of other Grantor Common Stock. If
requested by the Grantee, in connection with any such registration, Grantor
will become a party to any underwriting agreement relating to the sale of
such shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements in respect of issuers of shares
being sold by a selling shareholder. Upon receiving any request from a
Grantee or permitted assignee thereof under this Section 7, Grantor agrees
to send a copy of the registration statement and prospectus and each
amendment to the Grantee and to any permitted assignee thereof known to
Grantor, in each case by promptly mailing the same, postage prepaid, to the
address of record of the persons entitled to receive such copies.
8. TERMINATION.
This Agreement may be terminated at any time prior to the effective date
of the transaction set forth in the Merger Agreement, by action taken or
authorized by the Board of Directors of the terminating party or parties,
whether before or after approval by the stockholders of the matters
presented in connection with the Merger Agreement:
(a) by mutual consent of Grantee and Grantor;
(b) by either Grantee or Grantor if the Federal Reserve Board shall have
issued an order denying approval of the transaction set forth in the
Merger Agreement or if any governmental entity of competent jurisdiction
shall have issued a final permanent order enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement or the Merger Agreement, or imposing a Burdensome Condition,
and in any such case the time for appeal or petition for reconsideration
of such order shall have expired without such appeal or petition being
granted;
(c) by either Grantee or Grantor if the transactions contemplated by the
Merger Agreement shall not have been consummated on or before September
30, 1999, unless such date is extended by mutual consent of the parties
hereto;
(d) by either Grantee or Grantor if no Purchase Event has occurred and if
any approval of their shareholders required for the consummation of the
transactions set forth in the Merger Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly
called and held meeting of shareholders or at any adjournment thereof.
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<PAGE>
(e) by Grantor, if, on or prior to January 31, 1999, Grantor terminates the
Merger Agreement pursuant to the provisions of Section 8.01(g) thereof;
or
(f) by Grantor, if, on or prior to January 31, 1999, Grantee terminates the
Merger Agreement pursuant to the provisions of Section 8.01(f) thereof.
9. EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by any party as provided
in Section 8, this Agreement shall forthwith become void and there shall
be no liability or obligation on the part of any party or their
respective officers or directors except (i) Sections 11, 12, 13 and 14 of
this Agreement shall survive the termination and (ii) with respect to any
liabilities or damages incurred or suffered by a party as a result of the
breach by another party of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
(b) If a Purchase Event occurs with respect to the Grantor, then in such
event Grantor shall pay to the Grantee, within five business days after a
termination of this Agreement following such an event, the reasonable
expenses of Grantee incurred in connection with this Agreement and the
transactions set forth in the Merger Agreement, but not more than
$75,000.
10. ACCESS TO INFORMATION.
During the term of this Agreement, each party will afford each of the
other parties full and free access during normal business hours to such
party, its personnel, properties, contracts, books and records, and all
other documents and data.
11. CONFIDENTIALITY.
Except as and to the extent required by law, no party will disclose or
use, and will direct its representatives not to disclose or use, any
Confidential Information (as defined below) with respect to the other
parties furnished or to be furnished by such other parties, or their
respective representatives to the party or its representatives at any time
or in any manner other than in connection with its evaluation of the
transaction proposed in this Agreement. For purposes of this section,
"Confidential Information" means any information about the Merger Agreement
and this Agreement as well as any information about a party stamped
"confidential" or identified in writing as such promptly following its
disclosure, unless (i) such information is already known to the party or its
representatives or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of the party or its
representatives, (b) the use of such information is necessary in making any
filing or obtaining any consent or approval required for the consummation of
the transactions set forth in the Merger Agreement, or (c) the furnishing or
use of such information is required by or necessary in connection with legal
proceedings. In the event the transaction contemplated by this Agreement are
not consummated, each of the other parties will promptly return or destroy
any Confidential Information in its possession and certify in writing to the
disclosing party that it has done so.
12. EXCLUSIVE DEALING.
Grantor 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 ("Acquisition Proposal"); subject to the extent the
Grantor Board of Directors 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
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<PAGE>
conducted prior to the date of this Agreement with any parties other than
Grantee 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. Grantor shall promptly (within 24 hours) advise
Grantee following the receipt by Grantor of any Acquisition Proposal and the
substance thereof (including the identity of the person making such
Acquisition Proposal), and advise Grantee of any material developments with
respect to such Acquisition Proposal immediately upon the occurrence
thereof.
13. DISCLOSURE.
Except as and to the extent required by law, without the prior written
consent of the other parties, no party will, and each will direct its
representatives not to, make directly or indirectly any public comment,
statement or communication with respect to, or otherwise to disclose or to
permit the disclosure of the existence of discussions regarding, a possible
transaction among the parties or any of the terms, conditions or other
aspects of the transaction proposed in this Agreement. If a party is
required by law to make any such disclosure, it must first provide to the
other parties the content of the proposed disclosure, the reasons that such
disclosure is required by law, and the time and place that the disclosure
will be made.
14. COSTS.
Except as otherwise expressly agreed, each party will be responsible for
and bear all of its own costs and expenses (including any broker's or
finder's fees and the expenses of its representatives) incurred at any time
in connection with this Agreement and in pursuing or consummating the Merger
Agreement.
15. SEVERABILITY.
If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that applicable law will not permit the Grantee
to acquire the full number of shares of Grantor Common Stock provided in
Section 2 (as adjusted pursuant to Section 6), it is the express intention
of the Grantor to allow the Grantee to acquire such lesser number of shares
as may be permissible, without any amendment or modification hereof.
16. MISCELLANEOUS.
(a) THIRD PARTIES. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and
their respective permitted successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except
as expressly provided herein.
(b) ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this
Agreement contains the entire agreement among the parties with respect to
the transactions contemplated hereunder and supersede all prior
arrangements or understandings with respect thereto, written or oral. The
terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective permitted
successors and assigns.
(c) ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to
any other person, without the express written consent of the other
parties, except that in the event a Purchase Event shall have occurred
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and be continuing, the Grantee may assign in whole or in part its rights
and obligations hereunder; provided, however, that Grantee may not assign
its rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the
right to purchase in excess of 2% of the voting shares of the Grantor,
(iii) an assignment to a single party (e.g., a broker or investment
banker) for the purpose of conducting a widely dispersed public
distribution on the Grantee's behalf, or (iv) any other manner approved
by applicable regulatory authorities.
(d) NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by
registered or certified mail, postage prepaid, express service, personal
delivery, telecopy or telefacsimile to the following addresses:
If to FWB, to:First Western Bancorp, Inc.
101 E. Washington
New Castle, Pennsylvania 16101
Attn: Thomas J. O'Shane, President and CEO
With a copy to:First Western Bancorp, Inc.
101 E. Washington
New Castle, Pennsylvania 16101
Attn: Thomas Mansell, General Counsel
With a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attn: J. Robert Van Kirk, Esq.
If to SFG, to:
SFG Group, Inc.
10 E. Main Street
Salineville, OH 43945
Attn: Marty E. Adams, President and COO
With a copy to:
SFG Group, Inc.
221 S. Church Street
Bowling Green, OH 43402
Attn: W. Granger Souder, General Counsel
With a copy to:
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Attention: M. Patricia Oliver, Esq.
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(e) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) SPECIFIC PERFORMANCE. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement by any
party hereto and that this Agreement may be enforced by a party hereto
through injunctive or other equitable relief.
(g) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Pennsylvania applicable to agreements made
and entirely to be performed within such state and such federal laws as
may be applicable.
17. REPURCHASE AT THE OPTION OF GRANTEE.
(a) At the request of the Grantee at any time commencing upon the first
occurrence of a Repurchase Event and ending 12 months immediately
thereafter, Grantor shall repurchase from Grantee (i) the Option and (ii)
all shares of Grantor Common Stock purchased by Grantee pursuant hereto
with respect to which Grantee then has beneficial ownership. The date on
which Grantee exercises its rights under this Section 17 is referred to
as the "Request Date." Such repurchase shall be at an aggregate price
(the "Repurchase Consideration") equal to the sum of:
(i) the aggregate purchase price paid by Grantee for any shares of
Grantor Common Stock acquired pursuant to the Option with respect to
which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price for each share of
Grantor Common Stock over (y) the purchase price (subject to
adjustment pursuant to Section 6 hereof, multiplied by the number
of shares of Grantor Common Stock with respect to which the Option
has not been exercised; and
(iii) the excess, if any, of the Applicable Price over the purchase price
(subject to adjustment pursuant to Section 6 hereof paid (or, in
the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred), payable by
Grantee for each share of Grantor Common Stock with respect to
which the Option has been exercised and with respect to which
Grantee then has beneficial ownership, multiplied by the number of
such shares.
(b) If Grantee exercises its rights under this section, Grantor shall,
within 10 business days after the Request Date, pay the Grantor
Repurchase Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Grantor
the Option and the certificates evidencing the shares of Grantor Common
Stock purchased thereunder with respect to which Grantee then has
beneficial ownership, and Grantee shall warrant that it has sole record
and beneficial ownership of such shares and that the same are then free
and clear of all liens, claims, charges and encumbrances of any kind
whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Federal Reserve Board or other
regulatory authority is required in connection with the repayment of all
or any portion of the Repurchase Consideration Grantee shall have the
ongoing option to revoke its request for repurchase pursuant to this
section, in whole or in part, or to require that Grantor deliver from
time to time that portion of the Repurchase Consideration that it is not
then so prohibited from paying and promptly file the required notice or
application for approval and expeditiously process the same (and each
party shall cooperate with the other in the filing of any such notice or
application and the obtaining of any such approval). If
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the Federal Reserve Board or any other regulatory authority disapproves
of any part of Grantor's proposed repurchase pursuant to the section,
Grantor shall promptly give notice of such fact to Grantee. If the
Federal Reserve Board or other agency prohibits the repurchase in part
but not in whole, then Grantee shall have the right (i) to revoke the
repurchase request, or (ii) to the extent permitted by the Federal
Reserve Board or other agency, determine whether the purchase should
apply to the Option and or Option shares and to what extent to each, and
Grantee shall thereupon have the right to exercise the Option as to the
number of Option shares for which the Option was exercisable at the
Request Date less the sum of the number of shares covered by the Option
in respect of which payment has been made pursuant to this section and
the number of shares covered by the portion of the Option (if any) that
has been repurchased. Grantee shall notify Grantor of its determination
under the preceding sentence within five (5) business days of receipt of
notice of disapproval of the purchase.
Notwithstanding anything herein to the contrary, all of Grantee's rights
under this section shall terminate on the date of termination of this Option.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
to be effective as of the day and year set forth in the first paragraph above.
<TABLE>
<S> <C> <C>
SKY FINANCIAL GROUP, INC.
By: /s/ MARTY E. ADAMS
-----------------------------------------
Marty E. Adams, President and
Chief Operating Officer
FIRST WESTERN BANCORP, INC.
By: /s/ THOMAS J. O'SHANE
-----------------------------------------
Thomas J. O'Shane, President and
Chief Executive Officer
</TABLE>
B-11
<PAGE>
ANNEX C
December 14, 1998
Board of Directors
Sky Financial Group, Inc.
221 South Church Street
Bowling Green, OH 43402
Ladies and Gentlemen:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common stock,
without par value (the "Sky Financial Common"), of Sky Financial Group, Inc.
("Sky Financial") of the exchange ratio as set forth in the Agreement and Plan
of Merger dated as of December 14, 1998 (the "Agreement"), by and between Sky
Financial and First Western Bancorp, Inc. ("First Western").
The Agreement provides for the merger (the "Merger") of First Western with
and into Sky Financial, pursuant to which, among other things, at the Effective
Date (as defined in the Agreement), each outstanding share of First Western
common stock, par value $5.00 per share ("First Western Common"), will be
exchanged for 1.211 shares of Sky Financial Common as set forth in the Agreement
(the "Exchange Ratio"). The terms and conditions of the Merger are more fully
set forth in the Agreement.
McDonald Investments Inc., as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
We have acted as Sky Financial's financial advisor in connection with, and
have participated in certain negotiations leading to, the execution of the
Agreement. In connection with rendering our opinion set forth herein, we have
among other things:
(i) Reviewed Mid Am Inc.'s and Citizens Bancshares, Inc.'s Annual Reports to
Shareholders and Annual Reports on Form 10-K for each of the years ended
December 31, 1997, December 31, 1996 and December 31, 1995, including
the audited fianncial statements contained therein; and Mid Am, Inc.'s
and Citizens Bancshares, Inc.'s Quarterly Report on Form 10-Q for the
three month periods ended September 30, 1998, June 30, 1998 and March
31, 1998; and Sky Financial's Registration Statement on Form S-4 dated
September 16, 1998;
(ii) Reviewed First Western's Annual Reports to Shareholders and Annual
Reports on Form 10-K for each of the years ended December 31, 1997,
December 31, 1996 and December 31, 1995, including the audited
fianncial statements contained therein; and First Western's Quarterly
Report on Form 10-Q for the three month periods ended September 30,
1998, June 30, 1998 and March 31, 1998;
(iii) Reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of Sky Financial and First Western provided to us
or publicly available;
(iv) Participated in meetings and telephone conferences with members of
senior management of Sky Financial and First Western concerning the
financial condition, business, assets, financial forecasts and
prospects of the respective companies, as well as other matters we
believed relevant to our inquiry;
(v) Reviewed certain stock market information for the Sky Financial Common
and First Western Common and compared it with similar information for
certain companies, the securities of which are publicly traded;
C-1
<PAGE>
Board of Directors
December 14, 1998
Page 2
(vi) Compared the results of operations and financial condition of Sky
Financial and First Western with that of certain companies which we
deemed to be relevant for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which we deemed to be relevant for
purposes of this opinion;
(viii) Reviewed the Agreement dated December 14, 1998 and its schedules and
exhibits and certain related documents; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information reviewed by us and have relied upon the accuracy and completeness of
the representations, warranties and covenants of Sky Financial and First Western
contained in the Agreement. We have not been engaged to undertake, and have not
assumed any responsibility for, nor have we conducted, an independent
investigation or verification of such matters. We have not been engaged to and
we did not conduct a physical inspection of any of the assets, properties or
facilities of either Sky Financial or First Western, nor have we made or
obtained or been furnished with any independent evaluation or appraisal of any
of such assets, properties or facilities or any of the liabilities of either Sky
Financial or First Western. With respect to financial forecasts used in our
analysis, we have assumed that such forecasts have been reasonably prepared or
reviewd by management of Sky Financial and First Western, as the case may be, on
a basis reflecting the best currently available estimates and judgments of the
management of Sky Financial and First Western as to the future performance of
Sky Financial, First Western, and Sky Financial and First Western combined, as
the case may be. We have not been engaged to and we have not assumed any
responsibility for, nor have we conducted any independent investigation or
verification of such matters, and we express no view as to such financial
forecasts or the assumptions on which they are based. We have also assumed that
all of the conditions to the consummation of the Merger, as set forth in the
Agreement, including the tax-free treatment of the Merger to the holders of Sky
Financial Common, would be satisfied and that the Merger would be consummated on
a timely basis in the manner contemplated by the Agreement.
We received a fee for our services as financial advisor to Sky Financial in
connection with the Merger (including our services in rendering this opinion).
In the ordinary course of business, we may actively trade securities of Sky
Financial and First Western for our own account and for the accounts of
customers and, accordingly, we may at any time hold a long or short position in
such securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness, as
of the date hereof, from a financial point of view, of the Exchange Ratio, to
the holders of Sky Financial Common, and does not address the underlying
business decision by Sky Financial's Board of Directors to effect the Merger or
any other terms of the Merger, and does not constitute a recommendation to any
Sky Financial shareholder as to how such shareholder should vote with respect to
the Merger. This opinion does not represent our opinion as to what the value of
the Sky Financial Common or First Western Common may be at the Effective Date of
the Merger or as to the prospects of Sky Financial's business or First Western's
business.
This opinion is directed to the Board of Directors of Sky Financial and may
not be reproduced, sumarized, described or referred to or given to any other
person without our prior written consent.
C-2
<PAGE>
Board of Directors
December 14, 1998
Page 3
Notwithstanding the foregoing, this opinion may be included in a proxy statement
to be mailed to the holders of Sky Financial Common in connection with the
Merger, provided that this opinion will be reproduced in such proxy statement in
full, and any description of or reference to us or our actions, or any summary
of the opinion in such proxy statement, will be in a form acceptable to us and
our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of the Sky Financial
Common from a financial point of view.
Very truly yours,
MCDONALD INVESTMENTS INC.
C-3
<PAGE>
ANNEX D
May , 1999
Board of Directors
First Western Bancorp, Inc.
101 East Washington Street
New Castle, PA 16103
Ladies and Gentlemen:
First Western Bancorp, Inc. ("First Western") and Sky Financial Group, Inc.
("Sky Financial") have entered into an Agreement and Plan of Merger, dated as of
December 14, 1998 and amended and restated as of April 19, 1999 (the
"Agreement"), pursuant to which First Western will be merged with and into Sky
Financial (the "Merger"). Upon consummation of the Merger, each share of First
Western common stock, par value $5.00 per share, issued and outstanding
immediately prior to the effective time of the Merger (the "First Western
Shares"), other than certain shares specified in the Agreement, will be
converted into the right to receive 1.211 shares (the "Exchange Ratio") of Sky
Financial common stock, without par value. The terms and conditions of the
Merger are more fully set forth in the Agreement. You have requested our opinion
as to the fairness, from a financial point of view, of the Exchange Ratio to the
holders of First Western Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated December 15, 1998, by and between First Western and Sky Financial; (iii)
certain publicly available financial statements of First Western and other
historical financial information provided by First Western that we deemed
relevant; (iv) certain publicly available financial statements of Sky Financial
(filed under the company's former name, Citizens Bancshares, Inc.), Mid Am, Inc.
("Mid Am") and The Ohio Bank and other historical financial information provided
by Sky Financial that we deemed relevant; (v) certain financial analyses and
forecasts of First Western prepared by and/or reviewed with management of First
Western and the views of senior management of First Western regarding First
Western's past and current business, operations, results thereof, financial
condition and future prospects; (vi) certain financial analyses and forecasts of
Sky Financial prepared by and/or reviewed with management of Sky Financial and
the views of senior management of Sky Financial regarding Sky Financial's past
and current business, operations, results thereof, financial condition and
future prospects; (vii) the pro forma impact of the Merger; (viii) the publicly
reported historical price and trading activity for First Western's and Sky
Financial's common stock, including a comparison of certain financial and stock
market information for First Western, Sky Financial and Mid Am with similar
publicly available information for certain other companies the securities of
which are publicly traded; (ix) the financial terms of recent business
combinations in the commercial banking industry, to the extent publicly
available; (x) the current market environment generally and the banking
environment in particular; and (xi) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as we
considered relevant. In connection with rendering this opinion, we were not
asked to, and did not, solicit indications of interest in a potential
transaction from other third parties other than one third party specifically
identified to us by First Western.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We did
not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of First
Western or Sky Financial or any of their subsidiaries, or the collectibility of
D-1
<PAGE>
Board of Directors
First Western Bancorp, Inc.
May , 1999
Page 2
any such assets, nor have we been furnished with any such evaluations or
appraisals. With respect to the financial projections reviewed with management,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of First Western and Sky
Financial and that such performances will be achieved, and we express no opinion
as to such financial projections or the assumptions on which they are based. We
have also assumed that there has been no material change in First Western's or
Sky Financial's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis that First
Western and Sky Financial will remain as going concerns for all periods relevant
to our analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements, that the conditions precedent in the Agreement
are not waived and that the Merger will be accounted for as a pooling of
interests and will qualify as a tax-free reorganization for federal income tax
purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, review or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof. We are expressing
no opinion herein as to what the value of Sky Financial common stock will be
when issued to First Western's shareholders pursuant to the Agreement or the
prices at which First Western's or Sky Financial's common stock will trade at
any time.
We have acted as First Western's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for First Western and have received compensation for
such services. As we have previously advised you, in the past we have also
provided certain investment banking services for Sky Financial, including acting
as its financial advisor in connection with its merger with Mid Am and its
acquisition of The Ohio Bank, and expect to continue to provide similar
investment banking services to Sky Financial, and have received, and expect to
continue to receive, compensation for such services.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to First Western and Sky Financial. We may
also actively trade the debt and equity securities of First Western and Sky
Financial for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion is directed to the Board of Directors of First Western in
connection with its consideration of the Merger and does not constitute a
recommendation to any stockholder of First Western as to how such stockholder
should vote at any meeting of stockholders called to consider and vote upon the
Merger. Our opinion is not to be quoted or referred to, in whole or in part, in
a registration statement, prospectus, proxy statement or in any other document,
nor shall this opinion be used for any other purposes, without Sandler O'Neill's
prior written consent; PROVIDED, HOWEVER, that we hereby consent to the
inclusion of this opinion as an annex to First Western's and Sky Financial's
Joint Proxy Statement/Prospectus dated the date hereof and to the references to
this opinion therein.
D-2
<PAGE>
Board of Directors
First Western Bancorp, Inc.
May , 1999
Page 3
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
holders of First Western Shares.
Very truly yours,
D-3
<PAGE>
ANNEX E
DISSENTERS' RIGHTS UNDER SECTION 1701.85
OF THE OHIO REVISED CODE
<PAGE>
DISSENTERS' RIGHTS UNDER SECTION 1701.85 OF THE OHIO REVISED CODE
1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR CASH VALUE OF SHARES
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
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<PAGE>
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505 of the Revised
Code. If, during the pendency of any proceeding instituted under this section, a
suit or proceeding is or has been instituted to enjoin or otherwise to prevent
the carrying out of the action as to which the shareholder has dissented, the
proceeding instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in division
(D) of this section is applicable, the fair cash value of the shares that is
agreed upon by the parties or fixed under this section shall be paid within
thirty days after the date of final determination of such value under this
division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of The certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
E-2
<PAGE>
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section, unless
the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of
the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
E-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1701.13(E) of the Ohio Revised Code grants corporations broad powers
to indemnify directors, officers, employees and agents. Section 1701.13(E)
provides:
(E) (1) A corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or other
enterprise, against expenses, including attorney's fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit or for
profit, a limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to the
corporation unless, and only to the extent that, the court of common pleas or
the court in which such action or suit was brought determines, upon application,
that, despite the adjudication of Liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court of common pleas or such other court
shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, or in defense of any claim, issue, or master therein, he shall be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the action, suit, or proceeding.
II-1
<PAGE>
(4) Any indemnification under division (E)(1) or (2) of this section, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case, upon a determination that indemnification of the director,
trustee, officer, employee, member, manager, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
division (E)(1) or (2) of this section. Such determination shall be made as
follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened with
the action, suit, or proceeding referred to in division (E)(1) or (2) of this
section;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for the corporation or any person to be
indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the action,
suit, or proceeding referred to in division (E)(1) or (2) of this section was
brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and, within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which such action or suit was brought to review the reasonableness of such
determination.
(5) (a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in division (E)(1) or (2)
of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in division (E)(1) or (2)
of this section is pursuant to section 1701.95 of the Revised Code, expenses,
including attorney's fees, incurred by a director in defending the action, suit,
or proceeding shall be paid by the corporation as they are incurred, in advance
of the final disposition of the action, suit, or proceeding upon receipt of an
undertaking by or on behalf of the director in which he agrees to do both of the
following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the corporation or undertaken with reckless disregard for the best interests of
the corporation;
(ii) Reasonably cooperate with the corporation concerning the
action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, member, manager, or agent in defending any action,
suit, or proceeding referred to in division (E)(1) or (2) of this section, may
be paid by the corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding, as authorized by the directors
in the specific case, upon receipt of an undertaking by or on behalf of the
director, trustee, officer, employee, member, manager, or agent to repay such
amount, if it ultimately is determined that he is not entitled to be indemnified
by the corporation.
II-2
<PAGE>
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles, the regulations, any agreement, a vote of
shareholders or disinterested directors, or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
their offices or positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, member, manager, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of credit, or
self-insurance, on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit or for
profit, a limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
this section. Insurance may be purchased from or maintained with a person in
which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to division
(E)(1) or (2) of this section does not limit the payment of expenses as they are
incurred, indemnification, insurance, or other protection that may be provided
pursuant to divisions (E)(5), (6), and (7) of this section. Divisions (E)(1) and
(2) of this section do not create any obligation to repay or return payments
made by the corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entity, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee, member, manager, or agent of another corporation, domestic or
foreign, nonprofit or for profit, a limited liability company, or a partnership,
joint venture, trust, or other enterprise, shall stand in the same position
under this section with respect to the new or surviving corporation as he would
if he had served the new or surviving corporation in the same capacity.
Section 33 of the code of regulations of Sky Financial Group, Inc.
states as follows:
Section 33. Indemnification. The corporation shall indemnify any
director or officer and any former director or officer of the corporation and
any such director or officer who is serving or has served at the request of the
corporation as a director, officer or trustee of another corporation,
partnership, joint venture, trust or other enterprise (and his heirs, executors
and administrators) against expenses, including attorney's fees, judgment fines,
and amounts paid in settlement, actually and reasonably incurred by him by
reason of the fact that he is or was such director, officer or trustee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative to the full extent
permitted by applicable law. The indemnification provided for herein shall not
be deemed to restrict the power of the corporation (i) to indemnify employees,
agents and others to the extent not prohibited by law, (ii) to purchase and
maintain insurance or furnish similar protection on behalf of or for any person
who is or was a director, officer or employee of the corporation, or any person
who is or was serving at the request of the corporation as a director, officer,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such, and (iii) to
enter into agreements with persons of the class identified in clause (ii) above
indemnifying them against any and all liabilities (or such lesser
indemnification as may be provided in such agreements) asserted against or
incurred by them in such capacities.
II-3
<PAGE>
In addition, Sky Financial has entered into indemnification agreements
with each of its directors and executive officers which expand the indemnitees'
rights in the event that Ohio law and Sky Financial's code of regulations are
further changed. Pursuant to the agreements, indemnitees receive the highest
available of the following: (i) the benefits provided by Sky Financial's code of
regulations as of the date of the agreement; (ii) the benefits provided by Sky
Financial's code of regulations in effect at the time that indemnification
expenses are incurred; (iii) the benefits allowable under Ohio law which is in
effect on the date of the agreement; (iv) the benefits allowable under the law
of the jurisdiction under which Sky Financial exists at the time indemnifiable
expenses are incurred; (v) the benefits available under liability insurance
obtained by Sky Financial; (vi) the benefits which would have been available to
the indemnitee under a Sky Financial insurance policy which was in effect prior
to and expired on May 8, 1986; or (vii) such other benefits that are or may be
otherwise available to the indemnitee. The indemnification rights available
under the agreements are subject to certain exclusions, including a provision
that no indemnification shall be made if a court determines by clear and
convincing evidence that the indemnitee has acted or failed to act with
deliberate intent to cause injury to, or with reckless disregard for the best
interests of, Sky Financial.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------- ---------------------------------------------------------------------------------------------------
<C> <S>
2 Agreement and Plan of Merger, dated as of December 14, 1998 as amended
and restated as of April 19, 1999 by and among Sky Financial Group, Inc.,
First Western Bancorp, Inc. and First Western Acquisition Corporation
(included as Annex A to the Joint Proxy Statement/Prospectus)
3.1 Registrant's Sixth Amended and Restated Articles of Incorporation
3.2 Registrant's Code of Regulations, as amended
5 Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality
8 Form of Opinion of Squire, Sanders & Dempsey L.L.P. regarding tax matters
12.1 Fairness Opinion of McDonald Investments, Inc. (included as Annex C to the
Joint Proxy Statement/Prospectus)
12.2 Fairness Opinion of Sandler O'Neill & Partners, L.P. (included as Annex D to
the Joint Proxy Statement/Prospectus)
15 Letter re: unaudited interim financial information
23.1 Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit 5)
23.2 Consent of McDonald Investments, Inc.
23.3 Consent of Sandler O'Neill & Partners, L.P.
23.4 Consent of Crowe, Chizek and Company LLP
23.5 Consent of Deloitte & Touche LLP
24 Power of Attorney (included as part of the Signature Page to the Form S-4
Registration Statement)
99.1 Proxy Card of Sky Financial Group, Inc.
99.2 Proxy Card of First Western Bancorp, Inc.
99.3 Stock Option Agreement, dated as of December 15, 1998, by and between
Sky Financial Group, Inc. and First Western Bancorp., Inc. (included as
Annex B to the Joint Proxy Statement/Prospectus)
99.4 Consent of Person Named as About to Become a Director
99.5 Consent of Person Named as About to Become a Director
</TABLE>
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form F-3;
and the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the Securities and Exchange Commission by the registrant pursuant to section
13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement will be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii)
that purports to meet the requirements of section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to rule 415, will
be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the
II-5
<PAGE>
Securities Act of 1933, each such post-effective amendment will be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time will be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the 1933 Act, the registrant has duly caused
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Bowling Green, Ohio on May 21, 1998.
<TABLE>
<S> <C> <C>
SKY FINANCIAL GROUP, INC.
By: /s/ MARTY E. ADAMS
-----------------------------------------
Marty E. Adams
PRESIDENT AND CHIEF OPERATING OFFICER
</TABLE>
Pursuant to the requirements of the 1933 Act, this registration statement
has been signed by the following persons in the capacities and on the date
indicated.
<TABLE>
<C> <S> <C>
/s/ MARTY E. ADAMS May 21, 1999
- ------------------------------ President, Chief Operating -----------------
Marty E. Adams Officer and Director Date
Chairman of the Board,
Chief Executive Officer,
/s/ DAVID R. FRANCISCO Treasurer, Principal May 21, 1999
- ------------------------------ Executive Officer, -----------------
David R. Francisco Principal Financial Date
Officer and Director
/s/ EDWARD J. REITER Senior Chairman of the May 21, 1999
- ------------------------------ Board of Directors and -----------------
Edward J. Reiter Director Date
/s/ JAMES C. MCBANE Vice Chairman of the Board May 21, 1999
- ------------------------------ of Directors and -----------------
James C. McBane Director Date
/s/ FRED H. JOHNSON, III May 21, 1999
- ------------------------------ Director -----------------
Fred H. Johnson, III Date
/s/ KEITH D. BURGETT May 21, 1999
- ------------------------------ Director -----------------
Keith D. Burgett Date
/s/ WILLARD L. DAVIS May 21, 1999
- ------------------------------ Director -----------------
Willard L. Davis Date
</TABLE>
II-7
<PAGE>
<TABLE>
<C> <S> <C>
/s/ KENNETH E. MCCONNELL May 21, 1999
- ------------------------------ Director -----------------
Kenneth E. McConnell Date
/s/ GLENN F. THORNE May 21, 1999
- ------------------------------ Director -----------------
Glenn F. Thorne Date
/s/ GERARD P. MASTROIANNI May 21, 1999
- ------------------------------ Director -----------------
Gerard P. Mastroianni Date
/s/ DEL E. GOEDEKER May 21, 1999
- ------------------------------ Director -----------------
Del E. Goedeker Date
/s/ JOSEPH W. TOSH, II May 21, 1999
- ------------------------------ Director -----------------
Joseph W. Tosh, II Date
/s/ H. LEE KINNEY May 21, 1999
- ------------------------------ Director -----------------
H. Lee Kinney Date
/s/ GERALD D. ALLER May 21, 1999
- ------------------------------ Director -----------------
Gerald D. Aller Date
/s/ DAVID A. BRYAN May 21, 1999
- ------------------------------ Director -----------------
David A. Bryan Date
/s/ D. JAMES HITTICKER May 21, 1999
- ------------------------------ Director -----------------
D. James Hitticker Date
/s/ MARILYN O. MCALEAR May 21, 1999
- ------------------------------ Director -----------------
Marilyn O. McAlear Date
/s/ THOMAS S. NONEMAN May 21, 1999
- ------------------------------ Director -----------------
Thomas S. Noneman Date
/s/ EMERSON J. ROSS, JR. May 21, 1999
- ------------------------------ Director -----------------
Emerson J. Ross, Jr. Date
</TABLE>
II-8
<PAGE>
<TABLE>
<C> <S> <C>
/s/ DOUGLAS J. SHIERSON May 21, 1999
- ------------------------------ Director -----------------
Douglas J. Shierson Date
/s/ C. GREGORY SPANGLER May 21, 1999
- ------------------------------ Director -----------------
C. Gregory Spangler Date
/s/ ROBERT E. STEARNS May 21, 1999
- ------------------------------ Director -----------------
Robert E. Stearns Date
</TABLE>
The undersigned attorney-in-fact, by signing his name below, does hereby
sign this registration statement on Form S-4 on behalf of the above-named
officers and directors pursuant to a power of attorney executed by such persons
and filed with the Securities and Exchange Commission contemporaneously
herewith.
<TABLE>
<C> <S>
/s/ W. GRANGER SOUDER, JR.
- ------------------------------
W. Granger Souder, Jr.
ATTORNEY-IN-FACT
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------------- --------------------------------------------------------------------------------------- ---------------
<C> <S> <C>
2 Agreement and Plan of Merger, dated as of December 14, 1998 as amended and restated as
of April 19, 1999 by and among Sky Financial Group, Inc., First Western Bancorp, Inc.
and First Western Acquisition Corporation (included as Annex A to the Joint Proxy
Statement/Prospectus)
3.1 Registrant's Sixth Amended and Restated Articles of Incorporation
3.2 Registrant's Code of Regulations, as amended
5 Opinion of Squire, Sanders & Dempsey L.L.P. regarding legality
8 Form of Opinion of Squire, Sanders & Dempsey L.L.P. regarding tax matters
12.1 Fairness Opinion of McDonald Investments Inc. (included as Annex C to the Joint Proxy
Statement/Prospectus)
12.2 Fairness Opinion of Sandler O'Neill & Partners, L.P. (included as Annex D to the Joint
Proxy Statement/Prospectus)
15 Letter re: unaudited interim financial information
23.1 Consent of Squire, Sanders & Dempsey L.L.P. (included in Exhibit 5)
23.2 Consent of McDonald Investments, Inc.
23.3 Consent of Sandler O'Neill & Partners, L.P.
23.4 Consent of Crowe, Chizek and Company LLP
23.5 Consent of Deloitte & Touche LLP
24 Power of Attorney (included as part of the Signature Page to the Form S-4 Registration
Statement)
99.1 Proxy Card of Sky Financial Group, Inc.
99.2 Proxy Card of First Western Bancorp, Inc.
99.3 Stock Option Agreement, dated as of December 15, 1998, by and between Sky Financial
Group, Inc. and First Western Bancorp., Inc. (included as Annex B to the Joint Proxy
Statement/Prospectus)
99.4 Consent of Person Named as About to Become a Director
99.5 Consent of Person Named as About to Become a Director
</TABLE>
II-10
<PAGE>
Exhibit 3.1
SIXTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
SKY FINANCIAL GROUP, INC.
FIRST: The name of the Corporation is Sky Financial Group, Inc.
SECOND: The place in the State of Ohio where the principal office of the
Corporation will be located is in Bowling Green, Wood County, or such other
location as the Board of Directors may from time to time determine.
THIRD: The purpose for which the Corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98, inclusive, of the Revised Code of Ohio, as now in effect or
hereafter amended.
FOURTH: The total number of shares of all classes which the Corporation
shall have authority to issue is one hundred sixty million (160,000,000) shares,
divided into two classes as follows: 10,000,000 Serial Preferred Shares, par
value $10.00 (Ten Dollars) per share (hereinafter called the "Serial Shares")
and 150,000,000 Common Shares, without par value (hereinafter called the "Common
Shares").
No holder of any class of shares of the Corporation shall, as such
holder, have any preemptive or preferential right to purchase or subscribe to
any shares of any class of stock of the Corporation, whether now or hereafter
authorized, whether unissued or in the treasury, or to purchase any obligations
convertible into shares of any such class of stock of the Corporation, which at
any time may be proposed to be issued by the Corporation or subjected to the
rights or options to purchase granted by the Corporation.
No holder of any class of shares of the Corporation shall have the right
to cumulate his voting power in the election of the Board of Directors, and the
right to cumulate voting described in Ohio Revised Code Section 1701.55 is
hereby specifically denied to the holders of any class of stock of the
Corporation.
DIVISION A
EXPRESS TERMS OF THE SERIAL SHARES
SECTION 1. The Serial Shares may be issued from time to time in one or
more series. All shares of Serial Shares shall be of equal rank and shall be
identical, except in respect of the matters that may be fixed by the Board of
Directors as hereinafter provided, and each share of each series shall be
identical with all other shares of such series, except as to the date from which
dividends are cumulative. Subject to the provisions of Sections 2 to 7, both
inclusive, of this Division, which provisions shall apply to all Serial Shares,
the Board of Directors hereby is authorized to cause such shares to be issued in
one or more series and with respect to each such series prior to the issuance
thereof to fix:
<PAGE>
(a) The designation of the series, which may be by
distinguishing number, letter or title.
(b) The number of shares of the series, which number the
Board of Directors may (except where otherwise provided in the
creation of the series) increase or decrease (but not below the
number of shares thereof then outstanding).
(c) The annual dividend rate of the series.
(d) The dates at which dividends, if declared, shall be
payable, and the dates from which dividends shall be cumulative.
(e) The redemption rights and price or prices, if any,
for shares of the series.
(f) The terms and amount of any sinking fund provided
for the purchase or redemption of shares of the series.
(g) The amounts payable on shares of the series in the
event of any voluntary liquidation, dissolution or winding up of
the affairs of the Corporation.
(h) Whether the shares of the series shall be
convertible into Common Shares and, if so, the conversion price or
prices, any adjustments thereof, and all other terms and
conditions upon which conversion may be made.
(i) Restrictions (in addition to those set forth in
Sections 5(b) and 5(c) of this Division) on the issuance of shares
of the same series or of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) through (i), both inclusive, of
this Section1.
SECTION 2. The holders of Serial Shares of each series, in preference to
the holders of Common Shares and of any other class of shares ranking junior to
the Serial Shares, shall be entitled to receive out of any funds legally
available and when and as declared by the Board of Directors dividends in cash
at the rate for such series fixed in accordance with the provisions of Section 1
of this Division and no more, payable quarterly on the dates fixed for such
series. Such dividends shall be cumulative, in the case of shares of each
particular series, from and after the date or dates fixed with respect to such
series. No dividends may be paid upon or declared or set apart for any of the
Serial Shares for any quarterly dividend period unless at the same time a like
proportionate dividend for the same quarterly dividend period, ratably in
proportion to the respective annual dividend rates fixed therefor, shall be paid
upon or declared or set apart for all Serial Shares of all series then issued
and outstanding and entitled to receive such dividend.
2
<PAGE>
SECTION 3. In no event so long as any Serial Shares shall be outstanding
shall any dividends, except a dividend payable in Common Shares or other shares
ranking junior to the Serial Shares, be paid or declared or any distribution be
made except as aforesaid on the Common Shares or any other shares ranking junior
to the Serial Shares, nor shall any Common Shares or any other shares ranking
junior to the Serial Shares be purchased, retired or otherwise acquired by the
Corporation (except out of the proceeds of the sale of Common Shares or other
shares ranking junior to the Serial Shares received by the Corporation
subsequent to March 11, 1985):
(a) Unless all accrued and unpaid dividends on Serial
Shares, including the full dividends for the current quarterly
dividend period, shall have been declared and paid or a sum
sufficient for payment thereof set apart; and
(b) Unless there shall be no arrearages with respect to
the redemption of Serial Shares of any series from any sinking
fund provided for shares of such series in accordance with Section
1 of this Division.
SECTION 4. (a) The holders of Serial Shares of any series shall, in
case of liquidation, dissolution or winding up of the affairs of the
Corporation, be entitled to receive in full out of the assets of the
Corporation, including its capital, before any amount shall be paid or
distributed among the holders of the Common Shares or any other shares ranking
junior to the Serial Shares, the amounts fixed with respect to shares of such
series in accordance with Section 1 of this Division, plus an amount equal to
all dividends accrued and unpaid thereon to the date of payment of the amount
due pursuant to such liquidation, dissolution or winding up of the affairs of
the Corporation. In case the net assets of the Corporation legally available
therefor are insufficient to permit the payment upon all outstanding Serial
Shares of the full preferential amount to which they are respectively entitled,
then such net assets shall be distributed ratably upon outstanding Serial Shares
in proportion to the full preferential amount to which each such share is
entitled.
After payment to holders of Serial Shares of the full preferential
amounts as aforesaid, holders of Serial Shares as such shall have no right or
claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with any
other corporation, or the merger of any other corporation into it, or the sale,
lease or conveyance of all or substantially all the property or business of the
Corporation, shall not be deemed to be a dissolution, liquidation or winding up
for purposes of this Section 4.
SECTION 5. (a) The holders of Serial Shares shall be entitled to one
vote for each share of such stock upon all matters presented to the
shareholders; and, except as otherwise provided herein or required by law,
the holders of Serial Shares and the holders of Common Shares shall vote
together as one class on all matters.
If, and so often as, the Corporation shall be in default in the payment
of six (6) full quarterly dividends (whether or not consecutive) on any series
of Serial Shares at the time
3
<PAGE>
outstanding, whether or not earned or declared, the holders of Serial Shares
of all series, voting separately as a class and in addition to all other
rights to vote for directors, shall be entitled to elect, as herein provided,
two (2) members of the Board of Directors of the Corporation; provided,
however, that the holders of Serial Shares shall not have or exercise such
special class voting rights except at meetings of the shareholders for the
election of directors at which the holders of not less than one-third of the
outstanding Serial Shares of all series then outstanding are present in
person or by proxy; and provided further that the special class voting rights
provided for herein when the same shall have become vested shall remain so
vested until all accrued and unpaid dividends on the Serial Shares of all
series then outstanding shall have been paid, whereupon the holders of Serial
Shares shall be divested of their special class voting rights in respect of
subsequent elections of directors, subject to the revesting of such special
class voting rights in the event hereinabove specified in this paragraph.
In the event of default entitling the holders of Serial Shares to elect
two (2) directors as above specified, a special meeting of the shareholders for
the purpose of electing such directors shall be called by the Secretary of the
Corporation upon written request of, or may be called by, the holders of record
of at least ten percent (10%) of the Serial Shares of all series at the time
outstanding and notice thereof shall be given in the same manner as that
required for the annual meeting of shareholders; provided, however, that the
Corporation shall not be required to call such special meeting if the annual
meeting of shareholders shall be held within one hundred twenty (120) days after
the date of receipt of the foregoing written request from the holders of Serial
Shares. At any meeting at which the holders of Serial Shares shall be entitled
to elect directors, the holders of one-third of the then outstanding Serial
Shares of all series, present in person or by proxy, shall be sufficient to
constitute a quorum, and the vote of the holders of a majority of such shares so
present at any such meeting at which there shall be a quorum shall be sufficient
to elect the members of the Board of Directors which the holders of Serial
Shares are entitled to elect as hereinabove provided. The two directors who may
be elected by the holders of Serial Shares pursuant to the foregoing provisions
shall be in addition to any other directors then in office or proposed to be
elected otherwise than pursuant to such provisions, and nothing in such
provisions shall prevent any change otherwise permitted in the total number of
directors of the Corporation or require the resignation of any director elected
otherwise than pursuant to such provisions. Notwithstanding any classification
of the other directors of the Corporation, the two directors elected by the
holders of Serial Shares shall be elected annually for terms expiring at the
next succeeding annual meeting of shareholders.
(b) The affirmative vote of the holders of at least two-thirds of the
Serial Shares at the time outstanding, given in person or by proxy at a meeting
called for the purpose at which the holders of Serial Shares shall vote
separately as a class, shall be necessary to effect any one or more or the
following (but so far as the holders of Serial Shares are concerned, such action
may be effected with such vote):
(i) Any amendment, alteration or repeal of any of the
provisions of the Articles of Incorporation or of the Regulations
of the Corporation which affects adversely the voting powers,
rights or preferences of the holders of Serial Shares; provided,
however, that for the purpose of this clause (i) only, neither the
amendment of the Articles of Incorporation so as to authorize or
create, or to
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increase the authorized or outstanding amount of, Serial Shares
or of any shares of any class ranking on a parity with or junior
to the Serial Shares, nor the amendment of the provisions of the
Regulations so as to increase the number of directors of the
corporation shall be deemed to affect adversely the voting powers,
rights or preferences of the holders of Serial Shares; and
provided further that if such amendment, alteration or repeal
affects adversely the rights or preferences of one or more but not
all series of Serial Shares at the time outstanding, only the
affirmative vote of the holders of at least two-thirds of the
number of shares at the time outstanding of the series so affected
shall be required.
(ii) The authorization or creation of, or the increase in
the authorized amount of, any shares of any class, or any security
convertible into shares of any class, ranking prior to the Serial
Shares; or
(iii) The purchase or redemption (for sinking fund
purposes or otherwise) of less than all of the Serial Shares then
outstanding except in accordance with a stock purchase offer made
to all holders of record of Serial Shares, unless all dividends
upon all Serial Shares then outstanding for all previous quarterly
dividend periods shall have been declared and paid or funds
therefor set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
(c) The affirmative vote of the holders of at least a majority of the
shares of Serial Shares at the time outstanding, given in person or by proxy at
a meeting called for the purpose at which the holders of Serial Shares shall
vote separately as a class, shall be necessary to effect any one or more of the
following (but so far as the holders of Serial Shares are concerned, such action
may be effected with such vote):
(i) The sale, lease or conveyance by the Corporation of
all or substantially all of its property or business, or its
consolidation with or merger into any other corporation unless the
corporation resulting from such consolidation or merger will have
after such consolidation or merger no class of shares either
authorized or outstanding ranking prior to or on a parity with the
Serial Shares except the same number of shares ranking prior to or
on a parity with the Serial Shares and having the same rights and
preferences as the shares of the Corporation authorized and
outstanding immediately preceding such consolidation or merger,
and each holder of Serial Shares immediately preceding such
consolidation or merger shall receive the same number of shares,
with the same rights and preferences, of the resulting
corporation; or
(ii) The authorization of any shares ranking on a parity
with the Serial Shares or an increase in the authorized number of
Serial Shares.
SECTION 6. For the purpose of this Division A, whenever reference is
made to shares "ranking prior to the Serial Shares" or "on a parity with the
Serial Shares", such reference shall mean and include all shares of the
Corporation in respect of which the rights of the holders
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thereof as to the payment of dividends or as to distributions in the event of
a voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation are given preference over, or rank on an equality
with (as the case maybe) the rights of holders of Serial Shares; and whenever
reference is made to shares "ranking junior to the Serial Shares", such
reference shall mean and include all shares of the Corporation in respect of
which the rights of the holders thereof as to the payment of dividends and as
to distributions in the event of a voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation are junior and
subordinate to the rights of the holders of Serial Shares.
DIVISION B
EXPRESS TERMS OF THE COMMON SHARES
The Common Shares shall be subject to the express terms of the Serial
Shares and any series thereof. Each Common Share shall be equal to every other
share of Common Share. The holders of Common Shares shall be entitled to one
vote for each share of such stock upon all matters presented to the
Shareholders.
FIFTH: Without derogation from any other power to purchase shares of the
Corporation, the Corporation may, by action of its Board of Directors and to the
extent not prohibited by law, purchase outstanding shares of any class of this
Corporation's stock.
SIXTH: The provisions of Section 1701.831 of the Ohio Revised Code, as
amended from time to time, or any successor provision or provisions to said
section shall not apply to this Corporation.
SEVENTH: Except as otherwise required by these Articles of
Incorporation, but notwithstanding any provision of the Ohio Revised Code now or
hereafter in force requiring for any purpose the vote, consent, waiver or
release of the holders of shares entitling them to exercise two-thirds, or any
other proportion, of the voting power of the Corporation or of any class or
classes of shares thereof, any amendments to the Articles of Incorporation may
be made from time to time, and any proposal or proposition requiring the action
of shareholders may be authorized from time to time by the affirmative vote of
the holders of shares entitling them to exercise a majority of the voting power
of the Corporation.
EIGHTH: Except to the extent that Article FOURTH otherwise provides with
respect to certain matters therein set forth, the Corporation reserves the right
to amend, alter, change or repeal any provision contained in these Amended and
Restated Articles of Incorporation and to add new provisions, in the manner now
or hereafter prescribed by statute, upon the affirmative vote of a majority of
the outstanding shares of the Corporation, voting as a class; and all rights,
privileges and preferences of whatsoever nature conferred upon shareholders,
directors and officers pursuant to these Amended and Restated Articles of
Incorporation in their present form or as hereafter amended are granted subject
to this reservation. Notwithstanding the foregoing, the adoption of any
amendment, alteration, change or repeal to these Amended and Restated Articles
of Incorporation as the same may be in effect from time to time which is
inconsistent with or would have the effect of amending, altering, changing or
repealing the provisions of the
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Sections 7, 9 or 10 of the Regulations of the Corporation as the same may be
in effect from time to time shall require the same affirmative vote of the
shareholders as would be required under such Regulations to adopt any
amendment, alteration, change or repeal said Sections 7, 9 or 10 or to adopt
any provisions inconsistent therewith.
IN WITNESS WHEREOF, Marty E. Adams, President of the Corporation, acting
for and on behalf of the Corporation has hereunto subscribed his name this
30th day of April, 1999.
SKY FINANCIAL GROUP, INC.
By: /s/ Marty E. Adams
----------------------------------
Marty E. Adams
President
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Exhibit 3.2
REGULATIONS
OF
SKY FINANCIAL GROUP, INC., AS AMENDED
MEETINGS OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING.
The annual meeting of shareholders of the Corporation shall be held on
the first Thursday in March or at such other time and on such business day as
the directors may determine each year. The annual meeting shall be held at
the principal office of the Corporation or at such other place within or
without the State of Ohio as the directors may determine. The directors
shall be elected thereat and such other business transacted as may properly
be brought before the meeting.
SECTION 2. SPECIAL MEETINGS.
Special meetings of the shareholders may be called at any time by the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Operating Officer or by the directors by action at a meeting or a majority of
the directors acting without a meeting or by shareholders holding 50% or more of
the outstanding shares entitled to vote thereat. Such meetings may be held
within or without the State of Ohio at such time and place as may be specified
in the notice thereof.
SECTION 3. NOTICE OF MEETINGS.
Written notice of every annual or special meeting of the shareholders
stating the time, place and purposes thereof shall be given to each shareholder
entitled to notice as provided by law, not less than seven nor more than ninety
days before the date of the meeting. Such notice may be given by or at the
direction of the Chairman of the Board, the President, any Vice President or the
Secretary by personal delivery or by mail addressed to the shareholder at his
last address as it appears on the records of the Corporation. Any shareholder
may waive in writing notice of any meeting, either before or after the holding
of such meeting, and, by attending any meeting without protesting the lack of
proper notice, shall be deemed to have waived notice thereof.
SECTION 4. PERSONS BECOMING ENTITLED BY OPERATION OF LAW OR TRANSFER.
Every person who, by operation of law, transfer or any other means
whatsoever, shall become entitled to any shares, shall be bound by every notice
in respect of such share or shares which previously to the entering of his name
and address on the records of the Corporation shall have been duly given to the
person from whom he derives his title to such shares.
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SECTION 5. QUORUM AND ADJOURNMENTS.
Except as may be otherwise required by law or by the Articles of
Incorporation or these Regulations, the holders of a majority of the
then-outstanding shares entitled to vote in an election of directors, taken
together as a single class ("Voting Shares"), present in person or by proxy,
shall constitute a quorum; provided that any meeting duly called, whether a
quorum is present or otherwise may, by vote of the holders of the majority of
the Voting Shares represented thereat, adjourn from time to time, in which
case no further notice of any such adjourned meeting need be given.
SECTION 6. BUSINESS TO BE CONDUCTED AT MEETINGS.
At any meeting of shareholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a meeting of shareholders, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the
directors, otherwise properly brought before the meeting by or at the direction
of the directors or otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before a meeting of
shareholders by a shareholder, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty (60) days nor
more than ninety (90) days prior to the meeting; provided, however, that in the
event that less than seventy-five (75) days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth (15th) day following the earlier of the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. A shareholder's notice to the Secretary shall set forth as to each matter
the shareholder proposes to bring before the meeting (i) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by such shareholder, and (iv) any
material interest of such shareholder in such business.
Notwithstanding anything in the Regulations of the Corporation to the
contrary, no business shall be conducted at a meeting of shareholders except in
accordance with the procedures set forth in this Section 6.
The Chairman of the meeting of shareholders shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 6 in which
event any such business not properly brought before the meeting shall not be
transacted.
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DIRECTORS
SECTION 7. NUMBER.
(a) The number of directors shall not be less than five (5) nor more than
thirty-five (35), the exact number of directors to be determined from time to
time by an eighty (80) percent majority vote of the directors then in office,
and such exact number shall be twenty-two (22) until otherwise so determined.
(b) At the effective time (the "Effective Time") of the merger with Mid
Am, Inc. ("Mid Am"), the directors of the Corporation shall consist of
twenty-two (22) members, eleven (11) of whom shall be selected by the
Chairman of the Board and Chief Executive Officer of Mid Am ("Mid Am
Directors") and eleven (11) of whom shall be selected by the Board of
Directors of the Corporation prior to the Effective Time ("Bancshares
Directors") and which shall be allocated among the three classes of directors
of the Corporation by the agreement of the Chairman of the Board and Chief
Executive Officer of Mid Am and the Board of Directors of the Corporation so
that each class shall have an equal number of Mid Am Directors and Bancshares
Directors.
SECTION 8. NOMINATIONS.
(a) Only persons who are nominated in accordance with the procedures set
forth in this Section 8 shall be eligible for election by shareholders as
directors. Nominations of persons for election as directors of the Corporation
may be made at a meeting of shareholders by or at the direction of the directors
by any nominating committee or person appointed by the directors, including (i)
pursuant to paragraph (b) of this Section 8 or (ii) by any shareholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in paragraph (c) of this Section
8. No person shall be eligible for election by shareholders as a director of
the Corporation unless nominated in accordance with the procedures set forth in
this Section 8.
(b) For a period of three years after the Effective Time, in the event
that a Mid Am Director or a Bancshares Director or a director otherwise
nominated as set forth herein by the Mid Am Directors or Bancshares Directors as
set forth herein shall resign, no longer be able to serve or not stand for
reelection, (i) if such director shall be a Mid Am Director or a nominee of the
Mid Am Directors, then the Mid Am Directors and nominees of the Mid Am Directors
serving as directors shall have the exclusive right to nominate an individual to
fill such vacancy and (ii) if such director shall be a Bancshares Director or a
nominee of the Bancshares Directors, then the Bancshares Directors and nominees
of the Bancshares Directors serving as directors shall have the exclusive right
to nominate an individual to fill such vacancy.
(c) Nominations other than those made by or at the direction of the
directors, shall be made only pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the meeting; provided, however, that in the event that less than seventy-five
(75) days' notice or
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prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so delivered or
received not later than the close of business on the fifteenth (15th) day
following the earlier of the day on which such notice of the date of the
meeting was mailed or such public disclosure was made. Such shareholder's
notice shall set forth (a) as to each person who is not an incumbent director
whom the shareholder proposes to nominate for election as a director, (i) the
name, age, business address and residence address of such person; (ii) the
principal occupation or employment of such person; (iii) the class and number
of shares of the Corporation which are beneficially owned by such person; and
(iv) any other information relating to such person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b)
as to the shareholder giving the notice, (i) the name and record address of
such shareholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by such shareholder. Such notice shall be
accompanied by the written consent of each proposed nominee to serve as a
director of the Corporation, if elected. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination
was not made in accordance with the provisions of this Section 8, and, if he
should so determine, the defective nomination shall be void and ineffective
and the person or persons so nominated shall not be eligible for election.
SECTION 9. CLASSIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS.
The directors shall be divided into three classes, as nearly equal in
number as possible, and one of the classes shall be elected for a three-year
term of office at each annual shareholders meeting. At the annual meeting of
shareholders in 1985, one class of directors shall be elected for a one-year
term, one class shall be elected for a two-year term and one class shall be
elected for a three-year term. At each succeeding annual meeting of
shareholders, successors to the class of directors whose term expires in that
year will be elected to a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of such class, but in no case will a decrease in the
number of directors shorten the term of any incumbent director. A director
shall hold office until the annual meeting for the year in which his term
expires and his successor shall be elected and shall qualify, subject, however,
to prior death, resignation, or removal from office. Election of directors
shall be by ballot whenever requested by any person entitled to vote at the
meeting; but unless so requested such election may be conducted in any way
approved at such meeting.
SECTION 10. REMOVAL.
Directors may only be removed for cause and only by the affirmative vote of
not less than 80 percent of the whole Board of Directors of the Corporation.
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SECTION 11. VACANCIES.
Whenever any vacancy shall occur among the directors, the remaining
directors shall constitute the directors of the Corporation until such vacancy
is filled or until the number of directors is changed pursuant to Section 7
hereof. Subject to Section 8(b), except in cases where a director is removed as
provided by law and these Regulations and his successor is elected by the
shareholders, the remaining directors may, by a vote of a majority of their
number, fill any vacancy for the unexpired term. A majority of the directors
then in office may also fill any vacancy that results from an increase in the
number of directors.
SECTION 12. QUORUM AND ADJOURNMENTS.
A majority of the directors in office at the time shall constitute a
quorum, provided that any meeting duly called, whether a quorum is present or
otherwise, may, by vote of a majority of the directors present, adjourn from
time to time and place to place within or without the State of Ohio, in which
case no further notice of the adjourned meeting need be given. At any meeting
at which a quorum is present, all questions and business shall be determined by
the affirmative vote of not less than a majority of the directors present,
except as is otherwise provided in the Articles of Incorporation or these
Regulations or is otherwise authorized by Section 1701.60(A)(1) of the Ohio
Revised Code.
SECTION 13. ORGANIZATION MEETING.
Immediately after each annual meeting of the shareholders at which
directors are elected, or each special meeting held in lieu thereof, the
directors, including those newly elected, if a quorum of all such directors is
present, shall hold an organization meeting at the same place or at such other
time and place as may be fixed by the shareholders at such meeting, for the
purpose of electing officers and transacting any other business. Notice of such
meeting need not be given. If for any reason such organization meeting is not
held at such time, a special meeting for such purpose shall be held as soon
thereafter as practicable.
SECTION 14. REGULAR MEETINGS.
Regular meetings of the directors may be held at such times and places
within or without the State of Ohio as may be provided for in by-laws or
resolutions adopted by the directors and upon such notice, if any, as shall be
so provided for.
SECTION 15. SPECIAL MEETINGS.
Special meetings of the directors may be held at any time within or without
the State of Ohio upon call by the Chairman of the Board, the President, any
Vice President, or by any two directors. Notice of each such meeting shall be
given to each director by personal delivery, by mail, cablegram or telegram, or
by telephone not less than two days prior to such meeting or such shorter notice
as the directors shall deem necessary and warranted under the circumstances.
Any director may waive in writing notice of any meeting, and, by attending any
meeting without protesting the lack of proper notice, shall be deemed to have
waived notice thereof. Unless
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otherwise limited in the notice thereof, any business may be transacted at
any organization, regular or special meeting.
SECTION 16. COMPENSATION.
The directors are authorized to fix reasonable compensation, which may
include pension, disability, and death benefits, for services to the Corporation
by directors or a reasonable fee for attendance at any meeting of the directors,
the Executive Committee, or other committees elected under Section 20 hereof, or
any combination of salary and attendance fee. In addition to such compensation
provided for directors, they shall be reimbursed for any expenses incurred by
them in traveling to and from such meetings.
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
SECTION 17. MEMBERSHIP AND ORGANIZATION.
(a) The directors, at any time, may elect from their number an Executive
Committee which shall consist of four or more directors of the Corporation, each
of whom shall hold office during the pleasure of the directors and may be
removed at any time, with or without cause, by vote thereof. In the event that
an Executive Committee is formed at any time during the three year period after
the Effective Time, the Executive Committee shall consist of an even number of
directors, one-half of whom (the "Mid Am Executive Committee Members") shall be
selected by the Mid Am Directors and nominees of Mid Am Directors serving as
directors and one-half of whom (the "Bancshares Executive Committee Members")
shall be selected by the Bancshares Directors and nominees of the Bancshares
Directors serving as directors plus such additional directors as a majority of
the directors who become directors as a result of or pursuant to Section 7(b) or
8(b) shall determine.
(b) Vacancies occurring in the Executive Committee may be filled by the
directors; provided however, that for a period of three years after the
Effective Time, in the event that a Mid Am Executive Committee Member or a
Bancshares Executive Committee Member or a member of the Executive Committee
otherwise selected as set forth herein by the Mid Am Directors or Bancshares
Directors shall resign or no longer serve, (i) if such member shall be a Mid Am
Executive Committee Member or shall have been selected by the Mid Am Directors
and nominees of the Mid Am Directors serving as directors, then the Mid Am
Directors and nominees of the Mid Am Directors serving as directors shall have
the exclusive right to select an individual to fill such vacancy and (ii) if
such member shall be a Bancshares Executive Committee Member or shall have been
selected by the Bancshares Directors and nominees of the Bancshares Directors
serving as directors, then the Bancshares Directors and nominees of the
Bancshares Directors serving as directors shall have the exclusive right to
select an individual to fill such vacancy.
(c) In the event the directors have not designated a Chairman, the
Executive Committee shall appoint one of its own number as Chairman who shall
preside at all meetings and may also appoint a Secretary (who need not be a
member of the Executive Committee) who shall keep its records and who shall hold
office at the pleasure of the Executive Committee.
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SECTION 18. MEETINGS.
(a) Regular meetings of the Committee may be held without notice of the
time, place or purposes thereof and shall be held at such times and places
within or without the State of Ohio as the Committee may from time to time
determine.
(b) Special meetings may be held upon notice of the time, place and
purposes thereof at any place within or without the State of Ohio and until
otherwise ordered by the Committee shall be held at any time and place at the
call of the Chairman or any two members of the Committee.
(c) At any regular or special meeting the Committee may exercise any or
all of its powers, and any business which shall come before any regular or
special meeting may be transacted thereat, provided a majority of the Committee
is present, but in every case the affirmative vote of a majority of all of the
members of the Committee shall be necessary to take any action.
(d) Any authorized action by the Committee may be taken without a meeting
by a writing signed by all the members of the Committee.
SECTION 19. POWERS.
Except as its powers, duties and functions may be limited or prescribed by
the directors, during the intervals between the meetings of the directors, the
Committee shall possess and may exercise all the powers of the directors
provided that the Committee shall not be empowered to declare dividends, elect
or remove officers, fill vacancies among the directors or Executive Committee,
adopt an agreement of merger or consolidation, recommend to the shareholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, nor recommend to the shareholders a dissolution of the
Corporation or revocation of a dissolution. All actions of the Committee shall
be reported to the directors at their meeting next succeeding such action and
shall be subject to revision or alteration by the directors, provided that no
rights of any third person shall be affected thereby.
SECTION 20. OTHER COMMITTEES.
(a) The directors may elect other committees from among the directors in
addition to or in lieu of the Executive Committee and give to them any of the
powers which under the foregoing provisions could be vested in the Executive
Committee, provided, that in the event that any such committee is formed at any
time during the three year period after the Effective Time, such committee shall
consist of an even number of directors, one-half of whom (the "Mid Am Committee
Members") shall be selected by the Mid Am Directors and nominees of the Mid Am
Directors serving as directors and one-half of whom (the "Bancshares Committee
Members") shall be selected by the Bancshares Directors and nominees of the
Bancshares Directors serving as directors plus such additional directors as a
majority of the directors who become directors as a result of or pursuant to
Section 7(b) or 8(b) shall determine.
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(b) Vacancies occurring in any committee formed pursuant to Section 20(a)
may be filled by the directors; provided that for a period of three years after
the Effective Time, in the event that a Mid Am Committee Member or a Bancshares
Committee Member or a member of such committee otherwise selected as set forth
herein by the Mid Am Directors or Bancshares Directors shall resign or no longer
serve, (i) if such member shall be a Mid Am Committee Member or shall have been
selected by the Mid Am Directors and nominees of the Mid Am Directors serving as
directors, then the Mid Am Directors and nominees of the Mid Am Directors
serving as directors shall have the exclusive right to select an individual to
fill such vacancy and (ii) if such member shall be a Bancshares Committee Member
or shall have been selected by the Bancshares Directors and nominees of the
Bancshares Directors serving as directors, then the Bancshares Directors and
nominees of the Bancshares Directors serving as directors shall have the
exclusive right to select an individual to fill such vacancy.
OFFICERS
SECTION 21. OFFICERS DESIGNATED.
The directors, at their organization meeting or at a special meeting held
in lieu thereof or to the extent otherwise necessary shall elect, and unless
otherwise determined by the directors there shall be, a Chairman of the Board, a
Senior Chairman of the Board, a Chief Executive Officer, a President, a Chief
Operating Officer, a Vice Chairman of the Board, a Secretary, a Treasurer and,
in their discretion, one or more Vice Presidents, an Assistant Secretary or
Secretaries, an Assistant Treasurer or Treasurers, and such other officers as
the directors may deem appropriate. From time to time, the directors may elect
one or more additional Vice Chairmen of the Board, in which case the Vice
Chairman who was initially elected as such will thereafter be designated by the
directors as the First Vice Chairman of the Board. Any two or more of such
offices other than that of President and Vice President, or Secretary and
Assistant Secretary, or Treasurer and Assistant Treasurer, may be held by the
same person, but no officer shall execute, acknowledge or verify any instrument
in more than one capacity if such instrument is required by law, the Articles of
Incorporation, these Regulations or any by-laws to be executed, acknowledged, or
verified by two or more officers.
SECTION 22. TENURE OF OFFICE.
The officers of the Corporation shall hold office for such terms as the
directors shall determine from time to time. The directors may remove any
officer at any time with or without cause by a majority vote of the directors in
office at the time. A vacancy, however created, in any office may be filled by
election by the directors.
SECTION 23. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at meetings of the shareholders and
directors, shall initiate and develop broad corporate policies and shall have
such other powers and duties as may be prescribed by the directors. Except
where the signature of the President is required by law, the Chairman of the
Board shall possess the same power as the President to execute all
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authorized deeds, mortgages, bonds, contracts and other instruments and
obligations in the name of the Corporation.
SECTION 24. SENIOR CHAIRMAN OF THE BOARD; CHAIRMAN OF THE BOARD; VICE
CHAIRMAN OF THE BOARD.
Each of the Senior Chairman of the Board, the Chairman of the Board and the
Vice Chairman of the Board, shall render policy and other management services to
the Corporation of the type customarily performed by persons serving in a
similar capacity.
SECTION 25. CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer of the Corporation shall have general
supervision over its property, business and affairs, subject to the directions
of the Chairman of the Board and/or the directors. Unless otherwise determined
by the directors, he shall have authority to execute all authorized deeds,
mortgages, bonds, contracts and other instruments and obligations in the name of
the Corporation, and in the absence of the Chairman of the Board shall preside
at meetings of the shareholders and the directors. He shall have such other
powers and duties as may be prescribed by the directors.
SECTION 26. PRESIDENT AND CHIEF OPERATING OFFICER.
The President and Chief Operating Officer of the Corporation shall be the
second highest ranking officer of the Corporation and shall render executive,
policy and other management services to the Corporation and have primary
responsibility for the commercial banking operations of the Corporation and
related acquisitions and, with respect to all other merger and acquisition
activity, shall have the right to participate fully in any such process,
including discussions and negotiations, and shall have such other duties as the
Board of Directors or the Chief Executive Officer of the Corporation may from
time to time reasonably direct or request.
SECTION 27. VICE PRESIDENTS.
The Vice Presidents shall have such powers and duties as may be prescribed
by the directors or as may be delegated by the Chairman of the Board or the
President.
SECTION 28. SECRETARY.
The Secretary shall attend and keep the minutes of all meetings of the
shareholders and of the directors. He shall keep such books as may be required
by the directors and shall give all notices of meetings of shareholders and
directors, provided, however, that any persons calling such meetings may, at
their option, themselves give such notice. He shall have such other powers and
duties as may be prescribed by the directors.
-9-
<PAGE>
SECTION 29. TREASURER.
The Treasurer shall receive and have in charge all money, bills, notes,
bonds, stocks in other corporations and similar property belonging to the
Corporation and shall do with the same as shall be ordered by the directors. He
shall keep accurate financial accounts and hold the same open for inspection and
examination of the directors. On the expiration of his term of office, he shall
turn over to his successor, or the directors, all property, books, papers and
money of the Corporation in his hands. He shall have such other powers and
duties as may be prescribed by the directors.
SECTION 30. OTHER OFFICERS.
The Assistant Secretaries, Assistant Treasurers, if any, and the other
officers, if any, shall have such powers and duties as the directors may
prescribe.
SECTION 31. DELEGATION OF DUTIES.
The directors are authorized to delegate the duties of any officers to any
other officer and generally to control the action of the officers and to require
the performance of duties in addition to those mentioned herein.
SECTION 32. COMPENSATION.
The directors are authorized to determine or to provide the method of
determining the compensation of all officers.
SECTION 33. BOND.
Any officer or employee, if required by the directors, shall give bond in
such sum and with such security as the directors may require for the faithful
performance of his duties.
SECTION 34. SIGNING CHECKS AND OTHER INSTRUMENTS.
The directors are authorized to determine or provide the method of
determining how checks, notes, bills of exchange and similar instruments shall
be signed, countersigned or endorsed.
SECTION 35. MANAGEMENT EXECUTIVE COMMITTEE.
(a) At the Effective Time, a Management Executive Committee of the
Corporation shall be established and shall consist of at least eight members,
one-half of whom shall be selected by the Chairman of the Board and Chief
Executive Officer of Mid Am immediately prior to the Effective Time (the "Mid Am
Management Executive Committee Members") and one-half of whom shall be selected
by the President and Chief Executive Officer of the Corporation immediately
prior to the Effective Time (the "Bancshares Management Executive Committee
Members"). For a period of three years after the Effective Time, in the event
that a
-10-
<PAGE>
Mid Am Management Executive Committee Member or a Bancshares Management
Executive Committee Member or a member of the Management Executive Committee
otherwise selected as set forth herein shall resign or no longer serve, (i)
if such member shall be a Mid Am Management Executive Committee Member or
shall have been selected by the Mid Am Directors and nominees of the Mid Am
Directors serving as directors, then the Mid Am Directors and nominees of the
Mid Am Directors serving as directors shall have the exclusive right to
select an individual to fill such vacancy and (ii) if such member shall be a
Bancshares Management Executive Committee Member or shall have been selected
by the Bancshares Directors and nominees of the Bancshares Directors serving
as directors, then the Bancshares Directors and nominees of the Bancshares
Directors serving as directors shall have the exclusive right to select an
individual to fill such vacancy. Mid Am Directors and the nominees of Mid Am
Directors serving as directors shall have the exclusive right to remove any
Mid Am Management Executive Committee Member or any member of the Management
Executive Committee they have selected. Bancshares Directors and the
nominees of Bancshares Directors serving as directors shall have the
exclusive right to remove any Bancshares Management Executive Committee
member or any member of the Management Executive Committee they have
selected. Members of the Management Executive Committee shall either be
members of the Board of Directors of the Corporation or employees of the
Corporation or its subsidiaries. After the Effective Time, the Board of
Directors may appoint additional members of the Management Executive
Committee other than as set forth in the preceding sentences and the Board of
Directors shall have the exclusive right to remove any such member it has
selected.
(b) Subject to the authority of the Board of Directors and the officers of
the Corporation, the activities of the Management Executive Committee will
include, but not be limited to, such matters as facilitating the integration of
the Corporation and Mid Am and their respective operating philosophies; making
recommendations, as appropriate, with respect to the Corporation's management
structure and operations; engaging in strategic planning activities; and
reviewing recommendations of employee committees regarding employee benefits,
shareholder services and data processing operations. The Management Executive
Committee may engage in such other activities as the Board of Directors may from
time to time prescribe.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 36. INDEMNIFICATION.
The Corporation shall indemnify any director or officer and any former
director or officer of the Corporation and any such director or officer who is
or has served at the request of the Corporation as a director, officer or
trustee of another corporation, partnership, joint venture, trust or other
enterprise (and his heirs, executors and administrators) against expenses,
including attorney's fees, judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him by reason of the fact that he is or was
such director, officer or trustee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by applicable law. The
indemnification provided for herein shall not be deemed to restrict the power of
the Corporation (i) to indemnify employees, agents and others to the extent not
prohibited by law, (ii) to purchase and maintain insurance or furnish similar
protection on behalf of or for any person who is or was
-11-
<PAGE>
a director, officer or employee of the Corporation, or any person who is or
was serving at the request of the Corporation as a director, officer,
trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as such,
and (iii) to enter into agreements with persons of the class identified in
clause (ii) above indemnifying them against any and all liabilities (or such
lesser indemnification as may be provided in such agreements) asserted
against or incurred by them in such capacities.
PROVISIONS IN ARTICLES OF INCORPORATION
SECTION 37. PROVISIONS IN ARTICLES OF INCORPORATION.
These Regulations are at all times subject to the provisions of the
Articles of Incorporation of the Corporation as the same may be in effect from
time to time, including without limitation the provisions of said Articles of
Incorporation granting the holders of "Serial Shares" the right to elect two
members of the Board of Directors during the pendency of any default in
dividends on the Serial Shares as said terms are defined in said Articles of
Incorporation.
LOST CERTIFICATES
SECTION 38. LOST CERTIFICATES.
The directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon such terms and conditions as they may deem advisable
upon satisfactory proof of loss or destruction thereof. When authorizing such
issue of a new certificate, the directors may, as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the directors shall require and/or to give the Corporation a suitable bond or
indemnity against loss by reason of the issuance of a new certificate.
RECORD DATES
SECTION 39. RECORD DATES.
For any lawful purpose, including, without limitation, the determination of
the shareholders who are entitled to: (i) receive notice of or to vote at a
meeting of shareholders; (ii) receive payment of any dividend or distribution;
(iii) receive or exercise rights of purchase of or subscription for, or exchange
or conversion of, shares or other securities, subject to contract rights with
respect thereto; or (iv) participate in the execution of written consents,
waivers, or releases, the directors may fix a record date which shall not be a
date earlier than the date on which the record date is fixed and, in the cases
provided for in clauses (i), (ii) and (iii) above, shall not be more than sixty
(60) nor fewer than ten (10) days, unless the Articles of Incorporation specify
a shorter or a longer period for such purpose, preceding the date of the
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<PAGE>
meeting of the shareholders, or the date fixed for the payment of any
dividend or distribution, or the date fixed for the receipt or the exercise
of rights, as the case may be.
AMENDMENTS
SECTION 40. AMENDMENTS.
(a) These Regulations may be altered, changed or amended in any respect or
superseded by new Regulations in whole or in part, by the affirmative vote of
the holders of a majority of the Voting Shares present in person or by proxy at
an annual or special meeting called for such purpose.
(b) Notwithstanding the provisions of Section 40(a) hereof and
notwithstanding the fact that a lesser percentage may be specified by law or in
any agreement with any national securities exchange or any other provision of
these Regulations, the amendment, alteration, change or repeal of, or adoption
of any provisions inconsistent with, Sections 7, 9 or 10 of these Regulations
shall require the affirmative vote of at least seventy-five (75) percent of the
Voting Shares, present in person or by proxy, at any annual meeting or special
meeting duly called for the purpose of acting on any such amendment, alteration,
change, repeal or adoption, unless such amendment, alteration, change, repeal or
adoption has been recommended by at least two-thirds of the Board of Directors
of the Corporation then in office, in which event the provisions of
Section 40(a) hereof shall apply.
-13-
<PAGE>
EXHIBIT 5
[SQUIRE, SANDERS & DEMPSEY L.L.P. LETTERHEAD]
May 21, 1999
Sky Financial Group, Inc.
221 South Church Street
Bowling Green, Ohio 43402
Ladies and Gentlemen:
Reference is made to the registration statement on Form S-4 (the
"Registration Statement") to be filed by Sky Financial Group, Inc. ("Sky
Financial") in connection with the issuance of up to 14,124,697 of its common
shares, no par value, (the "Sky Financial Common Shares") upon the terms and
conditions set forth in the Agreement and Plan of Merger, dated as of
December 14, 1998 as amended and restated as of April 19, 1999 by and among
Sky Financial, First Western Bancorp, Inc. ("First Western") and First
Western Acquisition Corporation ("Acquisition Corporation"), providing for
the merger of Acquisition Corporation, a wholly owned subsidiary of Sky
Financial, with and into First Western (the "Merger Agreement"). We have
examined the Merger Agreement, and such documents and matters of law as we
have deemed necessary or appropriate for the purpose of rendering this
opinion.
Based upon the foregoing, we are of the opinion that the Sky Financial
Common Shares, when issued by Sky Financial as contemplated in the Merger
Agreement and the Registration Statement, will be legally issued, fully paid
and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference of our firm under the caption
"Legal Opinions" in the joint proxy statement/prospectus contained therein.
Respectfully submitted,
SQUIRE, SANDERS & DEMPSEY L.L.P.
<PAGE>
EXHIBIT 8
July __, 1999
First Western Bancorp, Inc.
101 East Washington Street
New Castle, Pennsylvania 16101
Re: Merger of First Western Acquisition Corporation, a wholly owned
subsidiary of Sky Financial Group, Inc., with and into First Western
Bancorp, Inc.
Ladies and Gentlemen:
Pursuant to section 7.02(c) of the Agreement and Plan of Merger, dated
December 14, 1998, as amended and restated on April 19, 1999, by and between
Sky Financial Group, Inc., ("Sky Financial"), First Western Acquisition
Corporation ("Transitory Sub"), a newly organized Pennsylvania corporation
that is a wholly-owned subsidiary of Sky Financial, and First Western
Bancorp, Inc. ("First Western") (the "Merger Agreement"), First Western has
requested our opinion with respect to certain of the federal income tax
consequences of the merger of Transitory Sub with and into First Western (the
"Merger"). Under the terms of the Merger Agreement, shares of First Western
stock will be converted into shares of Sky Financial voting common stock and
shares of Transitory Sub will be converted into the only outstanding shares
of First Western.
DOCUMENTS EXAMINED
In connection with the rendering of our opinion, we have examined the
following:
1. The Merger Agreement;
2. The Registration Statement on Form S-4 filed under the Securities Act
of 1933 by Sky Financial with respect to the Sky Financial stock to be
issued in connection with the Merger (the "Registration Statement");
3. The Representation Certificates of First Western and Sky Financial;
and
4. Such other documents, records, and matters of law as we have deemed
necessary or appropriate in connection with rendering this opinion.
<PAGE>
First Western Bancorp. Inc.
July __, 1999
Page -2-
In our review and examination of the foregoing, we have assumed the
genuineness of all signatures and the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or duplicate copies thereof. We have further
assumed that the execution and delivery of any of the foregoing have been
duly authorized by all necessary corporate actions in order to make the
foregoing valid and legally binding obligations of the parties, enforceable
in accordance with their terms, except as enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium, or other similar laws,
both state and federal, affecting the enforcement of creditors' rights or
remedies in general from time to time in effect and the exercise by courts of
equity powers or their application of principles of public policy.
FACTUAL ASSUMPTIONS
In rendering this opinion, we have made the following assumptions as to
factual matters.
1. The Representation Certificates of First Western and Sky Financial, as
referenced in the section entitled DOCUMENTS EXAMINED, are executed
and delivered to us prior to the Merger in the form that we have
heretofore tendered them to First Western and Sky Financial;
2. The representations and warranties of the parties contained in the
documents listed in the section entitled DOCUMENTS EXAMINED that may
be deemed material to this opinion are all true in all material
respects as of the date of the Merger;
3. The representations as to factual matters of First Western and Sky
Financial contained in one or more Representation Certificates are all
true, correct, and complete in all material respects as of the date of
the Merger;
4. The Merger, and all transactions related thereto or contemplated by
the Merger Agreement and the Registration Statement, shall be
consummated in accordance with the terms and conditions of the
applicable documents; and
5. At the closing, either counsel for First Western or counsel for Sky
Financial will provide an unqualified opinion that the Merger will
qualify as a statutory merger under applicable state corporation
law.
<PAGE>
First Western Bancorp. Inc.
July ___, 1999
Page -3-
LIMITATIONS ON OPINION
The following limitations apply with respect to this opinion:
1. This opinion is based upon the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury
Regulations promulgated thereunder (including proposed Treasury
regulations), and the interpretations thereof by the Internal Revenue
Service and those courts having jurisdiction over such matters as of
the date hereof, all of which are subject to change either
prospectively or retrospectively. No opinion is rendered with respect
to the effect, if any, of any pending or future legislation or
administrative regulation or ruling that may have a bearing on any of
the foregoing. This opinion is not the equivalent of a ruling from,
and is not binding on, the Internal Revenue Service, and there can be
no assurance that the Internal Revenue Service or the courts will
agree with the conclusions expressed herein.
2. We have not been asked to render an opinion with respect to any
federal income tax matters except those set forth below, nor have we
been asked to render an opinion with respect to any state or local tax
consequences of the Merger. Accordingly, this opinion should not be
construed as applying in any manner to any tax aspect of the Merger
other than as set forth below.
3. All factual assumptions set forth above are material to all opinions
herein rendered and have been relied upon by us in rendering all such
opinions. Any material inaccuracy in any one or more of the assumed
facts may nullify all or some of the conclusions stated in such
opinion.
OPINION
Based upon and subject to the foregoing, it is our opinion that the Merger
will constitute a reorganization within the meaning of section 368(a)(1)(A) and
(a)(2)(E) of the Code and that, accordingly, no gain or loss will be recognized
by the shareholders of First Western upon the conversion of their shares of
First Western stock into shares of Sky Financial stock (except for any gain or
loss attributable to cash received in lieu of fractional shares).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Respectfully submitted,
<PAGE>
Exhibit 15
May 21, 1999
First Western Bancorp, Inc.
101 E. Washington Street
New Castle, PA 16101
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of First Western Bancorp, Inc. and subsidiaries for the
period ended March 31, 1999 and 1998, as indicated in our report dated April
14, 1999; because we did not perform an audit, we expressed no opinion on
that information.
We are aware that our report referred to above, which was included in First
Western Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, is being incorporated by reference in this Registration
Statement of Sky Financial Group, Inc. on Form S-4.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
DELOITTE & TOUCHE LLP
<PAGE>
Exhibit 23.2
CONSENT OF McDONALD INVESTMENTS INC.
We consent to the inclusion in this Registration Statement on Form S-4
of our opinion set forth as Annex C to the Prospectus and Proxy Statement,
which is part of the Registration Statement, and to the reference to our firm
and summarization of our opinion in the Prospectus and Proxy Statement under
the caption "Opinion of McDonald Investments Inc."
/s/ McDonald Investments
- -------------------------------
McDONALD INVESTMENTS, INC.
Chicago, Illinois
May 21, 1999
<PAGE>
Exhibit 23.3
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of First Western Bancorp, Inc. (the "Company") as an Annex to the
Joint Proxy Statement/Prospectus relating to the proposed merger of the
Company with and into Sky Financial Group, Inc. contained in the Registration
Statement on Form S-4 as filed with the Securities and Exchange Commission on
the date hereof, and to the references to our firm and such opinion in such
Joint Proxy Statement/Prospectus. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended (the "Act"), or the rules
and regulations of the Securities and Exchange Commission thereunder (the
"Regulations"), nor do we admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as
used in the Act or the Regulations.
Sandler O'Neill & Partners, L.P.
May 21, 1999
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on
Form S-4 of Sky Financial Group, Inc. ("the Corporation") of our report dated
February 16, 1999 on the Corporation's consolidated balance sheets as of
December 31, 1998 and 1997 and the related consolidated statements of income,
comprehensive income, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1998, incorporated by reference
in the Corporation's Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts" in
such Proxy Statement/Prospectus.
Crowe, Chizek and Company LLP
Columbus, Ohio
May 20, 1999
<PAGE>
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Sky Financial Group, Inc. on Form S-4 of our report on First Western Bancorp,
Inc.'s consolidated financial statements dated January 25, 1999, appearing in
the Annual Report on Form 10-K of First Western Bancorp, Inc. for the year
ended December 31, 1998, and to the reference to us under the heading
"Experts" in this Registration Statement.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
May 21, 1999
<PAGE>
Exhibit 99.1
SKY FINANCIAL GROUP, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS CALLED FOR
July 21, 1999
The undersigned having received, together with the joint proxy
statement/prospectus dated as of May 21, 1999, notice of the special meeting
of shareholders of SKY FINANCIAL GROUP, INC., Bowling Green, Ohio, to be held
on July 21, 1999 at 9:00 a.m., hereby designates and appoints Kenneth E.
McConnell and C. Gregory Spangler as proxies for the undersigned, with full
power of substitution, to exercise all the powers that the undersigned would
have if personally present to act and to vote all of the shares that the
undersigned is entitled to vote at the special meeting of shareholders,
unless revoked, and at any adjournment or postponement thereof, such proxies
being directed to vote as specified below on the following proposal:
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSAL 1.
<TABLE>
<S> <C>
Proposal 1: To approve and adopt the Agreement and Plan of Merger by and between Sky Financial Group, Inc. and
First Western Bancorp, Inc., providing for the merger of First Western with and into Sky Financial.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 2: To transact such other business as may properly come before the special meeting, or any adjournment
or postponements thereof in order to allow the further solicitation of proxies.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL
2. ALL PROXIES PREVIOUSLY GIVEN ARE HEREBY REVOKED. RECEIPT OF THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS IS HEREBY ACKNOWLEDGED.
The aforesaid proxies are hereby authorized to vote on any other matter that
may properly come before the meeting at their discretion. An executed proxy may
be revoked at any time prior to its exercise by submitting another proxy with a
later date, by appearing in person at the Sky Financial special meeting and
advising the Secretary of the shareholder's intent to vote the share(s) or by
sending a written, signed and dated revocation that clearly identifies the proxy
being revoked to the principal executive offices of Sky Financial Group, Inc. at
221 South Church Street, Bowling Green, Ohio 43402, attention: W. Granger
Souder, Jr., Corporate Secretary. A revocation may be in any written form
validly signed by the record holder so long as it clearly states that the proxy
previously given is no longer effective.
Dated: _______________________
______________________________
Signature
______________________________
Signature
Please sign exactly as your
name appears on your stock
certificate(s) and return this
proxy promptly in the
accompanying envelope. If the
shares are issued in the names
of two or more persons, all
persons should sign the proxy.
If the shares are issued in
the name of a corporation or
partnership, please sign in
the corporate name, by the
president or other authorized
officer, or in the partnership
name, by an authorized person.
When signing as attorney,
executor, administrator,
trustee, guardian or in any
other representative capacity,
please give your full title as
such.
PLEASE DATE, SIGN AND MAIL
THIS PROXY TO SKY FINANCIAL
GROUP, INC., ATTENTION W.
GRANGER SOUDER, JR., CORPORATE
SECRETARY, 221 SOUTH CHURCH
STREET, BOWLING GREEN, OHIO
43402. AN ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE.
<PAGE>
Exhibit 99.2
FIRST WESTERN BANCORP, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS CALLED FOR
July 20, 1999
The undersigned having received, together with the joint proxy
statement/prospectus dated as of May 21, 1999, notice of the special meeting
of shareholders of FIRST WESTERN BANCORP, INC., New Castle, Pennsylvania, to
be held on July 20, 1999 at 10:30 a.m., hereby designates and appoints John
W. Sant, Robert C. Duvall and Thomas S. Mansell as proxies for the
undersigned, with full power of substitution, to exercise all the powers that
the undersigned would have if personally present to act and to vote all of
the shares that the undersigned is entitled to vote at the special meeting of
shareholders, unless revoked, and at any adjournment or postponement thereof,
such proxies being directed to vote as specified below on the following
proposal:
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSAL 1.
<TABLE>
<S> <C>
Proposal 1: To approve and adopt the Agreement and Plan of Merger by and between Sky Financial Group, Inc. and
First Western Bancorp, Inc., providing for the merger of First Western with and into Sky Financial.
/ / FOR / / AGAINST / / ABSTAIN
Proposal 2: To transact such other business as may properly come before the special meeting, or any adjournment
or postponements thereof in order to allow the further solicitation of proxies.
/ / FOR / / AGAINST / / ABSTAIN
</TABLE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED FOR PROPOSAL 1 AND FOR PROPOSAL
2. ALL PROXIES PREVIOUSLY GIVEN ARE HEREBY REVOKED. RECEIPT OF THE ACCOMPANYING
JOINT PROXY STATEMENT/PROSPECTUS IS HEREBY ACKNOWLEDGED.
The aforesaid proxies are hereby authorized to vote on any other matter that
may properly come before the meeting at their discretion. An executed proxy may
be revoked at any time prior to its exercise by submitting another proxy with a
later date, by appearing in person at the First Western special meeting and
advising the Secretary of the shareholder's intent to vote the share(s) or by
sending a written, signed and dated revocation that clearly identifies the proxy
being revoked to the principal executive offices of First Western Bancorp, Inc.
at 101 East Washington Street, P.O. Box 1488, New Castle, Pennsylvania
16103-1488, attention: Thomas S. Mansell, Secretary. A revocation may be in any
written form validly signed by the record holder so long as it clearly states
that the proxy previously given is no longer effective.
Dated: _______________________
______________________________
Signature
______________________________
Signature
Please sign exactly as your
name appears on your stock
certificate(s) and return this
proxy promptly in the
accompanying envelope. If the
shares are issued in the names
of two or more persons, all
persons should sign the proxy.
If the shares are issued in
the name of a corporation or
partnership, please sign in
the corporate name, by the
president or other authorized
officer, or in the partnership
name, by an authorized person.
When signing as attorney,
executor, administrator,
trustee, guardian or in any
other representative capacity,
please give your full title as
such.
PLEASE DATE, SIGN AND MAIL
THIS PROXY TO FIRST WESTERN
BANCORP, INC., ATTENTION
THOMAS S. MANSELL, SECRETARY,
101 EAST WASHINGTON STREET,
P.O. BOX 1488, NEW CASTLE,
PENNSYLVANIA 16103-1488. AN
ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE.
<PAGE>
EXHIBIT 99.4
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Thomas J. O'Shane, hereby consent to be named as a person about
to become a director of Sky Financial Group, Inc. in the registration
statement on Form S-4 of Sky Financial Group, Inc., dated May 21, 1999.
/s/ Thomas J. O'Shane
------------------------------------------
Thomas J. O'Shane
Dated: May 21, 1999
<PAGE>
EXHIBIT 99.5
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Robert C. Duvall, hereby consent to be named as a person about to
become a director of Sky Financial Group, Inc. in the registration statement on
Form S-4 of Sky Financial Group, Inc., dated May 21, 1999.
/s/ Robert C. Duvall
------------------------------------------
Robert C. Duvall
Dated: May 21, 1999
