<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________________
Commission File Number 0-23122
GREAT FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 61-1251805
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
ONE FINANCIAL SQUARE, LOUISVILLE, KENTUCKY 40202
(Address of principal executive offices) (Zip Code)
(502) 562-6000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: Common Stock, 13,873,909 shares
as of November 10, 1997.
<PAGE>
GREAT FINANCIAL CORPORATION
I N D E X
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION 22
SIGNATURES 23
<PAGE>
GREAT FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
(unaudited)
Assets
Cash and cash equivalents ....................... $ 42,686 $ 126,323
Available-for-sale securities, at fair value .... 698,821 667,542
Mortgage loans held for sale .................... 75,463 65,546
Loans receivable, net of allowance for loan
losses of $14,663 (1997) and $13,538 (1996) .. 1,898,928 1,867,511
Federal Home Loan Bank stock, at cost ........... 38,562 34,816
Property and equipment .......................... 33,296 34,127
Mortgage servicing rights ....................... 39,052 37,187
Other assets .................................... 66,697 64,110
----------- -----------
Total assets ......................................... $2,893,505 $2,897,162
=========== ===========
Liabilities
Deposits:
Non-interest bearing ............................ $ 152,661 $ 112,129
Interest bearing ................................ 1,766,617 1,691,874
----------- -----------
Total deposits ................................ 1,919,278 1,804,003
Borrowed funds .................................... 635,448 781,297
Other liabilities ................................. 47,432 31,408
----------- -----------
Total liabilities ............................. 2,602,158 2,616,708
----------- -----------
Commitments and contingencies
Stockholders' equity
Preferred stock, $1.00 par value; 1,000,000
shares authorized and unissued
Common stock, $.01 par value; 24,000,000
shares authorized; 16,531,250 shares issued .. 165 165
Additional paid-in capital ...................... 165,284 162,279
Retained earnings - subject to restrictions ..... 192,352 177,201
Treasury stock, 2,707,812 shares (1997) and
2,414,518 shares (1996), at cost ............. (60,863) (48,845)
Unearned ESOP shares ............................ (9,368) (10,194)
Unearned compensation - stock compensation plans. (2,082) (3,058)
Net unrealized gains on available-for-sale
securities .................................... 5,859 2,906
----------- -----------
Total stockholders' equity ................... 291,347 280,454
----------- -----------
Total liabilities and stockholders' equity ........... $2,893,505 $2,897,162
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GREAT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans ................................... $41,551 $40,746 $122,612 $116,572
Securities .............................. 12,523 11,408 39,427 28,621
Other ................................... 100 134 376 681
--------- --------- --------- ---------
Total interest income ................ 54,174 52,288 162,415 145,874
--------- --------- --------- ---------
Interest expense
Deposits ................................ 23,665 21,597 68,225 59,421
Borrowed funds .......................... 9,791 11,167 32,435 30,109
--------- --------- --------- ---------
Total interest expense ............... 33,456 32,764 100,660 89,530
--------- --------- --------- ---------
Net interest income .......................... 20,718 19,524 61,755 56,344
Provision for loan losses .................... 825 675 2,323 1,911
--------- --------- --------- ---------
Net interest income after provision for loan
losses ...................................... 19,893 18,849 59,432 54,433
--------- --------- --------- ---------
Non-interest income
Servicing fee income .................... 6,067 6,615 18,715 20,375
Amortization of mortgage servicing rights (2,257) (1,958) (6,403) (5,747)
Commissions from sales of investment and
insurance products...................... 847 670 2,618 1,629
Service charges on deposit accounts...... 715 616 2,159 1,684
Gain on sale of mortgage loans .......... 2,619 1,480 5,762 4,882
Gain on sale of mortgage servicing rights 245 1,212 1,751 2,515
Gain on sale of retail banking office.... 772
Gain (loss) on sale of securities ....... 981 (17) 1,498 369
Other ................................... 980 697 2,248 1,378
--------- --------- --------- ---------
Net non-interest income .............. 10,197 9,315 29,120 27,085
--------- --------- --------- ---------
Non-interest expense
Compensation and benefits ............... 9,251 8,246 27,102 24,271
Office occupancy and equipment .......... 2,426 2,516 7,002 6,740
Office supplies, postage and telephone .. 1,275 1,319 4,140 3,824
Advertising and marketing ............... 627 922 2,328 2,756
Federal deposit insurance premiums ...... 288 10,680 845 12,368
Other ................................... 3,665 4,917 11,128 11,861
--------- --------- --------- ---------
Total non-interest expense ........... 17,532 28,600 52,545 61,820
--------- --------- --------- ---------
Income (loss) before income taxes ............ 12,558 (436) 36,007 19,698
Income tax expense (benefit) ................. 4,410 (49) 12,485 7,093
--------- --------- --------- ---------
Net income (loss) ............................ $ 8,148 $ (387) $23,522 $12,605
========= ========= ========= =========
Earnings (loss) per share
Primary $0.59 $(0.03) $1.69 $0.88
========= ========= ========= =========
Fully diluted $0.59 $(0.03) $1.67 $0.88
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
GREAT FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
Net cash provided by (used in) operating
activities................................... $ 26,893 $ (1,636)
----------- -----------
Investing activities:
Purchases of available-for-sale securities. (467,614) (289,726)
Maturities of available-for-sale securities 107,545 71,756
Principal collected on mortgage-backed
securities ............................... 48,175 48,599
Proceeds from sales of available-for-sale
securities ............................... 288,117 71,684
Increase in loans receivable............... (36,294) (48,791)
Purchases of property and equipment and
other assets ............................. (2,522) (8,147)
Originations of mortgage servicing rights.. (3,671) (3,225)
Purchases of mortgage servicing rights..... (4,913) (4,247)
Proceeds from sale of mortgage servicing
rights.................................... 2,031 2,610
Purchases of Federal Home Loan Bank Stock.. (1,789) (6,771)
Proceeds from sale of other real estate
owned..................................... 3,067 897
Cash used in sale of retail banking office. (14,900)
Purchase of Lexington Federal Savings Bank,
FSB, net of cash and cash equivalents
acquired.................................. (30,363)
Other ..................................... (490) 395
----------- -----------
Net cash used in investing activities..... (83,258) (195,329)
----------- -----------
Financing activities:
Increase in deposits ...................... 131,107 130,892
Decrease in short-term borrowings.......... (54,757) (20,502)
Long-term advances from Federal Home Loan
Bank ..................................... 100,550 90,750
Payments on long-term advances from Federal
Home Loan Bank ........................... (191,642) (25,176)
Increase in mortgage escrow funds ......... 7,859 7,631
Purchases of treasury stock ............... (17,779) (18,793)
Dividends paid ............................ (5,411) (4,543)
Exercise of stock options ................. 2,801 100
----------- ------------
Net cash provided by (used in) financing
activities.............................. (27,272) 160,359
----------- ------------
Net decrease in cash and cash equivalents ..... (83,637) (36,606)
Cash and cash equivalents at beginning of
period ...................................... 126,323 84,167
----------- ------------
Cash and cash equivalents at end of period..... $ 42,686 $ 47,561
=========== ============
Cash paid during the period for:
Interest .................................. $ 101,833 $ 89,306
Income taxes............................... $ 8,371 $ 5,336
Supplemental disclosure of noncash activities:
Additions to real estate acquired in
settlement of loans........................ $ 1,561 $ 2,245
Accrual of proceeds from sale of mortgage
servicing rights........................... $ 513 $ 1,083
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
GREAT FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Great Financial Corporation (Company) and its subsidiary,
Great Financial Bank, FSB (Bank). All material intercompany balances
and transactions have been eliminated. The consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included. Such
adjustments consist only of normal recurring accruals. It is suggested
that these consolidated financial statements be read in conjunction
with the Company's audited financial statements included in its annual
report on Form 10-K for the year ended December 31, 1996. Results of
operations for interim periods are not necessarily indicative of the
results that may be expected for the entire fiscal year.
2. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(in thousands)
<S> <C> <C>
Cash and due from banks $38,813 $ 27,702
Interest-bearing deposits with banks 3,873 1,315
Federal funds sold 33,200
Securities purchased under agreements to resell 64,106
------------- ------------
Total cash and cash equivalents $42,686 $126,323
============= ============
</TABLE>
3. SECURITIES
<TABLE>
<CAPTION>
September 30, 1997
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency obligations $ 96,142 $ 82 $ (56) $ 96,168
Other debt securities ................ 28,655 92 (1) 28,746
--------- ---------- ---------- ---------
Total debt securities ............... 124,797 174 (57) 124,914
Mortgage-backed securities ........... 564,958 8,339 (890) 572,407
Equity securities .................... 52 1,448 1,500
--------- ---------- ---------- ---------
Total available-for-sale securities ... $689,807 $9,961 $ (947) $698,821
========= ========== ========== =========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Available-for-sale securities:
U.S. Government and agency obligations $189,048 $ 686 $ (299) $189,435
Other debt securities ................ 1,875 23 1,898
--------- ---------- ---------- ---------
Total debt securities .............. 190,923 709 (299) 191,333
Mortgage-backed securities ........... 471,873 5,183 (2,388) 474,668
Equity securities .................... 275 1,268 (2) 1,541
--------- --------- --------- ---------
Total available-for-sale securities .... $663,071 $7,160 $(2,689) $667,542
========= ========= ========= =========
</TABLE>
Gross realized gains for the three and nine months ended September 30,
1997 were $1,277,383 and $2,026,321, respectively. Gross realized losses
for the same periods were $295,816 and $527,901, respectively. Gross
realized gains for the three and nine months ended September 30, 1996
were $261,599 and $1,534,485, respectively. Gross realized losses for
the same periods were $278,201 and $1,165,526, respectively. In computing
gains and losses, cost is determined by the specific identification
method for debt and mortgage-backed securities. Cost is determined by
the average cost method for equity securities.
4. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period ....... $14,593 $13,031 $13,538 $11,821
Provision charged to income ........ 825 675 2,323 1,911
Charge-offs ........................ (814) (493) (1,414) (1,057)
Recoveries ......................... 59 15 216 53
Acquired in merger ................. 500
-------- -------- -------- --------
Balance, end of period ............. $14,663 $13,228 $14,663 $13,228
======== ======== ======== ========
</TABLE>
5. LOAN SERVICING
The Company was servicing a portfolio consisting of 77,800 and 83,000
mortgage loans at September 30, 1997 and December 31, 1996, respectively,
that are owned by investors and are not included in the accompanying
financial statements. Mortgage loans serviced for others are summarized
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(in thousands)
<S> <C> <C>
GNMA .............................. $2,885,977 $3,184,843
FNMA .............................. 761,278 970,435
FHLMC ............................. 717,205 672,976
Other investors ................... 362,968 240,642
------------ ------------
Total servicing portfolio ......... $4,727,428 $5,068,896
============ ============
</TABLE>
7
<PAGE>
In addition to servicing mortgage loans for others, the Company is a
subservicer for third-party servicing owners, including GNMA and FHLMC.
At September 30, 1997 and December 31, 1996, the Company subserviced a
total of 18,200 and 10,700 loans, respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing were $135,305,000 and $102,339,000, at September 30, 1997
and December 31, 1996, respectively, of which $116,656,000 and
$76,257,000, respectively, are included in deposits in the accompanying
consolidated balance sheets.
6. BORROWED FUNDS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- -------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
-------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Short-term borrowings:
Securities sold under agreements to
repurchase ......................... $202,777 5.68% $ 9,000 5.37%
Advances from Federal Home Loan Bank . 37,000 5.96% 200,924 5.62%
Borrowings under lines of credit ..... 2,719 1.14% 87,329 5.51%
-------- --------
Total short-term borrowings ........ 242,496 297,253
-------- --------
Long-term borrowings from Federal Home
Loan Bank:
Adjustable rate advances, interest
based on LIBOR; 5.72% (1997) and
5.61%(1996) ......................... 100,000 150,000
Fixed rate advances, 5.83% (1997)
and 6.27% (1996) .................... 258,749 298,561
Mortgage matched and other advances
payable monthly through 2026 with
interest rates from 2.00% to 8.05%
(1997) and from 3.88% to 8.05% (1996) 34,203 35,483
-------- --------
Total long-term borrowings ......... 392,952 484,044
-------- --------
Total borrowed funds ................... $635,448 $781,297
======== ========
</TABLE>
Information concerning borrowings under securities sold under agreements
to repurchase is summarized as follows:
<TABLE>
<CAPTION>
At or For the Three Months At or For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Average balance during the period .......... $155,489 $101,171 $129,793 $ 73,416
Average interest rate during the period .... 5.66% 5.48% 5.63% 5.50%
Maximum month-end balance during the
period .................................... $202,777 $140,341 $208,999 $140,341
Mortgage-backed securities underlying
the agreements at end of period:
Carrying value .......................... $209,106 $111,995
Fair value .............................. $212,624 $111,850
</TABLE>
8
<PAGE>
Mortgage-backed securities sold under agreements to repurchase were
delivered to the broker-dealers who arranged the transactions. The
broker-dealers may have sold, loaned or otherwise disposed of such
securities to other parties in the normal course of their operations, and
have agreed to resell to the Company substantially identical securities
at the maturities of the agreements. The agreements outstanding at
September 30, 1997 mature within one year.
7. SEGMENT INFORMATION
The schedules on pages 11 and 12 present information concerning the
Company's operations which include two reportable segments: banking and
mortgage banking businesses. The banking segment is composed of those
operations involved in making loans held for investment, primarily on
single family residences; investing in government and government
agencies' securities and receiving deposits from customers. The mortgage
banking segment is made up of those operations involved in originating
and purchasing residential mortgage loans for resale in the secondary
mortgage market an in servicing and subservicing loans for others.
Intersegment interest income and expense represent (i) interest on
advances from the banking segment to the mortgage banking segment to fund
the origination of loans computed at a rate tied to a short-term index
and to fund the investment in mortgage servicing rights computed at a
rate tied to a medium-term index, (ii) interest on custodial balances
of the mortgage banking segment on deposit with the banking segment
computed at a rate tied to a medium-term index, (iii) interest on
advances from the Parent Company (in "other" segment) to the banking
segment computed at a rate tied to a short-term index, and (iv) interest
expense incurred by the banking segment on a loan from the Parent Company
to the ESOP computed at 6%.
8. SALE OF RETAIL BANKING OFFICE
On March 14, 1997, the Company completed the sale of the Bank's retail
banking office in Liberty, Kentucky. Property and equipment with a
depreciated value of $142,000 and deposits with a carrying value of
$15,832,000 were transferred as well as cash of $14,900,000 and loans of
$24,000. The net gain on the sale was $772,000.
9. EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share." This statement simplifies the standards for computing earnings
per share previously found in APB Opinion No. 15, "Earnings per Share."
This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier
application is not permitted. The pro forma effects of implementation of
this statement on the Company's reported net income and earnings per
share are presented below.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net income (loss) As reported $ 8,148 $ (387) $23,522 $12,605
Income (loss)available to common stockholders Pro forma 8,148 (387) 23,522 12,605
Primary earnings (loss) per share As reported $0.59 $(0.03) $1.69 $0.88
Basic earnings (loss) per share Pro forma 0.63 (0.03) 1.82 0.94
Fully diluted earnings (loss) per share As reported $0.59 $(0.03) $1.67 $0.88
Diluted earnings (loss) per share Pro forma 0.59 (0.03) 1.67 0.88
</TABLE>
9
<PAGE>
10. PENDING MERGER
On September 15, 1997, the Company entered into a definitive merger
agreement with Star Banc Corporation (Star Banc). The terms of the
agreement call for 70% of the Company's outstanding shares to be
exchanged for common shares of Star Banc stock at an exchange ratio of
0.949 Star Banc share for each Company share. The remaining 30% of the
Company's shares would be exchanged for $44 in cash for each share. The
merger is structured as a tax-free exchange for shareholders receiving
stock, and will be accounted for as a purchase transaction. Additionally,
the Company granted Star Banc an option to purchase 19.9% of its shares,
exercisable under certain conditions. The merger is expected to be
completed in the first quarter of 1998.
11. RECLASSIFICATIONS
Certain amounts have been reclassified in the previous year's financial
statements to conform with the current year's classifications.
10
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 49,075 $ 5,095 $ 4 $ 54,174
Intersegment 3,478 2,045 322 $ (5,845)
----------- ----------- ---------- ------------ ------------
Total interest income 52,553 7,140 326 (5,845) 54,174
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 32,987 469 33,456
Intersegment 2,367 3,478 (5,845)
----------- ----------- ---------- ------------ ------------
Total interest expense 35,354 3,947 (5,845) 33,456
----------- ----------- ---------- ------------ ------------
Net interest income 17,199 3,193 326 20,718
Provision for loan losses (808) (17) (825)
Non-interest income 2,753 9,314 901 (2,771) 10,197
Non-interest expense (10,153) (8,955) (1,195) 2,771 (17,532)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 8,991 $ 3,535 $ 32 $ 12,558
=========== =========== ========== ============ ============
Identifiable assets $2,657,803 $314,487 $266,586 $(345,371) $2,893,505
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 683 $ 213 $ 9 $ 905
=========== =========== ========== ============ ============
<CAPTION>
Three Months Ended September 30, 1996
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 45,915 $ 6,371 $ 2 $ 52,288
Intersegment 3,332 2,180 430 $ (5,942)
----------- ----------- ---------- ------------ ------------
Total interest income 49,247 8,551 432 (5,942) 52,288
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 30,881 1,883 32,764
Intersegment 2,610 3,332 (5,942)
----------- ----------- ---------- ------------ ------------
Total interest expense 33,491 5,215 - (5,942) 32,764
----------- ----------- ---------- ------------ ------------
Net interest income 15,756 3,336 432 19,524
Provision for loan losses (675) (675)
Non-interest income 1,484 9,833 379 (2,381) 9,315
Non-interest expense (20,739) (9,540) (702) 2,381 (28,600)
----------- ----------- ---------- ------------ ------------
Income (loss) before income taxes ($4,174) $ 3,629 $ 109 ($436)
=========== =========== ========== ============ ============
Identifiable assets $2,495,634 $381,326 $261,024 $(307,300) $2,830,684
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 533 $ 331 7 $ 871
=========== =========== ========== ============ ============
</TABLE>
11
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 147,260 $ 15,144 $ 11 $ 162,415
Intersegment 10,244 5,421 948 $ (16,613)
----------- ----------- ---------- ------------ ------------
Total interest income 157,504 20,565 959 (16,613) 162,415
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 98,858 1,802 100,660
Intersegment 6,369 10,244 (16,613)
----------- ----------- ---------- ------------ ------------
Total interest expense 105,227 12,046 (16,613) 100,660
----------- ----------- ---------- ------------ ------------
Net interest income 52,277 8,519 959 61,755
Provision for loan losses (2,306) (17) (2,323)
Non-interest income 6,786 27,777 2,739 (8,182) 29,120
Non-interest expense (30,514) (26,684) (3,529) 8,182 (52,545)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 26,243 $ 9,595 $ 169 $ 36,007
=========== =========== ========== ============ ============
Identifiable assets $2,657,803 $314,487 $266,586 $(345,371) $2,893,505
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 1,935 $ 669 $ 26 $ 2,630
=========== =========== ========== ============ ============
<CAPTION>
Nine Months Ended September 30, 1996
----------------------------------------------------------------
Mortgage
Banking Banking Other Eliminations Consolidated
----------- ----------- ---------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Unaffiliated customers $ 127,528 $ 18,337 $ 9 $ 145,874
Intersegment 9,402 5,398 1,101 $ (15,901)
----------- ----------- ---------- ------------ ------------
Total interest income 136,930 23,735 1,110 (15,901) 145,874
----------- ----------- ---------- ------------ ------------
Interest expense:
Unaffiliated customers 84,112 5,418 89,530
Intersegment 6,500 9,400 1 (15,901)
----------- ----------- ---------- ------------ ------------
Total interest expense 90,612 14,818 1 (15,901) 89,530
----------- ----------- ---------- ------------ ------------
Net interest income 46,318 8,917 1,109 56,344
Provision for loan losses (1,911) (1,911)
Non-interest income 4,136 28,840 871 (6,762) 27,085
Non-interest expense (40,061) (26,561) (1,960) 6,762 (61,820)
----------- ----------- ---------- ------------ ------------
Income before income taxes $ 8,482 $ 11,196 $ 20 $ 19,698
=========== =========== ========== ============ ============
Identifiable assets $2,495,634 $381,326 $261,024 $(307,300) $2,830,684
=========== =========== ========== ============ ============
Depreciation and amortization
of property and equipment $ 1,576 $ 966 16 $ 2,558
=========== =========== ========== ============ ============
</TABLE>
12
<PAGE>
GREAT FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and securities, and the interest expense
incurred on interest-bearing liabilities, such as deposits and borrowed funds.
The results are also significantly affected by its mortgage banking activities
which involve the origination, purchase, sale, servicing and subservicing of
residential mortgage loans. The Company also generates non-interest income such
as transactional fees and gain or loss on sale of mortgage loans, mortgage
servicing rights and securities. In addition, commissions are earned from the
sale of annuity, mutual fund and insurance products. The Company's operating
expenses consist primarily of employee compensation, occupancy expenses, federal
deposit insurance premiums and other general and administrative expenses. The
Company's results of operations are significantly affected by its periodic
amortization of mortgage servicing rights and by its provisions for loan losses.
The Company's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory agencies.
Any forward-looking statements included in this report or in any report included
by reference, which reflect management's best judgement based on factors known,
involve risks and uncertainties, as discussed above. Actual results could differ
materially from those expressed or implied.
PENDING MERGER
On September 15, 1997, the Company entered into a definitive merger agreement
with Star Banc Corporation (Star Banc). The terms of the agreement call for 70%
of the Company's outstanding shares to be exchanged for common shares of Star
Banc stock at an exchange ratio of 0.949 Star Banc share for each Company share.
The remaining 30% of the Company's shares would be exchanged for $44 in cash for
each share. The merger is structured as a tax-free exchange for shareholders
receiving stock, and will be accounted for as a purchase transaction.
Additionally, the Company granted Star Banc an option to purchase 19.9% of its
shares, exercisable under certain conditions. The merger is expected to be
completed in the first quarter of 1998.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 TO DECEMBER 31, 1996
During the first nine months of 1997 assets decreased slightly from $2.897
billion to $2.894 billion. Although total assets decreased, the two largest
categories of assets, loans receivable and available-for-sale securities,
increased $31.4 million and $31.3 million, respectively.
Net loans receivable totaled $1.9 billion at September 30, 1997. The Company
continues to diversify its loan portfolio and enhance portfolio yield by
increasing the percentage of consumer and commercial loans in the portfolio. The
following table shows the composition of the loan portfolio at September 30,
1997 in comparison to December 31, 1996:
<TABLE>
<CAPTION>
Loan Portfolio Composition at
-----------------------------
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Loan category:
One-to-four family residential ..... 69.3% 72.4%
Multi-family residential ........... 8.6% 7.8%
Commercial real estate ............. 7.1% 5.3%
Construction and land .............. 4.2% 6.7%
Non-mortgage, primarily consumer ... 10.8% 7.8%
------------- ------------
100.0% 100.0%
============= ============
</TABLE>
During the first nine months of 1997, the Company purchased mortgage-backed
securities, funded by repurchase agreements, and debt securities, funded by
advances from the FHLB. Certain of the leveraged purchases were structured to
grow the Company without incurring significant interest rate risk, and others
were structured to manage interest rate risk related to borrowed funds. The
Company also sold certain securities to realize market gains and to reduce
long-term borrowings. Mortgage-backed securities increased 20.6% during the
first nine months of 1997 while debt and equity securities decreased by 34.5%.
In total, available-for-sale securities increased 4.7% during the first nine
months of 1997.
13
<PAGE>
Deposits increased $115.3 million or 6.4% during the first nine months of 1997.
This increase was the result of growth in deposits of $131.1 million, offset by
a sale of $15.8 million of deposits (See note 8 - "Sale of Retail Banking
Office"). Approximately $91.1 million of the growth in deposits was due to
increased retail deposits attracted through advertising, competitive deposit
rates and retail sales efforts. The remainder was primarily due to an increase
in custodial escrow balances associated with the portfolio of loans serviced for
others.
Borrowed funds increased $145.8 million during the first nine months of 1997,
with long-term FHLB advances decreasing $91.0 million, and short-term borrowings
decreasing $54.8 million. The Company replaced certain maturing long-term FHLB
advances with short-term repurchase agreements to improve cash management
flexibility. Growth in deposits enabled the Company to decrease short-term
borrowings.
Stockholders' equity totaled $291.3 million at September 30, 1997 or 10.07% of
total assets, which is an increase of $10.9 million over year-end 1996. The
increase in total equity was the net result of earnings of $23.5 million;
dividends of $5.4 million; the Company purchasing 562,800 shares of its common
stock at a cost of $17.8 million; proceeds from the exercise of stock options of
$2.8 million; a reduction in unearned balances of stock compensation plans by
$4.8 million; and an increase of $3.0 million in net unrealized gains on
available-for-sale securities.
RESULTS OF OPERATIONS
OVERVIEW. The Company reported net income of $8.1 million for the three months
ended September 30, 1997, as compared to a net loss of $387,000 for the third
quarter of 1996. The third quarter 1996 net loss included a charge of $6.3
million, net of taxes, to recapitalize the Savings Association Insurance Fund
(SAIF). For the nine months ended September 30, 1997 net income totaled $23.5
million, up from net income of $12.6 million for the same period last year.
NET INTEREST INCOME. For the third quarter of 1997, net interest income
increased 6% or $1.2 million versus the third quarter of 1996. This increase was
primarily the result of growth in the Company's balance sheet and an increase in
the interest rate spread. Average interest-earning assets and average
interest-bearing liabilities increased $80.4 million and $76.9 million,
respectively, in the third quarter of 1997 versus the third quarter of 1996,
resulting in $331,000 of the increase in net interest income. These average
balance increases were the result of growth from normal business operations. The
average yield on interest-earning assets rose slightly from 7.87% for the third
quarter of 1996 to 7.89% for the third quarter of 1997. This increase was
primarily due to the shift in the mix of the loan portfolio. The average cost of
interest-bearing liabilities decreased from 5.54% for the 1996 third quarter to
5.47% for the 1997 third quarter, primarily due to decreased borrowing costs.
Changes in rates resulted in $863,000 of the increase in net interest income and
the increase in interest rate spread from 2.33% for the third quarter of 1996 to
2.42% for the third quarter of 1997. Net interest margin increased to 3.02% for
the third quarter of 1997 from 2.94% for the same period last year.
Net interest income was up $5.4 million or 10% for the first nine months of 1997
compared to the same period of 1996. Average interest-earning assets and average
interest-bearing liabilities increased $290.9 million and $310.1 million,
respectively, in the first nine months of 1997 versus the same period of 1996,
resulting in $3.5 million of the increase in net interest income. These average
balance increases were the result of growth from normal business operations, the
acquisition of Lexington Federal Savings Bank in June 1996 and the effects of
liquidity and interest rate risk management strategies on the securities
portfolio and borrowed funds. The average yield on interest-earning assets
decreased from 7.97% for the first nine months of 1996 to 7.94% for the first
nine months of 1997. This decrease was primarily due to a shift in the mix of
interest-earning assets resulting in a higher percentage of available-for-sale
securities and a lower percentage of loans receivable. The average cost of
interest-bearing liabilities decreased from 5.57% for the first nine months of
1996 to 5.47% for the first nine months of 1997, primarily due to the growth in
shorter-term, lower rate certificates of deposit and decreased borrowing costs.
Changes in rates resulted in $1.9 million of the increase in net interest income
and an increase in the interest rate spread from 2.40% for the first nine months
of 1996 to 2.47% for the same period of 1997. Net interest margin decreased to
3.02% for the first nine months of 1997 from 3.08% for the same period last
year, primarily due to the reduction in the ratio of interest-earning assets to
interest-bearing liabilities resulting from stock repurchases. The Company's
initiative to increase shareholder value by repurchasing certain of its
outstanding common stock results in cash being used to repurchase stock, which
would otherwise be invested in interest-earning assets or used to reduce
interest-bearing borrowings, thereby lowering the ratio of interest-earning
assets to interest-bearing liabilities.
14
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income earned on
interest-earning assets and expense incurred on interest-bearing liabilities.
Net interest income depends on the volume of interest-earning assets and
interest-bearing liabilities and the rates earned or paid on them. The following
tables set forth certain information relating to the Company's average
consolidated balance sheets and consolidated statements of income for the three
and nine month periods ended September 30, 1997 and 1996. The yields and costs
are derived by dividing income or expense by the average balance of assets and
liabilities, respectively. For 1997, average balances are derived from daily
balances. For 1996, average balances for interest-earning assets and
interest-bearing liabilities are derived from daily balances. All other average
balances are derived from month-end balances. Management does not believe that
the use of average monthly balances instead of average daily balances has caused
any material differences in the information presented. The average balance of
loans receivable includes loans on which the Company has discontinued accruing
interest. Interest includes fees which are considered adjustments to yields and
costs.
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (5) Balance Interest Cost (5)
---------- -------- --------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net (1) ...... $1,992,562 $41,551 8.27% $1,998,099 $40,746 8.11%
Mortgage-backed securities (2).. 558,010 10,007 7.11% 522,299 9,524 7.25%
Debt and equity securities (2).. 127,844 1,824 5.66% 80,704 1,335 6.58%
Other .......................... 7,582 100 5.23% 11,193 134 4.76%
FHLB stock ..................... 37,877 692 7.25% 31,220 549 7.00%
---------- -------- --------- ---------- -------- --------
Total interest-earning assets . 2,723,875 54,174 7.89% 2,643,515 52,288 7.87%
-------- --------- -------- --------
Non-interest-earning assets ......... 197,757 174,269
---------- ----------
Total assets ................... $2,921,632 $2,817,784
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts .............. $ 118,057 807 2.71% $ 139,744 1,107 3.15%
Demand deposit accounts......... 198,086 1,946 3.90% 138,081 1,308 3.77%
Money market accounts .......... 205,582 2,427 4.68% 185,905 2,259 4.83%
Certificate accounts ........... 1,248,078 18,485 5.88% 1,154,548 16,923 5.83%
Short-term borrowings .......... 218,249 3,160 5.74% 247,726 3,765 6.05%
Long-term borrowings ........... 439,765 6,631 5.98% 484,867 7,402 6.07%
---------- -------- --------- ---------- -------- --------
Total interest-bearing
liabilities ................. 2,427,817 33,456 5.47% 2,350,871 32,764 5.54%
-------- --------- -------- --------
Non-interest-bearing liabilities .... 208,205 192,372
---------- ----------
Total liabilities .............. 2,636,022 2,543,243
Stockholders' equity ................ 285,610 274,541
---------- ----------
Total liabilities and
stockholders' equity $2,921,632 $2,817,784
========== ==========
Net interest income / interest
rate spread (3) ...................... $20,718 2.42% $19,524 2.33%
Net interest earning assets / net ======== ========= ======== ========
interest margin (4) ................. $ 296,058 3.02% $ 292,644 2.94%
========== ========= ========== ========
Ratio of interest-earning assets
to interest-bearing liabilities ..... 112.19% 112.45%
========== ==========
- ---------------
<PAGE>
<FN>
(1) Loans receivable, net include mortgage loans held for sale.
(2) Yields on securities do not give effect to changes in fair value that are
reflected as a component of stockholders' equity.
(3) Interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) For purposes of calculating these figures, all interest amounts are
annualized.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost (5) Balance Interest Cost (5)
---------- -------- --------- ---------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans receivable, net (1) ...... $1,965,678 $122,612 8.34% $1,891,081 $116,572 8.23%
Mortgage-backed securities (2).. 579,874 31,011 7.15% 438,365 23,908 7.29%
Debt and equity securities (2).. 144,454 6,459 5.98% 71,423 3,300 6.17%
Other .......................... 9,740 376 5.16% 17,472 681 5.21%
FHLB stock ..................... 36,504 1,957 7.17% 26,982 1,413 7.00%
---------- -------- --------- ---------- -------- --------
Total interest-earning assets . 2,736,250 162,415 7.94% 2,445,323 145,874 7.97%
-------- --------- -------- --------
Non-interest-earning assets ......... 188,214 163,942
---------- ----------
Total assets ................... $2,924,464 $2,609,265
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts .............. $ 126,021 2,774 2.94% $ 131,873 3,061 3.10%
Demand deposit accounts......... 189,349 5,489 3.88% 110,978 2,894 3.48%
Money market accounts .......... 200,845 7,037 4.68% 167,905 5,927 4.72%
Certificate accounts ........... 1,211,642 52,925 5.84% 1,078,468 47,539 5.89%
Short-term borrowings .......... 231,125 9,878 5.71% 201,862 9,202 6.09%
Long-term borrowings ........... 499,507 22,557 6.04% 457,316 20,907 6.11%
---------- -------- --------- ---------- -------- --------
Total interest-bearing
liabilities ................. 2,458,489 100,660 5.47% 2,148,402 89,530 5.57%
-------- --------- -------- --------
Non-interest-bearing liabilities .... 184,751 182,687
---------- ----------
Total liabilities .............. 2,643,240 2,331,089
Stockholders' equity ................ 281,224 278,176
---------- ----------
Total liabilities and
stockholders' equity $2,924,464 $2,609,265
========== ==========
Net interest income / interest
rate spread (3) ...................... $61,755 2.47% $56,344 2.40%
Net interest earning assets / net ======== ========= ======== ========
interest margin (4) ................. $ 277,761 3.02% $ 296,921 3.08%
========== ========= ========== ========
Ratio of interest-earning assets
to interest-bearing liabilities ..... 111.30% 113.82%
========== ==========
- ---------------
<FN>
(1) Loans receivable, net include mortgage loans held for sale.
(2) Yields on securities do not give effect to changes in fair value that are
reflected as a component of stockholders' equity.
(3) Interest rate spread represents the difference between the average yield
on average interest-earning assets and the average cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
(5) For purposes of calculating these figures, all interest amounts are
annualized.
</FN>
</TABLE>
16
<PAGE>
RATE / VOLUME ANALYSIS
The following table presents the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1997 vs. 1996 1997 vs. 1996
-------------------------------- --------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------- --------------------------------
Volume Rate Total Volume Rate Total
--------- -------- --------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net .............. $ (99) $ 904 $ 805 $ 4,849 $1,191 $ 6,040
Mortgage-backed securities ......... 663 (180) 483 7,632 (529) 7,103
Debt and equity securities ......... 696 (207) 489 3,274 (115) 3,159
Other .............................. (56) 22 (34) (322) 17 (305)
FHLB stock ......................... 122 21 143 513 31 544
-------- -------- --------- --------- -------- ---------
Total ......................... 1,326 560 1,886 15,946 595 16,541
-------- -------- --------- --------- -------- ---------
Interest-bearing liabilities:
Passbook accounts .................. (158) (142) (300) (129) (158) (287)
Demand deposit accounts ............ 591 47 638 2,249 346 2,595
Money market accounts .............. 238 (70) 168 1,172 (62) 1,110
Certificate accounts ............... 1,412 150 1,562 5,942 (556) 5,386
Short-term borrowings .............. (423) (182) (605) 1,296 (620) 676
Long-term borrowings ............... (665) (106) (771) 1,952 (302) 1,650
-------- -------- --------- --------- -------- ---------
Total ......................... 995 (303) 692 12,482 (1,352) 11,130
-------- -------- --------- --------- -------- ---------
Net change in net interest income ....... $ 331 $ 863 $1,194 $ 3,464 $1,947 $ 5,411
======== ======== ========= ========= ======== =========
</TABLE>
17
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses was $825,000 or 0.16%
(annualized) of average loans in the 1997 third quarter, compared to $675,000 or
0.13% of average loans in the third quarter last year. Net charge-offs increased
from $478,000 or 0.10% of average loans in the third quarter of last year to
$755,000 or 0.15% of average loans in this year's third quarter. The provision
for loan losses for the nine months ended September 30, 1997 was $2.3 million or
0.16% of average loans during the period, compared to $1.9 million or 0.13% of
average loans for the same period last year. Net charge-offs increased when
comparing the two nine-month periods, from $1.0 million or 0.07% of average
loans last year to $1.2 million or 0.08% of average loans this year. These
increases in net charge-offs resulted primarily from the increased proportion of
non-mortgage consumer loans in the portfolio.
NON-INTEREST INCOME. For the three months ended September 30, 1997, non-interest
income increased 9% or $882,000 in comparison to the same period last year. This
increase was primarily due to increased gain on sales of mortgage loans and
securities, partially off-set by decreased gain on sale of mortgage servicing
rights and decreased net servicing fee income. The increase in non-interest
income of 8% or $2.0 million for the nine months ended September 30, 1997 in
comparison to the same period last year, was primarily attributable to the gain
on the sale of a retail banking office, increased gain on sales of mortgage
loans and securities, and increased fee income, partially offset by decreased
servicing fee income and increased amortization of mortgage servicing rights.
The Company was able to take advantage of certain market opportunities to
increase income from gain on sales of mortgage loans and securities. Gain on
sale of mortgage loans includes fee income from loan origination services
provided to third parties. Through an expanded sales staff and product line, the
Company increased fee income from sales of investment, insurance, loan and
deposit products to customers. The Company's decision to sell the Bank's retail
banking office in Liberty, Kentucky, was based on analysis concluding that the
branch no longer had sufficient market share for profitable operations.
Servicing fee income decreased in comparison to the prior year due to a decrease
in the number of loans the Company is subservicing for third-parties. Increased
amortization of mortgage servicing rights was attributable to an increase in
originated mortgage servicing rights.
NON-INTEREST EXPENSE. Non-interest expense for the three and nine months ended
September 30, 1997 decreased $111.1 million and $9.2 million, respectively, in
comparison to the same periods of 1996. Third quarter 1996 non-interest expense
included a special SAIF assessment of $9.7 million and a provision of $1.5
million for possible reimbursement to borrowers related to a truth-in-lending
disclosure error. Without these one time charges, non-interest expense for the
three and nine months ended September 30, 1997 increased $81,000 and $1.9
million, respectively, in comparison to the same periods of 1996. As a
percentage of average assets, total non-interest expense was 2.38% and 2.40% of
average assets for the three and nine months of 1997, respectively, as compared
to 2.46% and 2.59% for the same periods last year, excluding the one time
charges. This gain in efficiency was primarily due to lower FDIC insurance
premiums resulting from the recapitalization of SAIF, and the growth in average
assets outpacing the net increase in all other operating expenses, including the
increases due to the acquisition of Lexington Federal. Compensation and benefits
expense increased as the result of growth in the staff needed to deliver and
provide operational support for an expanded line of retail banking and
investment products to the Company's growing customer base.
INCOME TAX EXPENSE. Income tax expense for the nine months ended September 30,
1997 and 1996, resulted in effective income tax rates of 34.7% and 36.0%,
respectively. The decrease in the effective income tax rate is primarily due to
increased income tax credits earned in connection with the Company's investment
in low income housing partnerships as part of its community reinvestment
activities and increased income from tax-exempt securities.
18
<PAGE>
NON-PERFORMING ASSETS
The following table sets forth information regarding the Company's
non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(dollars in thousands)
<S> <C> <C>
Non-performing loans:
Non-accrual loans ............................ $ 7,324 $ 7,185
Accruing loans which are contractually
past due 90 days or more:
FHA/VA loans (limited credit risk - see
discussion below) ......................... 75,379 88,185
Other loans ................................ 3,534 5,931
Restructured loans ........................... 1,959 1,992
------------ ------------
Total non-performing loans ................... 88,196 103,293
Real estate owned .............................. 1,670 2,815
------------ ------------
Total non-performing assets .................... $ 89,866 $106,108
============ ============
Non-performing loans to total loans:
Including FHA/VA loans ....................... 4.43% 5.30%
Excluding FHA/VA loans ....................... 0.64% 0.77%
Non-performing assets to total assets:
Including FHA/VA loans ....................... 3.11% 3.66%
Excluding FHA/VA loans ....................... 0.50% 0.62%
Allowance for loan losses to total loans ....... 0.74% 0.69%
Allowance for loan losses to non-performing
loans:
Including FHA/VA loans ....................... 16.63% 13.11%
Excluding FHA/VA loans ....................... 114.41% 89.61%
Allowance for loan losses to non-performing
assets:
Including FHA/VA loans ....................... 16.32% 12.76%
Excluding FHA/VA loans ....................... 101.22% 75.53%
</TABLE>
Certain accruing FHA/VA loans which are contractually past due 90 days or more
are purchased by the Company from GNMA pools it services. The Company also
purchases portfolios of insured FHA and guaranteed VA loans, most of which are
90 days or more past due, from third parties. At September 30, 1997, the Company
held in its portfolio $136.0 million of FHA/VA loans most of which were
delinquent at the time of purchase. Such loans totaled $144.7 million at
December 31, 1996. As a servicer of GNMA pools, the Company is obligated to
remit to security holders interest at the coupon rate regardless of whether such
interest is actually received from the underlying borrower. The Company, by
purchasing such delinquent loans out of the pools, is able to retain the benefit
of the net interest rate differential between the coupon rate it would otherwise
be obligated to pay to the GNMA security holder and the Company's current cost
of funds. Most of the Company's investment in delinquent FHA and VA loans is
recoverable through claims made against the FHA or VA, and any credit losses
incurred are not greater or less than if the FHA/VA loans remained in the GNMA
pools and the Company remained as servicer. The same risk from foreclosure or
from loss of interest exists for the Company as servicer or owner of the loan,
and the Company, by purchasing delinquent FHA/VA loans, assumes only the
interest rate risk associated with investing in a fixed-rate loan if foreclosure
does not occur.
The FHA/VA loans acquired from third parties are purchased at a discount as
compensation to the Company for the credit and interest rate risks associated
with the loans. No purchases were made from third parties during the first
nine months of 1997.
The Company also has certain impaired loans. The Company has defined impaired
loans as commercial real estate and commercial business loans classified as
substandard, doubtful, or loss, as defined by OTS regulations. Impaired loans,
net of related allowance, decreased from $6.8 million at December 31, 1996, to
$4.2 million at September 30, 1997.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits; principal and interest
payments on loans and mortgage-backed securities; proceeds from the sale of
available-for-sale securities; proceeds from maturing debt securities; advances
from the FHLB; other borrowed funds; and sale of stock. Another source of
funds is mortgage banking activities which generate loan servicing fees and
proceeds from the sale of loans. While scheduled maturities of securities and
amortization of loans are predictable sources of funds, deposit flows and
prepayments on mortgage loans and mortgage-backed securities are greatly
influenced by the general level of interest rates, economic conditions,
and competition.
The Bank is required to maintain an average daily balance of liquid assets and
short-term liquid assets as a percentage of net withdrawable deposit accounts
plus short-term borrowings as defined by OTS regulations. The minimum required
liquidity and short-term liquidity ratios are currently 5% and 1%, respectively.
For September 1997, the Bank had liquidity and short-term liquidity ratios of
7.2% and 6.4%, respectively.
At September 30, 1997, the Company had outstanding commitments to fund portfolio
loans totaling $109.3 million. The Company anticipates that it will have
sufficient funds available to meet these commitments.
The Bank is required by federal regulations to maintain minimum amounts of
capital. Currently, the minimum required levels are tangible capital of 1.5% of
tangible assets, core capital of 3.0% of adjusted tangible assets, and
risk-based capital of 8.0% of risk-weighted assets. At September 30, 1997, the
Bank had tangible capital of 8.6% of tangible assets, core capital of 8.6% of
adjusted tangible assets, and risk-based capital of 18.8% of risk-weighted
assets.
IMPACT OF NEW ACCOUNTING STANDARD
In February 1997 the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share." This statement simplifies the standards for computing
earnings per share (EPS) previously found in APB Opinion No. 15, "Earnings per
Share," and makes them comparable to international EPS standards. It replaces
the presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Earlier application is not
permitted.
The pro forma effects of implementation of this statement on the Company's
reported net income and earnings per share are presented in note 9 to the
consolidated financial statements.
20
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GREAT FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On September 15, 1997, Great Financial Corporation, a Delaware
corporation, entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Star Banc Corporation, an Ohio corporation ("Star") pursuant to
which Great Financial will merge with and into Star (the "Merger"). In
accordance with the terms of the Merger Agreement, each share of Great Financial
common stock, par value $.01 per share ("Great Financial Common Stock"),
outstanding immediately prior to the effective time of the Merger (the
"Effective Time") will be converted into the right to receive, at the election
of the holder thereof, either (i) .949 of a share of Star common stock, par
value $5.00 per share ("Star Common Stock"), and the associated preferred share
purchase rights under Star's Rights Agreement, dated October 27, 1989, or (ii)
$44.00 in cash, provided that the aggregate number of shares of Great Financial
Common Stock that shall be converted in the Merger into the right to receive
Star Common Stock shall equal seventy percent of the issued and outstanding
shares of Great Financial Common Stock immediately prior to the Effective Time.
The Merger Agreement is attached as EXHIBIT 2.1.
The Merger is intended to constitute a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and to be accounted for as a
purchase.
Consummation of the Merger is subject to various conditions, including: (i)
receipt of approval by the shareholders of Great Financial of appropriate
matters relating to the Merger Agreement and the Merger; (ii) receipt of
requisite regulatory approvals from the Board of Governors of the Federal
Reserve System and other federal and state regulatory authorities as necessary;
(iii) receipt by each of Great Financial and Star of an opinion of counsel in
reasonably satisfactory form as to the tax treatment of certain aspects of the
Merger; (iv) registration of the shares of Star Common Stock to be issued in the
Merger under the Securities Act of 1933, as amended (the "1933 Act") and all
applicable state securities laws; and (v) satisfaction of certain other
conditions.
The Merger Agreement and the transactions contemplated thereby will be submitted
for approval at a meeting of the shareholders of Great Financial. Prior to such
meeting, Star will file a registration statement with the Securities and
Exchange Commission registering under the Securities Act of 1933, as amended,
the Star Common Stock to be issued in the Merger. Such shares of Star Common
Stock will be offered to Great Financial shareholders pursuant to a prospectus
that will also serve as a proxy statement for the shareholders' meeting.
In connection with the Merger Agreement, Star and Great Financial entered into a
Stock Option Agreement, dated September 23, 1997 (the "Stock Option Agreement"),
pursuant to which Great Financial granted to Star an irrevocable option to
purchase, under certain circumstances, up to 2,747,083 authorized and unissued
shares of Great Financial Common Stock, subject to certain adjustments, at a
price of $36.00 Per share (the "Star Option"), subject to certain adjustments.
The Star Option, if exercised, would equal, before giving effect to the exercise
of the Star Option, 19.9% of the total number of shares of Great Financial
Common Stock outstanding. The Star Option was granted by Great Financial as a
condition and inducement to Star's willingness to enter into the Merger
Agreement. Under certain circumstances, Great Financial may be required to
repurchase the Star Option or the shares acquired pursuant to the exercise of
the Star Option. The Stock Option Agreement is attached as EXHIBIT 2.2.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 2.1 - Agreement and plan of merger between Star Banc
Corporation as buyer, and Great Financial Corporation as seller.
(b) Exhibit 2.2 - Stock option agreement.
(c) Exhibit 11 - Statement regarding computation of per share
earnings.
(d) There have been no reports filed on Form 8-K during the quarter
ended September 30, 1997.
21
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GREAT FINANCIAL CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT FINANCIAL CORPORATION
--------------------------------------------
(Registrant)
Date: November 12, 1997 By Paul M. Baker
--------------------------------------------
Paul M. Baker
Chairman and Chief Executive Officer
Date: November 12, 1997 By Richard M. Klapheke
--------------------------------------------
Richard M. Klapheke
Treasurer and Secretary
(Chief Accounting Officer)
22
<PAGE>
EXHIBITS INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE(S)
2.1 Agreement and plan of merger between Star Banc 27-79
Corporation as buyer, and Great Financial
Corporation as seller
2.2 Stock Option Agreement 80-96
11 Statement regarding computation of per share 97
earnings
23
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
between
STAR BANC CORPORATION
as Buyer,
and
GREAT FINANCIAL CORPORATION
as Seller
Dated September 15, 1997
24
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
Section 1.01. The Merger.............................. 1
Section 1.02. Closing................................. 2
Section 1.03. Effective Time.......................... 2
Section 1.04. Additional Actions...................... 2
Section 1.05. Articles of Incorporation and Bylaws.... 3
Section 1.06. Boards of Directors and Officers........ 3
Section 1.07. Conversion of Securities................ 3
Section 1.08. Election Procedures..................... 4
Section 1.09. Allocation Procedures................... 5
(a) Stock Elections Less Than Stock
Amount 6
(b) Stock Elections More Than Stock
Amount 6
(c) Stock Elections Equal to Stock
Amount 7
(d) Stock Elections and No Elections
Equal to Stock Amount 7
Section 1.10. Exchange Procedures..................... 7
Section 1.11. Dissenting Shares....................... 9
Section 1.12. No Fractional Shares.................... 9
Section 1.13. Anti-Dilution Adjustments............... 10
Section 1.14. Reservation of Right to Revise
Transaction............................. 10
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Section 2.01. Organization and Authority.............. 10
Section 2.02. Subsidiaries............................ 11
Section 2.03. Capitalization.......................... 12
Section 2.04. Authorization........................... 12
Section 2.05. Seller Financial Statements............. 13
Section 2.06. Seller Reports.......................... 14
Section 2.07. Properties and Leases................... 14
Section 2.08. Taxes................................... 15
Section 2.09. Material Adverse Change................. 16
Section 2.10. Commitments and Contracts............... 16
Section 2.11. Litigation and Other Proceedings........ 17
Section 2.12. Insurance............................... 17
Section 2.13. Compliance with Laws.................... 17
Section 2.14. Labor................................... 19
Section 2.15. Material Interests of Certain Persons... 20
Section 2.16. Allowance for Loan and Lease Losses;
Nonperforming Assets.................... 20
Section 2.17. Employee Benefit Plans.................. 21
Section 2.18. Conduct of Seller to Date............... 23
Section 2.19. Proxy Statement, etc.................... 24
Section 2.20. Registration Obligations................ 25
Section 2.21. State Takeover Statutes; Seller's
Certificate of Incorporation............ 25
Section 2.22. Accounting, Tax and Regulatory Matters.. 25
Section 2.23. Brokers and Finders..................... 25
Section 2.24. Other Activities........................ 26
Section 2.25. Interest Rate Risk Management
Instruments............................. 26
Section 2.26. Accuracy of Information................. 27
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Section 3.01. Organization and Authority.............. 27
Section 3.02. Capitalization of Buyer................. 27
Section 3.03. Authorization........................... 28
Section 3.04. Buyer Financial Statements.............. 29
Section 3.05. Buyer Reports........................... 30
Section 3.06. Material Adverse Change................. 30
Section 3.07. Compliance with Laws.................... 30
Section 3.08. Registration Statement, etc............. 31
Section 3.09. Brokers and Finders..................... 31
Section 3.10. Litigation and Other Proceedings........ 32
Section 3.11. Taxes................................... 32
Section 3.12. Accounting, Tax and Regulatory Matters.. 33
Section 3.13. Accuracy of Information................. 33
25
<PAGE>
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
Section 4.01. Conduct of Businesses Prior to
the Effective Time...................... 33
Section 4.02. Forbearances............................ 33
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.01. Access and Information.................. 36
Section 5.02. Registration Statement; Regulatory
Matters................................. 37
Section 5.03. Stockholder Approval.................... 37
Section 5.04. Current Information..................... 38
Section 5.05. Agreements of Affiliates................ 38
Section 5.06. Expenses................................ 38
Section 5.07. Securities Act and Exchange Act Filings. 39
Section 5.08. Miscellaneous Agreements and Consents... 39
Section 5.09. Employee Benefits....................... 39
Section 5.10. Seller Stock Options.................... 41
Section 5.11. Seller Employee Stock Ownership Plan.... 42
Section 5.12. D&O Indemnification..................... 43
Section 5.13. Press Releases.......................... 43
Section 5.14. State Takeover Statutes; Seller's
Certificate of Incorporation............ 43
Section 5.15. Best Efforts............................ 43
Section 5.16. Insurance............................... 44
Section 5.17. Conforming Entries...................... 44
ARTICLE VI
CONDITIONS
Section 6.01. Conditions to Each Party's Obligation
To Effect the Merger.................... 45
Section 6.02. Conditions to Obligations of Seller
To Effect the Merger.................... 46
(a) Representations and Warranties 46
(b) Performance of Obligations 46
Section 6.03. Conditions to Obligations of Buyer To
Effect the Merger....................... 46
(a) Representations and Warranties 47
(b) Performance of Obligations 47
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.01. Termination............................. 47
Section 7.02. Effect of Termination................... 48
Section 7.03. Amendment............................... 48
Section 7.04. Severability............................ 49
Section 7.05. Waiver.................................. 49
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Non-Survival of Representations,
Warranties and Agreements............... 49
Section 8.02. Notices................................. 49
Section 8.03. Miscellaneous........................... 50
26
<PAGE>
EXHIBITS
Exhibit A Form of Stock Option Agreement
Exhibit B Form of Affiliate Letter
27
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into on September 15, 1997 by and between Star Banc Corporation, an
Ohio corporation ("Buyer"), and Great Financial Corporation, a Delaware
corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Buyer is a registered bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Holding Company Act"); and
WHEREAS, Seller is a registered unitary savings and loan
holding company under Home Owners' Loan Act, as amended ("HOLA"); and
WHEREAS, the Board of Directors of Seller and the Executive
Committee of the Board of Directors of Buyer have approved the merger (the
"Merger") of Seller with and into Buyer pursuant to the terms and subject to the
conditions of this Agreement; and
WHEREAS, as a condition to, and immediately prior to execution
of this Agreement, Buyer and Seller will enter into a stock option agreement
(the "Stock Option Agreement") in the form attached hereto as Exhibit A; and
WHEREAS, the parties desire to provide for certain
undertakings, conditions, representations, warranties and covenants in
connection with the transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
THE MERGER
1.01. THE MERGER. Subject to the terms and conditions of this
Agreement, Seller shall be merged with and into Buyer in accordance with the
Delaware General Corporation Law (the "DGCL") and the Ohio General Corporation
Law (the "OGCL") and the separate corporate existence of Seller shall cease.
Buyer shall be the surviving corporation of the Merger (sometimes referred to
herein as the "Surviving Corporation") and shall continue to be governed by the
laws of the State of Ohio.
1.02. CLOSING. The closing (the "Closing") of the Merger shall
take place at 10:00 a.m., local time, on the date that the Effective Time (as
defined in Section 1.03) occurs, or at such other time, and at such place, as
Buyer and Seller shall agree (the "Closing Date").
1.03. EFFECTIVE TIME. The Merger shall become effective on the
date and at the time (the "Effective Time") on which appropriate documents in
respect of the Merger are filed with the Secretaries of State of the States of
Ohio and Delaware in such form as required by, and in accordance with, the
relevant provisions of the DGCL and OGCL. Subject to the terms and conditions of
this Agreement, the Effective Time shall occur on any such date on or after
January 2, 1998 as Buyer shall notify Seller in writing (such notice to be at
least five business days in advance of the Effective Time) but (i) not earlier
than the satisfaction of all conditions set forth in Section 6.01(a) and 6.01(b)
(the "Approval Date") and (ii) subject to clause (i), not later than the first
business day of the first full calendar month commencing at least five business
days after the Approval Date. As soon as practicable following the Effective
Time, Buyer and Seller shall cause a certificate or plan of merger reflecting
the terms of this Agreement to be delivered for filing and recordation with
other appropriate state or local officials in the States of Ohio and Delaware in
accordance with the OGCL and the DGCL, respectively.
1.04. ADDITIONAL ACTIONS. If, at any time after the Effective
Time, Buyer or the Surviving Corporation shall consider or be advised that any
further deeds, assignments or assurances or any other acts are necessary or
desirable to (a) vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of Seller or Buyer or (b) otherwise carry out the
purposes of this Agreement, Seller and Buyer and each of their respective
officers and directors, shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
deeds, assignments or assurances and to do all acts necessary or desirable to
vest, perfect or confirm title and possession to such rights, properties or
assets in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement, and the officers and directors of the Surviving Corporation are
authorized in the name of Seller or otherwise to take any and all such action.
1.05. ARTICLES OF INCORPORATION AND REGULATIONS. The Articles
of Incorporation and Regulations of Buyer in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Regulations of the
Surviving Corporation following the Merger until otherwise amended or repealed.
28
<PAGE>
1.06. BOARDS OF DIRECTORS AND OFFICERS. At the Effective Time,
the directors and officers of Buyer immediately prior to the Effective Time
shall be directors and officers, respectively, of the Surviving Corporation
following the Merger; such directors and officers shall hold office in
accordance with the Surviving Corporation's Articles of Incorporation and
Regulations and applicable law.
1.07. CONVERSION OF SECURITIES. At the Effective Time, by
virtue of the Merger and without any action on the part of Buyer, Seller or the
holder of any of the following securities:
(i) Each share of the common stock, par value $5.00 per share,
of Buyer ("Buyer Common Stock") that is issued and outstanding immediately prior
to the Effective Time shall remain outstanding and shall be unchanged after the
Merger and thereafter shall together with shares of Buyer Common Stock issued in
the Merger constitute all of the issued and outstanding capital stock of the
Surviving Corporation; and
(ii) Each share of the common stock, par value $.01 per share,
of Seller ("Seller Common Stock") issued and outstanding immediately prior to
the Effective Time shall cease to be outstanding and, other than any Dissenting
Shares (as defined in Section 1.11), shall be converted into and become the
right to receive, at the election of the holder thereof as provided in Section
1.08:
(1) 0.949 (the "Exchange Ratio") shares of Buyer Common Stock
(the "Per Share Stock Consideration"), or
(2) $44.00 in cash (the "Per Share Cash Consideration").
The aggregate number of shares of Buyer Common Stock that shall be issued in the
Merger (the "Stock Amount") shall equal as nearly as practicable (a) seventy
percent (70%), times (b) the Exchange Ratio, times (c) the number of shares of
Seller Common Stock outstanding as of the Effective Time; provided however that
in the event that (x) the Stock Amount times (y) the closing price of a share of
Buyer Common Stock on the New York Stock Exchange, Inc. ("NYSE") composite tape
on the last trading day prior to the Effective Time (the "Closing Price") is
less than (q) fifty percent (50%) times (r) the number of shares of Seller
Common Stock outstanding as of the Effective Time times (s) the closing price of
a share of Seller Common Stock on the Nasdaq National Market System on the last
trading day prior to the Effective Time, then the Stock Amount shall equal (j)
fifty percent (50%) times (k) the number of shares of Seller Common Stock
outstanding as of the Effective Time times (l) the closing price of a share of
Seller Common Stock on the Nasdaq National Market System on the last trading day
prior to the Effective Time, divided by (m) the Closing Price.
1.08. ELECTION PROCEDURES. An election form and other
appropriate and customary transmittal materials (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing Seller Common Stock shall pass, only upon proper
delivery of such certificates to an exchange agent designated by Buyer and
reasonably acceptable to Seller (the "Exchange Agent")) in such form as Buyer
and Seller shall mutually agree ("Election Form") shall be mailed approximately
25 days prior to the anticipated Effective Time or on such other date as Buyer
and Seller shall mutually agree ("Mailing Date") to each holder of record of
Seller Common Stock as of five business days prior to the Mailing Date
("Election Form Record Date"). Buyer shall determine the anticipated Effective
Time (the "Anticipated Effective Time") in its sole discretion and the failure
of the Effective Time to occur at the Anticipated Effective Time for purposes of
this Section 1.08 shall not affect the time periods which are established for
purposes of these election procedures; provided that the Effective Time occurs
no later than 45 days following the Mailing Date. All Election Forms will become
revocable if the Effective Time has not occurred within 45 days of the Mailing
Date.
Each Election Form shall permit the holder (or the beneficial
owner through appropriate and customary documentation and instructions) to elect
to receive Buyer Common Stock with respect to some or all of such holder's
Seller Common Stock ("Stock Election Shares"), to elect to receive cash with
respect to some or all of such holder's Seller Common Stock ("Cash Election
Shares") or to indicate that such holder makes no election ("No Election
Shares"). For purposes of this Section 1.08, Dissenting Shares shall be treated
as Cash Election Shares for purposes of this Section 1.08 but shall not be
converted into the Per Share Stock Consideration or the Per Share Cash
consideration except as provided in Section 1.11.
Any Seller Common Stock with respect to which the holder (or
the beneficial owner, as the case may be) shall not have submitted to the
Exchange Agent an effective, properly completed Election Form on or before 5:00
p.m. on the 20th day following the Mailing Date (or such other time and date as
Buyer and Seller may mutually agree) (the "Election Deadline") shall be deemed
to be "No Election Shares."
29
<PAGE>
Buyer shall make available one or more Election Forms as may
be reasonably requested by all persons who become holders (or beneficial owners)
of Seller Common Stock between the Election Form Record Date and close of
business on the business day prior to the Election Deadline, and Seller shall
provide to the Exchange Agent all information reasonably necessary for it to
perform as specified herein.
Any such election shall have been properly made only if the
Exchange Agent shall have actually received a properly completed Election Form
by the Election Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more certificates (or customary affidavits and
indemnification regarding the loss or destruction of such certificates or the
guaranteed delivery of such certificates) representing all shares of Seller
Common Stock covered by such Election Form, together with duly executed
transmittal materials included in the Election Form. Any Election Form may be
revoked or changed by the person submitting such Election Form (i) at or prior
to the Election Deadline and (ii) so long as prior to the Effective Time, at any
time 45 days following the Mailing Date. In the event an Election Form is
revoked prior to the Election Deadline, the shares of Seller Common Stock
represented by such Election Form shall become No Election Shares and Buyer
shall cause the certificates representing Seller Common Stock to be promptly
returned without charge to the person submitting the Election Form upon written
request to that effect from the person who submitted the Election Form, which
person may then submit a new Election Form. Subject to the terms of this
Agreement and of the Election Form, the Exchange Agent shall have reasonable
discretion to determine whether any election, revocation or change has been
properly or timely made and to disregard immaterial defects in the Election
Forms, and any good faith decisions of the Exchange Agent regarding such matters
shall be binding and conclusive. Neither Buyer nor the Exchange Agent shall be
under any obligation to notify any person of any defect in an Election Form.
1.09. ALLOCATION PROCEDURES. Within ten business days after
the Election Deadline, unless the Effective Time has not yet occurred, in which
case as soon after the Effective Time as practicable, Buyer shall cause the
Exchange Agent to effect the allocation among the holders of Seller Common Stock
of rights to receive Buyer Common Stock and/or cash in the Merger in accordance
with the Election Forms as follows:
(a) STOCK ELECTIONS LESS THAN STOCK AMOUNT. If the number of
shares of Buyer Common Stock that would be issued upon conversion in
the Merger of the Stock Election Shares is less than the Stock Amount,
then:
(i) all Stock Election Shares shall be converted into
the right to receive Buyer Common Stock,
(ii) the Exchange Agent shall allocate pro rata first
from among the holders of No Election Shares and then (if
necessary) pro rata from among the Cash Election Shares, a
sufficient number of shares ("Stock Designated Shares") such
that the number of shares of Buyer Common Stock that will be
issued in the Merger equals as closely as practicable the
Stock Amount, and all Stock Designated Shares shall be
converted into the right to receive Buyer Common Stock, and
(iii) the Cash Election Shares and the No Election
Shares which are not Stock Designated Shares shall be
converted into the right to receive cash;
(b) STOCK ELECTIONS MORE THAN STOCK AMOUNT. If the number of
shares of Buyer Common Stock that would be issued upon the conversion
into Buyer Common Stock of the Stock Election Shares is greater than the
Stock Amount, then:
(i) all Cash Election Shares and No Election Shares
shall be converted into the right to receive cash,
(ii) the Exchange Agent shall allocate pro rata from
among the Stock Election Shares, a sufficient number of
shares ("Cash Designated Shares") such that the number of
shares of Buyer Common Stock that will be issued in the
Merger equals as closely as practicable the Stock Amount, and
all Cash Designated Shares shall be converted into the right
to receive cash, and
(iii) the Stock Election Shares which are not Cash
Designated Shares shall be converted into the right to
receive Buyer Common Stock; or
(c) STOCK ELECTIONS EQUAL TO STOCK AMOUNT. If the number of
shares of Buyer Common Stock that would be issued upon conversion into
Buyer Common Stock of the Stock Election Shares is equal as nearly as
practicable (as determined by the Exchange Agent) to the Stock Amount,
then subparagraphs (a) and (b) above and subparagraph (d) below shall
not apply and all Stock Election Shares shall be converted into the
right to receive Buyer Common Stock and all Cash Election Shares and No
Election Shares shall be converted into the right to receive cash; or
30
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(d) STOCK ELECTIONS AND NO ELECTIONS EQUAL TO STOCK AMOUNT.
If the number of shares of Buyer Common Stock that would be issued upon
the conversion into Buyer Common Stock of the Stock Election Shares and
No Election Shares would equal as nearly as practicable (as determined
by the Exchange Agent) the Stock Amount, then subparagraphs (a), (b) and
(c) above shall not apply and all Cash Election Shares shall be
converted into the right to receive cash and all Stock Election Shares
and No Election Shares shall be converted into the right to receive
Buyer Common Stock.
1.10. EXCHANGE PROCEDURES. (a) At or prior to the Effective
Time, Buyer shall deposit with the Exchange Agent for the benefit of holders of
certificates the Merger Consideration (as defined below) (the Merger
Consideration so deposited with the Exchange Agent being the "Exchange Fund").
(b) Holders of record of certificates formerly representing
shares of Seller Common Stock (the "Certificates") who have not previously
delivered the Certificates to the Exchange Agent shall be instructed to tender
such Certificates to Buyer pursuant to a letter of transmittal that Buyer shall
deliver or cause to be delivered to such holders. Holders of Certificates who
have previously delivered the Certificates to the Exchange Agent shall deliver a
completed letter of transmittal. Buyer in consultation with Seller shall have
the option of including within the election forms distributed pursuant to
Section 1.08 a form of letter of transmittal to be used for this purpose. Such
letters of transmittal shall specify that risk of loss and title to Certificates
shall pass only upon delivery of such Certificates to Buyer.
(c) Subject to Section 1.12, after the Effective Time, each
previous holder of a Certificate that surrenders such Certificate with a duly
executed exchange form or letter of transmittal, as applicable, to the Exchange
Agent will be entitled to a certificate or certificates representing the number
of full shares of Buyer Common Stock or cash, as the case may be, into which the
Certificate so surrendered shall have been converted pursuant to this Agreement
and any distribution theretofore declared and not yet paid with respect to such
shares of Buyer Common Stock, without interest.
(d) Buyer or the Exchange Agent shall accept Certificates
upon compliance with such reasonable terms and conditions as Buyer or the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with customary exchange practices. Certificates shall be appropriately endorsed
or accompanied by such instruments of transfer as Buyer or the Exchange Agent
may require.
(e) Each outstanding Certificate shall until duly surrendered
to Buyer or the Exchange Agent be deemed to evidence ownership of the
consideration into which the stock previously represented by such Certificate
shall have been converted pursuant to this Agreement.
(f) Any portion of the Exchange Fund which remains
undistributed to the holders of Certificates for six months after the Effective
Time shall be delivered to Buyer, upon demand, and any holders of Certificates
who have not theretofore complied with this Section 1.10shall thereafter look
only to Buyer for payment of their claim for the Per Share Cash Consideration or
Buyer Common Stock.
(g) After the Effective Time, holders of Certificates shall
cease to have rights with respect to the stock previously represented by such
Certificates, and their sole rights shall be to exchange such Certificates for
the consideration provided for in this Agreement. After the Effective Time,
there shall be no further transfer on the records of Seller of Certificates, and
if such Certificates are presented to Seller for transfer, they shall be
cancelled against delivery of the consideration provided therefor in this
Agreement. Buyer shall not be obligated to deliver the consideration to which
any former holder of Seller Common Stock is entitled as a result of the Merger
until such holder surrenders the Certificates as provided herein. No dividends
declared will be remitted to any person entitled to receive Buyer Common Stock
under this Agreement until such person surrenders the Certificate representing
the right to receive such Buyer Common Stock, at which time such dividends shall
be remitted to such person, without interest and less any taxes that may have
been imposed thereon. Certificates surrendered for exchange by any person
constituting an "affiliate" of Seller for purposes of Rule 145 of the Securities
Act of 1933, as amended (together with the rules and regulations thereunder, the
"Securities Act"), shall not be exchanged for certificates representing Buyer
Common Stock until Buyer has received a written agreement from such person in
the form attached as Exhibit B. Neither the Exchange Agent nor any party to this
Agreement nor any affiliate thereof shall be liable to any holder of stock
represented by any Certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or similar laws. Buyer and
the Exchange Agent shall be entitled to rely upon the stock transfer books of
Seller to establish the identity of those persons entitled to receive
consideration specified in this Agreement, which books shall be conclusive with
respect thereto. In the event of a dispute with respect to ownership of stock
represented by any Certificate, Buyer and the Exchange Agent shall be entitled
to deposit any consideration represented thereby in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
31
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1.11. DISSENTING SHARES. (a) "Dissenting Shares" means any
shares held by any holder who becomes entitled to payment of the fair value of
such shares under the DGCL. Any holders of Dissenting Shares shall be entitled
to payment for such shares only to the extent permitted by and in accordance
with the provisions of the DGCL; PROVIDED, HOWEVER, that if, in accordance with
the DGCL, any holder of Dissenting Shares shall forfeit such right to payment of
the fair value of such shares, such shares shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive the consideration provided in this Article I.
(b) Seller shall give Buyer (i) prompt notice of any written
objections to the Merger and any written demands for the payment of the fair
value of any shares, withdrawals of such demands, and any other instruments
served pursuant to the DGCL received by Seller and (ii) the opportunity to
direct all negotiations and proceedings with respect to such demands under the
DGCL. Seller shall not voluntarily make any payment with respect to any demands
for payment of fair value and shall not, except with the prior written consent
of Buyer, settle or offer to settle any such demands.
1.12. NO FRACTIONAL SHARES. Notwithstanding any other
provision of this Agreement, neither certificates nor scrip for fractional
shares of Buyer Common Stock shall be issued in the Merger. Each holder who
otherwise would have been entitled to a fraction of a share of Buyer Common
Stock shall receive in lieu thereof cash (without interest) in an amount
determined by multiplying the fractional share interest to which such holder
would otherwise be entitled by the Closing Price. No such holder shall be
entitled to dividends, voting rights or any other rights in respect of any
fractional share.
1.13. ANTI-DILUTION ADJUSTMENTS. If prior to the Effective
Time Buyer shall declare a stock dividend or make distributions upon or
subdivide, split up, reclassify or combine or make similar changes to Buyer
Common Stock or exchange Buyer Common Stock for a different number or kind of
shares or securities or declare a dividend or make a distribution on Buyer
Common Stock or on any security convertible into Buyer Common Stock, or is
involved in any transaction resulting in any of the foregoing (including any
exchange of Buyer Common Stock for a different number or kind of shares or
securities), appropriate adjustment or adjustments will be made to the Exchange
Ratio.
1.14. RESERVATION OF RIGHT TO REVISE TRANSACTION. Buyer may
with Seller's consent (which will not be unreasonably withheld) at any time
change the method of effecting the acquisition of Seller or Seller's
Subsidiaries by Buyer and Seller shall cooperate in such efforts (including
without limitation (a) modifying the provisions of this Article I and (b)
causing the merger of Great Financial Bank, F.S.B. a federally chartered savings
bank and wholly owned subsidiary of Seller ("Seller Bank") and/or any of the
Banks (as defined herein) with any depository institution which is a Subsidiary
of Buyer (any such merger together with the Merger being referred to herein as
the "Transactions")) if and to the extent it deems such change to be desirable,
including without limitation to provide for a merger of Seller into a
wholly-owned subsidiary of Buyer, in which such subsidiary of Buyer is the
surviving corporation, PROVIDED, HOWEVER, that no such change shall (A) alter or
change the amount or kind of consideration to be issued to holders of Seller
Common Stock as provided for in this Agreement (the "Merger Consideration"), (B)
adversely affect the tax treatment to Seller's stockholders as a result of
receiving the Merger Consideration, or (C) materially impede or delay the
consummation of the transactions contemplated by this Agreement.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to and covenants with Buyer as
follows:
2.01. ORGANIZATION AND AUTHORITY. Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, is duly qualified to do business and is in good standing in
all jurisdictions where its ownership or leasing of property or the conduct of
its business requires it to be so qualified and has corporate power and
authority to own its properties and assets and to carry on its business as it is
now being conducted. Seller is registered as a unitary savings and loan holding
company with the Office of Thrift Supervision (the "OTS") under HOLA. True and
complete copies of the Certificate of Incorporation and the Bylaws of Seller
and, to the extent requested in writing by Buyer, of the articles of
incorporation and bylaws of the Seller Subsidiaries (as defined in Section
2.02), each as in effect on the date of this Agreement, have been provided to
Buyer.
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2.02. SUBSIDIARIES. Schedule 2.02 sets forth, among other
things, a complete and correct list of all of Seller's Subsidiaries (each a
"Seller Subsidiary" and collectively the "Seller Subsidiaries"), all outstanding
Equity Securities of each of which, except as set forth on Schedule 2.02, are
owned directly or indirectly by Seller. "Equity Securities" of an issuer means
capital stock or other equity securities of such issuer, options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, shares of any capital
stock or other Equity Securities of such issuer, or contracts, commitments,
understandings or arrangements by which such issuer is or may become bound to
issue additional shares of its capital stock or other Equity Securities of such
issuer, or options, warrants, scrip or rights to purchase, acquire, subscribe
to, calls on or commitments for any shares of its capital stock or other Equity
Securities. Except as set forth on Schedule 2.02, all of the outstanding shares
of capital stock of the Seller Subsidiaries are validly issued, fully paid and
nonassessable, and those shares owned by Seller are owned free and clear of any
lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security
interest or restriction (a "Lien") with respect thereto. Each of the Seller
Subsidiaries is a corporation or association duly incorporated or organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation or organization, and has corporate power and authority to own or
lease its properties and assets and to carry on its business as it is now being
conducted. Except as disclosed in Schedule 2.02, each of the Seller Subsidiaries
is duly qualified to do business in each jurisdiction where its ownership or
leasing of property or the conduct of its business requires it so to be
qualified, except where the failure to so qualify would not have a material
adverse effect on the financial condition, results of operations or business
(collectively, the "Condition") of Seller and its Subsidiaries, taken as a
whole. Except for the Equity Securities of Seller Bank of which Seller owns 100%
and except as set forth on Schedule 2.02, Seller does not own beneficially,
directly or indirectly, any shares of any class of Equity Securities or similar
interests of any corporation, bank, business trust, association or similar
organization. Seller Bank is chartered by the OTS. The deposits of Seller Bank
are insured by the Savings Association Insurance Fund ("SAIF"). Except as set
forth on Schedule 2.02, neither Seller nor any Seller Subsidiary holds any
interest in a partnership or joint venture of any kind.
2.03. CAPITALIZATION. The authorized capital stock of Seller
consists of (i) 24,000,000 shares of Seller Common Stock, of which, as of August
29, 1997, 13,804,439 shares were issued and outstanding and (ii) 1,000,000
shares of preferred stock, $1.00 par value ("Seller Preferred Stock"), of which,
as of August 29, 1997, no shares were issued or outstanding. As of August 29,
1997, Seller had reserved 1,523,182 shares of Seller Common Stock for issuance
under Seller's stock option and incentive plans, a list of which is set forth on
Schedule 2.03 (the "Seller Stock Plans"), pursuant to which options ("Seller
Stock Options") covering 1,484,631 shares of Seller Common Stock were
outstanding as of August 29, 1997. Since August 29, 1997, no Equity Securities
of Seller have been issued other than shares of Seller Common Stock which may
have been issued upon the exercise of Seller Stock Options. Except as set forth
above, there are no other Equity Securities of Seller outstanding. All of the
issued and outstanding shares of Seller Common Stock are validly issued, fully
paid, and nonassessable, and have not been issued in violation of any preemptive
right of any stockholder of Seller. Seller maintains a dividend reinvestment
plan or similar plan. Seller has not entered into a shareholders rights plan or
similar plan.
2.04. AUTHORIZATION. (a) Seller has the corporate power and
authority to enter into this Agreement and, subject to the approval of this
Agreement by the stockholders of Seller, to carry out its obligations hereunder.
The only stockholder vote required for Seller to approve this Agreement is the
affirmative vote of the holders of at least a majority of the shares of Seller
Common Stock entitled to vote at a meeting called for such purpose. The
execution, delivery and performance of this Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Seller. Subject to approval by the
stockholders of Seller, this Agreement is a valid and binding obligation of
Seller enforceable against Seller in accordance with its terms.
(b) Except as set forth on Schedule 2.04B, neither the
execution nor delivery nor performance by Seller of this Agreement, nor the
consummation by Seller of the transactions contemplated hereby, nor compliance
by Seller with any of the provisions hereof, will (i) violate, conflict with, or
result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration of, or result in the creation
of, any material Lien upon any of the material properties or assets of Seller or
any Seller Subsidiary under any of the terms, conditions or provisions of (x)
its articles or certificate of incorporation or bylaws or (y) any material note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Seller or any Seller Subsidiary is a party or
by which it may be bound, or to which Seller or any Seller Subsidiary or any of
the material properties or assets of Seller or any Seller Subsidiary may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in paragraph (c) of this Section 2.04, to the best knowledge of
Seller, violate any judgment, ruling, order, writ, injunction, decree, statute,
rule or regulation applicable to Seller or any Seller Subsidiary or any of their
respective material properties or assets.
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(c) Other than in connection or compliance with the
provisions of the DGCL, the OGCL, the Securities Act, the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange
Act"), the securities or blue sky laws of the various states or filings,
consents, reviews, authorizations, approvals or exemptions required under the
Holding Company Act, and the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), or any required approvals or filings pursuant to any state
statutes or regulations applicable to the Banks with respect to the transactions
contemplated by this Agreement, no notice to, filing with, exemption or review
by, or authorization, consent or approval of, any public body or authority is
necessary for the consummation by Seller of the transactions contemplated by
this Agreement.
2.05. SELLER FINANCIAL STATEMENTS. The consolidated balance
sheets of Seller and its Subsidiaries as of December 31, 1996, 1995 and 1994 and
related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the three-year period ended
December 31, 1996, together with the notes thereto, audited by Deloitte & Touche
LLP and included in an annual report on Form 10-K as filed with the Securities
and Exchange Commission (the "SEC"), and the unaudited consolidated balance
sheets of Seller and its Subsidiaries as of March 31 and June 30, 1997 and the
related unaudited consolidated statements of income and cash flows for the
periods then ended included in quarterly reports on Form 10-Q (each a "Seller
Form 10-Q") as filed with the SEC (collectively, the "Seller Financial
Statements") have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP"), present fairly the
consolidated financial position of Seller and its Subsidiaries at the dates and
the consolidated results of operations, cash flows and changes in stockholders'
equity of Seller and its Subsidiaries for the periods stated therein and are
derived from the books and records of Seller and its Subsidiaries, which are
complete and accurate in all material respects and have been maintained in all
material respects in accordance with applicable laws and regulations. Neither
Seller nor any of its Subsidiaries has any material contingent liabilities that
are not described in the financial statements described above.
2.06. SELLER REPORTS. Except as set forth in Schedule 2.06,
since January 1, 1994 each of Seller and the Seller Subsidiaries has filed all
material reports, registrations and statements, together with any required
material amendments thereto, that it was required to file with (i) the SEC,
including, but not limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy
statements, (ii) the OTS, (iii) the FDIC, and (iv) any other federal, state,
municipal, local or foreign government, securities, banking, savings and loan,
insurance and other governmental or regulatory authority and the agencies and
staffs thereof (the entities in the foregoing clauses (i) through (iv) being
referred to herein collectively as the "Regulatory Authorities" and individually
as a "Regulatory Authority"). All such reports and statements filed with any
such Regulatory Authority are collectively referred to herein as the "Seller
Reports." As of its respective date, each Seller Report complied in all material
respects with all the rules and regulations promulgated by the applicable
Regulatory Authority and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
2.07. PROPERTIES AND LEASES. Except as may be reflected in
the Seller Financial Statements, except for any Lien for current taxes not yet
delinquent and except with respect to assets classified as real estate owned,
Seller and its Subsidiaries have good title free and clear of any material Lien
to all the real and personal property reflected in Seller's consolidated balance
sheet as of June 30, 1997 included in the most recent Seller Form 10-Q and, in
each case, all real and personal property acquired since such date, except such
real and personal property as has been disposed of in the ordinary course of
business. All leases material to Seller or any Seller Subsidiary pursuant to
which Seller or any Seller Subsidiary, as lessee, leases real or personal
property, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any material existing default by Seller
or any Seller Subsidiary or any event which, with notice or lapse of time or
both, would constitute such a material default. Substantially all of Seller's
and Seller Subsidiaries' buildings, structures and equipment in regular use have
been well maintained and are in good and serviceable condition, normal wear and
tear excepted.
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2.08. TAXES. Except as previously disclosed to Buyer, Seller
and each Seller Subsidiary have timely filed or will timely (including
extensions) file all material tax returns required to be filed at or prior to
the Closing Date ("Seller Returns"). Each of Seller and its Subsidiaries has
paid, or set up adequate reserves on the Seller Financial Statements for the
payment of, all taxes required to be paid in respect of the periods covered by
such returns and has set up adequate reserves on the most recent financial
statements Seller has filed under the Exchange Act for the payment of all taxes
anticipated to be payable in respect of all periods up to and including the
latest period covered by such financial statements. To the knowledge of Seller,
neither Seller nor any Seller Subsidiary will have any liability material to the
Condition of Seller and the Seller Subsidiaries, taken as a whole, for any such
taxes in excess of the amounts so paid or reserves so established and no
material deficiencies for any tax, assessment or governmental charge have been
proposed, asserted or assessed (tentatively or definitely) against any of Seller
or any Seller Subsidiary which would not be covered by existing reserves.
Neither Seller nor any Seller Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge, nor, except as previously
disclosed, has it requested any extension of time within which to file any tax
returns in respect of any fiscal year which have not since been filed and no
requests for waivers of the time to assess any tax are pending. The federal and
state income tax returns of Seller and the Seller Subsidiaries have been audited
and finally settled by the Internal Revenue Service (the "IRS") or appropriate
state tax authorities or the relevant statute of limitations has expired for all
periods ended through December 31, 1993. There is no deficiency or refund
litigation or matter in controversy with respect to Seller Returns. Neither
Seller nor any Seller Subsidiary has extended or waived any statute of
limitations on the assessment of any tax due that is currently in effect.
2.09. MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has
been no material adverse change in the Condition of Seller and its Subsidiaries,
taken as a whole, except as may have resulted or may result from changes to laws
and regulations or changes in economic conditions applicable to banking or
thrift institutions generally or in general levels of interest rates affecting
banking or thrift institutions generally.
2.10. COMMITMENTS AND CONTRACTS. (a) Except as set forth on
Schedule 2.10A, neither Seller nor any Seller Subsidiary is a party or subject
to any of the following (whether written or oral, express or implied):
(i) any material agreement, arrangement or commitment
(A) not made in the ordinary course of business or (B)
pursuant to which Seller or any of its Subsidiaries is or may
become obligated to invest in or contribute capital to any
Seller Subsidiary;
(ii) any agreement, indenture or other instrument not
disclosed in the Seller Financial Statements relating to the
borrowing of money by Seller or any Seller Subsidiary or the
guarantee by Seller or any Seller Subsidiary of any such
obligation (other than trade payables or instruments related
to transactions entered into in the ordinary course of
business by any Seller Subsidiary, such as deposits and Fed
Funds or similar borrowings);
(iii) any contract, agreement or understanding with
any labor union or collective bargaining organization;
(iv) any contract containing covenants which limit
the ability of Seller or any Seller Subsidiary to compete in
any line of business or with any person or which involve any
restriction of the geographical area in which, or method by
which, Seller or any Seller Subsidiary may carry on its
business (other than as may be required by law or any
applicable Regulatory Authority);
(v) any other contract or agreement which is a
"material contract" within the meaning of Item 601(b)(10) of
Regulation S-K promulgated by the SEC and which is not listed
in Seller's SEC Reports; or
(vi) any lease with annual rental payments
aggregating $500,000 or more.
(b) Neither Seller nor any Seller Subsidiary is in violation
of its charter documents or bylaws or in default under any material agreement,
commitment, arrangement, lease, insurance policy, or other instrument, whether
entered into in the ordinary course of business or otherwise and whether written
or oral, and there has not occurred any event that, with the lapse of time or
giving of notice or both, would constitute such a default, except, in all cases,
where such default would not have a material adverse effect on the Condition of
Seller and its Subsidiaries, taken as a whole.
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2.11. LITIGATION AND OTHER PROCEEDINGS. Except as set forth
on Schedule 2.11, neither Seller nor any Seller Subsidiary is a party to any
pending or, to the best knowledge of Seller, threatened claim, action, suit,
investigation or proceeding, or is subject to any order, judgment or decree,
except for matters which, in the aggregate, will not have, or reasonably could
not be expected to have, a material adverse effect on the Condition of Seller
and its Subsidiaries, taken as a whole, or which purports or seeks to enjoin or
restrain the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, there are no actions, suits, or proceedings pending
or, to the best knowledge of Seller, threatened against Seller or any Seller
Subsidiary or any of their respective officers or directors by any stockholder
of Seller or any Seller Subsidiary (or any former stockholder of Seller or any
Seller Subsidiary) or involving claims under the Securities Act, the Exchange
Act, the Community Reinvestment Act of 1977, as amended, or the fair lending
laws.
2.12. INSURANCE. Each of Seller and its Subsidiaries has
taken all requisite action (including without limitation the making of claims
and the giving of notices) pursuant to its directors' and officers' liability
insurance policy or policies in order to preserve all rights thereunder with
respect to all matters (other than matters arising in connection with this
Agreement and the transactions contemplated hereby) occurring prior to the
Effective Time that are known to Seller, except for such matters which,
individually or in the aggregate, will not have and reasonably could not be
expected to have a material adverse effect on the Condition of Seller and its
Subsidiaries, taken as a whole.
2.13. COMPLIANCE WITH LAWS. (a) Except as disclosed in
Schedule 2.13A, Seller and each of its Subsidiaries have all permits, licenses,
authorizations, orders and approvals of, and have made all filings, applications
and registrations with, all Regulatory Authorities that are required in order to
permit them to own or lease their properties and assets and to carry on their
business as presently conducted and that are material to the business of Seller
and its Subsidiaries; all such permits, licenses, certificates of authority,
orders and approvals are in full force and effect and, to the best knowledge of
Seller, no suspension or cancellation of any of them is threatened; and all such
filings, applications and registrations are current.
(b) Except for failures to comply or defaults which
individually or in the aggregate would not have a material adverse effect on the
Condition of Seller and its Subsidiaries, taken as a whole, (i) each of Seller
and its Subsidiaries has complied with all laws, regulations and orders
(including without limitation zoning ordinances, building codes, the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and securities,
tax, environmental, civil rights, and occupational health and safety laws and
regulations and including without limitation in the case of any Seller
Subsidiary that is a bank or savings association, banking organization, banking
corporation or trust company, all statutes, rules, regulations and policy
statements pertaining to the conduct of a banking, deposit-taking, lending or
related business, or to the exercise of trust powers) and governing instruments
applicable to them and to the conduct of their business, and (ii) neither Seller
nor any Seller Subsidiary is in default under, and no event has occurred which,
with the lapse of time or notice or both, could result in the default under, the
terms of any judgment, order, writ, decree, permit, or license of any Regulatory
Authority or court, whether federal, state, municipal, or local and whether at
law or in equity. Except as set forth in Schedule 2.13(b), neither Seller nor
any Seller Subsidiary is subject to or reasonably likely to incur a liability as
a result of its ownership, operation, or use of any Property (as defined below)
of Seller (whether directly or, to the best knowledge of Seller, as a
consequence of such Property being part of the investment portfolio of Seller or
any Seller Subsidiary) (A) that is contaminated by or contains any hazardous
waste, toxic substance, or related materials, including without limitation
asbestos, PCBs, pesticides, herbicides, and any other substance or waste that is
hazardous to human health or the environment (collectively, a "Toxic
Substance"), or (B) on which any Toxic Substance has been stored, disposed of,
placed, or used in the construction thereof. "Property" of a person shall
include all property (real or personal, tangible or intangible) owned or
controlled by such person, including without limitation property under
foreclosure, property held by such person or any Subsidiary of such person in
its capacity as a trustee and property in which any venture capital or similar
unit of such person or any Subsidiary of such person has an interest. Except as
set forth in Schedule 2.13(b), no claim, action, suit, or proceeding is pending
against Seller or any Seller Subsidiary relating to Property of Seller before
any court or other Regulatory Authority or arbitration tribunal relating to
hazardous substances, pollution, or the environment, and there is no outstanding
judgment, order, writ, injunction, decree, or award against or affecting Seller
or any Seller Subsidiary with respect to the same. Except for statutory or
regulatory restrictions of general application or as disclosed in Schedule
2.13(b), no Regulatory Authority has placed any restriction on the business of
Seller or any Seller Subsidiary which reasonably could be expected to have a
material adverse effect on the Condition of Seller and its Subsidiaries, taken
as a whole.
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(c) From and after January 1, 1994, neither Seller nor any
Seller Subsidiary has received any notification or communication which has not
been resolved from any Regulatory Authority (i) asserting that any Seller or any
Subsidiary of Seller, is not in substantial compliance with any of the statutes,
regulations or ordinances that such Regulatory Authority enforces, except with
respect to matters which (A) are set forth on Schedule 2.13C or in any writing
previously furnished to Buyer and (B) reasonably could not be expected to have a
material adverse effect on the Condition of Seller and its Subsidiaries, taken
as a whole, (ii) threatening to revoke any license, franchise, permit or
governmental authorization that is material to the Condition of Seller and its
Subsidiaries, taken as a whole, including without limitation such company's
status as an insured depositary institution under the Federal Deposit Insurance
Act, or (iii) requiring or threatening to require Seller or any of its
Subsidiaries, or indicating that Seller or any of its Subsidiaries may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting or purporting to
direct, restrict or limit in any manner the operations of Seller or any of its
Subsidiaries, including without limitation any restriction on the payment of
dividends. No such cease and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
(d) Neither Seller nor any Seller Subsidiary is required by
Section 32 of the Federal Deposit Insurance Act to give prior notice to any
federal banking agency of the proposed addition of an individual to its board of
directors or the employment of an individual as a senior executive officer.
2.14. LABOR. No work stoppage involving Seller or any Seller
Subsidiary, is pending or, to the best knowledge of Seller, threatened. Neither
Seller nor any Seller Subsidiary is involved in, or, to the best knowledge of
Seller, threatened with or affected by, any labor dispute, arbitration, lawsuit
or administrative proceeding which reasonably could be expected to have a
material adverse affect on the Condition of Seller and its Subsidiaries, taken
as a whole. Employees of neither Seller nor any Seller Subsidiary, are
represented by any labor union or any collective bargaining organization.
2.15. MATERIAL INTERESTS OF CERTAIN PERSONS. (a) Except as
set forth in Seller's Proxy Statement for its 1997 Annual Meeting of
Stockholders, to the best knowledge of Seller, no officer or director of Seller
or any Subsidiary of Seller, or any "associate" (as such term is defined in Rule
14a-1 under the Exchange Act) of any such officer or director, has any material
interest in any material contract or property (real or personal, tangible or
intangible), used in, or pertaining to the business of, Seller or any Subsidiary
of Seller, which in the case of Seller is required to be disclosed by Item 404
of Regulation S-K promulgated by the SEC or in the case of any such Subsidiary
would be required to be so disclosed if such Subsidiary had a class of
securities registered under Section 12 of the Exchange Act.
(b) Each outstanding loan from Seller or any Seller
Subsidiary to any present officer, director, employee or any associate or
related interest of any such person which was or would be required under any
rule or regulation to be approved by or reported to Seller's or Seller
Subsidiary's Board of Directors ("Insider Loans") was approved by or reported to
the appropriate board of directors in accordance with applicable law and
regulations. Except as set forth on Schedule 2.15B, no Insider Loan has a
principal balance as of the date hereof in excess of $250,000 or a line of
credit in excess of $100,000.
2.16. ALLOWANCE FOR LOAN AND LEASE LOSSES; NONPERFORMING
ASSETS. (a) The allowances for loan and lease losses contained in the Seller
Financial Statements were established in accordance with the past practices and
experiences of Seller and its Subsidiaries, and the allowance for loan losses
shown on the consolidated condensed balance sheet of Seller and its Subsidiaries
contained in the most recent Seller Form 10-Q is adequate in all material
respects under the requirements of GAAP to provide for possible losses on loans
(including without limitation accrued interest receivable) and credit
commitments (including without limitation stand-by letters of credit)
outstanding as of the date of such balance sheet.
(b) The aggregate amount of all Nonperforming Assets (as
defined below) on the books of Seller and its Subsidiaries did not exceed
$95,000,000 as of June 30, 1997. "Nonperforming Assets" shall mean (i) all loans
and leases (A) that are contractually past due 90 days or more in the payment of
principal and/or interest, (B) that are on nonaccrual status, and (C) where the
interest rate terms have been reduced and/or the maturity dates have been
extended and/or otherwise restructured by Seller's Subsidiary subsequent to the
agreement under which the loan was originally created due to concerns regarding
the borrower's ability to pay in accordance with such initial terms, and (ii)
all assets classified as real estate acquired through foreclosure or
repossession and other assets acquired through foreclosure or repossession.
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2.17. EMPLOYEE BENEFIT PLANS. (a) Except as set forth in
Schedule 2.17A, neither Seller nor any Seller Subsidiary is a party to any
existing employment, management, consulting, deferred compensation,
change-in-control or other similar contract. Schedule 2.17A lists all pension,
retirement, supplemental retirement, savings, profit sharing, stock option,
stock purchase, stock ownership, stock appreciation right, deferred
compensation, consulting, bonus, medical, disability, workers' compensation,
vacation, group insurance, severance and other material employee benefit,
incentive and welfare policies, contracts, plans and arrangements, and all trust
agreements related thereto, maintained (currently or at any time in the last
five years) by or contributed to by Seller or any Seller Subsidiary in respect
of any of the present or former directors, officers, or other employees of
and/or consultants to Seller or any Seller Subsidiary (collectively, "Seller
Employee Plans"). Seller has furnished Buyer with the following documents with
respect to each Seller Employee Plan: (i) a true and complete copy of all
written documents comprising such Seller Employee Plan (including amendments and
individual agreements relating thereto) or, if there is no such written
document, an accurate and complete description of the Seller Employee Plan; (ii)
the most recent Form 5500 or Form 5500-C (including all schedules thereto), if
applicable; (iii) the most recent financial statements and actuarial reports, if
any; (iv) the summary plan description currently in effect and all material
modifications thereof, if any; and (v) the most recent Internal Revenue Service
determination letter, if any. Without limiting the generality of the foregoing,
Seller has furnished Buyer with true and complete copies of each form of stock
option grant or stock option agreement that is outstanding under any stock
option plan of Seller or any Seller Subsidiary.
(b) All Seller Employee Plans have been maintained and
operated materially in accordance with their terms and with the material
requirements of all applicable statutes, orders, rules and final regulations,
including without limitation ERISA and the Internal Revenue Code. All
contributions required to be made to Seller Employee Plans have been made.
(c) With respect to each of the Seller Employee Plans which
is a pension plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"):
2.(xv) each Pension Plan which is intended to be "qualified" within the meaning
of Section 401(a) of the Internal Revenue Code has been determined to be so
qualified by the Internal Revenue Service and, to the knowledge of Seller, such
determination letter may still be relied upon, except as disclosed in Schedule
2.17A, and each related trust is exempt from taxation under Section 501(a) of
the Internal Revenue Code; 2.(xvi) the present value of all benefits vested and
all benefits accrued under each Pension Plan which is subject to Title IV of
ERISA, valued using the assumptions in the most recent actuarial report, did
not, in each case, as of the last applicable annual valuation date (as indicated
on Schedule 2.17A), exceed the value of the assets of the Pension Plan allocable
to such vested or accrued benefits; 2.(xvii) to the best knowledge of Seller,
there has been no "prohibited transaction," as such term is defined in Section
4975 of the Internal Revenue Code or Section 406 of ERISA, which could subject
any Pension Plan or associated trust, or the Seller or any Seller Subsidiary, to
any material tax or penalty; 2.(xviii) except as set forth on Schedule 2.17C, no
Pension Plan or any trust created thereunder has been terminated, nor have there
been any "reportable events" with respect to any Pension Plan, as that term is
defined in Section 4043 of ERISA on or after January 1, 1985; and 2.(xix) no
Pension Plan or any trust created thereunder has incurred any "accumulated
funding deficiency", as such term is defined in Section 302 of ERISA (whether or
not waived), except as disclosed in Schedule 2.17A. No Pension Plan is a
"multiemployer plan" as that term is defined in Section 3(37) of ERISA. With
respect to each Pension Plan that is described in Section 4063(a) of ERISA (a
"Multiple Employer Pension Plan"): (i) neither Seller nor any Seller Subsidiary
would have any liability or obligation to post a bond under Section 4063 of
ERISA if Seller and all Seller Subsidiaries were to withdraw from such Multiple
Employer Pension Plan; and (ii) neither Seller nor any Seller Subsidiary would
have any liability under Section 4064 of ERISA if such Multiple Employer Pension
Plan were to terminate.
(d) Except as disclosed in Schedule 2.17D, neither Seller nor
any Seller Subsidiary has any liability for any post-retirement health, medical
or similar benefit of any kind whatsoever, except as required by statute or
regulation.
(e) Neither Seller nor any Seller Subsidiary has any material
liability under ERISA or the Internal Revenue Code as a result of its being a
member of a group described in Sections 414(b), (c), (m) or (o) of the Internal
Revenue Code.
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(f) Except as set forth on Schedule 2.17F, neither the
execution nor delivery of this Agreement, nor the consummation of any of the
transactions contemplated hereby, will (i) result in any material payment
(including without limitation severance, unemployment compensation or golden
parachute payment) becoming due to any director or employee of Seller or any
Seller Subsidiary from any of such entities, (ii) materially increase any
benefit otherwise payable under any of the Seller Employee Plans or (iii) result
in the acceleration of the time of payment of any such benefit. No holder of an
option to acquire stock of Seller has or will have at any time through the
Effective Time the right to receive any cash or other payment (other than the
issuance of stock of Seller) in exchange for or with respect to all or any
portion of such option, except as provided for herein and in connection with
"Limited Rights" under Seller's Officers and Employee Incentive Stock Option
Plan and grants thereunder. Seller shall use its best efforts to insure that no
amounts paid or payable by Seller, Seller Subsidiaries or Buyer to or with
respect to any employee or former employee of Seller or any Seller Subsidiary
will fail to be deductible for federal income tax purposes by reason of Section
280G of the Internal Revenue Code. No Seller Stock Option has an associated
"Additional Option Right" or similar "re-load" feature.
2.18. CONDUCT OF SELLER TO DATE. From and after January 1,
1997 through the date of this Agreement, except as set forth on Schedule 2.18 or
in Seller Financial Statements: (i) Seller and the Seller Subsidiaries have
conducted their respective businesses in the ordinary and usual course
consistent with past practices; (ii) Seller has not issued, sold, granted,
conferred or awarded any of its Equity Securities (except shares of Seller
Common Stock upon exercise of Seller Stock Options), or any corporate debt
securities which would be classified under GAAP as long-term debt on the balance
sheets of Seller; (iii) Seller has not effected any stock split or adjusted,
combined, reclassified or otherwise changed its capitalization; (iv) Seller has
not declared, set aside or paid any dividend (other than its regular quarterly
or regular semi-annual common dividends) or other distribution in respect of its
capital stock, or purchased, redeemed, retired, repurchased, or exchanged, or
otherwise acquired or disposed of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise; (v) neither Seller nor any Seller Subsidiary has incurred any
material obligation or liability (absolute or contingent), except normal trade
or business obligations or liabilities incurred in the ordinary course of
business, or subjected to Lien any of its assets or properties other than in the
ordinary course of business consistent with past practice; (vi) neither Seller
nor any Seller Subsidiary has discharged or satisfied any material Lien or paid
any material obligation or liability (absolute or contingent), other than in the
ordinary course of business; (vii) neither Seller nor any Seller Subsidiary has
sold, assigned, transferred, leased, exchanged, or otherwise disposed of any of
its properties or assets other than for a fair consideration in the ordinary
course of business; (viii) except as required by contract or law, neither Seller
nor any Seller Subsidiary has (A) increased the rate of compensation of, or paid
any bonus to, any of its directors, officers, or other employees, except merit
or promotion increases in accordance with existing policy, (B) entered into any
new, or amended or supplemented any existing, employment, management,
consulting, deferred compensation, severance, or other similar contract, (C)
entered into, terminated, or substantially modified any of the Seller Employee
Plans or (D) agreed to do any of the foregoing; (ix) neither Seller nor any
Seller Subsidiary has suffered any material damage, destruction, or loss,
whether as the result of fire, explosion, earthquake, accident, casualty, labor
trouble, requisition, or taking of property by any Regulatory Authority, flood,
windstorm, embargo, riot, act of God or the enemy, or other casualty or event,
and whether or not covered by insurance; (x) neither Seller nor any Seller
Subsidiary has cancelled or compromised any debt, except for debts charged off
or compromised in accordance with the past practice of Seller and its
Subsidiaries, and (xi) neither Seller nor any Seller Subsidiary has entered into
any material transaction, contract or commitment outside the ordinary course of
its business.
2.19. PROXY STATEMENT, ETC. None of the information regarding
Seller or any Seller Subsidiary supplied or to be supplied by Seller for
inclusion in (i) the registration statement on Form S-4 to be filed with the SEC
by Buyer for the purpose of registering the shares of Buyer Common Stock to be
exchanged for shares of Seller Common Stock pursuant to the provisions of this
Agreement (the "Registration Statement"), (ii) the proxy or information
statement (the "Proxy Statement") to be mailed to Seller's stockholders in
connection with the transactions contemplated by this Agreement or (iii) any
other documents to be filed with any Regulatory Authority in connection with the
transactions contemplated hereby will, at the respective times such documents
are filed with any Regulatory Authority and, in the case of the Registration
Statement, when it becomes effective and, with respect to the Proxy Statement,
when mailed, be false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of Seller's stockholders referred
to in Section 5.03 (the "Meeting") (or, if no Meeting is held, at the time the
Proxy Statement is first furnished to Seller's stockholders), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Meeting. All documents which Seller or any
Seller Subsidiary is responsible for filing with any Regulatory Authority in
connection with the Merger will comply as to form in all material respects with
the provisions of applicable law.
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2.20. REGISTRATION OBLIGATIONS. Neither Seller nor any Seller
Subsidiary is under any obligation, contingent or otherwise to register any of
its securities under the Securities Act.
2.21. STATE TAKEOVER STATUTES; SELLER'S CERTIFICATE OF
INCORPORATION. (a) The transactions contemplated by this Agreement are not
subject to any applicable state law which purports to limit or restrict business
combinations or the ability to acquire or to vote shares.
(b) The transactions contemplated by this Agreement and the
agreements contemplated hereby are not, and will not be, prohibited by, or
subject to, Section C of Article FOURTH or Article EIGHTH or 12 of the Seller's
Certificate of Incorporation.
2.22. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither Seller
nor any Seller Subsidiary has taken or agreed to take any action or has any
knowledge of any fact or circumstance that would (i) prevent the transactions
contemplated hereby from qualifying as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code or (ii) materially impede or delay
receipt of any approval referred to in Section 6.01(b) or the consummation of
the transactions contemplated by this Agreement.
2.23. BROKER AND FINDERS. Except for Sandler O'Neill,
neither Seller nor any Seller Subsidiary nor any of their respective officers,
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Seller or any Seller Subsidiary in connection with this Agreement or the
transactions contemplated hereby. Seller has furnished Buyer with a copy of any
written contractual arrangement with Sandler O'Neill.
2.24. OTHER ACTIVITIES. (a) Except as disclosed in Schedule
2.24A, neither Seller nor any of its Subsidiaries engages in any insurance
activities other than acting as a principal, agent or broker for insurance that
is directly related to an extension of credit by Seller or any of its
Subsidiaries and limited to assuring the repayment of the balance due on the
extension of credit in the event of the death, disability or involuntary
unemployment of the debtor.
(b) To the knowledge of Seller's management: each Subsidiary
that is a federal savings bank that performs personal trust, corporate trust and
other fiduciary activities ("Trust Activities") is doing so with requisite
authority under applicable law of Regulatory Authorities and in material
accordance with the agreements and instruments governing such Trust Activities,
sound fiduciary principles and applicable law and regulation (specifically
including but not limited to Section 9 of Title 12 of the Code of Federal
Regulations); there is no investigation or inquiry by any governmental entity
pending or threatened against Seller or any of its Subsidiaries thereof relating
to the compliance by Seller or any of its Subsidiaries with sound fiduciary
principles and applicable law and regulations; and each employee of any such
bank had the authority to act in the capacity in which such employee acted with
respect to Trust Activities in each case in which such employee was held out as
a representative of such bank; and such bank has established policies and
procedures for the purpose of complying with applicable laws of governmental
entities relating to Trust Activities, has followed such policies and procedures
in all material respects and has performed appropriate internal audit reviews of
Trust Activities, which audits have disclosed no material violations of
applicable laws of governmental entities or such policies and procedures.
2.25. INTEREST RATE RISK MANAGEMENT INSTRUMENTS. (a) Set
forth on Schedule 2.25A is a list of all interest rate swaps, caps, floors, and
option agreements to which Seller or any of its Subsidiaries is a party or by
which any of their properties or assets may be bound.
(b) All interest rate swaps, caps, floors and option
agreements and other interest rate risk management arrangements to which Seller
or any of its Subsidiaries is a party or by which any of their properties or
assets may be bound were entered into in the ordinary course of business and in
accordance with prudent banking practice and applicable rules, regulations and
policies of Regulatory Authorities and with counterparties believed to be
financially responsible at the time and are legal, valid and binding obligations
and are in full force and effect. Seller and each of its Subsidiaries has duly
performed in all material respects all of its obligations thereunder to the
extent that such obligations to perform have accrued, and there are no material
breaches, violations or defaults or allegations or assertions of such by any
party thereunder.
2.26. ACCURACY OF INFORMATION. The statements of Seller
contained in this Agreement, the Schedules and any other written document
executed and delivered by or on behalf of Seller pursuant to the terms of this
Agreement are true and correct in all material respects, and such statements and
documents do not omit any material fact necessary to make the statements
contained therein not misleading.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents, and warrants to and covenants with Seller
as follows:
3.01. ORGANIZATION AND AUTHORITY. Buyer and each of its
Subsidiaries is a corporation, bank, trust company or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of organization, is duly qualified to do business and is in good
standing in all jurisdictions where its ownership or leasing of property or the
conduct of its business requires it to be so qualified and has corporate power
and authority to own its properties and assets and to carry on its business as
it is now being conducted, except, in the case of the Buyer Subsidiaries, where
the failure to be so qualified would not have a material adverse effect on the
Condition of Buyer and its Subsidiaries, taken as a whole. Buyer is registered
as a bank holding company with the Board under the Holding Company Act. True and
complete copies of the Articles of Incorporation and Regulations of Buyer, each
in effect on the date of this Agreement, have been provided to Seller.
3.02. CAPITALIZATION OF BUYER. The authorized capital stock
of Buyer consists of (i) 100,000,000 shares of Buyer Common Stock, of which, as
of August 1, 1997, 85,701,777 shares were issued and outstanding and (ii)
1,000,000 shares of preferred stock, no par value ("Buyer Preferred Stock"),
issuable in series, none of which, as of September, 1997, is issued or
outstanding. Buyer has designated (i) 500,000 shares of Buyer Preferred Stock as
"Series A Preferred Stock" and has reserved such shares for issuance upon
exercise of Preferred Stock Purchase Rights under a Rights Agreement dated
October 27, 1989 (the "Buyer Rights Agreement"), between Buyer and Star Bank,
N.A., as Rights Agent and (ii) 218,000 shares of Buyer Preferred Stock as
"Series B Cumulative Preferred Stock." Pursuant to the Buyer Rights Agreement,
each certificate representing one share of Buyer Common Stock also represents
one Rights (as defined in the Buyer Rights Agreement). As of December 31, 1996
Buyer had options outstanding for 7,739,304 shares of Buyer Common Stock for
issuance under various employee stock option and incentive plans ("Buyer Stock
Options"). From August 1, 1997 through the date of this Agreement, no shares of
Buyer Common Stock or other Equity Securities of Buyer have been issued
excluding any such shares which may have been issued pursuant to stock-based
employee benefit or incentive plans and programs. Buyer continually evaluates
possible acquisitions and may prior to the Effective Time enter into one or more
agreements providing for, and may consummate, the acquisition by it of another
bank, association, bank holding company, savings and loan holding company or
other company (or the assets thereof) for consideration that may include equity
securities. In addition, prior to the Effective Time, Buyer may, depending on
market conditions and other factors, otherwise determine to issue equity,
equity-linked or other securities for financing purposes. Notwithstanding the
foregoing, Buyer will not take any action that would (i) prevent the
transactions contemplated hereby from qualifying as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code or (ii) materially impede
or delay receipt of any approval referred to in Section 6.01(b) or the
consummation of the transactions contemplated by this Agreement. Except as set
forth above and except pursuant to the Buyer Rights Agreement, there are no
other Equity Securities of Buyer outstanding. All of the issued and outstanding
shares of Buyer Common Stock are validly issued, fully paid, and nonassessable,
and have not been issued in violation of any preemptive right of any stockholder
of Buyer. At the Effective Time, the Buyer Common Stock, including associated
Rights, to be issued in the Merger will be duly authorized, validly issued,
fully paid and non-assessable, and will not be issued in violation of any
preemptive right of any stockholder of Buyer.
3.03. AUTHORIZATION. (a) Buyer has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder. No stockholder vote is required for Buyer to approve this Agreement.
The execution, delivery and performance of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all requisite corporate action of Buyer. This Agreement is a valid
and binding obligation of Buyer enforceable against Buyer in accordance with its
terms.
(b) Neither the execution, delivery and performance by Buyer
of this Agreement, nor the consummation by Buyer of the transactions
contemplated hereby, nor compliance by Buyer with any of the provisions hereof,
will (i) violate, conflict with or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration of,
or result in the creation of, any Lien upon any of the material properties or
assets of Buyer or any Buyer Subsidiary under any of the terms, conditions or
provisions of (x) its articles or certificate of incorporation or bylaws, or (y)
any material note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Buyer or any of the
material properties or assets of Buyer is a party or by which it may be bound,
or to which Buyer may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in paragraph (c) of this Section 3.03, to
the best knowledge of Buyer, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer or any of
its Subsidiaries or any of their respective material properties or assets.
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(c) Other than in connection with or in compliance with the
provisions of the DGCL, the OGCL, the Securities Act, the Exchange Act, the
securities or blue sky laws of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the Holding Company Act,
and the HSR Act, or any required approvals of any other Regulatory Authority, no
notice to, filing with, exemption or review by, or authorization, consent or
approval of, any public body or authority is necessary for the consummation by
Buyer of the transactions contemplated by this Agreement.
3.04. BUYER FINANCIAL STATEMENTS. The supplemental
consolidated and parent company only balance sheets of Buyer and its
Subsidiaries as of December 31, 1996, 1995 and 1994 and related supplemental
consolidated and parent company only statements of income, cash flows and
changes in stockholders' equity for each of the three years in the three-year
period ended December 31, 1996, together with the notes thereto, audited by
Arthur Andersen LLP ("Buyer Auditors"), and the unaudited consolidated balance
sheets of Buyer and its Subsidiaries as of March 31 and June 30, 1997 and the
related unaudited consolidated statements of income and cash flows for the
periods then ended included in quarterly reports on Form 10-Q as filed with the
SEC (collectively, the "Buyer Financial Statements"), have been prepared in
accordance with GAAP, present fairly the consolidated financial position of
Buyer and its Subsidiaries at the dates and the consolidated results of
operations, changes in stockholders' equity and cash flows of Buyer and its
Subsidiaries for the periods stated therein and are derived from the books and
records of Buyer and its Subsidiaries, which are complete and accurate in all
material respects and have been maintained in all material respects in
accordance with applicable laws and regulations. Neither Buyer nor any of its
Subsidiaries has any material contingent liabilities that are not described in
the financial statements described above.
3.05. BUYER REPORTS. Since January 1, 1994, each of Buyer and
the Buyer Subsidiaries has filed all material reports, registrations and
statements, together with any required material amendments thereto, that it was
required to file with any Regulatory Authority. All such reports and statements
filed with any such Regulatory Authority are collectively referred to herein as
the "Buyer Reports." As of its respective date, each Buyer Report complied in
all material respects with all the rules and regulations promulgated by the
applicable Regulatory Authority and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.06. MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has
been no material adverse change in the Condition of Buyer and its Subsidiaries,
taken as a whole, except as may have resulted or may result from changes to laws
and regulations or changes in economic conditions applicable to banking
institutions generally or in general levels of interest rates affecting banking
institutions generally.
3.07. COMPLIANCE WITH LAWS. Each of Buyer and its
Subsidiaries has complied with all laws, regulations, and orders (including
without limitation zoning ordinances, building codes, ERISA, and securities,
tax, environmental, civil rights, and occupational health and safety laws and
regulations and including without limitation in the case of any Buyer Subsidiary
that is a bank, banking organization, banking corporation or trust company, all
statutes, rules and regulations, pertaining to the conduct of a banking,
deposit-taking or lending or related business or to the exercise of trust
powers) and governing instruments applicable to them and to the conduct of their
business, and to the knowledge of Buyer all applicable listing requirements and
policies of the NYSE, except where such failure to comply would not have a
material adverse effect on the Condition of Buyer and its Subsidiaries, taken as
a whole, and (ii) neither Buyer nor any Buyer Subsidiary is in default under,
and no event has occurred which, with the lapse of time or notice or both, could
result in the default under, the terms of any judgment, order, writ, decree,
permit, or license of any Regulatory Authority or court, whether federal, state,
municipal, or local and whether at law or in equity, except where such default
would not have a material adverse effect on the Condition of Buyer and its
Subsidiaries, taken as a whole. Neither Buyer nor any Buyer Subsidiary is
subject to or reasonably likely to incur a liability as a result of its
ownership, operation, or use of any Property of Buyer (whether directly or, to
the best knowledge of Buyer, as a consequence of such Property being part of the
investment portfolio of Buyer or any Buyer Subsidiary) (A) that is contaminated
by or contains any Toxic Substance, or (B) on which any Toxic Substance has been
stored, disposed of, placed, or used in the construction thereof; and which, in
each case, reasonably could be expected to have a material adverse effect on the
Condition of Buyer and its Subsidiaries, taken as a whole. Except for statutory
or regulatory restrictions of general application, no Regulatory Authority has
placed any restriction on the business of Buyer or any Buyer Subsidiary which
reasonably could be expected to have a material adverse effect on the Condition
of Buyer and its Subsidiaries, taken as a whole.
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3.08. REGISTRATION STATEMENT, ETC. None of the information
regarding Buyer or any of its Subsidiaries supplied or to be supplied by Buyer
for inclusion or included in (i) the Registration Statement, (ii) the Proxy
Statement, or (iii) any other documents to be filed with any Regulatory
Authority in connection with the transactions contemplated hereby will, at the
respective times such documents are filed with any Regulatory Authority and, in
the case of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statement, when mailed (or furnished to stockholders of
Seller), be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Meeting, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of any proxy for the Meeting. All documents which Buyer or any of
its Subsidiaries are responsible for filing with any Regulatory Authority in
connection with the Merger will comply as to form in all material respects with
the provisions of applicable law.
3.09. BROKERS AND FINDERS. Except for Credit Suisse First
Boston, neither Buyer nor any of its Subsidiaries nor any of their respective
officers, directors or employees has employed any broker or finder or incurred
any liability for any financial advisory fees, brokerage fees, commissions or
finder's fees, and no broker or finder has acted directly or indirectly for
Buyer or any of its Subsidiaries in connection with this Agreement or the
transactions contemplated hereby.
3.10. LITIGATION AND OTHER PROCEEDINGS. Neither Buyer nor any
Buyer Subsidiary is a party to any pending or, to the best knowledge of Buyer,
threatened claim, action, suit, investigation or proceeding, or is subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or reasonably could not be expected to have, a material adverse effect
on the Condition of Buyer and its Subsidiaries, taken as a whole. Without
limiting the generality of the foregoing, as of the date of this Agreement,
there are no actions, suits, or proceedings pending or, to the best knowledge of
Buyer, threatened against Buyer or any Buyer Subsidiary or any of their
respective officers or directors by any stockholder of Buyer or any Buyer
Subsidiary (or any former stockholder of Buyer or any Buyer Subsidiary) or
involving claims under the Securities Act, the Exchange Act, the Community
Reinvestment Act of 1977, as amended, or the fair lending laws or which purport
or seek to enjoin or restrain the transactions contemplated by this Agreement.
3.11. TAXES. Buyer and each Buyer Subsidiary have timely
filed or will timely file (including extensions) all material tax returns
required to be filed at or prior to the Closing Date ("Buyer Returns"). Each of
Buyer and its Subsidiaries has paid, or set up adequate reserves on the Buyer
Financial Statements for the payment of, all taxes required to be paid in
respect of the periods covered by the Buyer Financial Statements and has paid or
set up adequate reserves on the most recent financial statements Buyer has filed
under the Exchange Act for the payment of, all taxes anticipated to be payable
in respect of the periods covered by such financial statements. No material
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed in writing by any governmental or taxing authority against
any of Buyer or any Buyer Subsidiary which have not been settled or would not be
covered by existing reserves. To the knowledge of Buyer, neither Buyer nor any
Buyer Subsidiary is delinquent in the payment of any material tax, assessment or
governmental charge shown to be due on any Buyer Return (taking into account
extensions properly obtained), and no waiver of the time to assess any tax
granted in writing by Buyer or any Buyer Subsidiary is pending. The federal and
state income tax returns of Buyer and the Buyer Subsidiaries have been audited
and finally settled by the IRS or appropriate state tax authorities or the
relevant statute of limitations has expired for all periods ended through
December 31, 1991, or the period for assessment of taxes in respect of such
periods has expired.
3.12. ACCOUNTING, TAX AND REGULATORY MATTERS. Neither Buyer
nor any Buyer Subsidiary has taken or agreed to take any action or has any
knowledge of any fact or circumstance that would (i) prevent the transactions
contemplated hereby from qualifying as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code or (ii) materially impede or delay
receipt of any approval referred to in Section 6.01(b) or the consummation of
the transactions contemplated by this Agreement.
3.13. ACCURACY OF INFORMATION. The statements of Buyer
contained in this Agreement, the Schedules and in any other written document
executed and delivered by or on behalf of Buyer pursuant to the terms of this
Agreement are true and correct in all material respects, and such statements and
documents do not omit any material fact necessary to make the statements
contained herein or therein not misleading.
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ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME.
During the period from the date of this Agreement to the Effective Time, each of
Buyer and Seller shall, and shall cause each of their respective Subsidiaries
to, conduct its business according to the ordinary and usual course consistent
with past practices and shall, and shall cause each such Subsidiary to, use its
best efforts to maintain and preserve its business organization, employees and
advantageous business relationships and retain the services of its officers and
key employees.
4.02. FORBEARANCES. Except as set forth on Schedule 4.02 or
as otherwise contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, Seller shall not and shall not permit any
of its Subsidiaries to, without the prior written consent of Buyer:
(a) declare, set aside or pay any dividends or other
distributions, directly or indirectly, in respect of its capital stock
(other than dividends from a Subsidiary of Seller to Seller or another
Subsidiary of Seller), except that Seller may declare and pay cash
dividends on the Seller Common Stock of not more than $.15 per share per
quarterly period; provided, that Seller shall not declare any dividends on
Seller Common Stock or Seller Preferred Stock during any quarter in which
its stockholders will be entitled to receive any regular quarterly dividend
on the shares of Buyer Common Stock to be issued in the Merger; or
(b) enter into or amend any employment, severance or similar
agreement or arrangement with any director or officer or employee, or
materially modify any of the Seller Employee Plans or grant any salary or
wage increase or materially increase any employee benefit (including
incentive or bonus payments), except normal individual increases in
compensation to employees consistent with past practice, or as required by
law or contract; or
(c) authorize, recommend, propose or announce an intention to
authorize, so recommend or propose, or enter into an agreement in principle
with respect to, any merger, consolidation or business combination (other
than the Merger), any acquisition or disposition of a material amount of
assets (except in the usual course of business consistent with past
practices) including mortgage servicing rights, loans or securities as well
as any release or relinquishment of any material contract rights; or
(d) propose or adopt any amendments to its articles of
incorporation, association or other charter document or bylaws; or
(e) issue, sell, grant, confer or award any of its Equity
Securities (except shares of Seller Common Stock issued upon exercise of
Seller Stock Options outstanding on the date of this Agreement) or effect
any stock split or adjust, combine, reclassify or otherwise change its
capitalization as it existed on the date of this Agreement; or
(f) purchase, redeem, retire, repurchase, or exchange, or
otherwise acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise; or
(g) without first consulting with Buyer, (i) enter into,
renew or increase any loan or credit commitment (including stand-by letters
of credit) to, or invest or agree to invest in any person or entity or
modify any of the material provisions or renew or otherwise extend the
maturity date of any existing loan or credit commitment (collectively,
"Lend to") in an amount in excess of $1,000,000 or in an amount which, or
when aggregated with any and all loans or credit commitments to such person
or entity, would be in excess of $1,000,000; (ii) Lend to any person other
than in accordance with lending policies as in effect on the date hereof;
PROVIDED that in the case of clause (i) Seller or any Seller Subsidiary may
make any such loan in the event (A) Seller or any Seller Subsidiary has
delivered to Buyer or its designated representative a notice of its
intention to make such loan and such information as Buyer or its designated
representative may reasonably require in respect thereof and (B) Buyer or
its designated representative shall not have reasonably objected to such
loan by giving written or facsimile notice of such objection within two
business days following the delivery to Buyer of the notice of intention
and information as aforesaid; or (iii) Lend to any person or entity any of
the loans or other extensions of credit to which or investments in which
are on a "watch list" or similar internal report of Seller or any Seller
Subsidiary (except those denoted "pass" thereon), in an amount in excess of
$100,000; PROVIDED, HOWEVER, that nothing in this paragraph shall prohibit
Seller or any Seller Subsidiary from honoring any contractual obligation in
existence on the date of this Agreement. Notwithstanding the provisions of
clause (i) of this Section 4.02(g), Seller shall be authorized to increase
the aggregate amount of any credit facilities theretofore established in
favor of any person or entity (each a "Pre-Existing Facility"), provided
that the aggregate amount of any and all such increases with respect to any
Pre-Existing Facility shall not be in excess of the lesser of five percent
(5%) of such Pre-Existing Facility or $50,000; or
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(h) directly or indirectly (including through its officers,
directors, employees or other representatives) initiate, solicit or
encourage any discussions, inquiries or proposals with any third party
relating to the disposition of any significant portion of the business or
assets of Seller or any Seller Subsidiary or the acquisition of Equity
Securities of Seller or any Seller Subsidiary or the merger of Seller or
any Seller Subsidiary with any person (other than Buyer) or any similar
transaction (each such transaction being referred to herein as an
"Acquisition Transaction"), or provide any such person with information or
assistance or negotiate with any such person with respect to an Acquisition
Transaction, and Seller shall notify Buyer orally of all the relevant
details relating to all inquiries, indications of interest and proposals
which it may receive with respect to any Acquisition Transaction within 24
hours of the receipt of any such inquiry, indication, or proposal; or
(i) take any action that would (A) materially impede or delay
the consummation of the transactions contemplated by this Agreement or the
ability of Buyer or Seller to obtain any approval of any Regulatory
Authority required for the transactions contemplated by this Agreement or
to perform its covenants and agreements under this Agreement or (B) prevent
the transactions contemplated hereby from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code; or
(j) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible or
liable for the obligations of any other individual, corporation or other
entity; or
(k) materially restructure or materially change its
investment securities portfolio, through purchases, sales or otherwise, or
the manner in which the portfolio is classified or reported as of the date
of the Agreement; or
(l) agree in writing or otherwise to take any of the
foregoing actions or engage in any activity, enter into any transaction or
take or omit to take any other act which would make any of the
representations and warranties in Article II of this Agreement untrue or
incorrect in any material respect if made anew after engaging in such
activity, entering into such transaction, or taking or omitting such other
act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. ACCESS AND INFORMATION. Buyer and its Subsidiaries, on
the one hand, and Seller and its Subsidiaries, on the other hand, shall each
afford to each other, and to the other's accountants, counsel and other
representatives, full access during normal business hours, during the period
prior to the Effective Time, to all their respective properties, books,
contracts, commitments and records and, during such period, each shall furnish
promptly to the other (i) a copy of each report, schedule and other document
filed or received by it during such period pursuant to the requirements of
federal and state securities laws and (ii) all other existing or regularly
produced information concerning its business, properties and personnel as such
other party may reasonably request. Each party hereto shall, and shall cause its
advisors and representatives to, (A) hold confidential all information obtained
in connection with any transaction contemplated hereby with respect to the other
party which is not otherwise public knowledge, (B) return all documents
(including copies thereof) obtained hereunder from the other party to such other
party and (C) use its reasonable best efforts to cause all information obtained
pursuant to this Agreement or in connection with the negotiation of this
Agreement to be treated as confidential and not use, or knowingly permit others
to use, any such information unless such information becomes generally available
to the public without breach of either party's confidentiality obligation.
5.02. REGISTRATION STATEMENT; REGULATORY MATTERS. (a) Buyer
shall prepare and, subject to the review and consent of Seller with respect to
matters relating to Seller, file with the SEC as soon as is reasonably
practicable the Registration Statement (or the equivalent in the form of
preliminary proxy material) with respect to the shares of Buyer Common Stock to
be issued in the Merger and shall apply to the NYSE to list the shares of Buyer
Common Stock to be issued in connection with the transactions contemplated by
this Agreement. Buyer shall prepare and file a notice with the Board of
Governors of the Federal Reserve System (the "Board") as soon as reasonably
practicable. Buyer shall use all reasonable efforts to cause the Registration
Statement to become effective. Buyer shall also take any action required to be
taken under any applicable state blue sky or securities laws in connection with
the issuance of such shares, and Seller and its Subsidiaries shall furnish Buyer
all information concerning Seller and its Subsidiaries and the stockholders
thereof as Buyer may reasonably request in connection with any such action.
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(b) Seller and Buyer shall cooperate and use their respective
best efforts to prepare all documentation, to effect all filings and to obtain
all permits, consents, approvals and authorizations of all third parties and
Regulatory Authorities necessary to consummate the transactions contemplated by
this Agreement and, as and if directed by Buyer, to consummate such other
mergers, consolidations or asset transfers or other transactions by and among
Buyer's Subsidiaries and Seller's Subsidiaries concurrently with or following
the Effective Time.
5.03. STOCKHOLDER APPROVAL. Seller shall call a meeting of
its stockholders to be held as soon as practicable after the Registration
Statement is declared effective for the purpose of voting upon the Merger or
take other action for stockholders to authorize the Merger. In connection
therewith, Buyer shall prepare the Proxy Statement and, with the approval of
each of Buyer and Seller, the Proxy Statement shall be filed with the SEC and
mailed to the stockholders of Seller. The Board of Directors of Seller shall
submit for approval of Seller's stockholders the matters to be voted upon in
order to authorize the Merger. The Board of Directors of Seller hereby does and
(subject to the fiduciary duty of Seller's Board of Directors, as advised in
writing by outside counsel) will recommend this Agreement and the transactions
contemplated hereby to stockholders of Seller and will use its best efforts to
obtain any vote of Seller's stockholders that is necessary for the approval and
adoption of this Agreement and consummation of the transactions contemplated
hereby.
5.04. CURRENT INFORMATION. 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 as the
same become available and shall cause one or more of its designated
representatives to confer on a regular and frequent basis with representatives
of the other party. Each party shall promptly notify the other party of any
material change in its business or operations and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving such party, and shall keep the other party fully informed
of such events.
5.05. AGREEMENTS OF AFFILIATES. As soon as practicable after
the date of this Agreement, Seller shall deliver to Buyer a letter identifying
all persons whom Seller believes to be, at the time this Agreement is submitted
to a vote of the stockholders of Seller, "affiliates" of Seller for purposes of
Rule 145 under the Securities Act. Seller shall use its best efforts to cause
each person who is so identified as an "affiliate" to deliver to Buyer as soon
as practicable thereafter, and in any event no later than the publication of
notice in the Federal Register of Buyer's notice to the Board referred to in
Section 5.02, a written agreement providing that from the Effective Time each
such person will agree not to sell, pledge, transfer or otherwise dispose of any
shares of Buyer Common Stock to be received by such person in the Merger except
in compliance with the applicable provisions of the Securities Act. Prior to the
Effective Time, Seller shall amend and supplement such letter and use its best
efforts to cause each additional person who is identified as an "affiliate" to
execute a written agreement as set forth in this Section 5.05.
5.06. EXPENSES. Each party hereto shall bear its own expenses
incident to preparing, entering into and carrying out this Agreement and to
consummating the Merger.
5.07. SECURITIES ACT AND EXCHANGE ACT FILINGS. Buyer shall
make all filings with the SEC that are described in Section (c) of Rule 144
under the Securities Act for a period of two years following the Effective Time.
Buyer shall within 30 days after the Effective Time file a registration
statement on Form S-3 or Form S-8, as the case may be (or any successor or other
appropriate forms), with respect to the shares of Buyer Common Stock subject to
the options issued pursuant to Section 5.10 and shall use its reasonable efforts
to maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such option remain outstanding.
5.08. MISCELLANEOUS AGREEMENTS AND CONSENTS. (a) Subject to
the terms and conditions herein provided, each of the parties hereto agrees to
use its respective reasonable best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement as expeditiously as possible,
including without limitation using its respective best efforts to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby.
Each party shall, and shall cause each of its respective subsidiaries to, use
its reasonable best efforts to obtain consents of all third parties and
Regulatory Authorities necessary or, in the opinion of Buyer, desirable for the
consummation of the transactions contemplated by this Agreement.
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(b) Seller, prior to the Effective Time, shall (i) consult
and cooperate with Buyer regarding the implementation of those policies and
procedures established by Buyer for its governance and that of its Subsidiaries
and not otherwise referenced in Section 5.17 hereof, including, without
limitation, policies and procedures pertaining to the accounting,
asset/liability management, audit, credit, human resources, treasury and legal
functions, and (ii) at the request of Buyer, effective not later than the
Effective Time conform Seller's existing policies and procedures in respect of
such matters to Buyer's policies and procedures or, in the absence of any
existing Seller policy or procedure regarding any such function, introduce
Buyer's policies or procedures in respect thereof, unless to do so would cause
Seller or any of the Seller Subsidiaries to be in violation of any law, rule or
regulation of any Regulatory Authority having jurisdiction over Seller and/or
the Seller Subsidiary affected thereby.
5.09. EMPLOYEE BENEFITS. (a) Subject to Section 5.10, the
provisions of the Seller Stock Plans and of any other plan, program or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of Seller or any Seller Subsidiary shall be deleted and
terminated as of the Effective Time, and Seller shall ensure that following the
Effective Time no holder of Seller Stock Options or any participant in any
Seller Stock Plan shall have any right thereunder to acquire any securities of
Seller or any Seller Subsidiary.
(b) Buyer shall take such steps as are necessary or required
to integrate the employees of Seller and the Seller Subsidiaries in Buyer's
employee benefit plans available to other employees of Buyer and Buyer
Subsidiaries as soon as practicable after the Effective Time, (i) with full
credit for prior service with Seller or any of the Seller Subsidiaries for all
purposes other than determining the amount of benefit accruals under any defined
benefit plan, (ii) without any waiting periods, evidence of insurability, or
application of any pre-existing condition limitation, and (iii) with full credit
for claims arising prior to the Effective Time for purposes of deductibles,
out-of-pocket maximums, benefit maximums, and all other similar limitations for
the applicable plan year during which the Merger is consummated. Each of Buyer
and Seller shall use all reasonable efforts to insure that no amounts paid or
payable by Seller, Seller Subsidiaries or Buyer to or with respect to any
employee or former employee of Seller or any Seller Subsidiary will fail to be
deductible for federal income tax purposes by reason of Section 280G of the
Internal Revenue Code.
(c) The Employment Agreements of the Seller Bank with the
eight individuals listed on Schedule 2.17A shall each be terminated by the
Seller Bank on the day before the Effective Time and the Seller Bank shall make
the payments to such persons payable to them under Section 8.5 of such
agreements due to the change in control effected pursuant to the transactions
contemplated hereby (which change in control, termination and payments Seller,
Seller Bank and Buyer expressly hereby acknowledge and approve).
(d) Buyer shall abide by the terms of Seller's or Seller
Bank's Severance Compensation Plan for officers who are Vice Presidents and
above as of the Closing Date.
(e) With respect to employees of Seller, Seller Bank or any
of its Subsidiaries, Buyer will provide severance payments in the minimum amount
of one week for each year of employment by Seller, Seller Bank, Seller Bank's
Subsidiaries or predecessor corporations up to a maximum of 26 weeks of total
severance compensation.
(f) Buyer agrees to a continuation of COBRA health benefits
pursuant to the existing Seller Bank Plan for employees who are terminated
subsequent to the Closing, said COBRA benefits to continue for a seven-year
period.
(g) Buyer agrees that Seller Bank may allocate the remaining
shares of Seller Common Stock in the Recognition and Retention Plan for Outside
Directors and Recognition and Retention Plan for Officers and Employees (the
"RRP Plans") in such manner as Seller Bank deems appropriate; Seller Bank may
take any actions prior to the Effective Time reasonably required to vest and
distribute Plan Shares (as defined in the RRP Plans) awarded to the participants
in the RRP Plans prior to the Effective Time, including without limitation
adopting a resolution to the effect that a Change in Control of Seller or Seller
Bank has taken place prior to the Effective Time for purposes of accelerating
vesting of Plan Shares.
(h) Buyer agrees to establish a Rabbi Trust for those amounts
necessary to actuarially fund retirement payments pursuant to the Great
Financial Federal Restated Directors Retirement Plan effective January 1, 1992
(the "Board of Directors Retirement Plan") and to fund the Rabbi Trust to
purchase split dollar life insurance for those members of the Board of Directors
who have waived their rights under the Board of Directors Retirement Plan;
provided, however, that Buyer shall not be required to fund any such plans to an
extent beyond the amounts presently reserved on the books of Seller Bank.
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(i) Buyer agrees to enter into a Consulting Agreement with
Paul M. Baker in the form previously provided to Seller.
5.10. SELLER STOCK OPTIONS. At the Effective Time, all rights
with respect to Seller Common Stock pursuant to Seller Stock Options which
immediately prior to the Effective Time, constitute incentive stock options
within the meaning of Section 422 of the Internal Revenue Code ("Incentive
Seller Stock Options") that are outstanding at the Effective Time, whether or
not then exercisable, shall be converted into and become rights with respect to
Buyer Common Stock, and Buyer shall assume each Incentive Seller Stock Option in
accordance with the terms of the stock option plan governing outstanding Buyer
employee stock options, or, at the election of each holder of such option shall
be deemed to be exercised at the Effective Time. From and after the Effective
Time, (i) each Incentive Seller Stock Option assumed by Buyer shall be exercised
solely for shares of Buyer Common Stock, (ii) the number of shares of Buyer
Common Stock subject to each Incentive Seller Stock Option shall be equal to the
number of shares of Seller Common Stock subject to such Seller Stock Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole share of Buyer Common Stock and (iii) the per
share exercise price under each Incentive Seller Stock Option shall be adjusted
by dividing the per share exercise price under such Seller Stock Option by the
Exchange Ratio and rounding up to the nearest cent; provided, however, that the
terms of each Seller Stock Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, recapitalization or other similar transaction subsequent to the
Effective Time. The foregoing assumption shall be undertaken by Buyer in a
manner that will comply with Section 424(a) of the Internal Revenue Code, as to
any Seller Stock Option that is an "incentive stock option."
Prior to the Effective Time, Seller shall use its best
efforts to cancel each Seller Stock Option which (i) is not an Incentive Seller
Stock Option and (ii) is not exercised prior to the Effective Time, by paying to
the holder thereof an amount of cash equal to the product of (x) the amount by
which the Per Share Cash Consideration exceeds the exercise price of such option
and (y) the number of shares of Seller Common Stock subject to such option.
5.11. SELLER EMPLOYEE STOCK OWNERSHIP PLAN. Seller may cause
the Employee Stock Ownership Plan of Seller Bank (first effective January 1,
1994) (the "Seller ESOP") to allocate, prior to the Effective Time, to
participants in the Seller ESOP the maximum number of currently unallocated
shares of Seller Common Stock allowable under Section 415 of the Internal
Revenue Code. Except as provided in the following paragraph, Seller shall not
take any action which would cause the Seller ESOP to be disqualified under
Section 401(a) of the Internal Revenue Code or to lose its status as an employee
stock ownership plan under Section 4975 of the Internal Revenue Code.
On or before the Effective Time, Seller will take steps
reasonably necessary to cause the Seller ESOP to be terminated as of the
Effective Time. Any indebtedness of the ESOP shall be repaid from the Trust
associated with the Seller ESOP. A final allocation will be prepared, and a
request for a favorable determination letter on the termination of the Seller
ESOP will be filed with the Internal Revenue Service. To the maximum extent
permitted by the rules and regulations of the Internal Revenue Service, upon
receipt of the favorable determination letter, the assets of the Seller ESOP
will be distributed to the participants in due course. At and after the
Effective Time, no additional employees will become eligible to participate in
the Seller ESOP and the assets of the Seller ESOP will be applied in accordance
with its terms and the rules and regulations of the Internal Revenue Service and
the Department of Labor.
5.12. D&O INDEMNIFICATION. Buyer agrees that the Merger shall
not affect or diminish any of Seller's duties and obligations of indemnification
existing as of the Effective Time in favor of employees, agents, directors or
officers of Seller or its Subsidiaries arising by virtue of its Certificate of
Incorporation or Bylaws in the form in effect at the date of this Agreement or
arising by operation of law or arising by virtue of any contract, resolution or
other agreement or document existing at the date of this Agreement, and such
duties and obligations shall continue in full force and effect and be honored by
Buyer for so long as they would (but for the Merger) otherwise survive and
continue in full force and effect. Buyer will provide, or cause to be provided,
for a period of not less than two years from the Effective Time, a "tail"
insurance and indemnification policy that provides the officers and directors of
Seller Subsidiaries immediately prior to the Effective Time coverage no less
favorable than as currently provided by Buyer to its officers and directors.
5.13. PRESS RELEASES. Except as may be required by law,
Seller and Buyer shall consult and agree with each other as to the form and
substance of any proposed press release relating to this Agreement or any of the
transactions contemplated hereby.
5.14. STATE TAKEOVER STATUTES; SELLER'S CERTIFICATE OF
INCORPORATION. (a) Seller will take all steps necessary to exempt the
transactions contemplated by this Agreement and any agreement contemplated
hereby from, and if necessary challenge the validity of, any applicable state
takeover law.
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(b) Seller will take all steps necessary to exempt the
transactions contemplated by this Agreement and any agreement contemplated
hereby from the provisions of Section C of Article FOURTH and Article EIGHTH of
Seller's Certificate of Incorporation.
5.15. BEST EFFORTS. Each of Buyer and Seller undertakes and
agrees to use its best efforts to cause the Merger (i) to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
(including, if necessary, to take reasonable steps to restructure the
transactions contemplated by this Agreement to so qualify) and (ii) to occur as
soon as practicable. Each of Buyer and Seller agrees to not take any action that
would materially impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of Buyer or Seller to obtain any
approval of any Regulatory Authority required for the transactions contemplated
by this Agreement or to perform its covenants and agreements under this
Agreement.
5.16. INSURANCE. As soon as practicable following the date
hereof, Seller shall, and Seller shall cause its Subsidiaries to, use its best
efforts to maintain its existing insurance.
5.17. CONFORMING ENTRIES. (a) Notwithstanding that Seller
believes that Seller and the Seller Subsidiaries have established all reserves
and taken all provisions for possible loan losses required by GAAP and
applicable laws, rules and regulations, Seller recognizes that Buyer may have
adopted different loan, accrual and reserve policies (including loan
classifications and levels of reserves for possible loan losses). From and after
the date of this Agreement, Seller and Buyer shall consult and cooperate with
each other with respect to conforming the loan, accrual and reserve policies of
Seller and the Seller Subsidiaries to those policies of Buyer, as specified in
each case in writing to Seller, based upon such consultation and as hereinafter
provided.
(b) In addition, from and after the date of this Agreement to
the Effective Time, Seller and Buyer shall consult and cooperate with each other
with respect to determining appropriate Seller accruals, reserves and charges to
establish and take in respect of excess equipment write-off or write-down of
various assets and other appropriate charges and accounting adjustments taking
into account the parties' business plans following the Merger, as specified in
each case in writing to Seller, based upon such consultation and as hereinafter
provided.
(c) Seller and Buyer shall consult and cooperate with each
other with respect to determining, as specified in a written notice from Buyer
to Seller, based upon such consultation and as hereinafter provided, the amount
and the timing for recognizing for financial accounting purposes Seller's
expenses of the Merger and the restructuring charges relating to or to be
incurred in connection with the Merger.
(d) To the extent permissible under applicable laws,
regulations, and requirements of Regulatory Authorities, and provided further,
that Seller shall not be required to take any such action that, in the opinion
of Seller's independent auditors, is not consistent with GAAP and regulatory
accounting principles, Seller shall (i) establish and take such reserves and
accruals at such time as Buyer shall reasonably request to conform Seller's
loan, accrual and reserve policies to Buyer's policies, and (ii) establish and
take such accruals, reserves and charges in order to implement such policies in
respect of excess facilities and equipment capacity, severance costs, litigation
matters, write-off or write-down of various assets and other appropriate
accounting adjustments, and to recognize for financial accounting purposes such
expenses of the Merger and restructuring charges related to or to be incurred in
connection with the Merger, in each case at such times as are reasonably
requested by Buyer; PROVIDED, HOWEVER, that on the date such reserves, accruals
and charges are to be taken, Buyer shall certify to Seller that Buyer's
representations and warranties are true and correct as of such date, that the
approval conditions to its obligations contemplated by Section 6.01(b) have been
satisfied or waived (except to the extent that any waiting period associated
therewith may then have commenced but not expired) and that Buyer is otherwise
in compliance with this Agreement and is prepared to proceed with the Closing;
and provided, further, that Seller shall not be required to take any such action
that is not consistent with GAAP and regulatory accounting principles.
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ARTICLE VI
CONDITIONS
6.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment or waiver at or prior to the Effective Time of the
following conditions:
(a) This Agreement shall have received the requisite approval
of stockholders of Seller.
(b) All requisite approvals of this Agreement and the
transactions contemplated hereby shall have been received from the Board
and any other Regulatory Authority.
(c) The Registration Statement shall have been declared
effective and shall not be subject to a stop order or any threatened
stop order.
(d) Neither Seller nor Buyer shall be subject to any order,
decree or injunction, and there shall be no pending or threatened order,
decree or injunction, of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of any of the Transactions.
(e) There shall be no legislative, statutory or regulatory
action (whether federal or state) pending which prohibits or threatens
to prohibit consummation of the Transactions or which otherwise
materially adverse affect the Transactions.
(f) Each of Buyer and Seller shall have received, from
counsel reasonably satisfactory to it, an opinion reasonably
satisfactory in form and substance to it to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code and that no gain or loss will be recognized by
the stockholders of Seller who receive solely Buyer Common Stock in
exchange for shares of Seller Common Stock, except with respect to cash
received in lieu of fractional shares of Buyer Common Stock.
(g) The shares of Buyer Common Stock which shall be issued to
the holders of Seller Common Stock (and where applicable, Seller Stock
Options) upon consummation of the Merger shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
6.02. CONDITIONS TO OBLIGATIONS OF SELLER TO EFFECT THE
MERGER. The obligations of Seller to effect the Merger shall be subject
to the fulfillment or waiver at or prior to the Effective Time of the
following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer set forth in Article III of this Agreement shall be
true and correct in all material respects as of the date of this
Agreement and as of the Effective Time (as though made on and as of the
Effective Time except (i) to the extent such representations and
warranties are by their express provisions made as of a specified date
or period and (ii) for the effect of transactions contemplated by this
Agreement) and Seller shall have received a certificate of the chief
financial officer of Buyer to that effect.
(b) PERFORMANCE OF OBLIGATIONS. Buyer shall have performed in
all material respects all obligations required to be performed by it
under this Agreement prior to the Effective Time, and Seller shall have
received a certificate of the chief financial officer of Buyer to that
effect.
6.03. CONDITIONS TO OBLIGATIONS OF BUYER TO EFFECT THE
MERGER. The obligations of Buyer to effect the Merger shall be subject
to the fulfillment or waiver at or prior to the Effective Time of the
following additional conditions:
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(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller set forth in Article II of this Agreement shall be
true and correct in all material respects as of the date of this
Agreement and as of the Effective Time (as though made on and as of the
Effective Time except (i) to the extent such representations and
warranties are by their express provisions made as of a specific date or
period and (ii) for the effect of transactions contemplated by this
Agreement) and Buyer shall have received a certificate of the chairman
of Seller to that effect.
(b) PERFORMANCE OF OBLIGATIONS. Seller shall have performed
in all material respects all obligations required to be performed by it
under this Agreement prior to the Effective Time, and Buyer shall have
received a certificate of the chairman of Seller to that effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01. TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after any requisite
stockholder approval:
(a) by mutual consent by the Executive Committee of the Board
of Directors of Buyer and the Board of Directors of Seller;
(b) by the Executive Committee of the Board of Directors of
Buyer or the Board of Directors of Seller at any time after the date
that is twelve months after the date of this Agreement if the Merger
shall not theretofore have been consummated (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein which has
resulted in the delay in performance of this Agreement.);
(c) by the Executive Committee of the Board of Directors of
Buyer or the Board of Directors of Seller if (i) the Board has denied
approval of the Merger and such denial has become final and
nonappealable or (ii) stockholders of Seller shall not have approved
this Agreement at the Meeting provided that Seller has not breached its
obligation under Section 5.03;
(d) by the Executive Committee of the Board of Directors of
Buyer in the event of a material breach by Seller of any representation,
warranty, covenant or other agreement contained in this Agreement, which
breach is not cured within 30 days after written notice thereof to
Seller by Buyer;
(e) by the Board of Directors of Seller in the event of a
material breach by Buyer of any representation, warranty, covenant or
other agreement contained in this Agreement, which breach is not cured
within 30 days after written notice thereof is given to Buyer by Seller;
or
(f) by the Board of Directors of the Seller, upon prompt
written notice to Buyer at any time during the three-day period
commencing two days after the Determination Date (as defined below), if
the average closing price of a share of Buyer Common Stock on the
Composite Tape on the Determination Date for the ten NYSE trading days
preceding the Determination Date shall be less $37.00; provided that if
the Seller gives notice of its intent to exercise its termination right
pursuant to this Section 7.01(f), (i) Seller shall negotiate no
Acquisition Transaction for a period of ten business days after receipt
of such notice and during such ten business day period shall negotiate
exclusively with Buyer for a mutually acceptable amendment to Section
1.07(ii) of this Agreement (ii) the termination pursuant to this Section
7.01(f) shall not be effective until the end of such ten business day
period or if Seller breaches its obligation to conduct such
negotiations. Determination Date shall mean the date five days before
the scheduled Closing Date.
7.02. EFFECT OF TERMINATION. In the event of termination of
this Agreement as provided in Sections 7.01(a) through 7.01(c) and Section
7.01(f) above, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Buyer or Seller or their respective
officers or directors except as set forth in the second sentence of Section 5.01
and in Section 5.06.
7.03. AMENDMENT. This Agreement and the Schedules hereto may
be amended by the parties hereto, by action taken by or on behalf of their
respective Boards of Directors, at any time before or after approval of this
Agreement by the stockholders of Seller; PROVIDED, HOWEVER, that after any such
approval by the stockholders of Seller no such modification shall alter or
change the amount or kind of consideration to be received by holders of Seller
Common Stock as provided in this Agreement. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of Buyer and Seller.
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7.04. SEVERABILITY. Any term, provision, covenant or
restriction contained in this Agreement held by a court or a Regulatory
Authority of competent jurisdiction or the Board to be invalid, void or
unenforceable, shall be ineffective to the extent of such invalidity, voidness
or unenforceability, but neither the remaining terms, provisions, covenants or
restrictions contained in this Agreement nor the validity or enforceability
thereof in any other jurisdiction shall be affected or impaired thereby. Any
term, provision, covenant or restriction contained in this Agreement that is so
found to be so broad as to be unenforceable shall be interpreted to be as broad
as is enforceable.
7.05. WAIVER. Any term, condition or provision of this
Agreement may be waived in writing at any time by the party which is, or whose
stockholders are, entitled to the benefits thereof.
ARTICLE VIII
GENERAL PROVISIONS
8.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. No investigation by the parties hereto made heretofore or hereafter
shall affect the representations and warranties of the parties which are
contained herein and each such representation and warranty shall survive such
investigation. Except as set forth below in this Section 8.01, all
representations, warranties and agreements in this Agreement of Buyer and Seller
or in any instrument delivered by Buyer or Seller pursuant to or in connection
with this Agreement shall expire at the Effective Time or upon termination of
this Agreement in accordance with its terms or, in the case of any other such
instrument, in accordance with the terms of such instrument. In the event of
consummation of the Merger, the agreements contained in or referred to in
Sections 5.02(b), 5.07, 5.09, 5.10, 5.11 and 5.12 shall survive the Effective
Time. In the event of termination of this Agreement in accordance with Sections
7.01(a), 7.01(b), 7.01(c) or 7.01(f), the agreements contained in or referred to
in the second sentence of Section 5.01, Section 5.06 and Section 7.02 shall
survive such termination.
8.02. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to be duly received (i) on the date
given if delivered personally or (ii) upon confirmation of receipt, if by
facsimile transmission or (iii) on the date received if mailed by registered or
certified mail (return receipt requested), or (iv) on the business date after
being delivered to a reputable overnight delivery service, if by such service,
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(i) if to Buyer:
Star Banc Corporation
425 Walnut Street
Cincinnati, Ohio 45202
Attention: David Moffett
Telecopy: (513) 632-4279
Copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward D. Herlihy, Esq.
Telecopy: (212) 403-2000
(ii) if to Seller:
Great Financial Corporation
329 W. Main Street
19th Floor
Louisville, Kentucky 40202
Attention: Paul Baker
Telecopy: (502) 568-1936
Copies to:
Lynch, Cox, Gilman & Mahan, P.S.C.
500 Meidinger Tower
Louisville, Kentucky 40202
Attention: Donald Cox
Telecopy: (502) 589-4994
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8.03. MISCELLANEOUS. This Agreement (including the Schedules
and other written documents referred to herein or provided hereunder) (i)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof, including any confidentiality agreement
between the parties hereto, (ii) is not intended to confer upon any person not a
party hereto any rights or remedies hereunder, (iii) shall not be assigned by
operation of law or otherwise and (iv) shall be governed in all respects by the
laws of the State of Ohio, except as otherwise specifically provided herein or
required by the DGCL. This Agreement may be executed in counterparts which
together shall constitute a single agreement and may be delivered by facsimile.
IN WITNESS WHEREOF, Buyer and Seller have caused this
Agreement to be signed as of the date first written above.
STAR BANC CORPORATION
By: /s/ JERRY A. GRUNDHOFER
Name: Jerry A. Grundhofer
Title: Chairman, President
and Chief Executive Officer
GREAT FINANCIAL CORPORATION
By: /s/ PAUL M. BAKER
Name: Paul M. Baker
Title: Chairman, President
and Chief Executive Officer
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EXHIBIT 2.2
STOCK OPTION AGREEMENT, dated September 15, 1997, between
Great Financial Corporation, a Delaware corporation ("Issuer"), and Star Banc
Corporation, an Ohio corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement
and Plan of Merger of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 2,747,083 fully paid and nonassessable shares of Issuer's Common Stock, par
value $0.01 per share ("Common Stock"), at a price of $36.00 per share (the
"Option Price"); PROVIDED, HOWEVER, that in no event shall the number of shares
of Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving effect to
any shares subject to or issued pursuant to the Option. The number of shares of
Common Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement or as permitted under the terms
of the Merger Agreement) or (ii) redeemed, repurchased, retired or otherwise
cease to be outstanding after the date of the Agreement, the number of shares of
Common Stock subject to the Option shall be increased or decreased, as
appropriate, so that, after such issuance, such number equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if, both an
Initial Triggering Event (as hereinafter defined) and a Subsequent Triggering
Event (as hereinafter defined) shall have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined), provided that the Holder
shall have sent the written notice of such exercise (as provided in subsection
(e) of this Section 2) within 90 days following such Subsequent Triggering
Event. Each of the following shall be an "Exercise Termination Event": (i) the
Effective Time (as defined in the Merger Agreement) of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions thereof if
such termination occurs prior to the occurrence of an Initial Triggering Event
except a termination by Grantee pursuant to Section 7.01(d) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of termination
is non-volitional); or (iii) the passage of 12 months after termination of the
Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a termination by Grantee pursuant to Section 7.01(d) of
the Merger Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional) (provided that if an Initial Triggering Event
continues or occurs beyond such termination and prior to the passage of such
12-month period, the Exercise Termination Event shall be 12 months from the
expiration of the Last Triggering Event but in no event more than 18 months
after such termination). The "Last Triggering Event" shall mean the last Initial
Triggering Event to expire. The term "Holder" shall mean the holder or holders
of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
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(i) Issuer or any of its Subsidiaries (each an
"Issuer Subsidiary"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the
term "person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a
"Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined
in Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange Commission (the "SEC")) of Issuer, (x) a purchase, lease or
other acquisition or assumption of all or a substantial portion of the
assets or deposits of Issuer or any Significant Subsidiary of Issuer,
(y) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Issuer, or (z) any substantially
similar transaction; PROVIDED, HOWEVER, that in no event shall any
merger, consolidation, purchase or similar transaction involving only
the Issuer and one or more of its Subsidiaries or involving only any two
or more of such Subsidiaries, be deemed to be an Acquisition
Transaction, provided that any such transaction is not entered into in
violation of the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to authorize,
recommend or propose, to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary, or the Board of
Directors of Issuer shall have publicly withdrawn or modified, or
publicly announced its intention to withdraw or modify, in any manner
adverse to Grantee, its recommendation that the stockholders of Issuer
approve the transactions contemplated by the Merger Agreement in
anticipation of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee or a trustee
holding on behalf of an employee benefit plan of the Issuer, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in
the ordinary course of its business shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more of
the outstanding shares of Common Stock (the term "beneficial ownership"
for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
stockholders by public announcement or written communication that is or
becomes the subject of public disclosure to engage in an Acquisition
Transaction;
(v) After an overture is made by a third party to
Issuer or its stockholders to engage in an Acquisition Transaction,
Issuer shall have breached any covenant or obligation contained in the
Merger Agreement and such breach (x) would entitle Grantee to terminate
the Merger Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which Grantee
has given its prior written consent, shall have filed an application or
notice with the Federal Reserve Board, or other federal or state bank
regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section 2, except
that the percentage referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
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(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer 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 business days nor later than 60 business days from the
Notice Date for the closing of such purchase (the "Closing Date"); PROVIDED that
if prior notification to or approval of the Federal Reserve Board or any other
regulatory agency is required in connection with such purchase, the Holder 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 sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, PROVIDED that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Issuer a copy of this Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate
is subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as
amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request
therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Issuer 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 2 in the name of the Holder or its assignee, transferee or
designee.
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3. Issuer 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 Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. 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 banking law, prior approval of or notice to the Federal Reserve Board
or to any state regulatory authority is necessary before the Option may be
exercised, cooperating fully with the Holder in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
state regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Stock Option Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, option exercise, exchanges of shares, distributions on or in
respect of the Common Stock that would be prohibited under the terms of the
Merger Agreement, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any such
transaction to provide for such proper adjustment and the full satisfaction of
the Issuer's obligations hereunder.
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6. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 90 days of such Subsequent Triggering Event (whether on
its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the 1933 Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reasonable 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 or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The foregoing notwithstanding,
if, at the time of any request by Grantee for registration of the Option or
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
and PROVIDED, HOWEVER, that after any such required reduction the number of
Option Shares to be included in such offering for the account of the Holder
shall constitute at least 25% of the total number of shares to be sold by the
Holder and Issuer in the aggregate; and PROVIDED FURTHER, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practical and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall 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 secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase
Event (as defined below), (i) following a request of the Holder, delivered prior
to an Exercise Termination Event, Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the Market/Offer Price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered within 90 days of such
occurrence (or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner shall
designate at a price (the "Option Share Repurchase Price") equal to the
Market/Offer Price multiplied by the number of Option Shares so designated. The
term "Market/Offer Price" shall mean the highest of (i) the price per share of
Common Stock at which a tender offer or exchange offer therefor has been made
and not withdrawn prior to acceptance of such shares, (ii) the price per share
of Common Stock to be paid by any third party pursuant to an agreement with
Issuer, (iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice of the
required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or a substantial portion of Issuer's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Issuer as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to the Issuer, divided by the number of shares of Common Stock of
Issuer outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm selected by the Holder or Owner,
as the case may be, and reasonably acceptable to the Issuer.
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(b) The Holder and the Owner, as the case may be, may
exercise its right to require Issuer to repurchase the Option and any Option
Shares pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, a copy of this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating that
the Holder or the Owner, as the case may be, elects to require Issuer to
repurchase this Option and/or the Option Shares in accordance with the
provisions of this Section 7. Within the latter to occur of (x) five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto and (y) the
time that is immediately prior to the occurrence of a Repurchase Event, Issuer
shall deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof, if any, that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to the Holder and/or the
Owner, as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; PROVIDED, HOWEVER, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this Section 7
is prohibited under applicable law or regulation from delivering to the Holder
and/or the Owner, as appropriate, the Option Repurchase Price and the Option
Share Repurchase Price, respectively, in full (and Issuer hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals and
to file any required notices, in each case as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisos to Section 2(b)(i) hereof or (ii) upon the acquisition
by any person of beneficial ownership of 50% or more of the then outstanding
shares of Common Stock, provided that no such event shall constitute a
Repurchase Event unless a Subsequent Triggering Event shall have occurred prior
to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or merge
into any person, other than Grantee or one of its Subsidiaries, and shall not be
the continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its Subsidiaries, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding voting shares
and voting share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that controls
the Acquiring Corporation.
59
<PAGE>
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing
or surviving person, and (iii) the transferee of all or substantially
all of Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(iii) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(iv) "Average Price" shall mean the average closing price of
a share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no event
higher than the closing price of the shares of Substitute Common Stock
on the day preceding such consolidation, merger or sale; PROVIDED that
if Issuer is the issuer of the Substitute Option, the Average Price
shall be computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option, PROVIDED, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to the Acquiring
Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to (x) the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise price
of the Substitute Option, multiplied by the number of shares of Substitute
Common Stock for which the Substitute Option may then be exercised plus (y)
Grantee's reasonable out-of-pocket expenses (to the extent not previously
reimbursed), and at the request of the owner (the "Substitute Share Owner") of
shares of Substitute Common Stock (the "Substitute Shares"), the Substitute
Option Issuer shall repurchase the Substitute Shares at a price (the "Substitute
Share Repurchase Price") equal to (x) the Highest Closing Price multiplied by
the number of Substitute Shares so designated plus (y) Grantee's reasonable
Out-of-Pocket Expenses (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
60
<PAGE>
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable, and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Share Repurchase Price, respectively, which it is no
longer prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited; PROVIDED,
HOWEVER, that if the Substitute Option Issuer is at any time after delivery of a
notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation from delivering to the Substitute Option
Holder and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals, in each case as promptly as
practicable, in order to accomplish such repurchase), the Substitute Option
Holder or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
the prohibition, whereupon, in the latter case, the Substitute Option Issuer
shall promptly (i) deliver to the Substitute Option Holder or Substitute Share
Owner, as appropriate, that portion of the Substitute Option Repurchase Price or
the Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. The 90-day period for exercise of certain rights under
Sections 2, 6, 7 and 13 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and except for limitations on voting rights contained in the
certificate of incorporation, will be delivered free and clear of all claims,
liens, encumbrance and security interests and not subject to any preemptive
rights.
61
<PAGE>
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority
to enter into this Agreement and, subject to any approvals or consents referred
to herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock
or other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10); PROVIDED, HOWEVER, that until the date
15 days following the date on which the Federal Reserve Board approves an
application by Grantee under the BHCA to acquire the shares of Common Stock
subject to the Option, 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 Issuer, (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
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
14. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making notification
or application to list the shares of Common Stock issuable hereunder on the
Nasdaq National Market System upon official notice of issuance and applying to
the Federal Reserve Board under the BHCA for approval to acquire the shares
issuable hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
15. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
16. 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 and 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 the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
62
<PAGE>
21. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, 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 successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
STAR BANC CORPORATION
By: /s/ JERRY A. GRUNDHOFER
Name: Jerry A. Grundhofer
Title: Chairman, President
and Chief Executive Officer
GREAT FINANCIAL CORPORATION
By: /s/ PAUL M. BAKER
Name: Paul M. Baker
Title: Vice Chairman,
President and Chief Executive
Officer
63
Exhibit 11. Statement regarding Computation of Per Share Earnings
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss)........................................ $ 8,148 $ (387) $23,522 $12,605
======== ======== ======== ========
Weighted average number of common shares and equivalents:
Shares issued ..................................... 16,531 16,531 16,531 16,531
Shares in treasury ................................ (2,727) (2,348) (2,618) (2,079)
Shares held by the ESOPs which have not been
committed to be released ........................ (950) (1,061) (978) (1,088)
Shares issuable pursuant to stock option plans
less shares assumed repurchased at the
average market price ............................ 995 1,007 1,023 969
-------- -------- -------- --------
Number of shares for computation of primary
earnings per share ................................... 13,849 14,129 13,958 14,333
Net additional shares issuable pursuant to
stock option plans at period-end market price ... 77 30 122 68
-------- -------- -------- --------
Number of shares for computation of fully diluted
earnings per share ................................... 13,926 14,159 14,080 14,401
======== ======== ======== ========
Earnings (loss) per share:
Primary .............................................. $ 0.59 $ (0.03) $ 1.69 $ 0.88
======== ======== ======== ========
Fully diluted ........................................ $ 0.59 $ (0.03) $ 1.67 $ 0.88
======== ======== ======== ========
</TABLE>
64
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1997 (Unaudited) and the
Consolidated Statement of Operations for the Nine Months Ended September 30,
1997 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000916484
<NAME> GREAT FINANCIAL CORPORATION
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 38,813
<INT-BEARING-DEPOSITS> 3,873
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 698,821
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,991,787
<ALLOWANCE> 14,663
<TOTAL-ASSETS> 2,893,505
<DEPOSITS> 1,919,278
<SHORT-TERM> 242,496
<LIABILITIES-OTHER> 47,432
<LONG-TERM> 392,952
0
0
<COMMON> 165
<OTHER-SE> 291,182
<TOTAL-LIABILITIES-AND-EQUITY> 2,893,505
<INTEREST-LOAN> 122,612
<INTEREST-INVEST> 39,427
<INTEREST-OTHER> 376
<INTEREST-TOTAL> 162,415
<INTEREST-DEPOSIT> 68,225
<INTEREST-EXPENSE> 100,660
<INTEREST-INCOME-NET> 61,755
<LOAN-LOSSES> 2,323
<SECURITIES-GAINS> 1,498
<EXPENSE-OTHER> 52,545
<INCOME-PRETAX> 36,007
<INCOME-PRE-EXTRAORDINARY> 23,522
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,522
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 3.02
<LOANS-NON> 7,324
<LOANS-PAST> 78,913 <F1>
<LOANS-TROUBLED> 1,959
<LOANS-PROBLEM> 600 <F2>
<ALLOWANCE-OPEN> 13,538
<CHARGE-OFFS> 1,414
<RECOVERIES> 216
<ALLOWANCE-CLOSE> 14,663
<ALLOWANCE-DOMESTIC> 14,663
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1> ACCRUING LOANS 90 DAYS OR MORE PAST DUE TOTALING $78,913 INCLUDES FHA/VA
LOANS WITH LIMITED CREDIT RISK TOTALING $75,379. MOST OF GREAT FINANCIAL
CORPORATION'S INVESTMENT IN THESE LOANS IS RECOVERABLE THROUGH CLAIMS MADE
AGAINST THE FHA OR VA SUBJECT TO THE RISKS OF RECOVERY.
<F2> OTHER PROBLEM LOANS CONSIST OF THOSE LOANS CLASSIFIED AS SUBSTANDARD,
DOUBTFUL OR LOSS UNDER OFFICE OF THRIFT SUPERVISION REGULATIONS AND WHICH
ARE NOT REPORTED AS NONACCRUAL, ACCRUING 90 DAYS OR MORE PAST DUE, OR
RESTRUCTURED.
</FN>
</TABLE>
