<PAGE> 1
Filed pursuant to Rule No. 424(b)(3)
File No. 333-33234
FORT THOMAS FINANCIAL CORPORATION
25 NORTH FORT THOMAS AVENUE
FORT THOMAS, KENTUCKY 41075
(606) 441-3302
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held May 23, 2000
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Fort
Thomas Financial Corporation will be held at the Comfort Inn Suites located at
420 Riverboat Row, Newport, Kentucky, on May 23, 2000 at 9:00 a.m., Eastern
Time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization, dated as of December 21,
19999 by and among Fort Thomas Financial, Fort Thomas Savings
Bank, FSB, The Bank of Kentucky Financial Corporation and The
Bank of Kentucky, Inc., as more fully described in the
enclosed proxy statement-prospectus; and
2. To transact any other business as may properly be brought
before the special meeting.
The close of business on April 14, 2000 has been fixed as the record
date for the determination of shareholders entitled to notice of and to vote at
the special meeting. Only holders of Fort Thomas Financial common stock of
record at the close of business on that date will be entitled to notice of and
to vote at the special meeting or any adjournment or adjournments thereof.
THE BOARD OF DIRECTORS OF FORT THOMAS FINANCIAL HAS DETERMINED THAT THE
MERGER IS IN THE BEST INTERESTS OF FORT THOMAS FINANCIAL AND ITS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT.
TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE
AND PROMPTLY MAIL YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE.
This will not prevent you from voting in person, but will help to secure a
quorum and avoid added solicitation costs. Your proxy may be revoked at any time
before it is voted. Please review the proxy statement-prospectus accompanying
this notice for more complete information regarding the merger and the special
meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Larry N. Hatfield
President and Chief Executive Officer
Fort Thomas, Kentucky
April 19, 2000
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED POSTAGE PAID ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE
IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS PROXY STATEMENT
THE BANK OF KENTUCKY FORT THOMAS
FINANCIAL CORPORATION FINANCIAL CORPORATION
for issuance of up to for
865,866 Shares of Common Stock Special Meeting of Shareholders
On December 21, 1999, The Bank of Kentucky Financial Corporation, The
Bank of Kentucky, Inc., Fort Thomas Financial Corporation and Fort Thomas
Savings Bank, FSB, executed a merger agreement that provides for the merger of
Fort Thomas Financial into Kentucky Financial and the merger of Fort Thomas
Savings Bank into The Bank of Kentucky.
We cannot complete the merger unless the holders of at least two-thirds
of the Fort Thomas Financial shares, or 982,881 shares, approve it. The Board of
Directors of Fort Thomas Financial has scheduled a special meeting for Fort
Thomas Financial's shareholders to vote on the merger. The date, time and place
of the special meeting are as follows:
May 23, 2000
9:00 a. m.
Comfort Inn Suites
420 Riverboat Row
Newport, Kentucky
If we complete the merger, each Fort Thomas Financial shareholder will
receive .5645 share of Kentucky Financial stock in exchange for each Fort Thomas
Financial share owned immediately before completion of the merger. Fractional
shares will not be issued in the merger. Shareholders entitled to fractional
shares will receive the cash value of the fractional share instead.
Kentucky Financial shares are not quoted on a national quotation
service or listed on a securities exchange. Information about transactions in
Kentucky Financial shares is, however, posted on the OTC Bulletin Board under
the symbol "BKYF." On April 14, 2000, the last trading day before we printed
this document, the last known sale of Kentucky Financial shares occurred on
April 14, 2000, at $28.00 per share. Based on that $28.00 price, .5645 share of
Kentucky Financial stock would be valued at $15.806.
This document provides detailed information about the merger. We
encourage you to read this entire document carefully.
AN INVESTMENT IN THE COMMON SHARES OF KENTUCKY FINANCIAL INVOLVES
CERTAIN RISKS. FOR A DISCUSSION OF THESE RISKS, SEE "RISK FACTORS" BEGINNING AT
PAGE 19 OF THIS DOCUMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE KENTUCKY FINANCIAL SHARES TO BE ISSUED IN THE MERGER
OR DETERMINED IF THIS DOCUMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. THE KENTUCKY FINANCIAL SHARES ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
This document is dated April 7, 2000, and is first being mailed to
shareholders of Fort Thomas Financial on or about April 19, 2000.
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about our companies from documents that we have filed with the Securities and
Exchange Commission but have not included in or delivered with this document. If
you write or call us, we will send you these documents, excluding exhibits,
without charge. You can contact us at:
<TABLE>
<CAPTION>
<S> <C>
The Bank of Kentucky Financial Corporation Fort Thomas Financial Corporation
P.O. Box 577 25 North Fort Thomas Avenue
Florence, Kentucky 41022-0577 Fort Thomas, Kentucky 41075
Attention: Robert W. Zapp Attention: Larry N. Hatfield
(606) 371-2340 (606) 441-3302
</TABLE>
Please request documents by May 16, 2000. We will mail the documents
you request by first class mail, or another equally prompt means, by the next
business day after we receive your request.
See "Where you can find more information" on page 52 for more
information about the documents referred to in this document.
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<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary...................................................................................................................5
The companies..........................................................................................................5
The merger.............................................................................................................5
Background and reasons for the merger..................................................................................6
Opinion of financial advisor...........................................................................................6
Recommendation to shareholders.........................................................................................6
Interests of directors and executive officers..........................................................................6
Termination and amendment of the merger agreement......................................................................7
Special meeting of shareholders.......................................................................................7
Dissenters' rights.....................................................................................................7
Federal tax consequences of the merger.................................................................................7
Accounting treatment...................................................................................................8
Per share market price information.....................................................................................8
Comparative stock prices and dividends....................................................................................9
Selected consolidated financial data of Kentucky Financial...............................................................10
Selected consolidated financial data of Fort Thomas Financial............................................................11
Selected consolidated pro forma data.....................................................................................12
Comparative per share data...............................................................................................13
Pro forma financial statements...........................................................................................14
Pro Forma Condensed Consolidated Balance Sheet........................................................................15
Pro Forma Condensed Consolidated Statement of Income-1999.............................................................16
Pro Forma Condensed Consolidated Statement of Income-1998.............................................................17
Pro Forma Condensed Consolidated Statement of Income-1997.............................................................18
Purpose of this document.................................................................................................19
Risk factors.............................................................................................................19
Limited market for Kentucky Financial shares may affect your ability to sell Kentucky Financial shares................19
Fluctuation in the market price of Kentucky Financial shares will affect the value you receive upon the closing
of the merger.....................................................................................................19
Illiquid market for Kentucky Financial shares may negatively affect market value......................................20
Controlling influence of management and anti-takeover provisions may discourage sales of Kentucky Financial
shares for premium prices.........................................................................................20
Geographic concentration in one market and changing economic conditions may unfavorably affect Kentucky
Financial.........................................................................................................20
Forward looking statements...............................................................................................21
The special meeting of Fort Thomas Financial shareholders................................................................21
Time, date and place..................................................................................................21
Purpose of the meeting................................................................................................21
Shares outstanding and entitled to vote; record date..................................................................22
Votes required........................................................................................................22
Share ownership of certain beneficial owners and management..............................................................23
Voting and solicitation and revocation of proxies.....................................................................24
Dissenters' rights....................................................................................................25
The parties..............................................................................................................26
Kentucky Financial....................................................................................................26
Fort Thomas Financial.................................................................................................27
The merger...............................................................................................................27
Background and reasons for the merger.................................................................................27
Opinion of Keefe, Bruyette & Woods....................................................................................30
Recommendation of the Board of Directors of Fort Thomas Financial.....................................................33
Exchange of Fort Thomas Financial shares..............................................................................33
Fractional shares.....................................................................................................33
Exchange of certificates evidencing Kentucky Financial shares and Fort Thomas Financial shares........................33
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
Representations and Warranties........................................................................................34
Covenants.............................................................................................................34
Conditions............................................................................................................36
Effective time........................................................................................................37
Termination and amendment.............................................................................................37
Interests of directors and executive officers.........................................................................38
Resale of Kentucky Financial common shares............................................................................39
Federal income tax consequences.......................................................................................39
Accounting treatment..................................................................................................40
Regulatory approvals..................................................................................................40
Description of Kentucky Financial shares.................................................................................42
Authorized stock......................................................................................................42
Special meeting.......................................................................................................42
Preemptive rights.....................................................................................................42
Voting rights.........................................................................................................42
Board of Directors....................................................................................................42
Antitakeover provisions in Kentucky Financial's Articles of Incorporation and Bylaws..................................42
Comparison of rights of holders of Kentucky Financial shares and holders of Fort Thomas Financial shares.................43
Authorized stock......................................................................................................44
Director nominations..................................................................................................44
Antitakeover provisions...............................................................................................44
Antitakeover laws applicable to Kentucky Financial.......................................................................46
Kentucky antitakeover statute.........................................................................................46
Federal regulation....................................................................................................47
Antitakeover laws applicable to Fort Thomas Financial....................................................................48
Ohio Control Share Acquisition Act....................................................................................48
Ohio merger moratorium statute........................................................................................48
Federal regulation....................................................................................................49
Director and officer liability and indemnification.......................................................................50
Kentucky Financial....................................................................................................50
Fort Thomas Financial.................................................................................................50
Legal matters............................................................................................................51
Experts..................................................................................................................51
Proposals for the 2001 annual shareholders' meeting......................................................................51
Where you can find more information......................................................................................52
</TABLE>
APPENDIX A Agreement and Plan of Reorganization dated December 21, 1999,
- ---------- by and among The Bank of Kentucky Financial Corporation, The
Bank of Kentucky, Inc., Fort Thomas Financial Corporation and
Fort Thomas Savings Bank, FSB
APPENDIX B Ohio General Corporation Law Section 1701.85
- ----------
APPENDIX C Opinion of Keefe, Bruyette & Woods, Inc., dated April 7, 2000.
- ----------
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<PAGE> 6
Summary
This summary highlights selected information from this document. It
does not contain all of the information that is important to you. You should
read carefully this entire document and the other documents referred to in this
document to fully understand the merger. To obtain more information, see "Where
you can find more information" on pages 52 and 53. Page references are included
in this summary to direct you to a more complete description of topics discussed
in this document.
THE PARTIES (PAGES 26 AND 27)
The Bank of Kentucky Financial Corporation/The Bank of Kentucky, Inc.
1065 Burlington Pike
Florence, Kentucky 41042
(606) 371-2340
Kentucky Financial is a bank holding company, organized under Kentucky
law in 1993. Through its wholly owned subsidiary, The Bank of Kentucky, Inc.,
Kentucky Financial is engaged in the banking business in Kentucky.
The Bank of Kentucky is a Kentucky bank and conducts business from
eleven offices in the Northern Kentucky area. The Bank of Kentucky is
principally engaged in the business of accepting consumer and commercial
deposits and using these deposits to fund residential and non-residential real
estate loans and commercial, consumer, construction and land development loans.
Fort Thomas Financial Corporation/Fort Thomas Savings Bank, FSB
25 North Fort Thomas Avenue
Fort Thomas, Kentucky 41075
(606) 441-3302
Fort Thomas Financial Corporation is a savings and loan holding
company, organized under Ohio law in 1995.
Fort Thomas Savings Bank is a federal savings bank with two offices
located in Northern Kentucky. Fort Thomas is principally engaged in the business
of accepting consumer deposits and using these deposits to fund residential real
estate loans.
THE MERGER (PAGES 27 THROUGH 41)
The Agreement and Plan of Reorganization provides for the merger of
Fort Thomas Financial into Kentucky Financial and the immediate subsequent
merger of Fort Thomas Savings Bank into The Bank of Kentucky. The merger cannot
be completed unless the holders of at least two-thirds of the Fort Thomas
Financial shares, or 982,881 shares, approve the merger.
If the merger is completed, Kentucky Financial will issue to each Fort
Thomas Financial shareholder .5645 Kentucky Financial share for each Fort Thomas
Financial share owned immediately before the merger. Because the number of
Kentucky Financial shares you will receive is fixed and the market price of
Kentucky Financial common shares will fluctuate, we cannot be sure of the market
value of the Kentucky Financial shares you will receive in the merger. We
encourage you to obtain current price information for the Kentucky Financial
shares before casting your vote regarding the merger. Kentucky Financial shares
are not traded on a stock exchange or on The Nasdaq Stock Market, so price
information is not printed in newspapers. The shares do trade over-the-counter,
and information on trades in Kentucky Financial shares is posted on the OTC
Bulletin Board service. You may obtain current stock information for Kentucky
Financial shares from your broker or on the Internet using the symbol "BKYF."
-5-
<PAGE> 7
We have attached the merger agreement to this document as Appendix A
and incorporated it by reference into this document. Please read the merger
agreement. It is the legal document that governs the merger.
BACKGROUND AND REASONS FOR THE MERGER (PAGES 27 THROUGH 30)
Fort Thomas Financial and Kentucky Financial have proposed the merger
in order to strengthen Kentucky Financial and serve the best interests of Fort
Thomas Financial shareholders. The merger will enable Kentucky Financial to
expand its business into new geographical areas while providing Fort Thomas
Financial customers with enhanced services.
OPINION OF FINANCIAL ADVISOR (PAGES 30 THROUGH 33)
In deciding to approve the merger, the Fort Thomas Financial Board of
Directors considered the opinion of its financial advisors, Keefe, Bruyette &
Woods, Inc., dated December 21, 1999, that the per share merger consideration
was fair to Fort Thomas Financial shareholders from a financial point of view.
The opinion, as updated as of April 7, 2000, is attached as Appendix B to
this document. We encourage you to read the opinion.
RECOMMENDATION TO SHAREHOLDERS (PAGE 33)
The Board of Directors of Fort Thomas Financial believes that the
merger is in the best interests of Fort Thomas Financial and its shareholders
and unanimously recommends that you vote "FOR" the proposal to adopt the merger
agreement.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS (PAGES 38 AND 39)
Some of the directors and officers of Fort Thomas Financial and Fort
Thomas Savings Bank have interests in the merger that are different from, or in
addition to, their interests as shareholders of Fort Thomas Financial. These
interests include the following:
- Each of Robert L. Grimm, Larry N. Hatfield, Harold A. Luersen, Donald
J. Beckmeyer and J. Steven McLane, who are the current directors of
Fort Thomas Financial, and J. Michael Lonnemann, who is the Vice
President and Secretary of Fort Thomas Financial, will be appointed
to an advisory board of Kentucky Financial for a two-year term.
- Each of Larry N. Hatfield and J. Michael Lonnemann will enter into a
two-year consulting agreement with Kentucky Financial.
- At the effective time of the merger, all of the unvested stock
options granted under the 1996 Fort Thomas Financial Corporation
Director Stock Option Plan and the 1996 Fort Thomas Financial
Corporation Key Employee Stock Compensation Program will be cancelled
and extinguished in exchange for options to purchase Kentucky
Financial shares. The directors and executive officers of Fort Thomas
Financial have, in the aggregate, options to acquire 22,670 Fort
Thomas Financial shares. The directors and executive officers of Fort
Thomas Financial will receive options to purchase approximately
12,441 Kentucky Financial shares.
- Upon completion of the merger, each of Larry N. Hatfield, J. Michael
Lonnemann and Cynthia R. Towhey will receive severance payments and
benefits as provided under their employment agreements.
- Before the effective date of the merger, Fort Thomas Financial's
employee stock ownership plan (ESOP) will be terminated. Upon
consummation of the merger, all Fort Thomas Financial shares held by
the ESOP trustee will be exchanged for Kentucky Financial shares and
any shares held by the ESOP trustee that remain after retirement of
the loan from Fort Thomas Financial to the ESOP will be distributed
to ESOP participants.
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<PAGE> 8
- Kentucky Financial and The Bank of Kentucky agreed to compensate
Larry N. Hatfield, J. Michael Lonnemann, Robert L. Grimm, Harold A.
Luersen, Donald J. Beckmeyer and J. Steven McLane according to the
terms of each of their amended deferred compensation agreements.
- For three years after completion of the merger, Kentucky Financial
will indemnify the current officers and directors of Fort Thomas
Financial. Kentucky Financial will also include them under the
current Directors and Officers' Liability Insurance Policy of
Kentucky Financial.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT (PAGES 37 and 38)
We may agree to terminate the merger at any time before the
consummation of the merger, even if you have voted to approve the merger. The
merger agreement allows us to terminate the merger if:
- We mutually consent to its termination;
- We do not complete the merger by September 30, 2000; or
- We have not satisfied, or agreed to waive, conditions listed in the
merger agreement.
If the merger is not completed because Fort Thomas Financial enters
into an agreement with a party other than Kentucky Financial, Fort Thomas
Financial will be required to pay a fee of $900,000 to Kentucky Financial.
We may amend the merger agreement with the consent of our boards of
directors at any time before or after receiving shareholder approval of the
merger agreement. However, if the shareholders have already approved the merger,
we will not amend the merger agreement without their approval if the amendment
would materially and adversely affect their rights as shareholders.
SPECIAL MEETING OF SHAREHOLDERS (PAGES 21 AND 22)
The Fort Thomas Financial special meeting of shareholders will take
place at the Comfort Inn Suites, 420 Riverboat Row, Newport, Kentucky, on May
23, 2000. If you owned Fort Thomas Financial common shares on April 14, 2000,
you are entitled to vote at the special meeting. The holders of at least
two-thirds of the outstanding Fort Thomas Financial common shares, or 982,881
shares, must vote in favor of the merger agreement to approve the merger.
All of the directors and executive officers of Fort Thomas Financial
have agreed to vote all of their Fort Thomas Financial common shares for the
adoption of the merger agreement. As of April 14, 2000, the directors and
executive officers, in the aggregate, owned or had voting power with respect to
179,145 outstanding Fort Thomas Financial shares, or 12.2% of the outstanding
shares.
DISSENTERS' RIGHTS (PAGES 25 and 26)
Ohio law provides that Fort Thomas Financial shareholders may receive
fair cash value for their shares if, among other requirements, they do not vote
in favor of the merger and they file a written demand for fair cash value with
Fort Thomas Financial.
FEDERAL TAX CONSEQUENCES OF THE MERGER (PAGES 39 AND 40)
You will not recognize a gain or loss for federal income tax purposes
on the value of the Kentucky Financial stock you receive in exchange for your
Fort Thomas Financial shares.
Determining the actual tax consequences of the merger to you as an
individual taxpayer can be complicated. The tax results will depend on your
specific situation and other variables that are not within Kentucky Financial's
or Fort Thomas Financial's control or knowledge. You should consult a tax
advisor for a complete understanding of the merger's tax consequences to you.
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<PAGE> 9
ACCOUNTING TREATMENT (PAGE 40)
The merger will be accounted for as a pooling of interests. Under this
method, we will be treated as if we had always been combined for accounting and
financial reporting purposes.
PER SHARE MARKET PRICE INFORMATION (PAGE 9)
Kentucky Financial shares are not quoted on any national quotation
system nor traded on any securities exchange. The shares trade over-the-counter,
and presently, three brokerage firms are known by Kentucky Financial to trade in
Kentucky Financial shares. Information about trades of Kentucky Financial shares
is posted in the OTC Bulletin Board service under the symbol "BKYF." As of
December 20, 1999, the last trading day before the date of the public
announcement of the proposed merger, the last reported sale of Kentucky
Financial shares occurred on December 14, 1999, for $32.60 per share. On April
14, 2000, the last trading day before we printed this document, the last
reported sale of Kentucky Financial shares occurred on April 14, 2000, for
$28.00 per share.
Fort Thomas Financial common shares are listed on the Nasdaq SmallCap
Market under the symbol "FTSB." On December 20, 1999, the last trading day
before the date of the public announcement of the proposed merger, Fort Thomas
Financial shares had a closing sale price of $14.50 per share. On April 14,
2000, the last trading day before we printed this document, Fort Thomas
Financial shares had a closing sale price of $12.75 per share.
The market value of .5645 share of Kentucky Financial would be $15.806
based on the most recent trade of Kentucky Financial's shares known to Kentucky
Financial's management. Because the number of Kentucky Financial shares you will
receive is fixed and the market price of Kentucky Financial shares will
fluctuate, we cannot be certain of the market value of the Kentucky Financial
shares you will receive in the merger. You may obtain current stock information
for Kentucky Financial shares from your broker.
-8-
<PAGE> 10
COMPARATIVE STOCK PRICES AND DIVIDENDS
Kentucky Financial shares are not quoted on any national quotation
service nor traded on any securities exchange. Information about trades in
Kentucky Financial shares is posted on the OTC Bulletin Board service under the
symbol "BKYF." Fort Thomas Financial shares are listed on the Nasdaq SmallCap
Market under the symbol "FTSB."
As of April 14, 2000, there were 5,292,427 Kentucky Financial shares
outstanding and held by approximately 573 holders of record. As of April 14,
2000, there were 1,474,321 Fort Thomas Financial shares outstanding and held by
approximately 625 holders of record. The following table shows the prices paid
for the last trade known by Kentucky Financial management of Kentucky Financial
shares in each quarter, the high and low bid prices of Fort Thomas Financial
shares as quoted on Nasdaq, and the cash dividends per share declared during
each of these periods.
<TABLE>
<CAPTION>
Quarter ended Kentucky Financial Fort Thomas Financial
- ------------- ----------------------------------- -----------------------------------------
Price of last Cash dividends Bid Price Cash dividends
known trade declared per share High Low declared per share
----------- ------------------ ---- --- ------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999 $31.50 - $16.88 $12.50 -
September 30, 1999 31.00 - 16.50 11.50 $ .0625
June 30, 1999 30.00 - 13.25 10.00 .0625
March 31, 1999 22.67 $ .040 15.38 11.88 .0625
December 31, 1998 21.17 - 14.25 10.25 .0625
September 30, 1998 20.67 - 15.75 11.75 2.8125(1)
June 30, 1998 20.00 - 15.75 14.00 .0625
March 31, 1998 11.33 .033 15.63 14.13 .0625
</TABLE>
- --------------------------
(1) Includes a $2.75 return of capital.
The following table shows (a) the last reported sales prices as of
December 20, 1999, the last trading day before the date of the public
announcement of the signing of the merger agreement, and (b) the last reported
sales prices as of April 14, 2000, the last practicable trading day before we
printed this document, for the Kentucky Financial shares and the Fort Thomas
Financial shares. The table also shows the equivalent pro forma price of Fort
Thomas Financial shares, determined by multiplying the price of a Kentucky
Financial share on each date by .5645.
Price per Equivalent price per
Price per Kentucky Fort Thomas Fort Thomas
Financial share Financial share Financial share
--------------- --------------- ---------------
December 20, 1999 $32.60 $14.50 $18.40
April 14, 2000 28.00 12.75 15.806
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<PAGE> 11
SELECTED CONSOLIDATED FINANCIAL DATA OF KENTUCKY FINANCIAL
The tables below contain information regarding the financial condition
and earnings of Kentucky Financial for the five years ended December 31, 1999.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION DATA: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $322,410 $280,767 $230,849 $197,120 $160,271
Available-for-sale securities - at
market 23,832 18,028 8,315 11,530 8,831
Held-to-maturity securities - at cost 26,730 30,297 24,259 16,815 17,034
Loans receivable - net 241,483 205,642 179,416 152,296 118,917
Deposits 272,718 243,858 199,207 171,663 136,918
FHLB advances and other borrowings 18,695 10,398 9,256 6,618 6,773
Shareholders' equity 28,922 24,448 20,327 17,385 15,392
<CAPTION>
Year ended December 31,
------------------------------------------------------------
STATEMENT OF INCOME DATA: 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total interest income $ 22,428 $ 20,303 $ 17,247 $ 14,199 $ 12,112
Total interest expense 10,490 9,912 8,318 6,900 6,250
-------- -------- -------- -------- --------
Net interest income 11,938 10,391 8,929 7,299 5,862
Provision for loan losses 619 585 352 399 263
-------- -------- -------- -------- --------
Net interest income after provision for
loan losses 11,319 9,806 8,577 6,900 5,599
Non-interest income 2,335 2,302 1,313 768 458
Non-interest expense 7,185 6,095 5,378 4,513 3,906
-------- -------- -------- -------- --------
Income before income taxes 6,469 6,013 4,512 3,155 2,151
Federal income taxes 1,755 1,947 1,495 1,036 826
-------- -------- -------- -------- --------
Net income $ 4,714 $ 4,066 $ 3,017 $ 2,119 $ 1,325
======== ======== ======== ======== ========
Earnings per share:
Basic $ .89 $ .77 $ .57 $ .40 $ .26
Diluted .89 .77 .57 .40 .26
<CAPTION>
Year ended December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.60 % 1.57 % 1.44 % 1.21 % .89 %
Return on average equity 17.93 17.87 16.41 13.36 10.10
Average equity to average assets 8.94 8.81 8.78 9.07 8.78
Dividend payout ratio (1) 4.49 4.65 4.84 6.89 N/A
</TABLE>
- --------------------------
(1) Represents dividends per share divided by basic earnings per share.
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<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA OF FORT THOMAS FINANCIAL
The tables below contain information regarding the financial condition
and earnings of Fort Thomas Financial for the five years ended September 30,
1999 and the three months ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
At December 31, At September 30,
--------------------- -----------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION 1999 1998 1999 1998 1997 1996 1995
DATA: --------- --------- --------- ---------- ------------ ------------ ---------
(Unaudited) (In thousands)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total amount of:
Assets $ 99,678 $105,430 $ 97,849 $103,611 $ 97,873 $ 88,013 $ 86,214
Interest-bearing deposits in
other financial institutions 135 4,311 305 2,498 1,947 1,579 5,806
Available-for-sale securities at
market 726 747 -- -- 798 1,310 --
Held-to-maturity securities at
cost 5,500 3,000 6,241 3,001 2,990 3,503 5,001
Loans receivable - net 88,345 92,809 88,709 92,795 88,452 77,987 71,156
Deposits 67,324 78,630 70,870 76,851 71,858 63,731 59,998
FHLB advances and other
borrowings 17,186 12,469 13,739 12,526 8,846 6,754 3,651
Shareholders' equity -
substantially restricted 13,966 12,985 13,662 12,713 15,786 15,921 21,790
</TABLE>
<TABLE>
<CAPTION>
Three months
ended
December 31, At September 30,
------------------- ----------------------------------------------------------
STATEMENT OF INCOME DATA: 1999 1998 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------
(Unaudited) (In thousands)
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $1,976 $2,164 $8,313 $8,502 $7,970 $7,285 $6,251
Total interest expense 1,053 1,194 4,482 4,459 4,138 3,517 3,182
------ ------ ------ ------ ------ ------ ------
Net interest income 923 970 3,831 4,043 3,832 3,768 3,069
Provision for loan losses 12 12 68 285 137 125 25
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for loan losses 911 958 3,763 3,758 3,695 3,643 3,044
Non-interest income 61 60 236 279 268 177 161
Non-interest expense 604 563 2,449 2,505 2,237 3,028 1,784
------ ------ ------ ------ ------ ------ ------
Income before income
taxes 368 455 1,550 1,532 1,726 792 1,421
Federal income taxes 136 160 530 543 587 275 460
------ ------ ------ ------ ------ ------ ------
Net income $ 232 $ 295 $1,020 $ 989 $1,139 $ 517 $ 961
====== ====== ====== ====== ====== ====== ======
Earnings per share:
Basic $ 0.16 $ 0.21 $ 0.71 $ 0.70 $ 0.79 $ 0.35 $ 0.17
Diluted 0.16 0.20 0.68 0.66 0.75 0.35 N/A
OTHER DATA:
Return on average assets 0.94% 1.15% 0.99% 0.95% 1.21% 0.59% 1.25%
Return on average equity 7.44 11.61 7.80 5.96 7.26 2.54 9.55
Average equity to average assets 12.61 12.30 12.78 15.35 16.94 19.04 19.38
Dividend payout ratio (1) -- 29.80 35.20 428.60(2) 38.00 1,214.30(3) 36.80
</TABLE>
- -------------------------
(1) Represents dividends per share divided by basic earnings per share.
(2) Includes return of capital distribution of $2.75 per share.
(3) Includes return of capital distribution of $4.00 per share.
-11-
<PAGE> 13
SELECTED CONSOLIDATED PRO FORMA DATA
The following table presents selected financial data for Kentucky
Financial and Fort Thomas Financial combined on a pro forma basis. Summary of
operations data combines Kentucky Financial results for the fiscal years ended
December 31, 1999, 1998 and 1997 with Fort Thomas Financial results for the
fiscal years ended September 30, 1999, 1998 and 1997.
At or for the year ended
December 31,
---------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in thousands, except per share data)
SUMMARY OF OPERATIONS DATA (1)
Net interest income $ 15,769 $ 14,434 $ 12,761
Provision for loan losses 687 870 489
Non-interest income 2,571 2,581 1,581
Non-interest expense 9,634 8,600 7,615
Net income 5,734 5,055 4,156
STATEMENT OF CONDITION DATA
Total assets (2) $422,704 $386,813 $331,338
Total loans 329,828 298,451 270,489
Total deposits 340,042 322,488 271,065
Shareholders' equity (2) 43,504 38,049 36,741
PER SHARE DATA
Earnings per share
Basic (1) $ 0.94 $ 0.83 $ 0.68
Diluted (1) 0.93 0.83 0.68
Dividends per share (3) 0.04 0.033 0.028
Book value per share (4) 7.09 6.21 6.01
- --------------------
(1) This pro forma operations data combines Kentucky Financial results for
the years ended December 31, 1999, 1998 and 1997, with Fort Thomas
Financial results for the years ended September 30, 1999, 1998 and
1997.
(2) Includes $616,000 proceeds from the expected exercise of vested Fort
Thomas Financial stock options.
(3) Dividends per share are not restated. These are Kentucky Financial
historical dividends.
(4) Assumes the issuance of 851,542 shares of Kentucky Financial stock in
exchange for all of the 1,508,489 Fort Thomas Financial shares assumed
to be outstanding immediately before consummation of the merger. The
number of Fort Thomas Financial shares assumed to be outstanding
immediately before the consummation of the merger is based on the
expectation that (1) all vested Fort Thomas Financial stock options
will be exercised, (2) all unawarded and awarded but unvested shares
held by the Fort Thomas Financial management recognition plans (27,951
shares) will be returned to the treasury of Fort Thomas Financial
before the consummation of the merger and (3) 25,377 shares of Fort
Thomas Financial will be redeemed before the consummation of the merger
to eliminate the remaining balance of the loan made by Fort Thomas
Financial to the Fort Thomas Financial ESOP.
-12-
<PAGE> 14
COMPARATIVE PER SHARE DATA
Presented below are the book value per share and net earnings per share
of (a) Kentucky Financial on a historical basis, (b) Fort Thomas Financial on a
historical basis, (c) Kentucky Financial on a pro forma basis and (d) Fort
Thomas Financial on an equivalent pro forma basis adjusted to reflect the
completion of the merger as of the beginning of each of the periods indicated.
See "Pro forma condensed consolidated balance sheet" on page 15 and "Pro forma
condensed consolidated statement of income" on pages 16 through 18. The
information in the following table is not necessarily indicative of the results
that actually would have been obtained if we had completed the merger before
the periods indicated.
<TABLE>
<CAPTION>
At or for the year ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
KENTUCKY FINANCIAL HISTORICAL
Net income per share:
Basic $0.89 $0.77 $0.57
Diluted 0.89 0.77 0.57
Book value per share 5.47 4.64 3.86
Cash dividends declared per share 0.04 0.033 0.028
FORT THOMAS FINANCIAL HISTORICAL
Net income per share:
Basic (1) 0.71 0.70 0.79
Diluted (1) 0.68 0.66 0.75
Book value per share 9.47 8.81 10.71
Cash dividends declared per share (1) 0.25 3.00 0.30
<CAPTION>
At or for the year ended December 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
KENTUCKY FINANCIAL PRO FORMA
Net income per share:
Basic $0.94 $0.83 $0.68
Diluted 0.93 0.83 0.68
Book value per share 7.09 6.21 6.01
Cash dividends declared per share (2) 0.04 0.033 0.028
FORT THOMAS FINANCIAL PRO FORMA
EQUIVALENT (3)
Net income per share:
Basic 0.53 0.47 0.39
Diluted 0.52 0.47 0.38
Book value per share 4.00 3.51 3.39
Cash dividends declared per share 0.023 0.019 0.016
</TABLE>
- ---------------------------
(1) Fort Thomas Financial net income and dividend data is for the years
ended September 30, 1999, 1998 and 1997.
(2) Dividends per share are Kentucky Financial historical dividends.
(3) Computed by multiplying Kentucky Financial pro forma by the merger's
share exchange ratio of .5645.
-13-
<PAGE> 15
PRO FORMA FINANCIAL STATEMENTS
The following pro forma consolidated condensed balance sheet as of
December 31, 1999, and consolidated condensed income statements for the years
ended December 31, 1999, 1998 and 1997, reflect the combination of Kentucky
Financial with Fort Thomas Financial, based on the assumptions described in the
footnotes to the financial statements. The pro forma income statements combine
the audited results of operations of Kentucky Financial for the years ended
December 31, 1999, 1998 and 1997, with the audited results of operations of Fort
Thomas Financial for the fiscal years ended September 30, 1999, 1998 and 1997,
respectively. The pro forma income statements may not accurately reflect the
full financial impact had Kentucky Financial and Fort Thomas Financial merged
during the periods reported. The pro forma income statements do not include
non-recurring charges, expected to aggregate approximately $2,000,000, related
to the combination. Expected charges include benefit payments to certain Fort
Thomas Financial executives, benefit expense recorded when shares owned by the
Fort Thomas Financial ESOP accelerate and vest, data processing contract
termination fees and advisory fees paid by both parties. These charges will be
recorded in the period following consummation of the merger.
-14-
<PAGE> 16
KENTUCKY FINANCIAL
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (1)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
Kentucky Fort Thomas Pro Forma Pro Forma
ASSETS Financial Financial Adjustments Consolidated
--------- --------- ----------- -----------
(Dollar amounts in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 18,684 $ 871 $ 616 (2) $ 20,171
Short-term investments 1,000 - 1,000
Securities available for sale 23,832 726 24,558
Securities held to maturity 26,730 5,500 32,230
Loans, net of allowance 241,483 88,345 329,828
Premises and equipment 4,466 579 5,045
Federal Home Loan Bank stock 2,173 950 3,123
Accrued interest receivable and other assets 4,042 2,707 6,749
--------- -------- ----- ---------
Total assets $ 322,410 $ 99,678 $ 616 $ 422,704
========= ======== ===== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 272,718 $ 67,324 $ 340,042
Short-term borrowings 18,695 5,250 23,945
Long-term debt 503 11,936 12,439
Other liabilities 1,572 1,202 2,774
--------- -------- ---------
Total liabilities 293,488 85,712 379,200
SHAREHOLDERS' EQUITY
Common stock 3,098 16 (16) (3) 3,098
Additional paid-in capital 7,785 7,674 616 (2) 14,203
(1,380) (4)
(508) (5)
16 (3)
Retained earnings 18,277 8,414 (250) (5) 26,441
Treasury stock - (1,380) 1,380 (4) -
Benefit plans - (758) 758 (5) -
Net unrealized gain/(loss) on securities available
for sale (238) - - (238)
--------- -------- ----- ---------
Total shareholders' equity 28,922 13,966 616 43,504
--------- -------- ----- ---------
Total liabilities and shareholders' equity $ 322,410 $ 99,678 $ 616 $ 422,704
========= ======== ===== =========
</TABLE>
ADJUSTMENTS:
- ------------
(1) The pro forma condensed consolidated balance sheet assumes that the
merger is accounted for as a pooling of interests. As a result,
Kentucky Financial and Fort Thomas Financial's assets, liabilities and
shareholder's equity are added together at the historical carrying
values. No adjustments to these pro forma financial statements were
necessary to conform accounting methods as contemplated by APB Opinion
16.
(2) Issuance of 87,494 Fort Thomas Financial shares upon the expected
exercise of vested stock options will generate net proceeds of
$616,000.
(3) Issuance of 851,542 shares of Kentucky Financial common stock in
exchange for the 1,508,489 shares of Fort Thomas Financial assumed to
be outstanding immediately before the consummation of the merger. The
number of Fort Thomas Financial shares assumed to be outstanding
immediately before the consummation of the merger is based on the
expectation that (1) all vested Fort Thomas Financial stock options
will be exercised, (2) all unawarded and awarded but unvested shares
held by the Fort Thomas Financial management recognition plans (27,951
shares) will be returned to the treasury of Fort Thomas Financial
before the consummation of the merger and (3) 25,377 shares of Fort
Thomas Financial will be redeemed before the consummation of the
merger to eliminate the remaining balance of the loan made by Fort
Thomas Financial to the Fort Thomas Financial ESOP.
(4) Retirement of Fort Thomas Financial treasury stock.
(5) Termination of Fort Thomas Financial ESOP and cancellation of unawarded
and awarded but unvested Fort Thomas Financial shares held by the Fort
Thomas Financial management recognintion plan's trustee. Assumes
compensation expense of $250,000 related to acceleration of the ESOP
loan payment and termination. Assumes 25,377 Fort Thomas Financial
shares will be redeemed to eliminate the remaining balance due on the
ESOP loan.
-15-
<PAGE> 17
KENTUCKY FINANCIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31, 1999 (1)
------------------------------------
(Dollar amounts in thousands, except per share amounts)
(unaudited)
Kentucky Fort Thomas Pro Forma Pro Forma
Financial Financial (2) Adjustments Consolidated
--------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 19,675 $ 7,762 $ -- $ 27,437
Interest on securities 2,495 280 -- 2,775
Other interest income 258 271 -- 529
---------- ---------- ---------- ----------
Total interest income 22,428 8,313 -- 30,741
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 9,684 3,843 -- 13,527
Other interest expense 806 639 -- 1,445
---------- ---------- ---------- ----------
Total interest expense 10,490 4,482 -- 14,972
---------- ---------- ---------- ----------
NET INTEREST INCOME 11,938 3,831 -- 15,769
Provision for loan losses 619 68 -- 687
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
11,319 3,763 -- 15,082
NON-INTEREST INCOME 2,335 236 -- 2,571
NON-INTEREST EXPENSE 7,185 2,449 -- 9,634
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 6,469 1,550 -- 8,019
Income taxes 1,755 530 -- 2,285
---------- ---------- ---------- ----------
NET INCOME $ 4,714 $ 1,020 $ -- $ 5,734
========== ========== ========== ==========
BASIC EARNINGS PER SHARE
Net income per share $ 0.89 $ 0.71 $ -- $ 0.94 (3)
Weighted average number of shares
outstanding 5,281,837 1,428,395 -- 6,088,166
DILUTED EARNINGS PER SHARE
Net income per share $ 0.89 $ 0.68 $ -- $ 0.93 (3)
Weighted average number of shares
outstanding 5,323,356 1,502,263 -- 6,171,383
</TABLE>
- --------------------
(1) No adjustments to these pro forma financial statements were necessary
to conform accounting methods as contemplated by APB Opinion 16.
(2) Income statement data for Fort Thomas Financial is for the year ended
September 30, 1999.
(3) Assumes the issuance of .5645 share of Kentucky Financial stock for
each Fort Thomas Financial share outstanding.
-16-
<PAGE> 18
KENTUCKY FINANCIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31, 1998 (1)
------------------------------------
(Dollar amounts in thousands, except per share amounts)
(unaudited)
Kentucky Fort Thomas Pro Forma Pro Forma
Financial Financial (2) Adjustments Consolidated
--------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 17,864 $ 8,079 $ -- $ 25,943
Interest on securities 1,955 211 -- 2,166
Other interest income 484 212 -- 696
---------- ---------- ---------- ----------
Total interest income 20,303 8,502 -- 28,805
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 9,283 3,938 -- 13,221
Other interest expense 629 521 -- 1,150
---------- ---------- ---------- ----------
Total interest expense 9,912 4,459 -- 14,371
---------- ---------- ---------- ----------
NET INTEREST INCOME 10,391 4,043 -- 14,434
Provision for loan losses 585 285 -- 870
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
9,806 3,758 -- 13,564
NON-INTEREST INCOME 2,302 279 -- 2,581
NON-INTEREST EXPENSE 6,095 2,505 -- 8,600
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 6,013 1,532 -- 7,545
Income taxes 1,947 543 -- 2,490
---------- ---------- ---------- ----------
NET INCOME $ 4,066 $ 989 $ -- $ 5,055
========== ========== ========== ==========
BASIC EARNINGS PER SHARE
Net income per share $ 0.77 $ 0.70 $ -- $ 0.83 (3)
Weighted average number of shares
outstanding 5,266,269 1,405,456 -- 6,059,649
DILUTED EARNINGS PER SHARE
Net income per share $ 0.77 $ 0.66 $ -- $ 0.83 (3)
Weighted average number of shares
outstanding 5,271,102 1,494,999 -- 6,115,029
</TABLE>
- -----------------
(1) No adjustments to these pro forma financial statements were necessary
to conform accounting methods as contemplated by APB Opinion 16.
(2) Income statement data for Fort Thomas Financial is for the year ended
September 30, 1998.
(3) Assumes the issuance of .5645 share of Kentucky Financial stock for
each Fort Thomas Financial share outstanding.
-17-
<PAGE> 19
KENTUCKY FINANCIAL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31, 1997 (1)
------------------------------------
(Dollar amounts in thousands, except per share amounts)
(unaudited)
Kentucky Fort Thomas Pro Forma Pro Forma
Financial Financial (2) Adjustments Consolidated
--------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 15,329 $ 7,499 $ -- $ 22,828
Interest on securities 1,743 304 -- 2,047
Other interest income 175 167 -- 342
---------- ---------- ---------- ----------
Total interest income 17,247 7,970 -- 25,217
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 7,656 3,615 -- 11,271
Other interest expense 662 523 -- 1,185
---------- ---------- ---------- ----------
Total interest expense 8,318 4,138 -- 12,456
---------- ---------- ---------- ----------
NET INTEREST INCOME 8,929 3,832 -- 12,761
Provision for loan losses 352 137 -- 489
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES
8,577 3,695 -- 12,272
NON-INTEREST INCOME 1,313 268 -- 1,581
NON-INTEREST EXPENSE 5,378 2,237 -- 7,615
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,512 1,726 -- 6,238
Income taxes 1,495 587 -- 2,082
---------- ---------- ---------- ----------
NET INCOME $ 3,017 $ 1,139 $ -- $ 4,156
========== ========== ========== ==========
BASIC EARNINGS PER SHARE
Net income per share $ 0.57 $ 0.79 $ -- $ 0.68 (3)
Weighted average number of shares
outstanding 5,252,481 1,448,857 -- 6,070,361
DILUTED EARNINGS PER SHARE
Net income per share $ 0.57 $ 0.75 $ -- $ 0.68 (3)
Weighted average number of shares
outstanding 5,253,753 1,521,003 -- 6,112,359
- -----------------------------
</TABLE>
(1) No adjustments to these pro forma financial statements were necessary
to conform accounting methods as contemplated by APB Opinion 16.
(2) Income statement data for Fort Thomas Financial is for the year ended
September 30, 1997.
(3) Assumes the issuance of .5645 share of Kentucky Financial stock for
each Fort Thomas Financial share outstanding.
-18-
<PAGE> 20
PURPOSE OF THIS DOCUMENT
This document serves as both a prospectus of Kentucky Financial for the
issuance of up to 865,866 Kentucky Financial shares in connection with the
merger and a proxy statement of Fort Thomas Financial for its special meeting of
shareholders. We will mail this document to Fort Thomas Financial shareholders
on or about April 19, 2000.
Kentucky Financial and The Bank of Kentucky provided all information in
this document about them, and Fort Thomas Financial and Fort Thomas Savings Bank
provided all information in this document about them. Each party is responsible
for the accuracy of its information.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH WE HAVE REFERRED IN THIS DOCUMENT. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH ANY ADDITIONAL INFORMATION OR WITH INFORMATION THAT IS
DIFFERENT.
RISK FACTORS
In considering and acting upon the proposal to adopt the merger
agreement and approve the merger, you should consider carefully all of the
information contained in this document, especially the following factors.
LIMITED MARKET FOR KENTUCKY FINANCIAL SHARES MAY AFFECT YOUR ABILITY TO SELL
KENTUCKY FINANCIAL SHARES.
Kentucky Financial shares are not listed or traded on Nasdaq, or any
securities exchange, and there is presently only a very limited market for the
Kentucky Financial shares. Information about Kentucky Financial shares is posted
on the OTC Bulletin Board, a quotation service that displays real-time quotes,
last sale prices, and volume information in over-the-counter securities.
Presently, three brokerage firms are known by Kentucky Financial to trade in
Kentucky Financial shares. If all of the holders of Fort Thomas Financial were
to elect to receive Kentucky Financial shares in the merger, a total of
approximately 6,143,969 Kentucky Financial shares would be outstanding after
the merger, approximately 851,542 of which, or 13.86%, would be held by the
former holders of the Fort Thomas Financial shares (excluding the 12,441
Kentucky Financial shares that would be issued upon exercise of options granted
in exchange for the Fort Thomas Financial stock options).
Despite the increasing number of outstanding shares of Kentucky
Financial stock and the increasing number of Kentucky Financial shareholders,
upon the consummation of the merger, a more active or liquid market for the
Kentucky Financial shares after the consummation of the merger may not develop.
Shareholders of Fort Thomas Financial who receive Kentucky Financial shares in
exchange for their Fort Thomas Financial shares should consider the possibility
of a continued limited market and some risk of an inability to sell shares of
Kentucky Financial stock in a timely manner after the consummation of the
merger.
FLUCTUATION IN THE MARKET PRICE OF KENTUCKY FINANCIAL SHARES WILL AFFECT THE
VALUE YOU RECEIVE UPON THE CLOSING OF THE MERGER.
If the merger closes after the satisfaction or waiver of all of the
closing conditions, each outstanding common share of Fort Thomas Financial will
be cancelled on the day of the closing in exchange for .5645 share of Kentucky
Financial stock. The value of the consideration you receive will depend on the
market value of a share of Kentucky Financial on the day of the closing. On
April 14, 2000, the price paid per share for Kentucky Financial stock in the
most recent trade in Kentucky Financial shares of which Kentucky Financial is
aware was $28.00. See "Limited market for Kentucky Financial shares may affect
your ability to sell Kentucky Financial shares."
On the day the merger closes, the market price of Kentucky Financial
shares may be higher or lower than the market price on the date the merger
agreement was signed, on the date this document was mailed to you or on
-19-
<PAGE> 21
the date of the special meeting of shareholders of Fort Thomas Financial.
Therefore, you cannot be assured of receiving any specific market value of
Kentucky Financial stock on the date of the closing of the merger.
ILLIQUID MARKET FOR KENTUCKY FINANCIAL SHARES MAY NEGATIVELY AFFECT MARKET
VALUE.
On April 14, 2000, the price paid per share for Kentucky Financial
stock in the most recent trade in Kentucky Financial shares of which Kentucky
Financial is aware was $28.00. Such price equaled 31.46 times the earnings per
share of Kentucky Financial for the year ended December 31, 1999, and 512% of
the December 31, 1999, book value per share. Such multiples of book and earnings
are in substantial excess of the multiples paid on average at this same time for
shares of banks and bank holding companies that are deemed comparable to
Kentucky Financial in asset size.
CONTROLLING INFLUENCE OF MANAGEMENT AND ANTITAKEOVER PROVISIONS MAY DISCOURAGE
SALES OF KENTUCKY FINANCIAL SHARES FOR PREMIUM PRICES.
After the consummation of the merger, the directors and executive
officers of Kentucky Financial will own in the aggregate approximately 2,534,045
Kentucky Financial shares, or 41.24%, of the 6,143,969 outstanding Kentucky
Financial shares, excluding the Kentucky Financial shares to be issued upon the
exercise of options held by Kentucky Financial directors and executive officers
and shares to be issued upon the exercise of options exchanged for the Fort
Thomas Financial options. Upon the exercise of all of such options, the
directors and executive officers of Kentucky Financial would own in the
aggregate approximately 41.54% of the 6,197,270 outstanding Kentucky Financial
shares. Such aggregate ownership will permit the current directors and executive
officers of Kentucky Financial to exert a substantial influence over the
operations of Kentucky Financial and its subsidiaries.
Kentucky Financial's Amended Articles and Bylaws contain provisions
that could discourage non-negotiated takeover attempts that some shareholders
might deem to be in their interests or through which shareholders might
otherwise receive a premium for their Kentucky Financial shares and which may
tend to perpetuate existing management. These provisions include:
- the classification of the terms of the members of the Board of
Directors of Kentucky Financial;
- supermajority provisions for the approval of certain business
combinations; and
- a nomination procedure set forth in the Bylaws of Kentucky Financial.
See "Description of Kentucky Financial shares - Antitakeover provisions in
Kentucky Financial's Articles of Incorporation and By-laws."
GEOGRAPHIC CONCENTRATION IN ONE MARKET AND CHANGING ECONOMIC CONDITIONS MAY
UNFAVORABLY AFFECT KENTUCKY FINANCIAL.
The operations of Kentucky Financial and Fort Thomas Financial are
concentrated in northern Kentucky. As a result of this geographic concentration,
Kentucky Financial's and Fort Thomas Financial's results depend largely upon
economic conditions in this area. A deterioration in economic conditions in
these markets could:
- increase loan delinquencies;
- increase problem assets and foreclosures;
- increase claims and lawsuits;
- decrease the demand for Kentucky Financial's products and services;
and
- decrease the value of collateral for loans, especially real estate,
in turn reducing customers' borrowing power, the value of assets
associated with problem loans and collateral coverage.
-20-
<PAGE> 22
FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor from civil litigation for forward-looking statements. Forward-looking
statements include the information concerning future results of operations, cost
savings and synergies of Kentucky Financial and Fort Thomas Financial after the
merger set forth in "Summary" and "The merger" and those proceeded by, followed
by or that otherwise include the statements "should," "believe," "expect,"
"anticipate," "intend," "may," "will," "continue," "estimate" and other
expressions that indicate future events and trends. Although Kentucky Financial
and Fort Thomas Financial believe that in making such statements, their
expectations are based on reasonable assumptions, these statements may be
influenced by risks and uncertainties which could cause actual results and
trends to be substantially different from historical results or those
anticipated depending on a variety of factors. These risks and uncertainties
include, without limitation:
- expected cost savings from the merger are not fully realized or
realized within the expected time frame;
- revenues following the merger are lower than expected or deposit
withdrawals, operating costs or customer loss and business disruption
following the merger are greater than expected;
- competition among depository and other financial services companies
increases significantly;
- costs or difficulties related to the integration of Kentucky
Financial and Fort Thomas Financial are greater than expected;
- general economic or business conditions are less favorable than
expected;
- adverse changes occur in the securities market; and
- legislation or regulatory requirements or changes adversely affect
the businesses in which Kentucky Financial is engaged.
You should understand that these factors, in addition to those
discussed elsewhere in this document and in documents which have been
incorporated by reference, could effect the future results of Kentucky Financial
and Fort Thomas Financial, and could cause those results to be substantially
different from those expressed in any forward-looking statements. Kentucky
Financial and Fort Thomas Financial do not undertake any obligation to update
any forward-looking statement to reflect events or circumstances arising after
the date of this document.
THE SPECIAL MEETING OF FORT THOMAS FINANCIAL SHAREHOLDERS
TIME, DATE AND PLACE
The Fort Thomas Financial special meeting of shareholders will be held
at the Comfort Inn Suites, 420 Riverboat Row, Newport Kentucky, at 9:00 a.m.
Eastern Daylight Saving Time, on May 23, 2000.
PURPOSE OF THE MEETING
At the special meeting of shareholders, you will be asked to consider
and vote upon a proposal to adopt the merger agreement.
-21-
<PAGE> 23
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
Only shareholders of record on April 14, 2000, will be entitled
to notice of and to vote at the special meeting of shareholders. At the close of
business on April 14, 2000, there were 1,474,321 Fort Thomas Financial
shares outstanding and entitled to vote. The Fort Thomas Financial shares were
held of record by approximately 625 shareholders. Each Fort Thomas Financial
share entitles the holder to one vote on all matters properly presented at the
special meeting of shareholders.
VOTES REQUIRED
The holders of at least two-thirds of the outstanding Fort Thomas
Financial shares, or 982,881 shares, must vote in favor of the merger
agreement. As of April 14, 2000, the directors and executive officers of
Fort Thomas Financial owned or had voting power, in the aggregate, with respect
to 179,145 outstanding Fort Thomas Financial common shares, or 12.2% of the
outstanding Fort Thomas Financial common shares. The directors and executive
officers of Fort Thomas Financial have agreed to vote all of their Fort Thomas
Financial common shares for the adoption of the merger agreement.
A quorum, consisting of the holders of over 50% of the outstanding Fort
Thomas Financial common shares, voting in person or by proxy, must be present at
the special meeting before any action can be taken.
Under Ohio law, shares that are held by a nominee for a beneficial
owner and which are represented in person or by proxy at the special meeting
will be counted as being present for purposes of establishing a quorum. If you
abstain or fail to vote your shares, it will be the same as a vote against the
approval and adoption of the merger agreement. If your proxy is signed, dated
and submitted but no vote is specified, it will be voted "FOR" the approval and
adoption of the merger agreement.
-22-
<PAGE> 24
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 14, 2000, information with
respect to the beneficial ownership of Fort Thomas Financial shares by each
person known by Fort Thomas Financial to be the beneficial owner of more than
five percent of the shares, by each current director of Fort Thomas Financial
and by all directors and executive officers of Fort Thomas Financial as a group.
Unless otherwise indicated in the note to this table, the shareholders listed in
the table have sole voting and investment power with respect to shares
beneficially owned by them.
<TABLE>
<CAPTION>
Common shares
beneficially owned as of
April 14, 2000 (1)
------------------------------
Name of beneficial owner Amount %
------------------------ ---------- ---
<S> <C> <C>
Fort Thomas Financial Corporation 38,668 (2) 2.6%
Employee Stock Ownership Plan Trust
25 North Fort Thomas Avenue
Fort Thomas, Kentucky 41075
Directors:
Larry N. Hatfield 74,346 (3) 4.9%
Robert L. Grimm 18,591 (4) 1.2%
Harold A. Luersen 28,591 (5) 1.9%
Don J. Beckmeyer 18,147 (6) 1.2%
J. Steven McLane 20,086 (7) 1.3%
All directors and executive officers of Fort 227,971 14.6%
Thomas Financial and Fort Thomas
Savings Bank as a group (6 persons)
</TABLE>
- ------------------------
(1) For purposes of this table, an individual is considered to beneficially
own shares if he or she directly or indirectly has or shares (i) voting
power, which includes the power to vote or to direct the voting of the
shares; or (ii) investment power, which includes the power to dispose
or direct the disposition of the shares. Unless otherwise indicated, an
individual has sole voting power and sole investment power over the
indicated shares. Shares that may be acquired by the exercise of stock
options that are exercisable within 60 days of the voting record date
are deemed to be beneficially owned by the holder and are outstanding
for the purpose of computing the percentages of shares beneficially
owned by the respective individual and group. The shares reflected as
beneficially owned by Messrs. Hatfield, Grimm, Luersen, Beckmeyer and
McLane and by all directors and executive officers as a group include
31,475, 6,136, 6,136, 6,136, 6,136 and 87,494 shares, respectively,
that are exercisable within 60 days of the voting record date pursuant
to Fort Thomas Financial's stock option plans.
(2) The Fort Thomas Financial ESOP trustees are Messrs. Beckmeyer, Grimm
and Luersen. As of the voting record date, the ESOP had allocated
83,430 shares to the accounts of participating employees and 38,668
shares remain unallocated. Under the terms of the ESOP, the trustees
must vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees, and allocated shares for
which employees do not give instructions will be voted in the same
ratio on any matter as to those shares for which instructions are
given. Unallocated shares held in the ESOP will be voted by the ESOP
trustees in accordance with their fiduciary duties as trustees. The
amount of common shares beneficially owned by each individual trustee
or all directors and executive officers as a group does not include the
shares held by the ESOP.
(footnotes continued on next page)
-23-
<PAGE> 25
(3) Includes 10,000 shares held jointly with Mr. Hatfield's spouse, with
whom voting and dispositive power is shared, 19,935 shares allocated to
Mr. Hatfield pursuant to the Fort Thomas Financial's ESOP and 350
shares held by his spouse, which Mr. Hatfield may be deemed to
beneficially own.
(4) Includes 5,000 shares held by Mr. Grimm's spouse, which Mr. Grimm may
be deemed to beneficially own. Excludes the shares held by the ESOP, of
which Mr. Grimm is one of three trustees.
(5) Includes 10,000 shares held jointly with Mr. Luersen's spouse, with
whom voting and dispositive power is shared, and 10,000 shares held by
his spouse, which Mr. Luersen may be deemed to beneficially own.
Excludes the shares held by the ESOP, of which Mr. Luersen is one of
three trustees.
(6) Includes 5,250 shares held jointly with Mr. Beckmeyer's spouse, with
whom voting and dispositive power is shared, 1,153 shares held by his
spouse's IRA, and 2,000 shares held by a corporation as to which Mr.
Beckmeyer owns 100% of the outstanding stock. Excludes the shares held
by the ESOP, of which Mr. Beckmeyer is one of three trustees.
(7) Includes 5,407 shares held by Mr. McLane's spouse, which Mr. McLane may
be deemed to beneficially own, and 1,500 shares held in trust for Mr.
McLane's children for which he acts as trustee.
VOTING AND SOLICITATION AND REVOCATION OF PROXIES
We included with this document a form of proxy for use at the special
meeting of shareholders. This proxy is solicited by the Fort Thomas Financial
Board of Directors. Whether or not you attend the special meeting, the Fort
Thomas Financial Board of Directors urges you to use the enclosed proxy. Your
attendance at the special meeting will not, by itself, revoke a proxy you have
submitted. If you have executed a proxy, you may revoke it at any time before
the vote by:
- filing with the Secretary of Fort Thomas Financial, at 25 North Fort
Thomas Avenue, Fort Thomas, Kentucky 41075, a written notice of
revocation;
- executing and returning a later-dated proxy prior to a vote being
taken at the special meeting; or
- attending the special meeting and giving notice of revocation in
person.
We do not expect any matter other than the merger to be brought before
the Fort Thomas Financial special meeting of shareholders. The persons named as
proxies will act at the direction of the Fort Thomas Financial Board of
Directors in voting with respect to any other matters which properly come before
the special meeting.
Fort Thomas Financial will pay its expenses incurred in connection with
preparing and mailing this document, the accompanying proxy and any other
related materials and all other costs incurred in connection with the
solicitation of proxies on behalf of the Fort Thomas Financial Board of
Directors. Proxies will be solicited by mail and may be further solicited, for
no additional compensation, by officers, directors or employees of Fort Thomas
Financial. Fort Thomas Financial has retained Regan & Associates, a professional
proxy solicitation firm, to assist in the solicitation of proxies. Regan &
Associates will be paid a fee of $3,500, plus reimbursement for out-of-pocket
expenses up to $1,750. Fort Thomas Financial will also pay the standard charges
and expenses of brokerage houses, voting trustees, banks, associations and other
custodians, nominees and fiduciaries who are record holders of Fort Thomas
Financial common shares not beneficially owned by them, for forwarding the proxy
materials to, and obtaining proxies from, the beneficial owners of Fort Thomas
Financial common shares entitled to vote at the special meeting of shareholders.
-24-
<PAGE> 26
DISSENTERS' RIGHTS
The following is a summary of the steps that Fort Thomas Financial
shareholders must take if they wish to exercise dissenters' rights with respect
to the merger. This description is not complete. You should read Section
1701.85 of the Ohio General Corporation Law for a more complete discussion of
the procedures. This section is attached as Appendix B to this document. IF YOU
FAIL TO TAKE ANY ONE OF THE REQUIRED STEPS, YOUR DISSENTERS' RIGHTS MAY BE
TERMINATED UNDER OHIO LAW. If you are considering dissenting, you should consult
your own legal advisor.
To exercise dissenters' rights, you must satisfy five conditions:
- you must be a shareholder of record on April 14, 2000;
- you must not vote your shares in favor of the merger;
- you must deliver a written demand for the fair cash value of the
dissenting shares within 10 days of the Fort Thomas Financial special
meeting;
- if Fort Thomas Financial requests, you must send within 15 days of
the request your stock certificates so that a legend may be added
stating that a demand for fair cash value has been made; and
- if you have not reached an agreement as to the fair cash value for
your shares with Fort Thomas Financial, you must file a complaint in
court for determination of the fair cash value.
All demands should be sent to Fort Thomas Financial, 25 North Fort
Thomas Avenue, Fort Thomas Kentucky 41075, Attention: Secretary.
"Fair cash value" is the amount that a willing seller, under no
compulsion to sell, would be willing to accept, and that a willing buyer, under
no compulsion to purchase, would be willing to pay. In no event will the fair
cash value be in excess of the amounts specified in the dissenting shareholder's
demand. Fair cash value is determined as of the day before the special meeting,
excluding any appreciation or depreciation in market value of your shares
resulting from the merger. The fair cash value of your shares may be higher, the
same, or lower than the market value of the Fort Thomas Financial stock on the
date of the merger.
The following is a more detailed description of the conditions you must
satisfy to perfect your dissenters' rights:
- You must be a shareholder of record. To be entitled to dissenters'
rights, you must be the record holder of the dissenting shares as of
April 14, 2000. If you have a beneficial interest in Fort
Thomas Financial shares that are held of record in the name of
another person, you must cause the shareholder of record to follow
the required procedures.
- You must not vote in favor of the merger. This requirement is
satisfied if:
- you submit a properly executed proxy with instructions to vote
"against" the adoption of the merger agreement or to "abstain" from
the vote;
- you do not return a proxy and you do not cast a vote at the special
meeting in favor of the adoption of the merger agreement; or
- you revoke a proxy and later "abstain" from or vote "against" the
adoption of the merger agreement.
IF YOU VOTE IN FAVOR OF THE MERGER AGREEMENT, YOU WILL LOSE YOUR
DISSENTERS' RIGHTS. IF YOU SIGN A PROXY AND RETURN IT BUT DO NOT
INDICATE A VOTING PREFERENCE ON THE PROXY, THE PROXY WILL BE VOTED IN
FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT AND WILL CONSTITUTE A
WAIVER OF DISSENTERS' RIGHTS.
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<PAGE> 27
- You must file a written demand. The demand must be filed with Fort
Thomas Financial on or before the 10th day after the special meeting
at which the Fort Thomas Financial shareholders approved the
merger. Fort Thomas Financial will not inform shareholders of the
expiration of the 10-day period. The written demand must include your
name and address, the number of dissenting shares and the amount
claimed as the fair cash value of those shares. Voting against the
merger does not constitute a written demand as required under Ohio
law.
- You must deliver certificates for legending. If Fort Thomas Financial
requests, you must submit your certificates for dissenting shares to
Fort Thomas Financial within 15 days after it sends its request for
endorsement on the certificates of a legend that demand for cash
value was made. The certificates will be returned to you by Fort
Thomas Financial. Fort Thomas Financial intends to make this request
to dissenting shareholders.
- You must file a petition with the court if you do not reach an
agreement as to the fair cash value for your shares. If you and Fort
Thomas Financial do not reach an agreement on the fair cash value of
the dissenting shares, you must, within three months after service of
your demand for fair cash value, file a complaint in the Court of
Common Pleas of Cuyahoga County, Ohio, for a determination of the
fair cash value of the dissenting shares. The court will determine
the fair cash value per share. The costs of the proceeding, including
reasonable compensation to appraisers, will be assessed as the court
considers equitable.
Your right to receive the fair cash value of your dissenting shares
will terminate if:
- the merger does not become effective;
- you fail to make a timely written demand on Fort Thomas Financial;
- you do not, upon request of Fort Thomas Financial, surrender your
Fort Thomas Financial certificates in a timely manner;
- you withdraw your demand, with the consent of Fort Thomas Financial;
or
- Fort Thomas Financial and you have not come to an agreement as to the
fair cash value of the dissenting shares and you have not timely
filed a complaint.
THE PARTIES
KENTUCKY FINANCIAL
Kentucky Financial is a bank holding company organized under Kentucky
law. Kentucky Financial was incorporated in 1993 and engaged in no business
activities until April 1, 1995, when it acquired, in a reorganization, all of
the outstanding shares of The Bank of Kentucky Inc., a bank incorporated under
the laws of Kentucky (formerly named "The Bank of Boone County, Inc."), and
Burnett Federal Savings Bank, a federal savings bank. As a result of the
acquisition, Kentucky Financial became a bank holding company and a savings and
loan holding company.
On September 30, 1995, Burnett was merged into The Bank of Kentucky. As
a result, Kentucky Financial's status as a savings and loan holding company
terminated. As a bank holding company, Kentucky Financial, through The Bank of
Kentucky, is engaged in the banking business in Kentucky.
-26-
<PAGE> 28
Formed in 1990 to engage in the commercial banking business, The Bank
of Kentucky provides a variety of community-oriented consumer and commercial
financial services to customers throughout Northern Kentucky. The principal
business activity of The Bank of Kentucky consists of accepting consumer and
commercial deposits and using such deposits to fund residential and
non-residential real estate loans and commercial, consumer, construction and
land development loans. The Bank of Kentucky's primary market area for both
loans and deposits includes Boone, Kenton and Campbell Counties and parts of
Grant and Gallatin Counties in Northern Kentucky. Service is provided to the
market area through the main office of The Bank of Kentucky and five branch
offices in Boone County, four branch offices in Kenton County and one branch
office in Grant County.
Interest and fees on loans and interest on securities are The Bank of
Kentucky's primary sources of income. The Bank of Kentucky's principal expense
is interest paid on deposit accounts and borrowings. Operating results are
dependent to a significant degree on the "net interest income" of The Bank of
Kentucky, which is the difference between interest income from loans and
securities and other interest-earning assets, and interest expense on deposits
and borrowings.
Kentucky Financial has grown from assets of $160.3 million in 1995, to
$322.4 million at December 31, 1999, without any mergers or acquisitions since
the acquisitions of The Bank of Kentucky and Burnett Federal. During that time,
the number of branches of The Bank of Kentucky has grown from five to eleven and
deposits and loans have approximately doubled.
FORT THOMAS FINANCIAL
Fort Thomas Financial was incorporated under the laws of Ohio in March
1995 for the purpose of becoming the holding company of Fort Thomas Savings Bank
when it converted to a federally-chartered stock savings bank. Fort Thomas
Financial is headquartered in Fort Thomas, Kentucky, and its business activities
are primarily limited to the Commonwealth of Kentucky.
The primary lending activity of Fort Thomas Savings Bank is one- to
four-family residential mortgages.
Fort Thomas Savings Bank formed as a Kentucky chartered mutual building
and loan association in 1910. In 1994, Fort Thomas Savings Bank converted to a
federally-chartered mutual savings and loan association and in 1995 converted to
a federally-chartered stock savings bank. Fort Thomas Savings Bank operates
through the main office in Fort Thomas, Kentucky, and a branch office in
Alexandria, Kentucky. At December 31, 1999, Fort Thomas Financial's consolidated
assets totaled $99.7 million, its deposits totaled $67.3 million and its
tangible shareholders' equity totaled $14.0 million.
THE MERGER
BACKGROUND AND REASONS FOR THE MERGER
FORT THOMAS FINANCIAL. Fort Thomas Financial was formed in connection
with Fort Thomas Federal Savings and Loan Association's conversion on June 27,
1995, from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank known as Fort Thomas Savings Bank, FSB.
After the conversion, and consistent with our business plan, our
management at Fort Thomas Financial and Fort Thomas Savings Bank continued to
focus on improving our core business of obtaining deposits from the public and
originating one- to four-family mortgage loans. We also continued our efforts to
control operating expenses and improve both overall profitability and
shareholder value through various capital enhancement techniques, including
stock repurchases and special distributions.
On June 28, 1999, the Board met with a representative from Keefe,
Bruyette & Woods to discuss recent trends in the banking industry and the
prospects for Fort Thomas Financial. The Board of Directors discussed the
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<PAGE> 29
dramatic change that had occurred in the market for publicly traded thrifts in
recent quarters and the difficult strategic issues facing thrift institutions
and, in particular, smaller institutions like ours. The Board of Directors also
considered our relatively slow growth, increased competition and the decreasing
pool of potential acquirors as a result of consolidation in the thrift and
banking industry. In addition, Keefe, Bruyette & Woods stated that the
likelihood that pooling accounting treatment would no longer be applicable as of
year end 2000 could have a detrimental impact on our sale price. At this
meeting, Keefe, Bruyette & Woods also reviewed the then current merger market,
the various pricing methods and a range of value for us based on these pricing
methods. It was determined that this range of value for our common stock on a
sale basis would generally exceed the present value of our common stock on a
stand alone basis under business strategies that we could reasonably implement.
At its July 19, 1999, meeting, the Board of Directors decided that an
affiliation with another company through merger or acquisition could be in the
best interests of our constituents, including shareholders, customers,
employees, and the communities we serve. The Board of Directors authorized the
president, Larry N. Hatfield, to enter into an agreement with Keefe, Bruyette &
Woods to explore strategic alternatives and for Keefe, Bruyette & Woods to
conduct a confidential inquiry regarding the interest of other companies in
acquiring Fort Thomas Financial. On July 27, 1999, such an agreement was entered
into with Keefe, Bruyette & Woods.
Based on discussions with and recommendations of Keefe, Bruyette &
Woods, the executive officers identified a number of thrift and bank holding
companies that might have a strategic or financial interest, or both, in the
potential acquisition of Fort Thomas Financial. In August 1999, Keefe, Bruyette
& Woods contacted ten entities regarding their possible interest in acquiring a
savings bank in the Greater Cincinnati region. After signing a confidentiality
agreement, the seven entities that expressed an interest in us were provided
with our financial statements, loan and deposit summaries and other data. While
six of the entities showed a genuine interest up to the time preliminary
indications were requested, only two companies, including Kentucky Financial,
submitted preliminary, non-binding indications of interest to acquire us.
On September 21, 1999, the Board of Directors elected to invite the
company other than Kentucky Financial to perform a more thorough due diligence
review of Fort Thomas. It was their desire from the outset to sell a substantial
portion of our assets. During their review, it was determined that a more
exhaustive pricing of the assets would be required and that they would likely be
at the lower end of their initial range. As a result, Keefe, Bruyette & Woods
established a meeting with Kentucky Financial on October 13, 1999, to convey to
Kentucky Financial the merits of a merger with Fort Thomas. Based on that
meeting, Kentucky Financial submitted an improved indication of interest to us.
On October 27, 1999, the Board of Directors met with Kentucky Financial's
president and its chief financial officer, who provided an overview of their
organization and operating philosophy. Kentucky Financial was invited to perform
its due diligence investigation, which was conducted on November 6 and 7, 1999.
The consideration to be received by Fort Thomas Financial shareholders was
negotiated on November 11, 1999. Subsequently, our management and legal and
financial advisors and Kentucky Financial's management and legal advisors
engaged in negotiations concerning the final terms of the transaction.
On December 20, 1999, the Board of Directors held a special meeting to
consider the due diligence findings of our management and advisors and the
negotiated terms of the definitive transaction agreements. Presentations were
made by management, Keefe, Bruyette & Woods and our legal advisor concerning
summaries of financial and valuation analyses, the terms of the proposed
acquisition, regulatory matters and the due diligence findings. After extensive
discussion among the directors, the Board of Directors voted unanimously to
authorize the execution of the merger agreement.
The Board of Directors believes that the terms of the merger agreement
are fair and in the best interests of Fort Thomas Financial and its
shareholders. In the course of reaching its determination to approve the merger
agreement, the Board of Directors considered all factors it deemed material.
These included:
- the factors discussed with Keefe, Bruyette & Woods at its June 28,
1999, meeting;
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<PAGE> 30
- the Board of Directors' consideration of the written opinion of
Keefe, Bruyette & Woods that the consideration to be received by our
shareholders pursuant to the merger agreement was fair to them from a
financial point of view;
- the other terms of the merger agreement, including the tax-deferred
nature of the consideration to be received by our shareholders;
- the detailed financial analysis, pro forma and other information with
respect to Fort Thomas Financial and Kentucky Financial prepared by
Keefe, Bruyette & Woods;
- the types of business that Kentucky Financial conducts in the region,
the desire to expand in Campbell County, which is where we conduct
our business, and the expanded service Kentucky Financial can provide
our customers and the communities we serve. The Board of Directors
believes that Fort Thomas and Kentucky Financial have similar
business philosophies and the ability to grow as a strong,
independent community institution; and
- the likelihood of receiving the required approvals in a timely
manner.
The foregoing discussion of the information and factors considered by
the Board of Directors is not intended to be exhaustive, but constitutes the
material factors considered by the Board of Directors. In reaching its
determination to approve and recommend the merger agreement, the Board of
Directors did not assign any relative or specific weights to the foregoing
factors, and individual directors may have weighed factors differently. The
terms of the merger agreement were the product of arm's length negotiations
between representatives of Fort Thomas Financial and Kentucky Financial.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
KENTUCKY FINANCIAL. Since the formation of The Bank of Kentucky in
1990, the Board of Directors has focused on responsible growth. Between December
31, 1990 and 1994, the assets of The Bank of Kentucky increased from
approximately $30 million to approximately $126 million. All of this growth
occurred in Boone County, Kentucky, the county in which all of the offices of
The Bank of Kentucky were then located.
In 1994, The Bank of Kentucky desired to expand beyond Boone County and
into Kenton County. Expansion possibilities were limited, however, by the
requirements of the banking laws of the Commonwealth of Kentucky. These
requirements prohibited The Bank of Kentucky from expanding beyond Boone County
by establishing a branch office location in another county. However, Kentucky
law permitted the acquisition of a financial institution in a county contiguous
to Boone County through the formation of a holding company.
Accordingly, The Bank of Kentucky formed Kentucky Financial as a bank
holding company and entered into a reorganization agreement with Burnett Federal
Savings Bank, a financial institution located in Kenton County, pursuant to
which Burnett became a wholly-owned subsidiary of Kentucky Financial. Following
the consummation of the reorganization, Burnett was merged into The Bank of
Kentucky. Kentucky Financial and The Bank of Kentucky then experienced growth in
a manner by which the assets of Kentucky Financial increased on a consolidated
basis from $126 million at December 31, 1994, to $322.4 million at December 31,
1999.
In 1999, the Board of Directors considered how to continue the
responsible growth of The Bank of Kentucky. Identifying Campbell County as a
possible growth opportunity, the Board of Directors examined acquisition
possibilities in Campbell County. One of such possibilities was Fort Thomas
Savings Bank. At or about that time, The Bank of Kentucky was contacted by
Keefe, Bruyette & Woods to determine whether Kentucky Financial had an interest
in investigating the possibility of acquiring Fort Thomas Financial. Kentucky
Financial responded in the affirmative and thereafter examined the materials
provided by Keefe, Bruyette &
-29-
<PAGE> 31
Woods on Fort Thomas Financial. Following the examination, management of
Kentucky Financial conducted a due diligence review of the books and records of
Fort Thomas Financial.
In the process of evaluating a possible acquisition of Fort Thomas
Financial, Kentucky Financial focused on the fact that, assuming the cost and
expense savings estimated by Kentucky Financial, the merger would be
immediately accretive to Kentucky Financial's earnings per share. Kentucky
Financial also focused on Fort Thomas Financial's relatively low cost of funds
resulting from the large core deposit base. This large deposit base also
attracted Kentucky Financial because it would give Kentucky Financial the
opportunity to increase income through cross-selling products available through
Kentucky Financial, which were not available through Fort Thomas Financial.
Finally, Kentucky Financial recognized that Fort Thomas Financial had a large
number of residential loans, which would give Kentucky Financial the opportunity
to package and sell these loans in the secondary market to generate income and
provide liquidity. Based upon the evaluation, the Board of Directors concluded
that a merger of Fort Thomas Financial with and into Kentucky Financial would be
an attractive method of expanding the business of The Bank of Kentucky into
Campbell County and would be in the best interests of Kentucky Financial
shareholders.
Accordingly, the Board of Directors authorized the executive officers
of Kentucky Financial to negotiate with Fort Thomas Financial toward a suitable
acquisition agreement. After the completion of the negotiations, the Board of
Directors approved the merger agreement and authorized the executive officers to
execute the agreement.
OPINION OF KEEFE, BRUYETTE & WOODS
Pursuant to an engagement letter dated July 27, 1999, between Fort
Thomas Financial and Keefe, Bruyette & Woods, Fort Thomas Financial retained
Keefe, Bruyette & Woods to act as its sole financial advisor in connection with
a possible merger and related matters. As part of its engagement, Keefe,
Bruyette & Woods agreed, if requested by Fort Thomas Financial, to render an
opinion with respect to the fairness, from a financial point of view to the
stockholders of Fort Thomas Financial, of the consideration to be received by
the shareholders in the merger. Keefe, Bruyette & Woods, as part of its
investment banking business, is regularly engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, and distributions of listed and unlisted securities.
It is familiar with the market for common stocks of publicly traded banks,
savings institutions and bank and savings institution holding companies.
On December 21, 1999, Keefe, Bruyette & Woods delivered to the Fort
Thomas Financial Board of Directors its written opinion that the consideration
Fort Thomas Financial shareholders would receive in the merger was fair, from a
financial point of view, as of the date of the opinion. Keefe, Bruyette & Woods
updated its December 21, 1999, opinion as of the date of this document. No
limitations were imposed by Fort Thomas Financial on Keefe, Bruyette & Woods
with respect to the investigations made or the procedures followed in rendering
its opinion.
In connection with rendering its opinion, Keefe, Bruyette & Woods:
- reviewed the merger agreement;
- reviewed Fort Thomas Financial's Annual Reports, Proxy Statements and
Form 10-K's for the years ended September 30, 1996, 1997, and 1998;
- reviewed Fort Thomas Financial's Form 10-Q's for the quarters ended
December 31, 1998, March 31, 1999, and June 30, 1999;
- discussed with senior management and the boards of directors of Fort
Thomas Financial and Fort Thomas Savings Bank the current position
and prospective outlook for Fort Thomas Financial;
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<PAGE> 32
- considered historical quotations and the prices of recorded
transactions in Fort Thomas Financial's common stock since its
initial public offering;
- reviewed financial and stock market data of other savings
institutions, including those in the mid-western region of the United
States, and the financial and structural terms of several other
recent transactions involving mergers and acquisitions of savings
institutions or proposed changes of control of comparably situated
companies;
- reviewed Kentucky Financial's audited financial statements, Form
10-K's and Proxy Statements for the years ended December 31, 1998,
1997, and 1996, and Form 10-Q's for the quarters ended March 31,
1999, June 30, 1999, and September 30, 1999;
- discussed with senior management of Kentucky Financial the current
position and prospective outlook for Kentucky Financial; and
- performed other reviews and analyses as Keefe, Bruyette & Woods
deemed appropriate.
In connection with its review and arriving at its opinion, Keefe,
Bruyette & Woods relied, without independent verification, on the accuracy and
completeness of the material furnished by Fort Thomas Financial and Kentucky
Financial and the material otherwise made available to Keefe, Bruyette & Woods,
including information from published sources. It did not make any independent
effort to verify such data. With respect to the financial information, including
forecasts and asset valuations received from Fort Thomas Financial, Keefe,
Bruyette & Woods assumed (with Fort Thomas Financial's consent) that they had
been reasonably prepared reflecting the best currently available estimates and
judgment of Fort Thomas Financial's management. Keefe, Bruyette & Woods did not
make or obtain any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities, of Fort Thomas
Financial or Kentucky Financial. Keefe, Bruyette & Woods further relied on the
assurances of management of Fort Thomas Financial and Kentucky Financial that
they are not aware of any facts that would make such information inaccurate or
misleading.
ANALYSIS OF RECENT COMPARABLE ACQUISITION TRANSACTIONS. In rendering
its opinion, Keefe, Bruyette & Woods analyzed comparable merger and acquisition
transactions of pending thrift deals, comparing the acquisition price relative
to five industry-accepted ratios: (1) transaction price to tangible book value,
(2) transaction price to last twelve months' earnings, (3) transaction price to
total assets, (4) transaction price to total deposits and (5) premium to core
deposits. The analysis included a comparison of the average and median of the
above ratios for pending and completed acquisitions, based on the following five
comparable groups:
- pending and completed acquisitions of thrifts anywhere in the United
States since January 1, 1999;
- pending and completed acquisitions of thrifts in which the target
thrift had a deal value of less than $35 million;
- pending and completed acquisitions of thrifts in which the target
thrift had tangible equity as a percentage of assets of between 10%
and 16%;
- pending and completed acquisitions of thrifts in which the selling
thrift had a return on average equity of between 6% and 10%; and
- pending and completed acquisitions of thrifts in which the target
thrift was located in the Midwest region of the United States.
The information that appears in the table on the following page
summarizes the material information analyzed by Keefe, Bruyette & Woods with
respect to the merger. The summary does not purport to be a complete description
of the analysis performed by Keefe, Bruyette & Woods and should not be construed
independently of the other information considered by Keefe, Bruyette & Woods in
rendering its opinion. Selecting portions of Keefe, Bruyette & Woods' analysis
or isolating certain aspects of the comparable transactions without considering
all analysis and factors could create an incomplete or potentially misleading
view of the evaluation process.
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<PAGE> 33
<TABLE>
<CAPTION>
Deal Price to
Tangible LTM Core Dep
Book Eps Assets Deposits Premium
---- --- ------ -------- -------
ALL TRANSACTIONS PENDING AND COMPLETED SINCE JANUARY 1, 1999
Pending
<S> <C> <C> <C> <C> <C> <C>
(# = 36) Average 182.2% 26.5x 22.0% 31.2% 14.5%
Median 171.7% 24.5x 19.3% 24.9% 12.2%
Completed
(# = 58) Average 184.6% 26.6x 19.8% 26.3% 12.6%
Median 165.0% 23.6x 18.4% 25.5% 10.8%
TARGET DEAL VALUE LESS THAN $35 MILLION
Pending
(# = 18) Average 141.5% 22.4x 18.9% 26.0% 8.9%
Median 135.7% 18.3x 17.8% 26.2% 6.6%
Completed
(# = 25) Average 155.9% 29.3x 19.1% 22.4% 8.9%
Median 162.9% 23.7x 16.0% 20.7% 8.1%
TARGET EQUITY TO ASSETS BETWEEN 10% AND 16%
Pending
(# = 8) Average 171.7% 24.9x 21.0% 27.4% 16.1%
Median 151.9% 20.6x 19.9% 25.5% 10.7%
Completed
(# = 16) Average 158.2% 29.3x 20.9% 27.9% 11.8%
Median 155.9% 28.1x 20.0% 27.4% 11.0%
TARGET THRIFT ROAE BETWEEN 6% AND 10%
Pending
(# = 8) Average 174.2% 19.8x 20.9% 28.0% 13.3%
Median 171.7% 19.3x 18.9% 22.5% 15.1%
Completed
(# = 16) Average 188.1% 24.9x 18.9% 27.7% 13.1%
Median 173.9% 24.2x 18.3% 27.6% 11.3%
TARGET LOCATED IN THE MIDWEST REGION
Pending
(# = 12) Average 160.4% 26.6x 20.2% 28.8% 10.7%
Median 148.6% 24.7x 20.0% 28.4% 10.3%
Completed
(# = 21) Average 190.0% 25.4x 20.8% 26.5% 14.1%
Median 155.5% 20.8x 16.9% 25.5% 10.1%
AVERAGE AND MEDIAN FOR TARGETS WITH COMPARABLE DEAL VALUE, EQUITY TO ASSETS AND ROAE
Pending
Average 162.5% 22.3x 20.3% 27.1% 12.8%
Median 153.1% 19.4x 18.9% 24.8% 10.8%
Completed
Average 167.4% 27.9x 19.6% 26.0% 11.3%
Median 164.2% 25.3x 18.1% 25.2% 10.1%
KENTUCKY FINANCIAL PROPOSAL
$18.06 Value of Kentucky 201.4% 27.0x 27.6% 38.8% 21.7%
Financial Stock *
</TABLE>
*Kentucky Financial's share price for the month ended December 16, 1999,
averaged approximately $32.00, multiplied by the exchange ratio of .5645 =
$18.06
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THE FULL TEXT OF THE OPINION OF KEEFE, BRUYETTE & WOODS, WHICH IS ATTACHED AS
APPENDIX C TO THIS DOCUMENT, SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY KEEFE, BRUYETTE & WOODS,
AND SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF KEEFE,
BRUYETTE & WOODS SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE OPINION.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF FORT THOMAS FINANCIAL
The Board of Directors of Fort Thomas Financial unanimously recommends
that the Fort Thomas Financial shareholders vote FOR the adoption of the merger
agreement. The Board of Directors believes that the terms of the merger are fair
to, and in the best interests of, Fort Thomas Financial's shareholders.
EXCHANGE OF FORT THOMAS FINANCIAL SHARES
If the holders of at least two-thirds of Fort Thomas Financial shares
approve the merger, if all necessary regulatory approvals are received and if
all conditions to the completion of the merger are satisfied or waived, Fort
Thomas Financial will merge with Kentucky Financial. The merger of Fort Thomas
Financial with Kentucky Financial will be immediately followed by the merger of
Fort Thomas Savings Bank into The Bank of Kentucky. After the mergers, Kentucky
Financial will be the continuing and surviving corporation and The Bank of
Kentucky will be the surviving bank subsidiary. At the effective time of the
mergers, each Fort Thomas Financial share will be converted into the right to
receive .5645 Kentucky Financial shares. All Fort Thomas Savings Bank shares
will be cancelled and extinguished.
Based on the 1,508,489 Fort Thomas Financial common shares assumed to
be outstanding immediately before the consummation of the merger, the total
number of Kentucky Financial shares to be issued to Fort Thomas Financial
shareholders would be approximately 851,542. Based on the number of Kentucky
Financial shares issued and outstanding on April 14, 2000, the total number
of outstanding shares of Kentucky Financial after the merger would be
approximately 6,143,969, of which 13.9% would be held by the former Fort Thomas
Financial shareholders.
FRACTIONAL SHARES
Kentucky Financial will not issue fractional shares in the merger.
Instead, Kentucky Financial will pay to each Fort Thomas Financial shareholder
who otherwise would be entitled to receive a fraction of a Kentucky Financial
share, cash based on the market price of shares of Kentucky Financial on the
effective day of the merger.
EXCHANGE OF CERTIFICATES EVIDENCING KENTUCKY FINANCIAL SHARES AND FORT THOMAS
FINANCIAL SHARES
After the merger is effective, Kentucky Financial will mail to you a
form letter of transmittal containing instructions for surrendering your Fort
Thomas Financial share certificates. When you surrender your certificates for
cancellation, together with a duly executed letter of transmittal, you will be
entitled to receive a certificate for the number of Kentucky Financial shares to
which you are entitled under the merger agreement. Until you surrender your
certificates, Kentucky Financial will not pay you any dividends or other
distributions and your rights as a shareholder of Kentucky Financial will be
suspended.
If you have lost or misplaced your Fort Thomas Financial share
certificate, you should immediately call Fort Thomas Financial's transfer agent,
Tanya Perry of Fifth Third Bank, at (513) 579-5405. She will mail to you
instructions for replacing the lost certificate.
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<PAGE> 35
REPRESENTATIONS AND WARRANTIES
Each of Kentucky Financial, The Bank of Kentucky, Fort Thomas Financial
and Fort Thomas Savings Bank has made representations and warranties in the
merger agreement regarding:
- corporate organization and authority to engage in its business and in
the merger;
- conflicts;
- required consents;
- capital;
- financial condition;
- past conduct of business and compliance with laws;
- regulatory reports and records;
- environmental compliance;
- insurance;
- taxes;
- legal proceedings; and
- permits and licenses.
In addition, Fort Thomas Financial and Fort Thomas Savings Bank have
made representations and warranties regarding:
- investments;
- personal property and fixed assets owned or leased;
- allowance for loan losses;
- contracts;
- employee benefit plans and ERISA compliance;
- employment practices and compliance with employment laws; and
- other matters.
COVENANTS
During the period between December 21, 1999, and the completion of the
merger, each of Fort Thomas Financial and Fort Thomas Savings Bank has agreed to
conduct its business only in the ordinary and usual course, unless Kentucky
Financial agrees otherwise in writing. Fort Thomas Financial and Fort Thomas
Savings Bank also have agreed to obtain Kentucky Financial's prior written
consent before:
- authorizing, selling or issuing shares of Fort Thomas Financial;
- declaring a dividend or other distribution;
- effecting a stock split, recapitalization or reclassification;
- amending their Articles of Incorporation, Code of Regulations,
Charter or Bylaws;
- purchasing, selling, assigning or transferring any material tangible
or intangible asset;
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<PAGE> 36
- making or committing to make a loan to any one person or entity in
excess of $200,000 in the aggregate or in excess of a 90%
loan-to-value ratio;
- mortgaging or pledging any tangible or intangible assets or
properties so as to materially or adversely affect the financial
position of Fort Thomas Financial or Fort Thomas Savings Bank;
- waiving any rights of material value or canceling material debts;
- incurring a material obligation or liability other than those
incurred in the ordinary course of business;
- threatening, commencing or pursuing any legal actions relating to the
business, operations or loans of Fort Thomas Financial or Fort Thomas
Savings Bank;
- causing a material adverse change in the amount or general
composition of their deposit liabilities or loan portfolio;
- entering into or amending any employment contract with any officer,
increasing compensation payable to any officer of director, adopting
or materially amending any employee benefit plans or making awards or
distributions under employee benefit plans that are not consistent
with past practice;
- acquiring an equity interest in another entity;
- making a material investment or material capital expenditure or
commitment for a material addition to property, plant or equipment;
or
- allocating ESOP shares except pursuant to the termination of the ESOP
and subsequent to the repayment of any ESOP indebtedness.
Neither Fort Thomas Financial nor Fort Thomas Savings Bank may solicit
or initiate any proposals or offers from any person, or discuss or negotiate
with any person or entity, for any acquisition or purchase of all or a material
amount of the assets of, any equity security of, or any merger, consolidation or
business combination with, Fort Thomas Financial. Fort Thomas Financial or Fort
Thomas Savings Bank may enter into discussions regarding any of these
transactions if any person or entity makes an unsolicited proposal and the Fort
Thomas Financial Board of Directors determines it must commence discussions as
required by the good faith exercise of its fiduciary duties to the Fort Thomas
Financial shareholders. Fort Thomas Financial must provide Kentucky Financial
with written notice before commencing such discussions. If Fort Thomas Financial
enters into an agreement with any person or entity for the acquisition or
purchase of all or a material amount of Fort Thomas Financial's assets or equity
securities, or for any merger, consolidation or business combination, Fort
Thomas Financial shall pay Kentucky Financial $900,000.
Fort Thomas Financial and Fort Thomas Savings Bank have agreed not to
amend the stock option plans. Fort Thomas Financial will cause the holders of
options that vest before the consummation of the merger to exercise those
options before the merger becomes effective.
Fort Thomas Financial and Fort Thomas Savings Bank have also agreed not
to amend the management recognition plans, nor accelerate the vesting of awards
already made under those plans. Before the merger is effective, Fort Thomas
Financial will cause the trustees of the plans to transfer to Fort Thomas
Financial the 18,885 Fort Thomas Financial shares held by the trustees and not
awarded and the 9,066 unvested shares held by the trustees.
Fort Thomas Financial has also agreed to cause its Board of Directors
to retire the 127,405 treasury shares of Fort Thomas Financial, including the
27,951 management recognition plan shares noted above, and restore these shares
to the status of authorized but unissued Fort Thomas Financial shares.
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<PAGE> 37
CONDITIONS
Kentucky Financial, The Bank of Kentucky, Fort Thomas Financial and
Fort Thomas Savings Bank may complete the merger only if:
- the merger agreement is approved by the holders of at least
two-thirds of the outstanding Fort Thomas Financial shares;
- the parties receive regulatory approvals from the Board of Governors
of the Federal Reserve System, the Federal Deposit Insurance
Corporation and the Kentucky Department of Financial Institutions;
- Keefe, Bruyette & Woods has provided a written opinion that the
consideration Fort Thomas Financial shareholders will receive in the
merger is fair from a financial point of view; and
- Kentucky Financial and Fort Thomas Financial have received an opinion
of counsel that the merger will be a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code.
In addition, Kentucky Financial and The Bank of Kentucky will not be
required to complete the merger unless the following conditions are satisfied:
- Fort Thomas Financial and Fort Thomas Savings Bank's representations
and warranties in the merger agreement are true in all material
respects;
- Fort Thomas Financial and Fort Thomas Savings Bank have satisfied, in
all material respects, their obligations in the merger agreement;
- there has been no material adverse change in the financial condition,
assets, liabilities, properties or business of Fort Thomas Financial
or Fort Thomas Savings Bank after December 21, 1999;
- Fort Thomas Financial's shareholders' equity at the time of the
merger is not less than $14,000,000, exclusive of up to $450,000 in
expenses related to the merger and reserves, accruals and charges
taken or established by Fort Thomas Financial or Fort Thomas Savings
Bank at the request of Kentucky Financial;
- the holders of not more than 5% of Fort Thomas Financial shares have
delivered a demand for appraisal of their shares;
- Fort Thomas Financial's Employee Stock Ownership Plan has been
terminated;
- Fort Thomas Financial and Fort Thomas Savings Bank have taken all
necessary steps to terminate the 401(k) Plan and have filed an
Application for Determination with the Internal Revenue Service;
- Fort Thomas Financial and Fort Thomas Savings Bank have taken all
necessary steps to withdraw from the Financial Institutions
Retirement Fund;
- Kentucky Financial has received a final written opinion from Crowe
Chizek stating that the merger will qualify for the pooling of
interests method of accounting;
- each holder of vested Fort Thomas Financial stock options has
exercised those options;
- each holder of unvested Fort Thomas Financial stock options has
executed a new stock option award agreement for Kentucky Financial
stock options;
- the maximum amount Fort Thomas Financial, Fort Thomas Savings Bank,
Kentucky Financial and the Bank of Kentucky will have to pay with
respect to the employment
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<PAGE> 38
agreements to Larry N. Hatfield, J. Michael Lonnemann and Cynthia R.
Towhey collectively is not more than $1,211,124; and
- Fort Thomas Savings Bank and each of Larry Hatfield, J. Michael
Lonnemann, Robert Grimm, Harold Luersen, Donald Beckmeyer and Steven
McLane have executed amendments to each individual's respective
deferred compensation agreements.
Fort Thomas Financial and Fort Thomas Savings Bank will not be required
to complete the mergers unless the following conditions are satisfied:
- Kentucky Financial and The Bank of Kentucky's representations and
warranties in the merger agreement are true in all material respects;
- Kentucky Financial and The Bank of Kentucky have satisfied, in all
material respects, their obligations in the merger agreement; and
- there has been no material adverse change in the financial condition
or business of Kentucky Financial or The Bank of Kentucky since
December 21, 1999.
Kentucky Financial and Fort Thomas Financial may waive any of the
conditions unless the waiver is prohibited by law.
Kentucky Financial has submitted applications to the Board of Governors
of the Federal Reserve, the Federal Deposit Insurance Corporation and the
Kentucky Department of Financial Institutions seeking approval of the merger and
a notice to the Office of Thrift Supervision. We anticipate that the Federal
Reserve, the FDIC and the Kentucky Department of Financial Institutions will
approve the merger and that the OTS will raise no objections. Kentucky Financial
and Fort Thomas Financial are not aware of any basis for disapproving the
merger. There can be no assurance, though, that all requisite approvals will be
obtained, that such approvals will be received on a timely basis or that such
approvals will not impose conditions or requirements that would so reduce the
benefits of the transactions contemplated by the merger that, had such condition
or requirement been known, neither Kentucky Financial nor Fort Thomas Financial
would have entered into the merger agreement.
EFFECTIVE TIME
Following the satisfaction or waiver of all conditions in the merger
agreement, we will file as soon as practicable Articles of Merger with the
Secretary of State of the Commonwealth of Kentucky, a Certificate of Merger with
the Secretary of State of the State of Ohio and a notice to the Office of Thrift
Supervision in order to complete the merger. We anticipate that we will complete
the merger in June 2000.
TERMINATION AND AMENDMENT
Either Kentucky Financial or Fort Thomas Financial may terminate the
merger agreement or the merger under the circumstances described below, whether
or not the shareholders already have voted to approve the merger agreement.
Termination may occur by the mutual consent of Kentucky Financial, The Bank of
Kentucky, Fort Thomas Financial and Fort Thomas Savings Bank, or by either
Kentucky Financial or Fort Thomas Financial if:
- the merger is not consummated by September 30, 2000; or
- an event occurs that would preclude satisfaction of or compliance
with any of the conditions in the merger agreement.
The merger agreement may be amended at any time before or after the
special meeting of Fort Thomas Financial shareholders. An amendment of the
merger agreement which materially and adversely affects the rights
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of the shareholders of Fort Thomas Financial and which takes place after the
special meeting of shareholders, however, will not be made without further
approval of the Fort Thomas Financial shareholders. If necessary, Fort Thomas
Financial will seek approval at a subsequent meeting of shareholders.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS
Certain members of Fort Thomas Financial management have interests in
the merger in addition to their interests solely as Fort Thomas Financial
shareholders.
ADVISORY BOARD. At the effective time of the merger, Kentucky Financial
will form an advisory board consisting of Robert L. Grimm, Larry N. Hatfield,
Harold A. Luersen, Donald J. Beckmeyer and J. Steven McLane, who are the current
directors of Fort Thomas Financial, and J. Michael Lonnemann, who is the Vice
President and Secretary of Fort Thomas Financial. The advisory board will advise
Kentucky Financial on issues regarding the merger of the business of Fort Thomas
Financial and Kentucky Financial. Each member of the advisory board will serve
for two years. Members will be paid a fee for services in the amount of $8,000
per year.
CONSULTING AGREEMENTS. Each of Larry N. Hatfield and J. Michael
Lonnemann will enter into a Consulting Agreement with Kentucky Financial. The
Consulting Agreement will have a two-year term and provide for a payment of
$2,601 per month to each individual. Each individual will provide advisory
services to Kentucky Financial with respect to matters affecting the business of
Kentucky Financial or The Bank of Kentucky.
TERMINATION OF EMPLOYEE STOCK OWNERSHIP PLAN. Before the merger is
effective, Fort Thomas Financial and Fort Thomas Savings Bank will terminate
their employee stock ownership plan (ESOP). Upon consummation of the merger, all
Fort Thomas Financial shares held by the ESOP trustee will be exchanged for
Kentucky Financial shares in accordance with the merger agreement. The trustee
will use these shares to retire the loan from Fort Thomas Financial to the ESOP.
If there are any Kentucky Financial shares left after the loan is retired, those
shares shall be allocated and distributed to ESOP participants.
EXCHANGE OF STOCK OPTIONS. At the effective time of the merger, the
unvested options to purchase 22,670 Fort Thomas Financial shares granted to
officers and directors of Fort Thomas Financial will be cancelled and
extinguished. Kentucky Financial will exchange options to purchase Kentucky
Financial shares for 22,038 of the cancelled options to purchase 22,670 Fort
Thomas Financial shares. The number of options to purchase Kentucky Financial
shares to be granted to each individual Fort Thomas Financial director and
officer shall be determined by multiplying the number of shares of Fort Thomas
Financial stock subject to each option held by the individual by .5645.
Options to purchase 21,406 shares of Fort Thomas Financial at $6.91 per
share vesting on January 29, 2001, will be replaced with options to purchase
12,084 Kentucky Financial shares with an exercise price of $12.24 per share. The
remaining options to purchase 632 Fort Thomas Financial shares at $12.82 per
share vesting on January 29, 2001, will be replaced with options to purchase 357
Kentucky Financial shares at $22.71 per share.
Kentucky Financial has agreed to register the Kentucky Financial shares
issuable upon exercise of the substituted options to purchase Kentucky Financial
shares.
PAYMENTS UNDER EMPLOYMENT AGREEMENTS. Each of Larry N. Hatfield, J.
Michael Lonnemann and Cynthia R. Towhey has an employment agreement with Fort
Thomas Financial and Fort Thomas Savings Bank. Under these employment
agreements, each individual is entitled to a payment equal to three times the
individual's average annual compensation over the last five years upon his or
her termination in the event of a change of control of Fort Thomas Financial.
Completion of the merger will constitute a change of control under the
employment agreements. Kentucky Financial has agreed to pay the amounts due
under the employment agreements, but its obligation shall not exceed the
aggregate amount of $1,211,124.
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<PAGE> 40
DEFERRED COMPENSATION AGREEMENTS. Each of Larry N. Hatfield, J. Michael
Lonnemann, Robert L. Grimm, Harold A. Luersen, Donald J. Beckmeyer, and J.
Steven McLane entered into a deferred compensation agreement with Fort Thomas
Savings Bank dated November 1, 1992. The deferred compensation agreements were
amended on December 20, 1999. Kentucky Financial and The Bank of Kentucky agreed
to compensate each deferred compensation participant in accordance with the
terms of these deferred compensation agreements, as amended. To the extent
required by applicable law and accounting principles, the payments required by
the agreements will be reflected as liabilities on the books of Kentucky
Financial and The Bank of Kentucky.
INDEMNIFICATION AND INSURANCE. For a period of three years after the
merger is completed, Kentucky Financial will indemnify the former directors and
officers of Fort Thomas Financial to the fullest extent permitted by Kentucky
Financial's Articles of Incorporation and By-laws. An individual shall only
receive indemnification upon the individual's assignment to Kentucky Financial
of any applicable insurance proceeds to the extent of the indemnity. Kentucky
Financial has also agreed to extend its directors' and officers' liability
insurance to cover the directors and officers of Fort Thomas Financial.
RESALE OF KENTUCKY FINANCIAL COMMON SHARES
Kentucky Financial has registered the Kentucky Financial shares to be
issued in the merger with the Securities and Exchange Commission under the
Securities Act of 1933, as amended. The Kentucky Financial shares will be freely
transferable, except for Kentucky Financial common shares received by persons
who may be deemed to be affiliates of Fort Thomas Financial. The term
"affiliate" is defined in Rule 145 promulgated under the Securities Act and
generally includes executive officers and directors. Affiliates may not sell
their Kentucky Financial shares, except (a) pursuant to an effective
registration statement under the Securities Act covering their Kentucky
Financial shares or (b) in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act.
THE FULL TEXT OF THE MERGER AGREEMENT IS ATTACHED AS APPENDIX A TO THIS
DOCUMENT. THE SUMMARY OF THE MERGER AGREEMENT AND ITS TERMS AND CONDITIONS SET
FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT.
FEDERAL INCOME TAX CONSEQUENCES
Kentucky Financial and The Bank of Kentucky have received an opinion of
Vorys, Sater, Seymour and Pease LLP that the merger will produce the following
material federal income tax consequences:
WITH RESPECT TO FORT THOMAS FINANCIAL SHAREHOLDERS:
1. You will recognize no gain or loss upon the receipt of shares of
Kentucky Financial in exchange for your shares of Fort Thomas
Financial.
2. Your adjusted basis in the Kentucky Financial shares you receive
will be the same as the adjusted basis of the Fort Thomas
Financial shares you surrendered in exchange for the Kentucky
Financial shares.
3. The holding period for the Kentucky Financial shares you receive
after the merger will include the period during which you held the
Fort Thomas Financial shares you surrendered.
4. If you dissent to the merger and receive solely cash in exchange
for your Fort Thomas Financial shares, the cash will be treated as
a distribution in redemption of your Fort Thomas Financial shares,
subject to the provisions and limitations of Section 302 of the
Internal Revenue Code. Unless the redemption is treated as a
dividend under Section 302(d) of the Internal Revenue Code, you
will recognize gain or loss measured by the difference between the
amount of cash received and the tax basis of the Fort Thomas
Financial shares redeemed. This gain or loss will be capital gain
or loss if the Fort Thomas Financial shares are held by you as a
capital asset at the time of the merger. If, on
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the other hand, the redemption is treated as a dividend under
Section 302(d) of the Internal Revenue Code, the full amount of
cash you receive will be treated as ordinary income to the extent
of Fort Thomas Financial's current or accumulated earnings and
profits.
5. If you receive a payment of cash in lieu of a fraction of a
Kentucky Financial share, the receipt will be treated as if the
fractional share were distributed as part of the exchange and then
redeemed by Kentucky Financial. The payment you receive will be
treated as a distribution in full payment and exchange for the
share redeemed as provided in Section 302(a) of the Internal
Revenue Code, unless such distribution is essentially equivalent
to a dividend within the meaning of Section 302(b)(1) of the
Internal Revenue Code.
WITH RESPECT TO FORT THOMAS FINANCIAL AND KENTUCKY FINANCIAL:
1. The merger of Fort Thomas Financial into Kentucky Financial will
be a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code.
2. No gain or loss will be recognized by Fort Thomas Financial or
Kentucky Financial as a result of the merger.
3. The basis of the assets of Fort Thomas Financial in the hands of
Kentucky Financial will be the same as the basis of such assets in
the hands of Fort Thomas Financial immediately prior to the
merger.
4. The holding period of the assets of Fort Thomas Financial in the
hands of Kentucky Financial will include the period during which
the assets were held by Fort Thomas Financial.
BECAUSE OF THE COMPLEXITIES OF THE FEDERAL, STATE AND LOCAL TAX LAWS,
WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR.
ACCOUNTING TREATMENT
The merger will be treated as a pooling of interests for accounting
purposes. Accordingly, the assets and liabilities of The Bank of Kentucky, Fort
Thomas Financial and Fort Thomas Savings Bank will be combined with those of
Kentucky Financial and carried forward at historical cost. In addition, the
statements of operations of The Bank of Kentucky, Fort Thomas Financial and Fort
Thomas Savings Bank will be retroactively combined with the statements of
operations of Kentucky Financial on a consolidated basis. The obligations of
Kentucky Financial under the merger agreement are conditioned upon its receipt
of an opinion from its independent auditors that Kentucky Financial may treat
the merger as a pooling of interests for accounting purposes.
REGULATORY APPROVALS
Kentucky Financial and Fort Thomas Financial have agreed to use their
reasonable best efforts to obtain all regulatory approvals required to
consummate the acquisition, which includes applications to the FDIC and the
Federal Reserve Board and notice to the Office of Thrift Supervision and
Kentucky Department of Financial Institutions.[Kentucky Financial and Fort
Thomas Financial have completed the filing of these applications and
notifications prior to the date of this document.] The merger cannot proceed in
the absence of these regulatory approvals. There can be no assurance that these
regulatory approvals will be obtained, and, if obtained, there can be no
assurance of the date of any such approvals or the absence of any litigation
challenging these approvals. Kentucky Financial and Fort Thomas Financial are
not aware of any other regulatory approvals or actions that are required prior
to the parties' consummation of the merger other than those described below.
FEDERAL RESERVE BOARD. The merger is subject to approval by the Federal
Reserve Board pursuant to the Bank Holding Company Act of 1956 and the Federal
Reserve Act. Kentucky Financial has filed the required application and
notifications with the Federal Reserve Board for approval of the merger.
Assuming Federal
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<PAGE> 42
Reserve Board approval is received, the merger may not be consummated until
thirty days after the approval, during which time the United States Department
of Justice may challenge the merger on antitrust grounds. With the approval of
the Federal Reserve Board and the Department of Justice, the waiting period may
be reduced to no less than fifteen days. The Federal Reserve Board is prohibited
from approving any transactions under the applicable statutes that would result
in a monopoly, or that would be in furtherance of any combination or conspiracy
to monopolize or to attempt to monopolize the business of banking in any part of
the United States, or that may have the effect on any section of the United
States of substantially reducing competition, or tending to create a monopoly,
or resulting in a restraint of trade, unless the Federal Reserve Board finds the
anti-competitive effects of the transaction are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served.
In addition, in reviewing a transaction under the Bank Holding Company
Act, the Federal Reserve Board will consider the financial and managerial
resources of the companies and their subsidiary financial institutions. It will
also consider the convenience and needs of the communities to be served. Under
the Community Reinvestment Act of 1977, the Federal Reserve Board will take into
account the performance record of Kentucky Financial and Fort Thomas Financial
in meeting the credit needs of the entire community. The Bank Holding Company
Act and Federal Reserve regulations require publication of notice of, and the
opportunity for public comment on, the application submitted by Kentucky
Financial for approval of the merger, and authorize the Federal Reserve Board to
hold a public hearing or meeting in connection with the application if the
Federal Reserve Board determines that such a hearing or meeting would be
appropriate. Any hearing, meeting or comments from third parties could prolong
the review of our application.
If the Department of Justice were to commence an antitrust action, it
would stay the effectiveness of Federal Reserve Board approval of the merger
unless a court specifically orders otherwise. In reviewing the merger, the
Department of Justice could analyze the merger's effect on competition
differently than the Federal Reserve Board.
FDIC. The merger is subject to approval by the FDIC pursuant to the
Federal Deposit Insurance Act. Kentucky Financial has filed the required
application and notifications with the FDIC for approval of the merger. Assuming
FDIC approval is received, the merger may not be consummated until thirty days
after the approval, during which time the Department of Justice may challenge
the merger on antitrust grounds. The FDIC is prohibited from approving any
transactions under the applicable statutes that would result in a monopoly, or
that would be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or that may have the effect on any section of the United States of
substantially reducing competition, or tending to create a monopoly, or
resulting in a restraint of trade, unless the FDIC finds the anti-competitive
effects of the transaction are clearly outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served.
OFFICE OF THRIFT SUPERVISION. A savings association must notify the
Office of Thrift Supervision before merging with an insured depository
institution where a savings association will not be the resulting institution.
In notifying the OTS of the merger, the savings association must provide the OTS
with a letter describing the transaction or a copy of the application filed with
the primary regulatory agency. The notice must demonstrate compliance with
shareholder approval requirements for the proposed merger. The notice must be
filed at least 30 days before the merger is effective, but no later than the
date on which application is filed with the primary regulator.
KENTUCKY DEPARTMENT OF FINANCIAL INSTITUTIONS. The Kentucky Department
of Financial Institutions requires that a Kentucky state bank notify the
Kentucky Department of Financial Institutions before acquiring a savings bank.
Notification is made by submitting a copy of the application filed with the
primary regulator.
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DESCRIPTION OF KENTUCKY FINANCIAL SHARES
AUTHORIZED STOCK
Kentucky Financial's authorized capital stock consists of 15,000,000
shares of common stock, without par value.
SPECIAL MEETING
Special meetings of shareholders of Kentucky Financial may be called
only by the Board of Directors, by the president or by a majority of the holders
of at least one-fifth of the outstanding Kentucky Financial shares entitled to
vote at a meeting of Kentucky Financial shareholders.
PREEMPTIVE RIGHTS
The Kentucky Financial Articles of Incorporation do not grant
preemptive rights to the holders of Kentucky Financial shares. Under Kentucky
law, for corporations organized after January 1, 1989, preemptive rights do not
exist unless they are specifically granted by the corporation's Articles of
Incorporation.
VOTING RIGHTS
The holders of Kentucky Financial shares are entitled to cast one vote
per share on all matters submitted to shareholders for their approval. The
Articles of Incorporation permit cumulative voting in the election of directors.
BOARD OF DIRECTORS
Kentucky Financial's Articles of Incorporation provide for a staggered
Board of Directors consisting of not less than nine or more than fifteen
directors, divided into three classes and elected for three-year terms. The
number of directors is currently fixed at eleven. Therefore, it would take two
annual elections to replace a majority of the board. The By-laws require that
any shareholder nomination for the election of directors must be submitted in
writing, containing specific information regarding the nominee, by the later of
the November 30th immediately preceding the annual meeting of shareholders or
the sixtieth day before the first anniversary of the most recent annual meeting.
A majority of the directors then in office may fill vacancies on the
Board of Directors, even if a majority of the directors then in office
constitutes less than a majority of the Board of Directors.
Kentucky Financial's Articles of Incorporation authorize the removal of
a director for cause by a vote of the majority of Kentucky Financial's
outstanding shares.
ANTITAKEOVER PROVISIONS IN KENTUCKY FINANCIAL'S ARTICLES OF INCORPORATION AND
BYLAWS
The affirmative vote of the holders of at least 75% of the voting power
of Kentucky Financial is required to authorize any of the following
transactions, unless the directors of Kentucky Financial recommend their
approval:
- a proposed amendment to Kentucky Financial's Amended Articles;
- a proposed amendment to the By-laws of Kentucky Financial;
- a proposal to change the number of directors by action of the
shareholders;
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- an agreement of merger or consolidation providing for the proposed
merger or consolidation of Kentucky Financial with or into one or
more other corporations;
- a proposed combination or majority share acquisition involving the
issuance of Kentucky Financial shares and requiring shareholder
approval;
- a proposal to sell, exchange, transfer or otherwise dispose of all,
or substantially all, of the assets, with or without the goodwill, of
Kentucky Financial; or
- a proposed dissolution of Kentucky Financial.
If the directors recommend that shareholders approve any of the
foregoing transactions, the affirmative vote of only a majority of the voting
power of Kentucky Financial would be required to approve such transactions,
unless expressly otherwise provided by statute.
Kentucky Financial's By-laws provided that shareholder nominations for
the election of directors must be made in writing and must be delivered or
mailed to the Secretary of Kentucky Financial. In the case of a nominee proposed
for election as a director at an annual meeting of shareholders, such written
notice must be received by the Secretary of Kentucky Financial on or before the
later of (1) the November 30th immediately preceding such annual meeting or (2)
the sixteenth day before the first anniversary of the most recent annual meeting
of shareholders of Kentucky Financial held for the election of directors. If,
however, the annual meeting for the election of directors in any year is not
held on or before the thirty-first day next following such anniversary, the
written notice must be received by the Secretary no later than the close of
business on the seventh day following the day on which notice of the annual
meeting was mailed to shareholders. In the case of a nominee proposed for
election as a director at a special meeting of shareholders, such written notice
of a proposed nominee shall be received by the Secretary of Kentucky Financial
no later than the close of business on the seventh day following the day on
which notice of the special meeting was mailed to shareholders.
The written notice of a proposed nominee must set forth: (1) the name,
age and business or residence address of each nominee proposed in the notice;
(2) the principal occupation or employment of each nominee; and (3) the number
of Kentucky Financial shares owned beneficially and/or of record by each nominee
and the length of time any such shares have been so owned.
In view of the various provisions of the Kentucky Financial Articles of
Incorporation, the aggregate share ownership by the directors and officers of
Kentucky Financial may have the effect of facilitating the perpetuation of
current management and discouraging proxy contests and takeover attempts.
Officers and directors will have a significant influence over the vote on such a
transaction and may be able to defeat such a proposal. The Board of Directors of
Kentucky Financial believes that such provisions are in the best interests of
the shareholders by encouraging prospective acquirers to negotiate a proposed
acquisition with the directors. Such provisions could, however, adversely affect
the market value of Kentucky Financial's shares or deprive shareholders of the
opportunity to sell their shares for premium prices.
COMPARISON OF RIGHTS OF HOLDERS OF KENTUCKY FINANCIAL SHARES
AND HOLDERS OF FORT THOMAS FINANCIAL SHARES
As a result of the merger, all of the shareholders of Fort Thomas
Financial at the effective time of the merger will become shareholders of
Kentucky Financial. There are certain differences between the rights of Kentucky
Financial shareholders and the rights of Fort Thomas Financial shareholders
arising from the distinctions between the Kentucky Financial Articles of
Incorporation and By-laws and the Fort Thomas Financial Articles of
Incorporation and Code of Regulations. However, the rights of the holders of
Kentucky Financial
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shares and those of holders of Fort Thomas Financial are similar in most
material aspects. The material differences are addressed below.
AUTHORIZED STOCK
The Kentucky Financial Articles of Incorporation authorize 15,000,000
common shares, without par value. The Fort Thomas Financial Articles of
Incorporation authorize 4,000,000 common shares, $.01 par value per share, and
1,000,000 preferred shares, $.01 par value per share.
DIRECTOR NOMINATIONS
Kentucky Financial shareholders generally must submit director
nominations by the November 30th preceding the annual meeting. Fort Thomas
Financial shareholders generally must submit director nominations to the
secretary of Fort Thomas Financial not less than 30 nor more than 60 days prior
to the shareholders meeting. If less than 40 days notice of the meeting is given
to the shareholders, notice of a director nomination must be given no later than
the close of the tenth day following the day notice was mailed to the
shareholders.
ANTITAKEOVER PROVISIONS
Certain provisions of the Kentucky Financial Articles of Incorporation
and Kentucky Financial By-laws, which are discussed above under "Description of
Kentucky Financial Shares," could deter or prohibit changes in majority control
of the Board of Directors or non-negotiated acquisitions of control of Kentucky
Financial.
The following is a discussion of certain provisions of the Fort Thomas
Financial Articles of Incorporation and Code of Regulations which could deter or
prohibit changes in majority control of the Board of Directors or non-negotiated
acquisitions of control of Fort Thomas Financial.
BOARD OF DIRECTORS. The Articles of Incorporation provide that the
directors are to be elected for three-year terms, approximately one-third to be
elected each year.
Fort Thomas Financial's Articles of Incorporation provide that a
director may be removed only for cause by the affirmative vote of at least 50%
of the outstanding shares entitled to vote in the election of directors.
LIMITATIONS ON CALL OF MEETINGS OF SHAREHOLDERS. Fort Thomas
Financial's Articles of Incorporation provide that special meetings of
shareholders may only be called by Fort Thomas Financial's chairman of the
board, president or Board of Directors or by the written request of holders of
at least 50% of all outstanding shares entitled to vote at the meeting.
RESTRICTIONS ON ACQUISITIONS OF SECURITIES. Until June 27, 2000, no
person may directly or indirectly offer to acquire or acquire the beneficial
ownership of more than ten percent of any class of securities of Fort Thomas
Financial, unless the offer or acquisition has been approved in advance by a
two-thirds vote of the continuing directors. Continuing directors are (1) the
members of the Board of Directors who are unaffiliated with a related person and
were members of the Board of Directors prior to the time the a related person
became a related person and (2) any successors of the continuing directors who
are recommended to succeed the continuing directors by a majority of continuing
directors then on the Board of Directors. Related person means (1) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" beneficially owns in the aggregate ten percent or more of
the outstanding shares of Fort Thomas Financial and (2) any "affiliate" of any
such individual, corporation, partnership or other person or entity. An
affiliate is a person that, directly or indirectly, controls, is controlled by,
or is under common control with the person specified. For a period of five years
from the completion of the Fort Thomas Savings Bank conversion, if any person
directly or indirectly acquires beneficial ownership of more than ten percent of
any class of securities of Fort Thomas Financial in violation of this section of
the Articles of Incorporation, the securities beneficially owned in excess of
ten percent will not be counted as shares entitled to vote and will not be
counted as outstanding for purposes of determining a quorum or the affirmative
vote necessary to approve any matter submitted to the shareholders.
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After June 27, 2000, any person may acquire beneficial ownership of
more than ten percent of any class of equity securities of Fort Thomas Financial
without the prior approval of two-thirds of the continuing directors. If prior
approval is not obtained, the record holder shall be entitled to cast only
one-hundredth of a vote for those shares held by the recordholder that are in
excess of ten percent of the outstanding shares of Fort Thomas Financial; and in
the case of several recordholders, the aggregate voting of these record holders
shall be allocated proportionately among them.
BUSINESS COMBINATIONS. The Articles of Incorporation of Fort Thomas
Financial provide that a "business combination" requires a greater percentage of
shareholder approval than other matters. Unless at least two-thirds of the
continuing directors approve the business combination at a meeting where a
quorum of continuing directors is present, the approval of the holders of (1) at
least 80% of the outstanding shares entitled to vote and (2) at least a majority
of the outstanding shares entitled to vote, not including shares deemed
beneficially owned by a related person, shall be required in order to authorize
the business combination. Each of the following constitutes a business
combination:
- any merger, share exchange or consolidation of Fort Thomas Financial
with or into a related person;
- any sale, lease, exchange, transfer or other disposition, including,
without limitation, a mortgage or any other security device, of more
than 25% of the total assets of Fort Thomas Financial or of Fort
Thomas Savings Bank to a related person;
- any merger or consolidation of a related person with Fort Thomas
Financial or Fort Thomas Savings Bank;
- any sale, lease, exchange, transfer or other disposition, including,
without limitation, a mortgage or any other capital device, of at
least 25% of the total assets of a related person to Fort Thomas
Financial or Fort Thomas Savings Banks;
- the issuance of any shares of Fort Thomas Financial or Fort Thomas
Savings Bank to a related person;
- the acquisition by Fort Thomas Financial or Fort Thomas Savings Bank
of any securities of a related person;
- any reclassification of the shares of Fort Thomas Financial, or any
recapitalization involving the shares of Fort Thomas Financial; and
- any agreement, contract or other arrangement providing for any of the
above transactions.
A related person is (1) any individual, corporation, partnership or
other person or entity that together with its affiliates beneficially owns 10%
or more of the outstanding shares of Fort Thomas Financial and (2) any affiliate
of the above individual, corporation, partnership or other person or entity.
Shares of Fort Thomas Financial that a related person has the right to acquire
pursuant to any agreement or upon the exercise of conversion rights, warrants or
options shall be deemed beneficially owned by the related person.
AUTHORIZATION OF PREFERRED STOCK. Fort Thomas Financial's Articles of
Incorporation authorize the issuance of up to 1,000,000 shares of serial
preferred stock, which conceivably would represent an additional class of stock
required to approve any proposed acquisition. Fort Thomas Financial is
authorized to issue preferred shares from time to time, and the Board of
Directors is authorized to amend the Articles of Incorporation to provide for
the specific terms of serial preferred stock to be issued in series and to fix
and state the rights, preferences, limitations and relative, participating,
optional or other special rights of the shares of each series, and the
qualifications, limitations or restrictions of the serial preferred stock.
Issuance of the preferred
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shares could adversely affect the relative voting rights of common shareholders.
In the event of a proposed merger, tender offer or other attempt to gain control
of Fort Thomas Financial, the Board of Directors does not approve, it may be
possible for the Board of Directors to authorize the issuance of a series of
preferred shares with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of preferred shares,
therefore, may be to defer a future takeover attempt. The preferred shares, none
of which have been issued by Fort Thomas Financial, together with authorized but
unissued common shares (the Articles of Incorporation authorize the issuance of
up to 4,000,000 shares of common stock), also could represent additional capital
required to be purchased by the acquirer, which might make an acquisition too
expensive for an acquirer.
AMENDMENT OF ARTICLES OF INCORPORATION. Fort Thomas Financial's
Articles of Incorporation provide that specified provisions contained in the
Articles of Incorporation may not be repealed, replaced, altered, amended or
rescinded, except upon the affirmative vote of not less than 80% of the
outstanding shares of Fort Thomas Financial entitled to vote at a meeting of
shareholders called for that purpose. A majority of the outstanding shares is
sufficient to repeal, alter, amend or rescind the specified provisions in the
Articles of Incorporation, if it is first approved by a majority of the
continuing directors. The specific provisions are those:
- governing the number of Fort Thomas Financial Directors constituting
the Board of Directors;
- providing for the indemnification of directors, officers, employees
and agents of Fort Thomas Financial;
- governing the ability of shareholders to take action by a unanimous
signed written consent, the calling of special meetings, the place
where meetings may be held and the procedure for nominating directors
or proposing new business;
- governing the number of directors of Fort Thomas Financial;
- the filling of vacancies on the Board of Directors and the
classification of the Board of Directors;
- providing the mechanism for removing directors;
- regarding the duties of directors;
- pertaining to the prohibition of share purchases as discussed above;
- pertaining to the approval of business combinations as discussed
above;
- governing the procedure for amending the Code of Regulations; and
- governing the procedure for amending the Articles of Incorporation.
ANTITAKEOVER LAWS APPLICABLE TO KENTUCKY FINANCIAL
Certain federal and state laws can make a change in control more
difficult, even if desired by the holders of the majority of the Kentucky
Financial or Fort Thomas Financial shares. The laws described below apply to
Kentucky Financial.
KENTUCKY ANTITAKEOVER STATUTE
Kentucky Revised Statute 271B.12-210 applies to a broad range of
"business combinations" between a Kentucky corporation, such as Kentucky
Financial and an "interested shareholder" or an "affiliate" or "associate" of an
interested shareholder. Section 271B.12-200 defines a business combination to
include most related party transactions consisting of a merger, consolidation,
sale and other dispositions of assets or issuance of voting stock.
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An interested shareholder is defined to include any person (other than the
corporation of any of its majority-owned subsidiaries) who beneficially owns,
directly or indirectly, 10% of more of the outstanding voting stock of a
corporation or who is an affiliate of the corporation and at any time during the
five-year period prior to the proposed business combination beneficially owned,
directly or indirectly, 10% or more of the outstanding voting stock of the
corporation.
Kentucky Revised Statute 271B.12-210 prohibits a corporation from
engaging in a business combination with an interested shareholder for a period
of five years following the date on which the shareholder became an interested
shareholder, unless a majority of the independent members of the Board of
Directors approve the business combination before the shareholder becomes an
interested shareholder. In addition, Kentucky Revised Statute 271B.12-210
provides that any business combination must be approved by either:
- a majority of the "independent directors" who are also "continuing
directors"; or
- the affirmative vote of at least:
- eighty percent (80%) of the votes entitled to be cast by
outstanding shares of voting stock of the corporation; and
- the affirmative vote of at least two-thirds (2/3) of the votes
entitled to be cast by holders of voting stock other than voting
stock beneficially owned by the interested shareholder who is, or
whose affiliate is, a party to the business combination or by an
affiliate or associate of such interested shareholders.
An independent director is any director who is not an officer or
full-time employee of Kentucky Financial or an affiliate or associate of an
interested shareholder or any of its affiliates. A continuing director is any
director who is not an affiliate or associate of an interested shareholder and
who was a director before the interested shareholder became an interested
shareholder, and any successor to a continuing director who is not an affiliate
or associate of an interested shareholder and was recommended or elected by a
majority of the continuing directors at a meeting at which a quorum consisting
of a majority of the continuing directors is present.
FEDERAL REGULATION
The Change in Bank Control Act provides that no person acting directly
or indirectly, or through or in concert with one or more persons, other than a
company, may acquire control of a bank holding company unless at least 60 days
prior written notice is given to the Federal Reserve Bank and the Federal
Reserve Bank has not objected to the proposed acquisition.
The Bank Holding Company Act prohibits any company, directly or
indirectly, or acting in concert with one or more other persons, or through one
or more subsidiaries or transactions, from acquiring control of an insured
institution without the prior approval of the Federal Reserve Bank. In addition,
any company that acquires such control becomes a bank holding company subject to
registration, examination and regulation of a bank holding company by the
Federal Reserve Bank.
The term control for purposes of the Change in Bank Control Act and the
Bank Holding Company Act includes the power, directly or indirectly, to vote
more than 25% of any class of voting stock of the savings bank or to control, in
any manner, the election of a majority of the directors of the savings bank. It
also includes a determination by the Federal Reserve Bank that such company or
person has the power, directly, to exercise a controlling influence over or to
direct the management or policies of the savings bank.
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Federal Reserve Bank regulations also set forth certain rebuttable
control determinations which arise upon:
- the acquisition of any voting securities of a bank holding company
if, after the transaction, the acquiring person (or persons acting in
concert) owns, controls, or holds with power to vote 25 percent or
more of any class of voting securities of the institution; or
- the acquisition of any voting securities of a bank holding company
if, after the transaction, the acquiring person (or persons acting in
concert) owns, controls or holds with power to vote 10 percent or
more (but less than 25 percent) of any class of voting securities of
the institution and if
- the institution has registered securities under Section 12 of the
Exchange Act; or
- no other person will own a greater percentage of that class of voting
securities immediately after the transaction.
The regulations also specify the criteria that the Federal Reserve Bank
uses to evaluate control applications. The Federal Reserve Bank is empowered to
disapprove an acquisition of control if it finds, among other things, that:
- the acquisition would substantially lessen competition;
- the financial condition of the acquiring person might jeopardize the
institution or its depositors; or
- the competency, experience, or integrity of the acquiring person
indicates that it would not be in the interests of the depositors,
the institution, or the public to permit the acquisition of control
by such person.
ANTITAKEOVER LAWS APPLICABLE TO FORT THOMAS FINANCIAL
The following laws apply to Fort Thomas Financial:
OHIO CONTROL SHARE ACQUISITION ACT
The Ohio Control Share Acquisition Act provides that specified notice
and informational filings and special shareholder meetings and voting procedures
must occur before consummation of a proposed "control share acquisition." A
control share acquisition is defined as any acquisition of an issuer's shares
that would entitle the acquirer to exercise or direct the voting power of the
issuer in the election of directors within any of the following ranges:
- one-fifth or more but less than one-third of the voting power;
- one-third or more but less than a majority of the voting power; or
- a majority or more of such voting power.
Assuming compliance with the notice and information filing requirements,
the proposed control share acquisition may take place only if, at a duly
convened special meeting of shareholders, the acquisition is approved by both a
majority of the voting power of the issuer represented at the meeting and a
majority of the voting power remaining after excluding the combined voting power
of the intended acquirer and the directors and officers of the issuer. The
Control Share Acquisition Act does not apply to a corporation whose Articles of
Incorporation or regulations so provide. Fort Thomas Financial has not opted out
of the application of the Control Share Acquisition Act.
OHIO MERGER MORATORIUM STATUTE
Chapter 1704 of the Ohio Revised Code prohibits specified business
combinations and transactions between an "issuing public corporation" and an
"interested shareholder" for at least three years after the interested
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shareholder attains 10% ownership, unless the Board of Directors of the issuing
public corporation approves the transaction before the interested shareholders
attains 10% ownership. An interested shareholder is a person who owns 10% or
more of the shares of the corporation. An issuing public corporation is defined
as an Ohio corporation with 50 or more stockholders that has its principal place
of business, principal executive offices, or substantial assets within the State
of Ohio, and as to which no close corporation agreement exists. Examples of
transactions regulated by the merger moratorium provisions include mergers,
consolidations, voluntary dissolutions, the deposition of assets and the
transfer of shares. Subsequent to the three-year period, a moratorium
transaction may take place provided that certain conditions are satisfied,
including that:
- the Board of Directors approves the transaction;
- the transaction is approved by the holders of shares with at least
two-thirds of the voting power of the corporation (or a different
proportion set forth in the Articles of Incorporation), including at
least a majority of the outstanding shares after excluding shares
controlled by the interested shareholder; or
- the business combination results in shareholders, other than the
interested shareholder, receiving a fair price plus interest for
their shares.
Although the merger moratorium provisions may apply, a corporation may
elect not to be covered by the merger moratorium provisions, or subsequently
elect to be covered, with an appropriate amendment to its Articles of
Incorporation. The merger moratorium provisions apply to Fort Thomas Financial,
and Fort Thomas Financial has not taken any corporate action to opt out of the
Ohio merger moratorium statute.
FEDERAL REGULATION
Office of Thrift Supervision regulations prohibit any person, without
prior approval of the Office of Thrift Supervision, from acquiring or making an
offer to acquire more than 10% of the stock of any converted savings institution
if such person is, or after consummation of such acquisition would be, the
beneficial owner of more than 10% of the stock. In the event that any person
violates this regulation, the securities beneficially owned by such person that
are in excess of 10% may not be counted as shares entitled to vote and may not
be voted by any person or counted as voting shares in connection with any matter
submitted to a vote of shareholders. These federal regulations can make a change
in control more difficult, even if desired by the holders of a majority of the
outstanding shares.
Federal regulations require that, prior to obtaining control of a
savings association, a person other than a company must give 60 days' prior
notice to the Office of Thrift Supervision and have received no Office of Thrift
Supervision objection to the acquisition of control. Any company must obtain
Office of Thrift Supervision approval before acquiring control of a savings
association. Upon the acquisition of a savings association, the company becomes
a "savings and loan holding company," subject to registration, examination and
regulation by the Office of Thrift Supervision as a savings and loan holding
company.
Control, as defined under federal law, generally means ownership,
control or holding irrevocable proxies representing more than 25% of any class
of voting stock, control in any manner of the election of a majority of the
savings association's directors, or a determination by the Office of Thrift
Supervision that the acquirer has the power to direct, or directly or indirectly
to exercise a controlling influence over, the management or policies of the
institution. Acquisition of more than 10% of any class of a savings
association's voting stock, if the acquirer also is subject to any one of eight
"control factors," constitutes a rebuttable determination of control under the
regulations. The determination of control may be rebutted by submission to the
Office of Thrift Supervision, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies that acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock must file
with the Office of Thrift Supervision a certification that the holder is not in
control of such institution, is not subject to a rebuttable determination of
control and will take no action that would result in a determination or
rebuttable determination of control without prior notice to or approval of the
Office of Thrift Supervision, as applicable.
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DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
KENTUCKY FINANCIAL
The By-laws of Kentucky Financial provide that Kentucky Financial shall
indemnify its directors and officers against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement because they are or were
directors or officers of Kentucky Financial or, at the request of Kentucky
Financial, were directors, officers, employees or agents of another
organization. The director or officer will only be indemnified if the director
or officer acted in good faith and in a manner he or she reasonably believed to
be in the best interests of Kentucky Financial. With regard to criminal matters,
a director or officer must be indemnified by Kentucky Financial if the director
or officer had no reasonable cause to believe his or her conduct was unlawful.
Indemnification will only be made upon a determination that the
director or officer has met the applicable standard of conduct discussed above.
This determination will be made by the shareholders or by a majority vote of a
quorum of directors who are not parties to the action.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by Kentucky Financial in advance if authorized by the
Board of Directors and upon receipt of an undertaking by the director or officer
to repay such amount if it is later determined that the director or officer is
not entitled to be indemnified by Kentucky Financial.
A director or officer shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred without further determination
that he or she has met the applicable conduct standard if the director or
officer succeeds in defense of any action discussed above.
FORT THOMAS FINANCIAL
Article VII of Fort Thomas Financial's Articles of Incorporation
provides for indemnification of Fort Thomas Financial's directors and officers.
Any person who is or is threatened to be made a party to any threatened, pending
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of
Fort Thomas Financial, because he is or was a director, officer, employee or
agent of Fort Thomas Financial, or is or was serving at the request of Fort
Thomas Financial, as a director, trustee, officer or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement actually and reasonably incurred in connection with the action, suit,
or proceeding, if the person claiming indemnity acted in good faith and in a
manner reasonable believed to be in or not opposed to the best interests of Fort
Thomas Financial. With respect to any criminal action or proceeding, the person
seeking indemnity must have had no reasonable cause to believe the conduct was
unlawful.
Any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of Fort
Thomas Financial to procure a judgment in its favor, by reason of the fact that
such person was a director, officer, employee, or agent of Fort Thomas
Financial, or was serving at Fort Thomas Financial's request, shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection with the defense or settlement of the
action or suit, if the person seeking indemnity acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of Fort Thomas Financial, except no indemnification shall be made in
respect of any of the following:
- any claim, issue or matter in which the person is found liable for
negligence or misconduct in the performance of such person's duties
to Fort Thomas Financial, unless the court in which such action was
brought determines that despite the adjudication of liability, such
person is entitled to indemnity for such expenses as the court deems
proper; and
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- any action or suit in which the only liability asserted against a
director is pursuant to Section 1701.95 of the Ohio Revised Code,
which pertains to unlawful loans, dividends or distribution of assets
by Fort Thomas Financial at the direction of the Board of Directors.
If a director, trustee, officer, employee or agent is successful on the
merits in defense of any action, suit or proceeding referred to above, that
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonable incurred in connection with the action, suit or
proceeding.
Indemnification shall be made by Fort Thomas Financial only upon a
determination that the person seeking indemnity has met the applicable standard
of conduct. Such determination shall be made by the directors of Fort Thomas
Financial in accordance with the Ohio Revised Code.
LEGAL MATTERS
The federal income tax consequences of the merger will be passed upon
for Kentucky Financial by Vorys, Sater, Seymour and Pease LLP, Suite 2100,
Atrium Two, 221 East Fourth Street, P.O. Box 0236, Cincinnati, Ohio 45201-0236.
Legal matters in connection with the merger, including the legality of the
Kentucky Financial shares to be issued in connection with the merger, will be
passed upon for Kentucky Financial by Ziegler & Schneider, P.S.C., 541
Buttermilk Pike, Suite 500, Covington, Kentucky 41017.
Ziegler & Schnieder is general counsel to Kentucky Financial. Wilbert
L. Ziegler is a shareholder in Ziegler & Schneider. Mr. Ziegler and Ziegler &
Schneider beneficially own an aggregate of approximately 111,775 shares,
including Kentucky Financial shares subject to options held by Mr. Ziegler.
Other than Ziegler & Schneider, none of the legal counsel listed in
this document has or will receive a substantial interest, direct or indirect, in
Kentucky Financial, nor were the counsel compensated for the rendering of their
services on a contingency fee basis.
EXPERTS
The consolidated financial statements of Kentucky Financial at December
31, 1999 and 1998 and for each of the three years ended December 31, 1999,
incorporated by reference in this document, have been audited by Crowe, Chizek
and Company LLP, independent certified public accountants, as stated in their
report appearing in Kentucky Financial's 1999 Annual Report to shareholders. The
financial statements have been included in reliance upon the report of Crowe,
Chizek and given upon their authority as experts in accounting and auditing.
The financial statements of Fort Thomas Financial at September 30, 1999
and 1998, and for each of the three years ended September 30, 1999, incorporated
by reference in this document, have been audited by VonLehman and Company, Inc.,
independent certified public accountants, as stated in their report appearing in
Fort Thomas Financial's 1999 Annual Report to shareholders. The financial
statements have been included in reliance upon the report and given upon their
authority as experts in accounting and auditing.
PROPOSALS FOR THE 2001 ANNUAL SHAREHOLDERS' MEETING
Fort Thomas Financial will only hold an annual meeting in 2001 if the
merger is not completed. Any proposals of shareholders submitted for inclusion
in the proxy statement for the 2001 annual meeting, if the meeting is held, must
be received at the principal executive offices of Fort Thomas Financial, 25
North Fort Thomas Avenue, Fort Thomas, Kentucky 41075, Attention: Secretary, no
later than September 4, 2000. If a shareholder desires to bring business before
the 2001 annual meeting that is not a proposal submitted to Fort Thomas
Financial for inclusion in Fort Thomas Financial's proxy statement, notice must
be received by the Secretary of Fort Thomas Financial not less than 30 days nor
more than 60 days prior to the meeting. If less than
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40 days' notice of the meeting is given to shareholders, notice must be received
by the Secretary not later than the close of business of the 10th day following
the day which notice of the meeting was mailed to shareholders. If a shareholder
intends to present a proposal at the annual meeting without including the
proposal in the proxy statement related to that meeting, and if the proposal is
not received by November 15, 2000, then the proxies designated by the Board of
Directors of Fort Thomas Financial for the 2001 annual meeting may vote in their
discretion on that proposal any shares for which they have been appointed
proxies without mention of the matter in the proxy statement or on the proxy
card for that meeting.
WHERE YOU CAN FIND MORE INFORMATION
Kentucky Financial has filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 under the Securities Act of 1933
for the Kentucky Financial shares to be issued to Fort Thomas Financial
shareholders in the merger. This document is a part of the Registration
Statement on Form S-4. The rules and regulations of the Securities and Exchange
Commission permit us to omit information, exhibits and undertakings that are
contained in the Registration Statement on Form S-4 from this document.
In addition, Kentucky Financial and Fort Thomas Financial file reports,
proxy statements and other information with the Securities and Exchange
Commission under the Securities Exchange Act of 1934. You can inspect and copy
the Registration Statement and its exhibits, as well as the reports, proxy
statements and other information filed with the Securities and Exchange
Commission by Kentucky Financial and Fort Thomas Financial, at the following
location:
Securities and Exchange Commission's Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
Please call the Securities and Exchange Commission for more information
on the operation of the Public Reference Room at 1-800-SEC-0330. KENTUCKY
FINANCIAL AND FORT THOMAS FINANCIAL ARE ELECTRONIC FILERS, AND THE SECURITIES
AND EXCHANGE COMMISSION MAINTAINS A WEB SITE THAT CONTAINS REPORTS, PROXY AND
INFORMATION STATEMENTS AND OTHER INFORMATION REGARDING REGISTRANTS THAT FILE
ELECTRONICALLY WITH THE SECURITIES AND EXCHANGE COMMISSION AT THE FOLLOWING WEB
ADDRESS: http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" into this document, which means that the companies can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered to be part of this document, except for
any information superseded by information contained in later-filed documents
incorporated by reference in this document. You should read the information
relating to the companies contained in this document and the information in the
documents incorporated by reference.
This document incorporates by reference the documents listed below that
Kentucky Financial or Fort Thomas Financial have previously filed with the
Securities and Exchange Commission and any future filings made by them with the
Securities and Exchange Commission before the special meeting of shareholders
under Sections 13(a), 13(c), or 15(d) of the Securities Exchange Act of 1934, as
amended.
KENTUCKY FINANCIAL
Commission Filings (File No.0-25960) Period/Date
- ----------------------------------- -----------
Annual Report on Form 10-K Year ended December 31, 1999
-52-
<PAGE> 54
FORT THOMAS FINANCIAL
Commission Filings (File No. 0-26242) Period/Date
- ------------------------------------ -----------
Annual Report to Shareholders Year ended September 30, 1999
Quarterly Report on Form 10-Q Quarter ended December 31, 1999
We have included copies of Kentucky Financial's 1999 Annual Report to
Stockholders and Fort Thomas Financial's 1999 Annual Report to Shareholders and
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, with this
document.
YOU CAN RECEIVE THE DOCUMENTS INCORPORATED BY REFERENCE (WITHOUT
EXHIBITS, UNLESS THE EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
THIS DOCUMENT) WITHOUT CHARGE BY CALLING OR WRITING THE FOLLOWING PERSONS:
<TABLE>
<CAPTION>
<S> <C>
The Bank of Kentucky Financial Corporation Fort Thomas Financial Corporation
P.O. Box 577 25 North Fort Thomas Avenue
Florence, Kentucky 41022-0577 Fort Thomas, Kentucky 41075
Attention: Robert W. Zapp Attention: Larry N. Hatfield
(606) 371-2340 (606) 441-3302
</TABLE>
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST DOCUMENTS BY
May 16, 2000. YOU MAY ALSO OBTAIN COPIES OF THE DOCUMENTS FROM THE
SECURITIES AND EXCHANGE COMMISSION THROUGH ITS WEBSITE AT THE ADDRESS PROVIDED
ABOVE.
Following the merger, Kentucky Financial will continue to be regulated
by the information, reporting and proxy statement requirements of the Securities
Exchange Act of 1934, as amended.
-53-
<PAGE> 55
Appendix A
----------
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (hereinafter referred to as
the "AGREEMENT"), made and entered into this 21st day of December, 1999, by and
among The Bank of Kentucky Financial Corporation, a bank holding company
incorporated under the laws of Kentucky (hereinafter referred to as "BKFC"); The
Bank of Kentucky, Inc., a state bank incorporated under the laws of Kentucky
(hereinafter referred to as the "BANK"); Fort Thomas Financial Corporation, a
savings and loan holding company incorporated under the laws of Ohio
(hereinafter referred to as "FTFC"); and Fort Thomas Savings Bank, FSB, a
federal savings bank incorporated under the laws of the United States
(hereinafter referred to as "FSB");
WITNESSETH:
WHEREAS, the authorized capital of BKFC consists of 15,000,000 shares
of stock, each without par value, 5,286,575 of which are issued and outstanding;
WHEREAS, the authorized capital of the BANK consists of 500,000 shares
of stock, $5.00 par value per share, 100 of which are issued and outstanding and
are owned of record by BKFC;
WHEREAS, the authorized capital of FTFC consists of 4,000,000 common
shares, par value $.01 per share, 1,573,775 of which are issued and 1,474,321 of
which are outstanding, and 1,000,000 preferred shares, par value $.01 per share,
none of which is issued or outstanding;
WHEREAS, the authorized capital of FSB consists of 10,000,000 shares of
common stock, $.01 par value per share, 100 of which are issued and outstanding
and held of record by FTFC; and
WHEREAS, the Boards of Directors of BKFC, the BANK, FTFC and FSB
believe that the merger of FTFC with and into BKFC and the subsequent merger of
FSB with and into the BANK are in the best interests of each of them and their
shareholders;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, BKFC, the BANK, FTFC and FSB,
each intending to be legally bound, hereby agree as follows:
<PAGE> 56
ARTICLE ONE
THE MERGER
SECTION 1.01. MERGER OF FTFC AND BKFC. (a) In accordance with the terms
and subject to the conditions of this AGREEMENT, Chapter 1701 of the Ohio
Revised Code (hereinafter referred to as the "ORC") and Chapter 271B of the
Kentucky Revised Statutes (hereinafter referred to as the "KRS"), FTFC shall
merge with and into BKFC at the BKFC EFFECTIVE TIME (hereinafter defined); BKFC
shall be the continuing, surviving and resulting corporation in the merger of
FTFC with and into BKFC (hereinafter referred to as the "BKFC MERGER SURVIVOR");
BKFC shall continue to exist as a bank holding company incorporated under the
laws of Kentucky; and BKFC shall be the only one of BKFC and FTFC to continue
its separate corporate existence after the BKFC EFFECTIVE TIME.
(b) The name of the BKFC MERGER SURVIVOR in the merger of FTFC
with and into BKFC (hereinafter referred to as the "BKFC MERGER") shall be "The
Bank of Kentucky Financial Corporation" and the principal office and the
registered office of the BKFC MERGER SURVIVOR shall be located at 1065
Burlington Pike, Florence, Kentucky 41042.
(c) The purposes for which the BKFC MERGER SURVIVOR shall be
formed shall be identical to the purposes for which BKFC was formed.
(d) The authorized capital of the BKFC MERGER SURVIVOR shall
consist of 15,000,000 shares of stock, each without par value.
(e) The Articles of Incorporation of BKFC, as amended, shall
be the Articles of Incorporation, as amended, of the BKFC MERGER SURVIVOR until
amended in accordance with law.
(f) The Bylaws of BKFC at the BKFC EFFECTIVE TIME shall be the
Bylaws of the BKFC MERGER SURVIVOR until amended in accordance with law.
(g) After the BKFC EFFECTIVE TIME, the persons identified on
the schedule attached hereto as Exhibit A shall be the officers and directors of
the BKFC MERGER SURVIVOR, each to hold office in accordance with applicable law
and regulations.
(h) At and after the BKFC EFFECTIVE TIME, the BKFC MERGER
SURVIVOR consents to be sued and served with process in the State of Ohio and
irrevocably appoints the Secretary of State of Ohio as its agent to accept
service of process in any proceeding in the State of Ohio to enforce against the
BKFC MERGER SURVIVOR any obligation of FTFC or to enforce the rights of any
DISSENTING SHAREHOLDER (hereinafter defined).
(i) Robert W. Zapp, whose address is 1065 Burlington Pike,
Florence, Kentucky 41042, a natural person and resident of Boone County,
Kentucky, the county in which the registered office of the BKFC MERGER SURVIVOR
is to be located, shall be the statutory
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<PAGE> 57
agent in Kentucky upon whom any process, notice or demand against FTFC, BKFC or
the BKFC MERGER SURVIVOR may be served.
SECTION 1.02. MERGER OF FSB AND THE BANK. (a) In accordance with the
terms and subject to the conditions of this AGREEMENT, Chapter 271B of the KRS
and Section 552.13 of the Regulations of the Office of Thrift Supervision
(hereinafter referred to as the "OTS"), FSB shall merge with and into the BANK
at the BANK EFFECTIVE TIME (hereinafter defined); the BANK shall be the
continuing, surviving and resulting corporation in the merger of FSB with and
into the BANK (hereinafter referred to as the "BANK MERGER SURVIVOR"); the BANK
shall continue to exist as a state bank incorporated under the laws of Kentucky;
and the BANK shall be the only one of FSB and the BANK to continue its separate
corporate existence after the BANK EFFECTIVE TIME.
(b) The name of the BANK MERGER SURVIVOR in the merger of FSB
with and into the BANK (hereinafter referred to as the "BANK MERGER") shall be
"The Bank of Kentucky, Inc."
(c) The purposes for which the BANK MERGER SURVIVOR shall be
formed shall be identical to the purposes for which the BANK was formed.
(d) The authorized capital of the BANK MERGER SURVIVOR shall
consist of 500,000 shares of stock, $5.00 par value per share.
(e) The Articles of Incorporation and Bylaws of the BANK, as
in effect immediately before the BANK EFFECTIVE TIME, shall be the Articles of
Incorporation and Bylaws of the BANK MERGER SURVIVOR after the BANK EFFECTIVE
TIME until amended in accordance with law.
(f) After the BANK EFFECTIVE TIME, the persons identified on
the schedule attached hereto as Exhibit B shall be the officers and directors of
the BANK MERGER SURVIVOR, each to hold office in accordance with applicable law
and regulations.
(g) After the BANK EFFECTIVE TIME, the offices of the BANK and
FSB at the locations listed on the schedule attached hereto as Exhibit C shall
be the offices of the BANK MERGER SURVIVOR.
(h) Robert W. Zapp, whose address is 1065 Burlington Pike,
Florence, Kentucky 41042, a natural person and resident of Boone County, the
county in which the registered office of the BANK MERGER SURVIVOR is to be
located, shall be the statutory agent in Kentucky upon whom any process, notice
or demand against FSB, the BANK or the BANK MERGER SURVIVOR may be served.
SECTION 1.03. CLOSING AND EFFECTIVE TIMES. (a) The closing of the
transactions contemplated by this AGREEMENT (hereinafter referred to as the
"CLOSING") shall take place at a time and on a date selected mutually by BKFC
and FTFC following the satisfaction or
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<PAGE> 58
waiver of the last of the conditions set forth in Article Seven of this
AGREEMENT to be satisfied or waived.
(b) On the day of the CLOSING, BKFC and FTFC shall cause (i)
Articles of Merger in respect of the BKFC MERGER to be filed with the Secretary
of State of the Commonwealth of Kentucky in accordance with Section 271B.11-050
of the KRS and (ii) a Certificate of Merger in respect of the BKFC MERGER to be
filed with the Secretary of State of the State of Ohio in accordance with
Chapter 1701 of the ORC. The BKFC MERGER shall become effective at 11:58 p.m. on
the date of such filings or on such later date as may be set forth in such
Articles of Merger and Certificate of Merger (herein referred to as the "BKFC
EFFECTIVE TIME").
(c) On the day of the CLOSING, the BANK and FSB shall cause
Articles of Merger in respect of the BANK MERGER to be filed with the Secretary
of State of the Commonwealth of Kentucky in accordance with Section 271B.11-050
of the KRS. The BANK MERGER shall become effective at 11:59 p.m. on the date of
such filing or on such later date as may be set forth in such Articles of Merger
(herein referred to as the "BANK EFFECTIVE TIME").
SECTION 1.04. STRUCTURE. In the event that BKFC elects in its sole
discretion to change the structure of the BANK MERGER in a manner by which FSB
will be merged with an interim federal savings bank formed by BKFC as a wholly
owned subsidiary of BKFC and will survive such merger, FTFC and FSB shall enter
into an amendment of this AGREEMENT with BKFC and the BANK to provide for such
change in structure.
ARTICLE TWO
CONVERSION AND CANCELLATION OF
SHARES IN THE BKFC MERGER AND THE BANK MERGER
SECTION 2.01. CONVERSION AND CANCELLATION OF SHARES. (a) At the BKFC
EFFECTIVE TIME and as a result of the BKFC MERGER, automatically and without
further act of BKFC, FTFC or the holders of FTFC common shares or BKFC shares of
stock, the following shall occur:
(i) Each outstanding FTFC common share shall be
cancelled and extinguished and, in
substitution and exchange therefor, the
holders thereof shall be entitled, subject
to and upon compliance with Section 2.02 of
this AGREEMENT, to receive .5645 share of
BKFC stock (hereinafter referred to as the
"EXCHANGE RATE"); provided, however, that in
the event of the payment by BKFC of any
stock dividends, stock splits or
distributions in, or combinations or
subdivisions of, BKFC shares of stock
between the date of this AGREEMENT and the
BKFC EFFECTIVE TIME, the EXCHANGE RATE shall
be adjusted appropriately;
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<PAGE> 59
(ii) Each of the options to purchase 21,406 FTFC
common shares at an exercise price of $6.91
per share which was granted pursuant to the
STOCK OPTION PLANS (hereinafter defined) and
which does not vest until January 29, 2001
(hereinafter collectively referred to as the
"$6.91 UNVESTED OPTIONS"), shall be canceled
and extinguished and, in substitution and
exchange therefor, the holders thereof shall
be entitled, subject to and upon compliance
with Section 2.02 of this AGREEMENT, to
receive from BKFC an option to purchase for
$12.24 per share a number of BKFC shares of
stock equal to the product of (I) the number
of FTFC common shares subject to the $6.91
UNVESTED OPTIONS of each such holder,
multiplied by (II) the EXCHANGE RATE;
provided, however, that each such option
shall be granted by BKFC subject to the
terms and upon the conditions of a stock
option agreement in the form of the Stock
Option Award Agreement attached hereto as
Exhibit D (hereinafter referred to as the
"STOCK OPTION AWARD AGREEMENT");
(iii) Each of the options to purchase 1,264 FTFC
common shares at an exercise price of $12.82
per share which was granted pursuant to the
STOCK OPTION PLANS (hereinafter defined) and
which vests on and after January 29, 2001
(hereinafter collectively referred to as the
"$12.82 UNVESTED OPTIONS"), shall be
canceled and extinguished and, in
substitution and exchange therefor, the
holders thereof shall be entitled, subject
to and upon compliance with Section 2.02 of
this AGREEMENT, to receive from BKFC an
option to purchase for $22.71 per share a
number of BKFC shares of stock equal to the
product of (I) the number of FTFC common
shares subject to the portion of the $12.82
UNVESTED OPTIONS which vests on January 29,
2001 of each such holder, multiplied by (II)
the EXCHANGE RATE; provided, however, that
each such option shall be granted by BKFC
subject to the terms and upon the conditions
of a STOCK OPTION AWARD AGREEMENT;
(iv) Each issued FTFC common share which is not
outstanding and which is held in the FTFC
treasury shall be cancelled and
extinguished; and
(v) The outstanding shares of stock of BKFC
before the BKFC EFFECTIVE TIME shall remain
issued and outstanding after the BKFC
EFFECTIVE TIME as shares of stock of the
BKFC MERGER SURVIVOR.
5
<PAGE> 60
(b) At the BANK EFFECTIVE TIME and as a result of the BANK
MERGER, automatically and without further act of the BANK, FSB, BKFC or FTFC,
(i) each share of common stock of FSB shall be cancelled and extinguished and
(ii) the shares of stock of the BANK issued and outstanding immediately before
the BANK EFFECTIVE TIME shall be and constitute the issued and outstanding
shares of the BANK MERGER SURVIVOR immediately after the BANK EFFECTIVE TIME.
SECTION 2.02. SHARE CERTIFICATES IN THE BKFC MERGER AND THE BANK
MERGER. (a) As soon as practicable after the BKFC EFFECTIVE TIME, BKFC shall
mail to each holder of record of FTFC common shares a form letter of transmittal
and instructions for use in effecting the surrender for exchange of the
certificates evidencing the FTFC common shares cancelled and extinguished as a
result of the BKFC MERGER (hereinafter referred to collectively as the
"CERTIFICATES" and individually as the "CERTIFICATE"). Upon surrender of a
CERTIFICATE for cancellation, together with such letter of transmittal, duly
executed, the holder of such CERTIFICATE shall be entitled to receive in
exchange therefor a certificate evidencing the BKFC shares of stock to which the
holder is entitled in accordance with the provisions of this AGREEMENT, and the
CERTIFICATE so surrendered shall thereafter be cancelled forthwith.
(b) In the event that any holder of FTFC common shares
cancelled and extinguished in accordance with this AGREEMENT is unable to
deliver the CERTIFICATE which evidences such shares of the holder, BKFC, in the
absence of actual notice that any shares theretofore evidenced by any such
CERTIFICATE have been acquired by a bona fide purchaser, shall deliver to such
holder the amount to which such holder is entitled in accordance with the
provisions of this AGREEMENT upon the presentation of all of the following:
(i) Evidence to the reasonable satisfaction of
BKFC that any such CERTIFICATE has been
lost, wrongfully taken or destroyed;
(ii) Such security or indemnity as may be
reasonably requested by BKFC to indemnify
and hold BKFC harmless; and
(iii) Evidence to the reasonable satisfaction of
BKFC that such person is the owner of the
shares theretofore represented by each
CERTIFICATE claimed by him to be lost,
wrongfully taken or destroyed and that he is
the person who would be entitled to present
each such CERTIFICATE for exchange pursuant
to this AGREEMENT.
(c) In the event that the issuance of BKFC shares of stock or
payment in lieu of fractional shares in accordance with this AGREEMENT is to be
made to a person other than the person in whose name the CERTIFICATE surrendered
is registered, the CERTIFICATE so surrendered shall be properly endorsed or
otherwise in proper form for transfer and the person requesting such issuance or
payment shall pay any transfer or other taxes required by reason of the issuance
or payment to a person other than the registered holder of the CERTIFICATE
surrendered or establish to the satisfaction of BKFC that such tax has been paid
or is not
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<PAGE> 61
applicable. Until surrendered in accordance with the provisions of this Section
2.02, each CERTIFICATE shall represent for all purposes the right to receive the
number of whole BKFC shares of stock and cash in lieu of fractional shares as
determined pursuant to this AGREEMENT.
(d) No dividends or other distributions declared after the
BKFC EFFECTIVE TIME with respect to BKFC shares of stock and payable to the
holders of record thereof after the BKFC EFFECTIVE TIME shall be paid to the
holder of any unsurrendered CERTIFICATE until the holder thereof shall surrender
such CERTIFICATE. Subject to the effect, if any, of applicable law, after the
subsequent surrender and exchange of a CERTIFICATE, the record holder thereof
shall be entitled to receive any such dividends or other distributions, without
any interest thereon, which theretofore had become payable with respect to BKFC
shares of stock represented by such CERTIFICATE.
(e) Each holder of a $6.91 UNVESTED OPTION and each holder of
a $12.82 UNVESTED OPTION (hereafter referred to collectively as the "UNVESTED
OPTIONS") shall surrender to BKFC at the BKFC EFFECTIVE TIME the agreement(s) in
respect of such UNVESTED OPTION and shall enter into a STOCK OPTION AWARD
AGREEMENT with BKFC.
(f) No certificates or scrip representing fractional shares of
BKFC shares of stock shall be issued upon the surrender for exchange of
CERTIFICATES and no option to purchase fractional shares of BKFC stock shall be
issued upon cancellation of UNVESTED OPTIONS. No dividend or distribution with
respect to BKFC shares of stock shall be payable on or with respect to any such
fractional shares and such fractional shares shall not entitle the owner thereof
to vote or to any other rights of a BKFC shareholder. In lieu of any such
fractional share, BKFC shall pay to each former holder of FTFC common shares or
UNVESTED OPTIONS who otherwise would be entitled to receive a fraction of a BKFC
share of stock, or option in respect thereof, an amount in cash equal to the
product of (i) the market price of a share of stock of BKFC on the day of the
BKFC EFFECTIVE TIME, multiplied by (ii) such fraction.
(g) As soon as practicable after the BANK EFFECTIVE TIME, the
certificate(s) evidencing the FSB shares of common stock cancelled and
extinguished as a result of the BANK MERGER shall be surrendered to BKFC for
cancellation. At and after the BANK EFFECTIVE TIME, the certificate(s)
evidencing the outstanding shares of stock of the BANK before the BANK EFFECTIVE
TIME shall evidence the outstanding shares of stock of the BANK MERGER SURVIVOR
after the BANK EFFECTIVE TIME.
SECTION 2.03. COMPLIANCE WITH SECTION 2.02. No BKFC shares of stock or
payment in lieu of fractional shares shall be delivered by BKFC to any former
holder of FTFC common shares in accordance with this AGREEMENT until any such
holder shall have complied with paragraphs (a) through (e) of Section 2.02 of
this AGREEMENT.
SECTION 2.04. PAYMENT IN SATISFACTION OF RIGHTS. All payments made upon
the surrender of CERTIFICATES pursuant to this Article Two shall be deemed to
have been made in full satisfaction of all rights pertaining to the shares
evidenced by such CERTIFICATES.
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<PAGE> 62
SECTION 2.05. NO FURTHER REGISTRATION OF TRANSFER. After the BKFC
EFFECTIVE TIME, there shall be no further registration of transfer of FTFC
common shares on the stock transfer books of FTFC. In the event that, after the
BKFC EFFECTIVE TIME, CERTIFICATES evidencing such shares are presented for
transfer, they shall be cancelled and exchanged as provided in this Article Two.
SECTION 2.06. DISSENTING SHARES. Notwithstanding anything in this
AGREEMENT to the contrary, the FTFC common shares which are outstanding
immediately before the BKFC EFFECTIVE TIME and which are held by shareholders
who shall not have voted such shares in favor of this AGREEMENT, who shall have
delivered to BKFC or FTFC a written demand for appraisal of such shares in the
manner provided in Section 1701.85 of the ORC and who shall have otherwise
complied fully with all of the requirements of Section 1701.85 of the ORC shall
not be converted into or be exchangeable for the right to receive the
consideration provided in this AGREEMENT; provided, however, that (a) each of
such shares (herein referred to as the "DISSENTING SHARES") shall nevertheless
be cancelled and extinguished in accordance with this AGREEMENT; (b) the holder
of DISSENTING SHARES, upon full compliance with the requirements of Section
1701.85 of the ORC, shall be entitled to payment of the appraised value of such
shares in accordance with the provisions of Section 1701.85 of the ORC; and (c)
in the event (i) any holder of DISSENTING SHARES shall subsequently withdraw
such holder's demand for appraisal of such shares within sixty days after the
BKFC EFFECTIVE TIME or shall fail to establish such holder's entitlement to
appraisal rights in accordance with Section 1701.85 of the ORC, or (ii) any
holder of DISSENTING SHARES has not filed a petition demanding a determination
of the value of such shares within the period provided in Section 1701.85 of the
ORC, such holder shall forfeit the right to appraisal of such shares and such
shares shall thereupon be deemed to have been converted into and to have become
exchangeable for the right to receive the consideration provided in this
AGREEMENT.
SECTION 2.07. SEPARATE EXISTENCE. (a) At and after the BKFC EFFECTIVE
TIME, the separate existence of FTFC shall cease; provided, however, that
whenever a conveyance, assignment, transfer, deed or other instrument or act is
necessary to vest property or rights in the BKFC MERGER SURVIVOR, the officers
of BKFC and FTFC shall execute, acknowledge and deliver such instruments and do
such acts.
(b) At and after the BANK EFFECTIVE TIME, the separate
existence of FSB shall cease; provided, however, that whenever a conveyance,
assignment, transfer, deed or other instrument or act is necessary to vest
property or rights in the BANK MERGER SURVIVOR, the officers of the BANK and FSB
shall execute, acknowledge and deliver such instruments and do such acts.
SECTION 2.08. PROPERTY. (a) At and after the BKFC EFFECTIVE TIME, all
of the assets and property of every kind and character, real, personal and
mixed, tangible and intangible, chooses in action, rights and credits owned by
BKFC and FTFC at the BKFC EFFECTIVE TIME, or which would inure to any of them,
shall immediately, by operation of law and without any conveyance or transfer
and without any further act or deed, be vested in and become the property of the
BKFC MERGER SURVIVOR, which shall have, hold and enjoy the same in its
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own right as fully and to the same extent as the same were possessed, held and
enjoyed by BKFC and FTFC before the BKFC EFFECTIVE TIME. The BKFC MERGER
SURVIVOR shall be deemed to be and shall be a continuation of the entity and
identity of BKFC. All of the rights and obligations of BKFC or FTFC shall not
revert or in any way be impaired by reason of the BKFC MERGER. Any claim
existing, or action or proceeding pending, by or against either BKFC or FTFC,
may be prosecuted to judgment with right of appeal as if the BKFC MERGER had not
taken place or the BKFC MERGER SURVIVOR may be substituted in its place.
(b) At and after the BANK EFFECTIVE TIME, all of the assets
and property of every kind and character, real, personal and mixed, tangible and
intangible, chooses in action, rights and credits owned by BANK and FSB at the
BANK EFFECTIVE TIME, or which would inure to any of them, shall immediately, by
operation of law and without any conveyance or transfer and without any further
act or deed, be vested in and become the property of the BANK MERGER SURVIVOR,
which shall have, hold and enjoy the same in its own right as fully and to the
same extent as the same were possessed, held and enjoyed by the BANK and FSB
before the BANK EFFECTIVE TIME. The BANK MERGER SURVIVOR shall be deemed to be
and shall be a continuation of the entity and identity of the BANK. All of the
rights and obligations of the BANK or FSB shall not revert or in any way be
impaired by reason of the BANK MERGER. Any claim existing, or action or
proceeding pending, by or against either the BANK or FSB, may be prosecuted to
judgment with right of appeal as if the BANK MERGER had not taken place or the
BANK MERGER SURVIVOR may be substituted in its place.
SECTION 2.09. CREDITOR'S RIGHTS. (a) At and after the BKFC EFFECTIVE
TIME, all the rights of creditors of each of BKFC and FTFC shall be preserved
unimpaired, and all liens upon the property of BKFC and FTFC shall be preserved
unimpaired on only the property affected by any such lien immediately before the
BKFC EFFECTIVE TIME.
(b) At and after the BANK EFFECTIVE TIME, all the rights of
creditors of each of the BANK and FSB shall be preserved unimpaired, and all
liens upon the property of the BANK and FSB shall be preserved unimpaired on
only the property affected by any such lien immediately before the BANK
EFFECTIVE TIME.
SECTION 2.10. DEPOSITS. (a) At the BANK EFFECTIVE TIME and as a result
of the BANK MERGER, each FSB savings deposit or other account then existing
shall, automatically and without further act of the BANK or FSB or the holder
thereof, be cancelled and extinguished. In substitution and exchange for each
FSB passbook savings deposit so cancelled and extinguished, the holder thereof
shall automatically receive from the BANK MERGER SURVIVOR a passbook savings
account with a beginning balance equal in dollar amount to the dollar amount of
the FSB passbook savings deposit account so cancelled and extinguished and
otherwise on the same terms as other passbook savings accounts accepted by the
BANK at the BANK EFFECTIVE TIME. In substitution for each FSB savings deposit,
other than a passbook savings deposit, so cancelled and extinguished, the holder
thereof shall automatically receive from the BANK MERGER SURVIVOR a savings
account with a beginning balance equal in dollar amount to the dollar amount of
the FSB savings deposit account so cancelled and
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<PAGE> 64
extinguished and otherwise having the same terms as the FSB savings deposit so
cancelled and extinguished.
(b) The holder of each FSB savings deposit or other account
cancelled and extinguished in accordance with Section 2.10(a) of this AGREEMENT
shall forthwith be entered on the records of the BANK MERGER SURVIVOR as the
holder of an appropriate savings deposit or other account in an amount
determined as provided in Section 2.10(a) and, until Section 2.10(c) of this
AGREEMENT shall have been complied with, each passbook, certificate of deposit
or other document issued by FSB and evidencing a valid and binding FSB savings
deposit or other document shall be deemed, for all purposes, to evidence a
savings deposit or other like account of the BANK MERGER SURVIVOR.
(c) Each person who, as a result of the BANK MERGER, holds a
passbook, certificate of deposit or other document issued by FSB which
theretofore evidenced a FSB savings deposit or other account shall surrender
each such passbook, certificate or other document to the BANK MERGER SURVIVOR.
Upon such surrender, the BANK MERGER SURVIVOR shall deliver in substitution
therefor an account book or other document evidencing the savings deposit or
other account received by such person in accordance with Section 2.10(c) of this
AGREEMENT.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF FTFC AND FSB
FTFC and FSB jointly and severally represent and warrant to BKFC and
the BANK that each of the following is true and accurate in all material
respects:
SECTION 3.01. ORGANIZATION AND STANDING. (a) FTFC is a corporation duly
organized, validly existing and in good standing under the laws of Ohio; is duly
registered with the OTS as a savings and loan holding company; and has the
corporate power and authority to own or hold under lease all of its properties
and assets and to conduct its business and operations as presently conducted.
Except as set forth in Section 3.01(a) of the schedule delivered by FTFC to BKFC
on December 20, 1999 (hereinafter referred to as the "DISCLOSURE SCHEDULE"),
FTFC is in compliance in all material respects with all applicable local, state
or federal laws and regulations, including, without limitation, the regulations
of the Securities and Exchange Commission (hereinafter referred to as the
"SEC"), the OTS and the Federal Deposit Insurance Corporation (hereinafter
referred to as the "FDIC"). Except for the ownership of the outstanding shares
of FSB, FTFC is not engaged in any business and does not own any real or other
personal property.
(b) FSB is a federal savings bank duly organized, validly
existing and in good standing under the laws of the United States; has the
corporate power and authority to own or hold under lease all of its properties
and assets and to conduct its business and operations as presently conducted;
and is a member of the Federal Home Loan Bank of Cincinnati (hereinafter
referred to as the "FHLB of Cincinnati"). The savings accounts and deposits of
FTFC are insured up to applicable limits by the FDIC. Except as set forth in
Section 3.01(b) of the
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DISCLOSURE SCHEDULE, FSB is in compliance in all material respects with all
applicable local, state or federal laws and regulations, including, without
limitation, the regulations of the OTS and the FDIC.
SECTION 3.02. QUALIFICATION. Each of FTFC and FSB is either duly
qualified to do business and in good standing in each jurisdiction in which such
qualification is required or the failure to so qualify would not have a material
adverse effect on the business of either of FTFC or FSB.
SECTION 3.03. AUTHORITY. (a) Subject to the approval of this AGREEMENT
and the transactions contemplated hereby, including the BKFC MERGER and the BANK
MERGER, by the OTS, by FTFC, as the sole shareholder of FSB, and by the
requisite vote of the FTFC shareholders, (i) each of FTFC and FSB has all of the
requisite corporate power and authority to enter into this AGREEMENT and to
perform all of its obligations hereunder; (ii) the execution and delivery of
this AGREEMENT and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action by each of FTFC and FSB;
and (iii) this AGREEMENT is the valid and binding agreement of each of FTFC and
FSB, enforceable against each of FTFC and FSB in accordance with its terms, (I)
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general applicability affecting the enforcement of creditors'
rights generally and the effect of rules of law governing specific performance,
injunctive relief and other equitable remedies on the enforceability of such
documents and (II) except to the extent such enforceability may be limited by
laws relating to safety and soundness of insured depository institutions as set
forth in 12 U.S.C. Section 1818(b) or by the appointment of a conservator by the
FDIC. This AGREEMENT has been duly executed and delivered by each of FTFC and
FSB.
SECTION 3.04. GOVERNING DOCUMENTS. FTFC and FSB have delivered to BKFC
true and accurate copies of the Articles of Incorporation and Code of
Regulations of FTFC and the Charter and Bylaws of FSB and have granted BKFC
access to all records of all meetings and other corporate actions by the
shareholders, Boards of Directors and Committees of the Boards of Directors of
FTFC and FSB. The minute books of FTFC and FSB contain, in all material
respects, complete and accurate records of all meetings and other corporate
actions of the FTFC and FSB shareholders, Boards of Directors and Committees of
the Boards of Directors.
SECTION 3.05. NO CONFLICTS. The execution and delivery of this
AGREEMENT and the consummation of the transactions contemplated hereby,
including the BKFC MERGER and the BANK MERGER, will not, (a) subject to the
approval of this AGREEMENT and the BKFC MERGER by FTFC, as the sole shareholder
of FSB, and by the requisite vote of the FTFC shareholders, conflict with or
violate any provision of or result in the breach of any provision of the
Articles of Incorporation or Code of Regulations of FTFC or the Charter or
Bylaws of FSB; (b) conflict with or violate any provision of or result in the
breach or the acceleration of or entitle any party to accelerate (whether upon
or after the giving of notice of lapse of time or both) any obligation under, or
otherwise materially affect the terms of, any mortgage, lien, lease, agreement,
license, instrument, order, arbitration award, judgment or decree to which
either FTFC or FSB is a party or by which FTFC, FSB or their property or assets
is bound; (c) require
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the consent of any party to any agreement or commitment to which either FTFC or
FSB is a party or by which FTFC, FSB or their property or assets is bound, the
failure to obtain which could, individually or in the aggregate with all the
other failures to obtain required consents, have a material adverse effect on
the business, operations or financial condition of FTFC and FSB, taken as a
whole; (d) result in the creation or imposition of any lien, charge, pledge,
security interest or other encumbrance upon any property or assets of either
FTFC or FSB or give rise to any meritorious cause of action against either FTFC
or FSB; or, (e) subject to the approval of this AGREEMENT by the OTS, by FTFC,
as the sole shareholder of FSB, and by the requisite vote of the FTFC
shareholders, violate or conflict with any applicable law, ordinance, rule or
regulation, including, without limitation, the rules and regulations of the OTS
and the FDIC.
SECTION 3.06. CONSENTS. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental authority is
required by FTFC or FSB in connection with the execution and delivery of this
AGREEMENT by FTFC or FSB or the consummation by FTFC or FSB of the transactions
contemplated hereby, including the BKFC MERGER and the BANK MERGER, except for
filings, authorizations, consents or approvals required by the SEC, the OTS and
the Ohio Secretary of State.
SECTION 3.07. FTFC AND FSB SHARES. (a) (i) The authorized capital of
FTFC consists of 4,000,000 common shares, $.01 par value per share, 1,573,775 of
which are issued and 1,474,321 of which are outstanding and held of record by
approximately 650 shareholders, and 1,000,000 preferred shares, $.01 par value
per share, none of which is issued or outstanding. All of the issued and
outstanding common shares of FTFC are duly authorized, validly issued, fully
paid and nonassessable; were issued in full compliance with all applicable laws
and regulations; and were not issued in violation of the preemptive right of any
depositor of FSB or shareholder of FTFC. FTFC has no outstanding class of
capital stock other than such common shares.
(ii) Except for the options to purchase for $6.91 per
share an aggregate of 107,016 common shares of FTFC granted to two FSB employees
and to four FTFC directors and options to purchase for $12.82 an aggregate of
3,148 common shares of FTFC granted to four FTTC directors in accordance with
the 1996 FTFC Key Employee Stock Compensation Program and the 1996 FTFC
Directors Stock Option Plan (hereinafter referred to as the "STOCK OPTION
PLANS"), there are no outstanding subscription rights, options, conversion
rights, warrants or other agreements, plans or commitments of any nature
whatsoever (either firm or conditional) obligating FTFC (I) to issue, deliver or
sell, cause to be issued, delivered or sold, or restricting FTFC from selling
any additional FTFC common shares or any FTFC preferred shares, or (II) to
grant, extend or enter into any such agreement, plan or commitment. The STOCK
OPTION PLANS were approved by the holders of the requisite majority of
outstanding common shares of FTFC on January 29, 1996, and have not been amended
since the date of such approval. Of the options to purchase an aggregate of
110,164 common shares of FTFC granted under the terms and subject to the
conditions of the STOCK OPTION PLANS, options to purchase 65,460 are vested on
the date hereof and are exercisable in accordance with the terms and subject to
the conditions of the STOCK OPTION PLANS; options to purchase 22,034 will vest
on January 29, 2000, and will thereafter be exercisable in accordance with the
terms and subject to the conditions of the STOCK OPTION PLANS; options to
purchase 22,038 will vest
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on January 29, 2001, and will not be exercisable in accordance with the terms
and subject to the conditions of the STOCK OPTION PLANS until January 29, 2001;
and options to purchase 632 will vest on January 29, 2002, and will not be
exercisable in accordance with the terms and subject to the conditions of the
STOCK OPTION PLANS until January 29, 2002. Options to purchase 47,214 FTFC are
reserved for issuance under the STOCK OPTION PLANS and have not been granted.
Except as set forth in this Section 3.07, no stock appreciation rights or other
grants or awards have been issued, granted or awarded under the STOCK OPTION
PLANS.
(iii) The 1996 FTFC Management Recognition Plan for
Officers and Trust Agreement and the 1996 FTFC Management Recognition Plan for
Directors and Trust Agreement (hereinafter referred to as the "MRPs"), were
approved by the holders of the requisite majority of outstanding common shares
of FTFC on January 29, 1996, and have not been amended since the date of such
approval. In accordance with the terms of the MRPs, an aggregate of 62,951
common shares of FTFC was purchased in open market transactions by the trustees
of the MRPs between February 23, and May 23, 1996. Of such 62,951 common shares,
an aggregate of 44,068 common shares of FTFC has been awarded to two FSB
employees and to four FTFC directors (hereinafter collectively referred to as
the "MRP PARTICIPANTS"), 26,182 of which have vested and have been distributed
to the MRP PARTICIPANTS; 8,814 of which are scheduled to vest on January 29,
2000, immediately after which they will be distributed to the MRP PARTICIPANTS;
8,814 of which are scheduled to vest on January 29, 2001; and 252 of which are
scheduled to vest on January 29, 2002. In the event the BKFC EFFECTIVE TIME
occurs before January 29, 2001, none of the MRP PARTICIPANTS, nor any other
person or entity, will have any right to receive, or any claim in respect of,
the 8,814 common shares of FTFC which are scheduled to vest under the MRPs on
January 29, 2001, or any earnings thereon, or the 252 common shares of FTFC
which are scheduled to vest under the MRPs on January 29, 2002, or any earnings
thereon. Awards in respect of 18,885 FTFC common shares owned of record by the
MRPs have not been made and none of the MRP PARTICIPANTS have any right to
receive, or any claim in respect of, any or all of such 18,885 common shares or
any earnings thereon.
(iv) The FTFC Employee Stock Ownership Plan
(hereinafter referred to as the "ESOP") owns of record 122,098 common shares of
FTFC, 83,430 of which have been allocated to the accounts of ESOP participants
and 38,668 of which are unallocated. The outstanding balance of the loan
obtained by the ESOP from FTFC to purchase the FTFC common shares owned of
record by the ESOP equaled $387,000 on the date hereof.
(b) The authorized capital of FSB consists of 10,000,000
common shares, $.01 par value per share, 100 of which are issued and outstanding
and held of record by FTFC, and 5,000,000 preferred shares, $.01 par value per
share, none of which is issued or outstanding. All of the outstanding common
shares of FSB are duly authorized, validly issued, fully paid and nonassessable;
were issued in full compliance with all applicable laws and regulations; and
were not issued in violation of the preemptive right of any depositor or
shareholder of FSB. FSB has no outstanding class of capital stock other than
such common shares. There are no outstanding subscription rights, options,
conversion rights, warrants or other agreements or commitments of any nature
whatsoever (either firm or conditional) obligating FSB (i) to issue, deliver or
sell,
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cause to be issued, delivered or sold, or restricting FSB from selling any
additional FSB shares, or (ii) to grant, extend or enter into any such agreement
or commitment.
SECTION 3.08. FINANCIAL STATEMENTS. (a) The consolidated statements of
financial condition as of September 30, 1999 and 1998, of FTFC and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years then ended, examined and reported upon by VonLehman &
Company, Inc., certified public accountants, complete copies of which have
previously been delivered to BKFC (hereinafter referred to as the "AUDITED
FINANCIALS"), have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis and fairly present the
consolidated financial position of FTFC at such dates and the consolidated
results of its operations and cash flows for such periods. FTFC has delivered to
BKFC all of the correspondence from VonLehman & Company, Inc., to FTFC, FSB or
their Boards of Directors or management, relating to or in respect of the
examinations and reports of VonLehman & Company, Inc., on the consolidated
financial statements of FTFC as of and for the years ended September 30, 1999,
1998 and 1997, including, but not limited to all correspondence and other
documentation in respect of management, policies and internal controls.
(b) The unaudited balance sheet as of November 30, 1999, of
FTFC and the related unaudited income statement for the two months then ended,
complete copies of which have previously been delivered to BKFC (hereinafter
referred to as the "INTERIM FINANCIALS"), fairly present the financial position
of FTFC at such date and the results of its operations for such period and have
been prepared in accordance with generally accepted accounting principles as
applicable to condensed consolidated financial statements and as applied on a
consistent basis with the AUDITED FINANCIALS. All adjustments which are
necessary for a fair statement of the INTERIM FINANCIALS have been made.
(c) The Thrift Financial Reports of FSB for the three-month
periods ended March 31, June 30 and September 30, 1999, together with the
schedules and supplements attached thereto, each as filed with the OTS and
copies of which were previously delivered to BKFC by FTFC (hereinafter referred
to as the "TFRs"), have been prepared in accordance with accounting practices
permitted by the OTS applied on a consistent basis, are true, complete and
correct in all material respects and fairly present the financial position of
FSB at such dates.
(d) Except as disclosed in the INTERIM FINANCIALS, the TFRs
and Section 3.08(d) of the DISCLOSURE SCHEDULE, as of November 30, 1999, FTFC
had no liabilities or obligations material to the financial condition of FTFC,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due.
(e) The AUDITED FINANCIALS, the INTERIM FINANCIALS and the
TFRs did not, as of the dates thereof, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
information contained therein, in light of the circumstances under which they
were made, not misleading.
SECTION 3.09. CONDUCT OF BUSINESSES. Since September 30, 1999, each of
FTFC and FSB has conducted its businesses only in the ordinary and usual course,
there have been no
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material adverse changes in the financial condition, assets, liabilities,
obligations, properties or business of FTFC or FSB and, except as set forth in
any of the AUDITED FINANCIALS, the INTERIM FINANCIALS, the TFRs or Section 3.09
of the DISCLOSURE SCHEDULE, neither FTFC nor FSB has:
(a) Authorized the creation or issuance of, issued, sold
or disposed of, or created any obligation to issue,
sell or dispose of, any stock, notes, bonds or other
securities or any obligation convertible into or
exchangeable for, any shares of its capital stock;
(b) Except for a per share dividend in the amount of
$.0625 declared on September 20, 1999, and paid on
October 15, 1999, declared, set aside, paid or made
any dividend or other distributions on its capital
stock or directly or indirectly redeemed, purchased
or acquired any shares or entered into any agreement
in respect of the foregoing;
(c) Effected any stock split, recapitalization,
combination, exchange of shares, readjustment or
other reclassification;
(d) Amended the Articles of Incorporation or Code of
Regulations of FTFC or the Charter or Bylaws of FSB;
(e) Purchased, sold, assigned or transferred any material
tangible asset or any material patent, trademark,
trade name, copyright, license, franchise, design or
other intangible asset or property;
(f) Mortgaged, pledged or granted or suffered to exist
any lien or other encumbrance or charge on any assets
or properties, tangible or intangible, except for
liens for taxes not yet due and payable and such
other liens, encumbrances or charges which do not
materially adversely affect its financial position;
(g) Waived any rights of material value or cancelled any
material debts or claims;
(h) Incurred any material obligation or liability
(absolute or contingent), including, without
limitation, any tax liability or any liability for
borrowings from the FHLB of Cincinnati, or paid any
material liability or obligation (absolute or
contingent) other than liabilities and obligations
incurred in the ordinary course of business;
(i) Experienced any material change in the amount or
general composition of its deposit liabilities or its
loan portfolio;
(j) Entered into or amended any employment contract with
any of its officers, increased the compensation
payable to any officer or director or any
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relative of any such officer or director, or become
obligated to increase any such compensation, adopted
or amended in any material respect any employee
benefit plans, severance plan or collective
bargaining agreement or made any awards or
distributions under any employee benefit plans;
(k) Incurred any damage, destruction or similar loss, not
covered by insurance, materially affecting its
businesses or properties;
(l) Acquired any stock or other equity interest in any
corporation, partnership, trust, joint venture or
other entity;
(m) Made any (i) material investment (except investments
made in the ordinary course of business) or (ii)
material capital expenditure or commitment for any
material addition to property, plant or equipment;
(n) Taken or permitted any action which would prevent
BKFC from accounting for the BKFC MERGER as a
"pooling of interests";
(o) Authorized or permitted (i) any allocation by the
ESOP of any FTFC common shares to the accounts of
participants, (ii) any award under the MRPs of FTFC
common shares to any person or (iii) any issuance
under the STOCK OPTION PLANS of any options, or stock
appreciation rights; or
(p) Agreed, whether in writing or otherwise, to take any
action described in this Section 3.09.
SECTION 3.10. PROPERTIES. (a) A description of all personal property
and fixed assets owned by each of FTFC and FSB is set forth in Section 3.10(a)
of the DISCLOSURE SCHEDULE (hereinafter referred to as the "PERSONAL PROPERTY").
All PERSONAL PROPERTY has been maintained in good working order, ordinary wear
and tear excepted. Either FTFC or FSB owns and has good title to all of the
PERSONAL PROPERTY, free and clear of any mortgage, lien, pledge, charge, claim,
conditional sales or other agreement, lease, right or encumbrance, except (i) as
set forth in Section 3.10(a) of the DISCLOSURE SCHEDULE, (ii) to the extent
stated or reserved against in the AUDITED FINANCIALS or the INTERIM FINANCIALS
and (iii) such other exceptions which are not material in character or amount
and do not materially detract from the value of or interfere with the use of the
properties or assets subject thereto or affected thereby.
(b) The documentation (hereinafter referred to as "LOAN
DOCUMENTATION") governing or relating to the loan and credit-related assets
(hereinafter referred to as the "LOAN ASSETS") included within the loan
portfolio of either FTFC or FSB is legally sufficient in all material respects
for the purposes intended thereby and creates enforceable rights in favor of
either FTFC or FSB in accordance with the terms of such LOAN DOCUMENTATION,
subject to applicable bankruptcy, insolvency, reorganization and moratorium laws
and other laws of general applicability affecting the enforcement of creditors'
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rights generally, and the effect of rules of law governing specific performance,
injunctive relief and other equitable remedies on the enforceability of such
documents. The LOAN DOCUMENTATION is in compliance in all material respects
with, and each of the loans included within the loan portfolio of either FTFC or
FSB has been processed, closed and administered in conformance with, all
applicable federal consumer protection statutes and regulations, including
without limitation, the Truth in Lending Act, the Equal Credit Opportunity Act
and the Real Estate Settlement Procedures Act. Except as set forth in Section
3.10(b) of the DISCLOSURE SCHEDULE, to the best knowledge of FTFC, no debtor
under any of the LOAN DOCUMENTATION has asserted any claim or defense with
respect to the subject matter thereof.
(c) A description of each parcel of real property owned by
either FTFC or FSB is set forth in Section 3.10(c) of the DISCLOSURE SCHEDULE
(hereinafter referred to individually as a "PARCEL" and collectively as the
"REAL PROPERTIES"). Either FTFC or FSB is the owner of each PARCEL in fee simple
and has good and marketable title to each such PARCEL, free of any liens,
claims, charges, encumbrances or security interests of any kind, except (i) as
set forth in Section 3.10(c) of the DISCLOSURE SCHEDULE, (ii) liens for real
estate taxes and assessments not yet delinquent and (iii) utility, access and
other easements, rights of way, restrictions and exceptions which have been
disclosed to either FTFC or FSB in writing, none of which impair the REAL
PROPERTIES for the use and business being conducted thereon.
(d) Except as set forth in Section 3.10(d) of the DISCLOSURE
SCHEDULE, no party leasing any of the REAL PROPERTIES from either FTFC or FSB is
in material default with respect to any of its obligations (including payment
obligations) under the governing lease. Neither FTFC nor FSB has received
notification from any governmental entity within the two year period immediately
preceding the date hereof of contemplated improvements to the REAL PROPERTIES or
surrounding area or community by public authority, the costs of which are to be
assessed as special taxes against the REAL PROPERTIES in the future.
(e) A description of all real property leased by either FTFC
or FSB is set forth in Section 3.10(e) of the DISCLOSURE SCHEDULE (hereinafter
referred to as the "LEASED REAL PROPERTY"). True and correct copies of all
leases in respect of the LEASED REAL PROPERTY (hereinafter referred to as the
"REAL PROPERTY LEASES") and all attachments, amendments and addendums thereto
have been delivered to BKFC. Except as set forth in Section 3.10(e) of the
DISCLOSURE SCHEDULE, the REAL PROPERTY LEASES create, in accordance with their
terms, valid, binding and assignable leasehold interests of either FTFC or FSB
in all of the LEASED REAL PROPERTY, free and clear of all liens, claims,
charges, encumbrances or security interests of any kind. Each of FTFC and FSB
has complied in all material respects with all of the provisions of the REAL
PROPERTY LEASES required on its part to be complied with and is not in default
with respect to any of its obligations (including payment obligations) under any
of the REAL PROPERTY LEASES.
(f) A description of all personal property leased by either
FTFC or FSB is set forth in Section 3.10(f) of the DISCLOSURE SCHEDULE
(hereinafter referred to as the
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"LEASED PERSONAL PROPERTY"). True and correct copies of the leases in respect of
the LEASED PERSONAL PROPERTY (hereinafter referred to as the "PERSONAL PROPERTY
LEASES") and all attachments, amendments and addendums thereto have been
delivered to BKFC. Except as set forth in Section 3.10(f) of the DISCLOSURE
SCHEDULE, the PERSONAL PROPERTY LEASES create, in accordance with their terms,
valid, binding and assignable leasehold interests of either FTFC or FSB in all
of the LEASED PERSONAL PROPERTY, free and clear of all liens, claims, charges,
encumbrances or security interests of any kind. Each of FTFC and FSB has
complied in all material respects with all of the provisions under the PERSONAL
PROPERTY LEASES required on its part to be complied with and is not in default
with respect to any of its obligations (including payment obligations) under any
of the PERSONAL PROPERTY LEASES.
(g) Section 3.10(g) of the DISCLOSURE SCHEDULE contains a
complete list of all contracts (hereinafter referred to as the "LOAN SALE
CONTRACTS") pursuant to which either FTFC or FSB has sold loans to third party
investors at any time within the last twenty-four months. Except as otherwise
set forth in Section 3.10(g) of the DISCLOSURE SCHEDULE, (i) no purchaser under
any LOAN SALE CONTRACT has requested, or notified either FTFC or FSB that it may
be requesting, that either FTFC or FSB repurchase any loan pursuant to the terms
of the LOAN SALE CONTRACT and (ii) no facts exist that would require either FTFC
or FSB to repurchase any loans previously sold under any LOAN SALE CONTRACT.
SECTION 3.11. ALLOWANCE FOR LOAN LOSSES. Except as set forth in Section
3.11 of the DISCLOSURE SCHEDULE, there is no loan which was made by either FTFC
or FSB and which is reflected as an asset of either FTFC or FSB on the AUDITED
FINANCIALS or the INTERIM FINANCIALS that (i) is sixty (60) days or more
delinquent or (ii) has been classified by examiners (regulatory or internal) as
"Substandard," "Doubtful" or "Loss." The allowance for loan losses as reflected
on the AUDITED FINANCIALS and the INTERIM FINANCIALS is, in the opinion of
FTFC's management, adequate in all material respects as of their respective
dates under the requirements of generally accepted accounting principles to
provide for reasonably anticipated losses on outstanding loans, net of
recoveries.
SECTION 3.12. INVESTMENTS. (a) Section 3.12(a) of the DISCLOSURE
SCHEDULE contains (i) a true, accurate and complete list of all investments,
other than investments in the LOAN ASSETS and REAL PROPERTIES, owned by either
FTFC or FSB (hereinafter referred to as the "INVESTMENTS") as of the date
hereof, the name of the registered holder thereof, the location of the
certificates therefor or other evidence thereof and any stock powers or other
authority for transfer granted with respect thereto and (ii) a true, accurate
and complete list of the names of each bank or other depository in which either
FTFC or FSB has an account or safe deposit box, including, without limitation,
accounts with the FHLB of Cincinnati, and the names of all persons authorized to
draw thereon or to have access thereto. Except as set forth in Section 3.12(a)
of the DISCLOSURE SCHEDULE, the INVESTMENTS, other than any such investments
disposed of in the ordinary course of business prior to the date hereof, are
owned by either FTFC or FSB, free and clear of all liens, pledges, claims,
security interests, encumbrances, charges or restrictions of any kind and may be
freely disposed of by either FTFC or FSB at any
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time. Neither FTFC nor FSB is a party to nor has any interest in any repurchase
agreement, reverse repurchase agreement, collateralized mortgage obligation or
any other derivative security.
(b) Except as set forth in Section 3.12(b) of the DISCLOSURE
SCHEDULE, neither FTFC nor FSB owns of record or beneficially the outstanding
shares of, or any equity interest in, any corporation or other business entity.
Without limiting the generality of the foregoing sentence, neither FTFC nor FSB
owns or otherwise controls any subsidiary, other than FTFC's ownership of FSB.
SECTION 3.13. REPORTS AND RECORDS. (a) Each of FTFC and FSB has filed
all reports and maintained all records required to be filed or maintained by it
under various rules and regulations of the SEC, the OTS and the FDIC. All such
documents and reports complied in all material respects with applicable
requirements of law and regulations in effect at the time of filing such
documents and contained in all material respects the information required to be
stated therein. None of such documents, when filed, contained any untrue
statement of a material fact or omitted 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.
(b) FTFC has delivered to BKFC copies of the following
documents, each of which has been filed with the SEC (hereinafter referred to as
the "FTFC SEC FILINGS"):
(i) The FTFC Annual Reports on Form 10-K for the
fiscal years ended September 30, 1998 and
1997;
(ii) The Annual Reports to Shareholders for the
fiscal years ended September 30, 1998 and
1997;
(iii) The Proxy Statements for use in connection
with the 1998 and 1997 Annual Meetings of
Shareholders; and
(iv) The Quarterly Reports on Form 10-Q for the
quarters ended December 31, 1998 and March
31 and June 30, 1999.
The FTFC SEC FILINGS did not, as of the dates on which such reports were filed
with the SEC, contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
SECTION 3.14. TAXES. Except as set forth in Section 3.14 of the
DISCLOSURE SCHEDULE, each of FTFC and FSB has duly and timely filed all federal,
state, county and local income, profits, franchise, excise, sales, customs,
property, use, occupation, withholding, social security and other tax and
information returns and reports required to have been filed by each of FTFC and
FSB through the date hereof, and has paid or accrued all taxes and duties (and
all interest and penalties with respect thereto) due or claimed to be due.
Neither FTFC nor FSB has any liability for any taxes or duties (or interest or
penalties with respect thereto) of any nature whatsoever and there is no basis
for any additional material claims or assessments, other than
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with respect to liabilities for taxes and duties which are reflected in the
INTERIM FINANCIALS or which may have accrued since September 30, 1999, in the
ordinary course of business. The federal income tax returns of each of FTFC and
FSB for all taxable years through and including the year ended September 30,
1995, have been examined by the federal tax authorities or the applicable
statute of limitations has expired in respect thereof. No proposed additional
taxes, interest or penalties have been asserted by applicable taxing authorities
with respect to such years or later years, except for claims which have been
fully reserved for in the AUDITED FINANCIALS and the INTERIM FINANCIALS. True
copies of the federal, state and local income tax returns of each of FTFC and
FSB for each of the two (2) tax years ended September 30, 1998 and 1997 have
been delivered to BKFC.
SECTION 3.15. MATERIAL CONTRACTS. (a) Except as set forth in Section
3.15(a) of the DISCLOSURE SCHEDULE, neither FTFC nor FSB is a party to or bound
by any written or oral (i) contract or commitment for capital expenditures in
excess of $5,000 for any one project or $10,000 in the aggregate; (ii) contract
or commitment made in the ordinary course of business for the purchase of
materials or supplies or for the performance of services involving payments to
or by either FTFC or FSB of an amount exceeding $5,000 in the aggregate or
extending for more than six (6) months from the date hereof; (iii) contract or
option for the purchase of any property, real or personal; (iv) letter of credit
or indemnity calling for payment, upon the conditions stated therein, of more
than $10,000; (v) guarantee agreement; (vi) instrument granting any person
authority to transact business on behalf of either FTFC or FSB; (vii) contracts
or commitments relating to outstanding loans and/or commitments to make loans
(including unfunded commitments and lines of credit) to any one person or entity
(together with "affiliates" of such person or entity) in excess of $50,000 in
the aggregate; (viii) employment, management, consulting, deferred compensation,
severance or other similar contract with any director, officer or employee of
either FTFC or FSB; (ix) note, debenture or loan agreement pursuant to which
either FTFC or FSB has incurred indebtedness, other than deposit liabilities and
advances from the FHLB of Cincinnati; (x) loan participation agreement; (xi)
loan servicing agreement; (xii) contract or commitment relating to a real estate
development project consisting of the development of more than one single family
dwelling; (xiii) commitment to make any acquisition, development or construction
loan; (xiv) commitment or agreement to do any of the foregoing; or (xv) other
contract, agreement or commitment made outside the ordinary course of business
(contracts set forth in Section 3.15 of the DISCLOSURE SCHEDULE are hereinafter
collectively referred to as the "CONTRACTS"). FTFC previously delivered to BKFC
(i) all of the CONTRACTS and (ii) all form lending agreements and deposit forms
used by either FTFC or FSB in the ordinary course of business.
(b) Neither FTFC nor FSB is in material default under any of
the contracts or agreements to which either is a party and no claim of such
default by any party has been made or is now threatened. There does not exist
any event which, with notice or the passing of time or both, would constitute a
material default under, or would excuse performance by any party thereto from,
any contract or agreement to which either FTFC or FSB is a party.
SECTION 3.16. INSURANCE. All material properties and operations of each
of FTFC and FSB are adequately insured for its benefit. The performance by the
officers and employees of
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each of FTFC and FSB of their duties is bonded in such amounts and against such
risks as are usually insured against or bonded by entities similarly situated,
under valid and enforceable policies of insurance or bonds issued by insurers or
bonding companies of recognized responsibility, financial or otherwise.
SECTION 3.17. ACTIONS AND SUITS. (a) Except as set forth in Section
3.17(a) of the DISCLOSURE SCHEDULE, there are no actions, suits or proceedings
or investigations pending or, to the knowledge of FTFC, threatened against or
affecting the business, operations or financial condition of either FTFC or FSB
in any court or before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, and neither
FTFC or FSB has any knowledge of any basis for any such action, suit, proceeding
or investigation. Except as set forth in Section 3.17 of the DISCLOSURE
SCHEDULE, neither FTFC nor FSB is in default in respect of any judgment, order,
writ, injunction or decree of any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality.
(b) Except as set forth in Section 3.17(b) of the DISCLOSURE
SCHEDULE, there are no actions, suits or proceedings instigated, commenced or
contemplated by FTFC or FSB against any person or entity, including, but not
limited to, foreclosure actions, suits or proceedings or other actions, suits or
proceedings to enforce the rights of FTFC or FSB in collateral which secure
loans made by FTFC or FSB or otherwise to collect the outstanding balance of
loans made by FTFC or FSB.
SECTION 3.18. PERMITS AND LICENSES. Each of FTFC and FSB has all
material permits, licenses, orders and approvals of all federal, state or local
governmental or regulatory bodies required for FSB to conduct its business as
presently conducted, and all such material permits, licenses, orders and
approvals are in full force and effect, without the threat of suspension or
cancellation. None of such permits, licenses, orders or approvals will be
adversely affected by the consummation of the transactions contemplated by this
AGREEMENT.
SECTION 3.19. EMPLOYEE BENEFIT PLANS; ERISA. (a) Section 3.19 of the
DISCLOSURE SCHEDULE contains a true and complete list of all qualified pension
or profit-sharing plans, deferred compensation, consulting, bonus, group
insurance plans or agreements and all other incentive, welfare or employee
benefit plans or agreements maintained for the benefit of employees or former
employees of either FTFC or FSB (hereinafter collectively referred to as the
"PLANS"). Copies of such PLANS, together with copies of (i) the most recent
actuarial and financial reports prepared with respect to any qualified plans,
(ii) the most recent annual reports filed with any governmental agency and (iii)
all rulings and determination letters and any open requests for rulings or
letters that pertain to any qualified plan, have been delivered to BKFC.
(b) Each PLAN which constitutes an "employee pension plan," as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended (hereinafter referred to as "ERISA"), is and has been administered in
material compliance with its governing documents and the applicable provisions
of ERISA and any such employee pension plan which
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is intended to be qualified under the provisions of Section 401(a) of the
Internal Revenue Code of 1986, as amended (hereinafter referred to as the
"CODE"), is and has been administered in material compliance with the applicable
provisions of the CODE.
(c) Each PLAN which constitutes an "employee welfare benefit
plan," as defined in Section 3(1) of ERISA, is and has been administered in
material compliance with its governing documents and the applicable provisions
of ERISA and each PLAN which constitutes a "group health plan," as defined in
Section 5000(b)(1) of the CODE, is and has been administered in material
compliance with the continuation of coverage provisions contained in Section
4980B of the CODE.
(d) Each PLAN which is not an "employee benefit plan," as
defined in Section 3(3) of ERISA, is and has been administered in material
compliance with its governing documents and with any and all state or federal
laws applicable to such PLAN.
(e) The market value of assets under each "employee pension
plan" (as defined above) which is subject to the provisions of Title IV of
ERISA, equals or exceeds the present value of all vested and nonvested
liabilities thereunder determined in accordance with Pension Benefit Guaranty
Corporation methods, factors and assumptions applicable to an employee pension
plan terminating on the date for determination.
(f) FTFC does not maintain any PLAN which provides
post-retirement medical, dental or life insurance benefits to any former
employee of either FTFC or FSB nor is FTFC obligated to provide any such benefit
to any current employee upon his or her retirement.
(g) Neither FTFC nor FSB participates in, or has ever been
obligated to contribute to, any multiemployer plan as such term is defined in
Section 3(37) of ERISA.
(h) Neither FTFC, FSB nor any PLAN maintained by either FTFC
or FSB, nor any fiduciary of any such PLAN, has incurred any material liability
to the Pension Benefit Guaranty Corporation, the United States Department of
Labor or to the Internal Revenue Service (hereinafter referred to as the "IRS")
with respect to a PLAN.
(i) No prohibited transaction (which shall mean any
transaction prohibited by Section 406 of ERISA and not exempt under Section 408
of ERISA) has occurred with respect to any "employee benefit plan" (as defined
above) maintained by either FTFC or FSB (i) which would result in the
imposition, directly or indirectly, of an excise tax under Section 4975 of the
CODE or (ii) the correction of which would have a material adverse effect on the
financial condition, results of operations or business of FTFC.
(j) Each employee pension plan (as defined above) which is
intended to be an employee stock ownership plan, as defined in Section
4975(e)(7) of the CODE, is and has been administered in substantial compliance
with the applicable provisions of Sections 4975 and 409 of the CODE and the
regulations promulgated by the IRS thereunder; and, any outstanding loan to
which any such employee stock ownership plan is a party constitutes an "exempt
loan," as described in Section 54.4975-7 of the regulations promulgated by the
IRS.
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SECTION 3.20. ENVIRONMENTAL PROTECTION. (a) Except as set forth in
Section 3.20 of the DISCLOSURE SCHEDULE, (i) each of FTFC, FSB and the FTFC
PROPERTY (hereinafter defined) is, and has been at all times, in material
compliance with all applicable ENVIRONMENTAL LAWS (hereinafter defined); (ii) no
investigations, inquiries, orders, hearings, actions or other proceedings by or
before any court or governmental agency have been issued, are pending or, to the
knowledge of FTFC or FSB, threatened against either FTFC or FSB or in connection
with the FTFC PROPERTY; (iii) no claims have been made or, to the knowledge of
FTFC or FSB, threatened at any time against either FTFC or FSB or in connection
with the FTFC PROPERTY relating to actual or alleged violation of any
ENVIRONMENTAL LAW or relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any HAZARDOUS SUBSTANCE (hereinafter
defined) and no past or present actions, activities, conditions, events or
incidents, including, without limitation, the release, emission, discharge or
disposal of, or exposure to, any HAZARDOUS SUBSTANCE have occurred that could
reasonably form the basis of any such claims against either FTFC or FSB or in
connection with the FTFC PROPERTY; (iv) no HAZARDOUS SUBSTANCES have been
integrated into any FTFC PROPERTY or any component thereof in violation of
ENVIRONMENTAL LAWS, or which will in the future require remediation during
renovation or demolition, or in such quantities and manner as may or do pose a
threat to human health; (v) no portion of any FTFC PROPERTY is located within
2000 feet of (I) a release of HAZARDOUS SUBSTANCES which has been reported or is
required to be reported under any ENVIRONMENTAL LAW or (II) the location of any
site used, in the past or presently, for the disposal of any HAZARDOUS
SUBSTANCES; (vi) the FTFC PROPERTY has not been used for the storage, disposal
or treatment of HAZARDOUS SUBSTANCES, has not been contaminated by HAZARDOUS
SUBSTANCES, nor has been used for the storage or use of any underground or
aboveground storage tanks; and (vii) material permits, registrations and other
authorizations necessary for either FTFC or FSB or the FTFC PROPERTY to operate
in material compliance with all ENVIRONMENTAL LAWS are currently in force and
are identified in Section 3.20 of the DISCLOSURE SCHEDULE.
(b) Section 3.20 of the DISCLOSURE SCHEDULE sets forth an
accurate and complete list of all outstanding loans of either FTFC or FSB as to
which the borrower has submitted to either FTFC or FSB, the borrower or another
person is required to submit, or which either FTFC or FSB otherwise has in its
possession, any environmental audits, site assessments, analyses, studies or
surveys of environmental conditions on any matter. FTFC has made available to
BKFC all such documents.
(c) As used in Sections 3.20 and 4.17:
(i) "FTFC PROPERTY" means all real and personal
property now or previously owned, leased,
occupied or managed by either FTFC or FSB or
any person or entity whose liability for any
matter has or may have been related or
assumed by FTFC either contractually or by
operation of law.
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(ii) "ENVIRONMENTAL LAWS" means all federal,
state, local and other laws, regulations,
rules, standards, ordinances, orders,
decrees, and judgments relating to
pollution, the environment, occupational
health and safety, or the protection of
human health, all as may be from time to
time amended.
(iii) "HAZARDOUS SUBSTANCES" means any and all
substances or materials which are classified
or considered to be hazardous or toxic to
human health or the environment under any
applicable ENVIRONMENTAL LAWS and shall
include, without limitation, any "hazardous
substances" as defined in Section 101(14) of
CERCLA (42 USC Section 9601(14)) or
regulations promulgated thereunder, any
"toxic and hazardous substances" as defined
in 29 CFR Part 1910, petroleum and its
byproducts, asbestos, polychlorinated
biphenyls, nuclear fuel or materials, lead
and lead-containing substances, and
urea-formaldehyde.
SECTION 3.21. EMPLOYMENT MATTERS. (a) Each of FTFC and FSB is in
compliance with all federal, state or other applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, including, but not limited to, Title VII of the Civil Rights
Act of 1964 (as amended by the Equal Employment Opportunity Act of 1972), the
Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the
Employee Retirement Income Security Act, 29 U.S.C. Section 1001 ET SEQ.,
42 U.S.C. Section 1981, the Older Workers Benefit Protection Act, the Americans
with Disabilities Act and the Fair Labor Standards Act; and has not and is not
engaged in any unfair labor practice, except where such failure to comply would
not have, or such practice would not have, a material adverse effect on the
financial condition, results of operations or business of either FTFC or FSB. No
unfair labor practice complaint against either FTFC or FSB is pending before any
governmental agency or court and there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of either FTFC or FSB, threatened
against or involving either FTFC or FSB. No representation question exists in
respect of the employees of either FTFC or FSB and no labor grievance which
might have a material adverse effect upon either FTFC or FSB or the conduct of
its businesses is pending or, to the knowledge of FTFC, threatened. No
arbitration proceeding arising out of or under any collective bargaining
agreement is pending and no claim therefore has been asserted against either
FTFC or FSB. No collective bargaining agreement is currently being negotiated by
either FTFC or FSB. Neither FTFC nor FSB has experienced any material labor
difficulty during the last three years.
(b) Section 3.21(b) of the DISCLOSURE SCHEDULE sets forth each
of the Employment Agreements between either FTFC or FSB and employees of FTFC
and FSB (hereafter referred to as the "EMPLOYMENT AGREEMENTS").
SECTION 3.22. UNTRUE STATEMENTS AND OMISSIONS. The certificates,
statements and other information furnished to BKFC in writing by or on behalf of
either FTFC or FSB in connection with the transactions contemplated hereby,
including, but not limited to, disclosures
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and information set forth in the DISCLOSURE SCHEDULE, do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
SECTION 3.23. PROXY MATERIALS. None of the information relating to FTFC
or FSB included in any proxy statement which is to be mailed to the shareholders
of FTFC in connection with any meeting of shareholders convened in accordance
with Section 6.04 of this AGREEMENT (hereinafter referred to as the "PROXY
STATEMENT") will, at the time the PROXY STATEMENT is mailed or at the time of
the meeting of shareholders to which the PROXY STATEMENT relates, 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 false or misleading, or at
the time of the meeting of shareholders to which the PROXY STATEMENT relates,
necessary to correct any statement which has become false or misleading.
SECTION 3.24. BROKERS. All negotiations relating to this AGREEMENT and
the transactions contemplated hereby have been carried on without the
intervention of any person, other than Charles Webb & Company, a division of
Keefe, Bruyette & Woods, Inc. (hereinafter referred to as "WEBB"), acting on
behalf of FTFC or FSB in such manner as to give rise to any valid claim against
FTFC or FSB for any broker's or finder's fee or similar compensation. The fee
and related compensation payable to WEBB for services related to this AGREEMENT
and the transactions contemplated hereby is approximately 1% of the BKFC MERGER
value, plus $25,000.
SECTION 3.25. YEAR 2000. (a) All devices, systems, machinery,
information technology, computer software and hardware, and other date sensitive
technology owned or leased by either FTFC or FSB (hereinafter referred to as the
"FSB SYSTEMS") necessary for either FTFC or FSB to carry on its business as
presently conducted and as contemplated to be conducted in the future either (i)
are Year 2000 Compliant (hereinafter defined) or (ii) will be Year 2000
Compliant within a period of time calculated to result in no material disruption
of any of the business operations of either FTFC or FSB. For purposes of this
Section 3.25, "Year 2000 Compliant" means that the FSB SYSTEMS are designed to
be used prior to, during and after the Gregorian calendar year 2000 A.D. and
will operate during each such time period without error relating to date data,
specifically including any error relating to, or the product of, date data which
represents or references different centuries or more than one century.
(b) Each of FTFC and FSB has (i) undertaken a detailed
inventory, review and assessment of all areas within its business and operations
that could be adversely affected by the failure of either FTFC or FSB to be Year
2000 Compliant on a timely basis; (ii) developed a detailed plan and time line
for becoming Year 2000 Compliant on a timely basis; and (iii) to date,
implemented that plan in accordance with that timetable in all material
respects.
(c) Each of FTFC and FSB has made inquiry of each of its key
suppliers, vendors and customers and has obtained confirmations from all such
persons as to whether such persons have initiated programs to become Year 2000
Compliant and on the basis of such confirmations, FTFC reasonably believes that
all such persons will be or try to become so
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compliant or make other suitable arrangements so as not to likely cause a
material disruption of business.
SECTION 3.26. PERMISSIBLE ACTIVITIES. FTFC is not engaged in any
activity, either directly or indirectly through FSB or through other equity
investments, which is not permitted for a bank holding company or its
subsidiaries.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF BKFC AND THE BANK
BKFC and the BANK represent and warrant to FTFC and FSB that each of
the following is true and accurate in all material respects:
SECTION 4.01. ORGANIZATION AND STANDING. (a) BKFC is a corporation duly
organized, validly existing and in good standing under the laws of Kentucky; is
duly registered with the Board of Governors of the Federal Reserve System
(hereinafter referred to as the "FRB") as a bank holding company; and has the
corporate power and authority to conduct its business and operations as
presently conducted. BKFC is in compliance in all material respects with all
applicable local, state or federal laws and regulations, including, without
limitation, the regulations of the SEC, the FRB and the FDIC.
(b) The BANK is a state bank duly organized, validly existing
and in good standing under the laws of Kentucky and has the corporate power and
authority to own or hold under lease all of its properties and assets and to
conduct its business and operations as presently conducted. The savings accounts
and deposits of the BANK are insured up to applicable limits by the FDIC. The
BANK is in compliance in all material respects with all applicable local, state
or federal laws and regulations, including, without limitation, the regulations
of the Commonwealth of Kentucky and the FDIC.
SECTION 4.02. QUALIFICATION. Each of BKFC and the BANK is either duly
qualified to do business and in good standing in each jurisdiction in which such
qualification is required or the failure to so qualify would not have a material
adverse effect on the business of BKFC or the BANK.
SECTION 4.03. AUTHORITY. Subject to the approval of this AGREEMENT and
the transactions contemplated hereby, including the BANK MERGER, by the FRB, the
OTS and the Department of Financial Institutions of the State of Kentucky
(hereafter referred to as the "DEPARTMENT"), (a) each of BKFC and the BANK has
all requisite corporate power and authority to enter into this AGREEMENT and to
perform its obligations hereunder; (b) the execution and delivery of this
AGREEMENT and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action by each of BKFC and the BANK;
and (c) this AGREEMENT is a valid and binding agreement of each of BKFC and the
BANK, enforceable against it in accordance with its terms, (i) subject to
applicable bankruptcy, insolvency, reorganization and moratorium laws and other
laws of general applicability affecting the enforcement of creditors' rights
generally, and the effect of rules of
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law governing specific performance, injunctive relief and other equitable
remedies on the enforceability of such documents and (ii) except to the extent
such enforceability may be limited by laws relating to safety and soundness of
insured depository institutions as set forth in 12 U.S.C. Section 1818(b) or by
the appointment of a conservator by the FDIC. This AGREEMENT has been duly
executed and delivered by each of BKFC and the BANK.
SECTION 4.04. GOVERNING DOCUMENTS. BKFC has delivered to FTFC true and
accurate copies of the Articles of Incorporation, as amended, and Bylaws of BKFC
and the Articles of Incorporation and the Bylaws of the BANK and has granted
FTFC access to all records of all meetings and other corporate actions occurring
before the BKFC EFFECTIVE TIME by the shareholders, Boards of Directors and
Committees of the Boards of Directors of BKFC and the BANK. The minute books of
BKFC and the BANK contain, in all material respects, complete and accurate
records of all meetings and other corporate actions of shareholders, Boards of
Directors and Committees of the Boards of Directors.
SECTION 4.05. NO CONFLICTS. The execution and delivery of this
AGREEMENT and, subject to the approval of the BANK MERGER by the FRB, the OTS
and the DEPARTMENT, the consummation of the transactions contemplated hereby
will not (a) conflict with or violate any provision of or result in the breach
of any provision of the Articles of Incorporation, as amended, or Bylaws of BKFC
or the Articles of Incorporation or Bylaws of the BANK; (b) conflict with or
violate any provision of or result in the breach or the acceleration of or
entitle any party to accelerate (whether upon or after the giving of notice of
lapse of time or both) any obligation under, or otherwise materially affect the
terms of, any mortgage, lien, lease, agreement, license, instrument, order,
arbitration award, judgment or decree to which either BKFC or the BANK is a
party or by which either BKFC or the BANK or their property or assets is bound;
(c) require the consent of any party to any agreement or commitment to which
either BKFC or the BANK is a party or by which either BKFC or the BANK or their
property or assets is bound, the failure to obtain which could, individually or
in the aggregate with all the other failures to obtain required consents, have a
material adverse effect on the business, operations or financial condition of
BKFC and the BANK, taken as a whole; (d) result in the creation or imposition of
any lien, charge, pledge, security interest or other encumbrance upon any
property or assets of either BKFC or the BANK or give rise to any meritorious
cause of action against either BKFC or the BANK; or (e) violate or conflict with
any applicable law, ordinance, rule or regulation, including, without
limitation, the rules and regulations of the FRB, OTS, or the FDIC.
SECTION 4.06. CONSENTS. No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental authority is
required in connection with the execution and delivery of this AGREEMENT by
either BKFC or the BANK or the consummation by either BKFC or the BANK of the
transactions contemplated hereby, except for filings, authorizations, consents
or approvals required by the SEC, FRB, the OTS, the Ohio Secretary of State, the
Secretary of State of Kentucky and the DEPARTMENT.
SECTION 4.07. AUTHORIZED CAPITAL OF BKFC. As of the date hereof, the
authorized capital of BKFC consists of (a) 15,000,000 common shares, without par
value, 5,286,575 of which are issued and outstanding and 113,565 of which are
reserved for issuance upon exercise
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of outstanding stock options (hereinafter referred to as the "BKFC OPTIONS").
All of the outstanding common shares of BKFC are duly authorized, validly
issued, fully paid and nonassessable; were issued in full compliance with all
applicable laws; and were not issued in violation of the preemptive right of any
shareholder of BKFC. BKFC has no outstanding class of capital stock other than
such common shares. Except for the BKFC OPTIONS and as disclosed in writing on
the date of this AGREEMENT to FTFC (hereinafter referred to as the "BKFC
LETTER"), there are no outstanding subscription rights, options, conversion
rights, warrants or other agreements or commitments of any nature whatsoever
(either firm or conditional) obligating BKFC to issue, deliver or sell, cause to
be issued, delivered or sold, or restricting BKFC from selling any additional
BKFC shares, or obligating BKFC to grant, extend or enter into any such
agreement or commitment.
SECTION 4.08. FINANCIAL STATEMENTS. (a) The consolidated statements of
financial condition as of December 31, 1998 and 1997, of BKFC and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years then ended, examined and reported upon by Crowe Chizek &
Company, LLP, certified public accountants, complete copies of which have
previously been delivered to FTFC (hereinafter referred to as the "BKFC AUDITED
FINANCIALS"), have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis and fairly present the
financial position of BKFC at such dates and the results of its operations and
cash flows for such periods.
(b) The consolidated statement of financial condition as of
September 30, 1999, of BKFC and the related consolidated statements of income,
shareholders' equity and cash flows for the nine months then ended, complete
copies of which have previously been delivered to FTFC (hereinafter referred to
as the "BKFC INTERIM FINANCIALS"), fairly present the financial position of BKFC
at such date and the results of its operations and cash flows for such period
and have been prepared in accordance with generally accepted accounting
principles as applicable to condensed consolidated financial statements and as
applied on a consistent basis with the BKFC AUDITED FINANCIALS. All adjustments
which are necessary for a fair statement of the BKFC INTERIM FINANCIALS have
been made.
(c) The Call Reports of the Bank for the three month periods
ended March 31, June 30 and September 30, 1999, together with the schedules and
supplements attached thereto, each as filed with the FDIC and copies of which
were previously delivered to FTFC by BKFC (hereinafter referred to as the "CALL
REPORTS"), have been prepared in accordance with accounting practices permitted
by the FDIC applied on a consistent basis, are true, complete and correct in all
material respects and fairly present the financial position of the BANK at such
dates.
(d) Except as disclosed in the BKFC INTERIM FINANCIALS and the
CALL REPORTS, as of September 30, 1999, BKFC had no liabilities or obligations
material to the financial condition of the BANK and BKFC taken as a whole,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due.
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(e) The BKFC AUDITED FINANCIALS and the BKFC INTERIM
FINANCIALS, did not, as of the dates thereof, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
information contained therein, in light of the circumstances under which they
were made, not misleading.
SECTION 4.09. CONDUCT OF BUSINESS. Except as disclosed in the BKFC
LETTER, since September 30, 1999, BKFC and the BANK have conducted their
business only in the ordinary and usual course and there have been no material
adverse changes in the financial condition, assets, liabilities, obligations,
properties or business of BKFC and the BANK.
SECTION 4.10. REPORTS AND RECORDS. (a) Each of BKFC and the BANK has
filed all reports and maintained all records required to be filed or maintained
by them under various rules and regulations of the SEC, FRB, FDIC and the
DEPARTMENT. All such documents and reports complied in all material respects
with applicable requirements of law and regulations in effect at the time of the
filing of such documents and contained in all material respects the information
required to be stated therein. None of such documents, when filed, contained any
untrue statement of a material fact or omitted 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.
(b) BKFC has delivered to FTFC copies of the following
documents, each of which has been filed with the SEC (hereinafter referred to as
the "BKFC SEC FILINGS"):
(i) The BKFC Annual Reports on Form 10-K for the
fiscal years ended December 31, 1998, 1997
and 1996;
(ii) The Annual Reports to Shareholders for the
fiscal years ended December 31, 1998, 1997
and 1996;
(iii) The Proxy Statements for use in connection
with the 1998, 1997 and 1996 Annual Meetings
of Shareholders; and
(iv) The Quarterly Reports on Form 10-Q for the
quarters ended December 31, 1998 and March
31, June 30 and September 30, 1999.
The BKFC SEC FILINGS did not, as of the dates on which such reports were filed
with the SEC, contain any untrue statement of a material fact or omit any
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4.11. ACTIONS AND SUITS. Except as set forth in the BKFC SEC
FILINGS and in the BKFC LETTER, there are no material actions, suits or
proceedings or investigations pending or, to the knowledge of BKFC, threatened
against or affecting the business, operations or financial condition of BKFC and
the BANK in any court or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
and
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management of BKFC has no knowledge of any basis for any such action, suit,
proceeding or investigation. Except as set forth in the BKFC SEC FILINGS and the
BKFC LETTER, BKFC and the BANK are not in default in respect of any judgment,
order, writ, injunction or decree of any court or any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality.
SECTION 4.12. PERMITS AND LICENSES. Each of BKFC and the BANK has all
material permits, licenses, orders and approvals of all federal, state or local
governmental or regulatory bodies required for them to conduct their business as
presently conducted and all such material permits, licenses, orders and
approvals are in full force and effect, without the threat of suspension or
cancellation. None of such permits, licenses, orders or approvals will be
adversely affected by the consummation of the transactions contemplated by this
AGREEMENT.
SECTION 4.13. TAXES. Except as set forth in the BKFC SEC FILINGS and
the BKFC LETTER, each of BKFC and the BANK has duly and timely filed all
federal, state, county and local income, profits, franchise, excise, sales,
customs, property, use, occupation, withholding, social security and other tax
and information returns and reports required to have been filed by each of BKFC
and the BANK through the date hereof, and has paid or accrued all taxes and
duties (and all interest and penalties with respect thereto) due or claimed to
be due. Neither BKFC nor the BANK has any liability for any taxes or duties (or
interest or penalties with respect thereto) of any nature whatsoever and there
is no basis for any additional material claims or assessments, other than with
respect to liabilities for taxes and duties which are reflected in the BKFC
INTERIM FINANCIALS or which may have accrued since September 30, 1999, in the
ordinary course of business. The federal income tax returns of each of BKFC and
the BANK for all taxable years through and including the year ended September
30, 1995, have been examined by the federal tax authorities or the applicable
statute of limitations has expired in respect thereof. No proposed additional
taxes, interest or penalties have been asserted by applicable taxing authorities
with respect to such years or later years, except for claims which have been
fully reserved for in the AUDITED FINANCIALS and the BKFC INTERIM FINANCIALS.
SECTION 4.14. INSURANCE. All material properties and operations of each
of BKFC and the BANK are adequately insured for its benefit. The performance by
the officers and employees of each of BKFC and the BANK of their duties is
bonded in such amounts and against such risks as are usually insured against or
bonded by entities similarly situated, under valid and enforceable policies of
insurance or bonds issued by insurers or bonding companies of recognized
responsibility, financial or otherwise.
SECTION 4.15. UNTRUE STATEMENTS AND OMISSIONS. The certificates,
statements and other information furnished to BKFC in writing by or on behalf of
either BKFC or the BANK in connection with the transactions contemplated hereby,
including, but not limited to, disclosures and information set forth in the BKFC
LETTER, do not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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SECTION 4.16 YEAR 2000. (a) All devices, systems, machinery,
information technology, computer software and hardware, and other date sensitive
technology owned or leased by either BKFC or the BANK (hereinafter referred to
as the "BANK SYSTEMS") necessary for either BKFC or the BANK to carry on its
business as presently conducted and as contemplated to be conducted in the
future either (i) are Year 2000 Compliant or (ii) will be Year 2000 Compliant
within a period of time calculated to result in no material disruption of any of
the business operations of either BKFC or the BANK. For purposes of this Section
4.16, "Year 2000 Compliant" means that the BANK SYSTEMS are designed to be used
prior to, during and after the Gregorian calendar year 2000 A.D. and will
operate during each such time period without error relating to date data,
specifically including any error relating to, or the product of, date data which
represents or references different centuries or more than one century.
(b) Each of BKFC and the BANK has (i) undertaken a detailed
inventory, review and assessment of all areas within its business and operations
that could be adversely affected by the failure of either BKFC or the BANK to be
Year 2000 Compliant on a timely basis; (ii) developed a detailed plan and time
line for becoming Year 2000 Compliant on a timely basis; and (iii) to date,
implemented that plan in accordance with that timetable in all material
respects.
(c) Each of BKFC and the BANK has made inquiry of each of its
key suppliers, vendors and customers and has obtained confirmations from all
such persons as to whether such persons have initiated programs to become Year
2000 Compliant and on the basis of such confirmations, BKFC reasonably believes
that all such persons will be or try to become so compliant or make other
suitable arrangements so as not to likely cause a material disruption of
business.
SECTION 4.17 ENVIRONMENTAL PROTECTION. (a) Except as set forth in the
BKFC LETTER, (i) each of BKFC, the BANK and the BKFC PROPERTY (hereinafter
defined) is, and has been at all times, in material compliance with all
applicable ENVIRONMENTAL LAWS; (ii) no investigations, inquiries, orders,
hearings, actions or other proceedings by or before any court or governmental
agency have been issued, are pending or, to the knowledge of BKFC or the BANK,
threatened against either BKFC or the BANK or in connection with the BKFC
PROPERTY; (iii) no claims have been made or, to the knowledge of BKFC or the
BANK, threatened at any time against either BKFC or the BANK or in connection
with the BKFC PROPERTY relating to actual or alleged violation of any
ENVIRONMENTAL LAW or relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any HAZARDOUS SUBSTANCE and no past
or present actions, activities, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of, or exposure
to, any HAZARDOUS SUBSTANCE have occurred that could reasonably form the basis
of any such claims against either BKFC or the BANK or in connection with the
BKFC PROPERTY; (iv) no HAZARDOUS SUBSTANCES have been integrated into any BKFC
PROPERTY or any component thereof in violation of ENVIRONMENTAL LAWS, or which
will in the future require remediation during renovation or demolition, or in
such quantities and manner as may or do pose a threat to human health; (v) no
portion of any BKFC PROPERTY is located within 2000 feet of (I) a release of
HAZARDOUS SUBSTANCES which has been
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reported or is required to be reported under any ENVIRONMENTAL LAW or (II) the
location of any site used, in the past or presently, for the disposal of any
HAZARDOUS SUBSTANCES; (vi) except as set forth in the BKFC LETTER, the BKFC
PROPERTY has not been used for the storage, disposal or treatment of HAZARDOUS
SUBSTANCES, has not been contaminated by HAZARDOUS SUBSTANCES, nor has been used
for the storage or use of any underground or aboveground storage tanks; and
(vii) material permits, registrations and other authorizations necessary for
either BKFC or the BANK or the BKFC PROPERTY to operate in material compliance
with all ENVIRONMENTAL LAWS are currently in force.
(b) As used in this Section 4.17, "BKFC PROPERTY" means all
real and personal property now or previously owned, leased, occupied or managed
by either BKFC or the BANK or any person or entity whose liability for any
matter has or may have been related or assumed by BKFC either contractually or
by operation of law.
ARTICLE FIVE
COVENANTS
SECTION 5.01. CONDUCT OF BUSINESSES. From the date of this AGREEMENT
until the BKFC EFFECTIVE TIME, FTFC and FSB:
(a) Except with the prior written consent of BKFC, will
conduct their businesses only in the ordinary course,
in accordance with past practices and policies and in
compliance with all applicable statutes, rules and
regulations;
(b) Without the prior written consent of BKFC, will not:
(i) Authorize the creation or issuance of,
issue, sell or dispose of, or create any
obligation to issue, sell or dispose of, any
stock, notes, bonds or other securities of
which either FTFC or FSB is the issuer
(including, without limitation, the grant of
options or stock appreciation rights under
the STOCK OPTION PLANS or the award of
common shares under the MRPs), or any
obligations convertible into or exchangeable
for, any shares of its capital stock;
(ii) Declare, set aside, pay or make any dividend
or other distribution on capital stock, or
directly or indirectly redeem, purchase or
otherwise acquire any shares or enter into
any agreement in respect to the foregoing;
(iii) Effect any stock split, recapitalization,
combination, exchange of shares,
readjustment or other reclassification;
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(iv) Amend the Articles of Incorporation or Code
of Regulations of FTFC or Charter or Bylaws
of FSB;
(v) Purchase, sell, assign or transfer any
material tangible asset or any material
patent, trademark, trade name, copyright,
license, franchise, design or other
intangible assets or property;
(vi) Make or commit to make any loan(s)
(including unfunded commitments and lines of
credit) to any one person or entity
(together with "affiliates" of such person
or entity) in excess of $200,000 in the
aggregate or in excess of a 90%
loan-to-value ratio;
(vii) Mortgage, pledge or grant or suffer to exist
any lien or other encumbrance or charge on
any assets or properties, tangible or
intangible, except for liens for taxes not
yet delinquent, assets pledged as collateral
to secure borrowings from the FHLB of
Cincinnati and such other liens,
encumbrances or charges which do not
materially or adversely affect its financial
position;
(viii) Waive any rights of material value or cancel
any material debts or claims;
(ix) Incur any material obligation or liability
(absolute or contingent), including, without
limitation, any tax liability, or pay any
material liability or obligation (absolute
or contingent), other than liabilities and
obligations incurred in the ordinary course
of business and borrowings from the FHLB of
Cincinnati;
(x) Threaten, commence or pursue any legal
actions, suits or proceedings in respect of
the business, operations or loans of FTFC or
FSB;
(xi) Cause any material adverse change in the
amount or general composition of its deposit
liabilities or its loan portfolio;
(xii) Enter into or amend any employment contract
with any of its officers, increase the
compensation payable to any officer or
director or any relative of any such officer
or director, or be obligated to increase any
such compensation, adopt or amend in any
material respect any employee benefit plans,
severance plan or collective bargaining
agreement or make awards or distributions
under any employee benefit plans not
consistent with past practice or custom;
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(xiii) Acquire any stock or other equity interest
in any corporation, partnership, trust,
joint venture or other entity;
(xiv) Make any (I) material investment (except in
the ordinary course of business) or (II)
material capital expenditure or commitment
for any material addition to property,
plant, or equipment;
(xv) Except as set forth in Section 6.12 of this
AGREEMENT, permit the allocation by the ESOP
of any FTFC common shares to the accounts of
participants; or
(xvi) Agree, whether in writing or otherwise, to
take any action described in this Section
5.01.
SECTION 5.02. ACQUISITION PROPOSALS. FTFC and FSB shall not, and shall
cause the officers, directors, employees and other agents of FTFC and FSB not
to, directly or indirectly, take any action to solicit, initiate, engage or
negotiate any proposals or offers from any person or entity, other than BKFC, or
discuss or negotiate with any such person or entity, other than BKFC, any
acquisition or purchase of all or a material amount of the assets of, any equity
securities of, or any merger, consolidation or business combination with, FTFC
or FSB (hereinafter collectively referred to as "ACQUISITION TRANSACTIONS");
provided, however, that nothing contained in this Section 5.02 shall prohibit
FTFC or FSB from furnishing information to, or entering into discussions or
negotiations with, any person or entity which makes an unsolicited proposal of
an ACQUISITION TRANSACTION if and to the extent that (a) the Board of Directors
of FTFC, after consultation with and based upon the written advice of counsel,
determines in good faith that such action is required to fulfill its fiduciary
duties to the shareholders of FTFC under applicable law and (b) before
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, FTFC provides immediate written notice to BKFC of
such action.
SECTION 5.03. ACCOUNTING POLICIES. Before the BKFC EFFECTIVE TIME and
at the request of BKFC, FTFC and FSB shall promptly establish and take such
reserves and accruals to conform the loan, accrual and reserve policies of FTFC
and FSB to the policies of BKFC and the BANK; shall promptly 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 shall promptly recognize for financial accounting
purposes such expenses of the BKFC MERGER and restructuring charges related to
or to be incurred in connection with the BKFC MERGER, to the extent permitted by
law and consistent with generally accepted accounting principles.
SECTION 5.04. FTFC OPTIONS. Neither FTFC nor FSB shall amend the STOCK
OPTION PLANS, nor accelerate the vesting of any options granted under the STOCK
OPTION PLANS. FTFC shall cause the holders of all of the options which have been
granted under the STOCK OPTION PLANS and which have vested on or before the BKFC
EFFECTIVE TIME in
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accordance with the terms thereof to exercise such options before the BKFC
EFFECTIVE TIME in accordance with the terms thereof.
SECTION 5.05. MRPS SHARES. Neither FTFC nor FSB shall amend the MRPs,
nor accelerate the vesting of any awards made under the MRPs. Immediately before
the EFFECTIVE TIME, FTFC shall cause the Trustees of the MRPs to transfer to
FTFC all right, title and interest in and to (a) the 18,885 common shares of
FTFC which are owned of record by such Trustees and which have not been awarded
under the MRPs (hereinafter referred to as "UNAWARDED MRP SHARES") and (b) the
9,066 common shares of FTFC which are owned of record by such Trustees and which
have been awarded to MRP PARTICIPANTS, but in which the MRP PARTICIPANTS will
not have a vested interest, or any other right to receive or a claim in respect
of (hereinafter referred to as "UNVESTED MRP SHARES"). All dividends paid on
UNAWARDED MRP SHARES and UNVESTED MRP SHARES shall be paid to FTFC upon
termination of the MRP.
SECTION 5.06. TREASURY SHARES. On or before the BKFC EFFECTIVE TIME,
FTFC shall cause the Board of Directors of FTFC to retire the 127,405 Treasury
shares of FTFC, including the 27,951 common shares transferred to FTFC in
accordance with Section 5.05 of this AGREEMENT, and to restore such shares to
the status of authorized but unissued FTFC common shares.
SECTION 5.07. AMENDMENTS. Neither FTFC nor FSB shall amend any of the
PLANS, including, but not limited to, the ESOP.
ARTICLE SIX
FURTHER AGREEMENTS
SECTION 6.01. APPLICATION FOR APPROVAL OF MERGER. As soon as
practicable after the date of this AGREEMENT, FTFC and BKFC shall submit to the
FRB, the OTS and the DEPARTMENT such documents as are required by the FRB, the
OTS and the DEPARTMENT to be filed in connection with or related to the BKFC
MERGER and the BANK MERGER.
SECTION 6.02. REGISTRATION STATEMENT. (a) BKFC shall, as soon as
reasonably practicable, prepare in accordance with the Securities Act of 1933,
as amended (hereinafter referred to as the "ACT"), and file with the SEC a
Registration Statement in respect of the BKFC shares of stock to be issued to
the holders of FTFC common shares in accordance with ARTICLE TWO of this
AGREEMENT (hereinafter referred to as the "REGISTRATION STATEMENT"), and shall
use all reasonable efforts to have the REGISTRATION STATEMENT, as amended,
declared effective by the SEC as promptly as practicable.
(b) The information included in the REGISTRATION STATEMENT in
respect of BKFC and the BANK will not, at the time the REGISTRATION STATEMENT
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading.
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(c) Within five days before the effective date of the
REGISTRATION STATEMENT and within five days before the CLOSING, FTFC shall cause
its certified independent accountants to issue to BKFC, and BKFC shall cause its
certified independent accountants to issue to FTFC, a letter in form and
substance satisfactory to FTFC and BKFC and in relation to the audited and
unaudited financial and statistical information set forth in the REGISTRATION
STATEMENT.
SECTION 6.03. AFFILIATES COMPLIANCE WITH THE SECURITIES ACT. (a) Within
30 days after the date of this AGREEMENT, FTFC shall identify to BKFC all
persons whom FTFC reasonably believes to be "affiliates," as defined in
paragraphs (c) and (d) of Rule 145 under the ACT (hereinafter referred to as the
"AFFILIATES"). Thereafter and until the BKFC EFFECTIVE TIME, FTFC shall identify
to BKFC each additional person whom it reasonably believes to have thereafter
become its AFFILIATE.
(b) FTFC shall cause each person who is identified as an
AFFILIATE to deliver to BKFC before the BKFC EFFECTIVE DATE a written agreement
in the form of the written agreement attached hereto as Exhibit E in which such
AFFILIATE confirms that the BKFC shares of stock received by such AFFILIATE in
the MERGER shall not be transferable until the expiration of the time period
specified in Section 201.01 of the Codification of Financial Reporting Policies
of the SEC.
SECTION 6.04. SPECIAL MEETING OF SHAREHOLDERS. (a) FTFC shall take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of voting upon the AGREEMENT and the transactions
contemplated hereby, including the BKFC MERGER. FTFC shall use its reasonable
efforts to hold such meetings as soon as practicable following the effective
date of the REGISTRATION STATEMENT. The Board of Directors of FTFC shall (i)
recommend to the shareholders in the PROXY STATEMENT the approval of this
AGREEMENT and the transactions contemplated hereby, including the BKFC MERGER,
and the other matters to be submitted to the shareholders in connection
therewith, except to the extent that the Board of Directors of FTFC, after
consultation with and based upon the written advice of counsel, determines in
good faith that such recommendation would breach its fiduciary duties to the
shareholders of FTFC under applicable law, and (ii) use their reasonable efforts
to obtain the necessary approvals by the shareholders of this AGREEMENT, any
amendments hereto, and the transactions contemplated hereby, including the BKFC
MERGER.
(b) Immediately after the approval of this AGREEMENT by the
requisite vote of the FTFC shareholders, FTFC shall approve this AGREEMENT and
the transactions contemplated hereby, including the BANK MERGER, as the sole
shareholder of FSB.
SECTION 6.05. ACCESS. Until the BKFC EFFECTIVE TIME, FTFC shall afford
to BKFC, and BKFC shall afford to FTFC, and to their respective officers and
representatives (including, without limitation, counsel, financial advisers and
independent accountants), reasonable access to their properties, personnel,
books, records and affairs. Each party shall furnish the other party with such
additional financial and operating data and other information as to its
businesses and properties as may be reasonably requested. Such access shall
include, but
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shall not be limited to, (i) permitting verification, by audit or otherwise, of
any representation or warranty made hereunder; (ii) authorizing release of any
information (including the work papers of such independent auditors) and
financial consultants; (iii) consistent with applicable regulations or
procedures, furnishing regular and special examination reports since the date of
this AGREEMENT to the BKFC EFFECTIVE TIME; and (iv) delivering copies of all
documents or reports or correspondence filed and any correspondence with any
federal regulatory or supervisory agency from the date of this AGREEMENT until
the BKFC EFFECTIVE TIME.
SECTION 6.06. CONFIDENTIALITY. FTFC and BKFC shall hold confidential
any information obtained hereunder which is not otherwise public knowledge or
ascertainable from public information and all non-public documents (including
copies thereof) obtained hereunder by either party from the other party shall be
returned to such party.
SECTION 6.07. PRESS RELEASES. BKFC and FTFC shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to the BKFC MERGER or the BANK MERGER and shall not issue any such
press release or make any such public statement without obtaining the prior
consent of the other party, except as may be required by law or by obligations
pursuant to any listing agreement with any national securities association.
SECTION 6.08. COSTS, EXPENSES AND FEES. (a) Subject to paragraph (b) of
this Section 6.08, whether or not the BKFC MERGER is consummated, all costs and
expenses incurred in connection with this AGREEMENT, the PROXY STATEMENT, the
REGISTRATION STATEMENT and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
(b) In the event that FTFC accepts in any manner an
ACQUISITION TRANSACTION at any time before June 30, 2001, FTFC shall pay to BKFC
a fee of $900,000 in immediately available federal funds upon the execution of
any agreement in respect of an ACQUISITION TRANSACTION.
SECTION 6.09. REASONABLE EFFORTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable 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.
SECTION 6.10. NOTIFICATION OF EVENTS. At all times from the date of
this AGREEMENT until the EFFECTIVE TIME, each party shall promptly notify the
other in writing of any adverse business conditions threatening its normal
business operations or of the occurrence of any event or the failure of any
event to occur which might result in a breach of or a failure to comply with any
representation, warranty, covenant, condition or agreement contained in this
AGREEMENT or of the commencement of any action, suit, proceeding, or
investigation against it.
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SECTION 6.11. LIQUIDATION ACCOUNT. The BANK MERGER shall have no effect
upon the FSB Liquidation Account which shall be assumed by the BANK at the BANK
EFFECTIVE TIME in accordance with 12 C.F.R. Section 563b.3(j).
SECTION 6.12. ESOP TERMINATION. At or before the BKFC EFFECTIVE TIME,
FTFC and FSB shall terminate the ESOP and shall file an Application for
Determination with the IRS regarding tax qualification upon termination. No
additional contribution shall be made to the ESOP by FTFC, FSB or BKFC, except
as necessary to make the minimum required payment under the current exempt loan
(hereinafter referred to as the "LOAN") between the ESOP and FTFC; provided,
however, that any such contribution shall be deductible by FTFC and FSB under
Section 404 of the CODE and the allocations of such contribution shall otherwise
be in compliance with Section 415 of the CODE. All common shares of FTFC held by
the Trustee of the ESOP at the BKFC EFFECTIVE TIME shall be exchanged by the
Trustee for the number of BKFC shares of stock in accordance with this
AGREEMENT. The Trustee for the ESOP shall dispose of shares held in the suspense
account of the ESOP for the purpose of retiring the LOAN. Any shares and other
assets remaining in the suspense account following repayment of the LOAN in full
shall be available for allocation and distribution as promptly as possible to
participants (as defined in the ESOP) in accordance with Section 4.3 of the ESOP
and applicable law. It is the intent of the parties that the ESOP be terminated
and distributions made concurrently with the BKFC EFFECTIVE TIME to the extent
possible.
SECTION 6.13. 401(k) PLAN TERMINATION. FTFC and FSB shall take all
steps necessary to terminate FTFC's 401(k) Plan before the BKFC EFFECTIVE TIME
and to file an Application for Determination with the Internal Revenue Service
(the "IRS") regarding tax qualification upon termination.
SECTION 6.14. WITHDRAWAL FROM RETIREMENT FUND. At or before the BKFC
EFFECTIVE TIME, FTFC and FSB shall take all steps necessary to withdraw from the
Financial Institutions Retirement Fund (hereinafter referred to as the
"RETIREMENT FUND"). Such withdrawal shall occur in accordance with the
applicable provisions of Article XII of the Regulations governing the
Comprehensive Retirement Program (hereinafter referred to as the "REGULATIONS"),
pursuant to the provisions of Article XII, Section 1, Paragraph (6) of the
REGULATIONS, applicable to a withdrawal without the establishment of a
"successor plan." FTFC and FSB shall file all forms and documents necessary to
carry out such withdrawal from the RETIREMENT FUND prior to the BKFC EFFECTIVE
TIME, including, but not limited to, any filings required to be made with the
sponsor of the RETIREMENT FUND and with the IRS.
SECTION 6.15. ADVISORY BOARD. At or before the BKFC EFFECTIVE TIME,
BKFC shall form an Advisory Board consisting of the current members of the Board
of Directors of FTFC and the Vice President and Secretary of FTFC (hereinafter
referred to as the "ADVISORY BOARD"). The ADVISORY BOARD shall advise BKFC after
the BKFC EFFECTIVE TIME on issues affecting the merger of the businesses of FTFC
with BKFC and on other matters related to the operation of the business of FTFC.
The members of the ADVISORY BOARD shall serve for a two-year term and shall be
paid a fee for services in the amount of $8,000 for each such year.
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SECTION 6.16. CONSULTING AGREEMENT. At or before the BKFC EFFECTIVE
TIME, Larry N. Hatfield and J. Michael Lonnemann shall each enter into a
two-year Consulting Agreement with BKFC in the form of the Consulting Agreement
attached hereto as Exhibit F.
SECTION 6.17 INDEMNIFICATION AND INSURANCE. (a) Indemnification. For a
period of three years after the BKFC EFFECTIVE TIME, BKFC shall indemnify
persons who served as directors and officers of FTFC on or before the BKFC
EFFECTIVE TIME to the fullest extent permitted under the Articles of
Incorporation and Bylaws of BKFC and applicable provisions of Kentucky law. Any
such indemnification shall be made by BKFC only as authorized in a specific case
upon a determination by BKFC's Board of Directors that the applicable standard
of conduct under the Articles of Incorporation and Bylaws of BKFC and applicable
provisions of Kentucky law has been met and that such indemnification is
permissible under applicable law. As a condition to receiving such
indemnification, the party claiming indemnification shall assign to BKFC, by
separate writing, all right, title and interest in and to the proceeds of the
claiming party's applicable insurance coverage, if any, including insurance
maintained or provided by FTFC, FSB or BKFC, to the extent of such indemnity. No
person shall be entitled to such indemnification who shall (a) fail to cooperate
in the defense and investigation of any claims as to which indemnification may
be made, (b) make, or who shall be a general partner, executive officer,
director, trustee, beneficiary or person in control of any partnership,
corporation, trust or other enterprise that shall make, any claim against FTFC,
FSB, BKFC or the BANK or any stockholder, director, officer, employee, or agent
of any thereof, in any action, suit or proceeding arising out of or in
connection with this AGREEMENT, the transactions contemplated hereby or the
conduct of the business of FTFC, FSB, BKFC or the BANK or (iii) fail to deliver
such notices as may be required under any applicable directors and officers
liability insurance policy to preserve any possible claims of which the claiming
party is aware.
(b) Insurance. At or before the EFFECTIVE TIME, BKFC shall
include the directors and executive officers of FTFC as persons covered under
the current Directors and Officers' Liability Insurance Policy of BKFC.
SECTION 6.18. DEFERRED COMPENSATION AGREEMENTS. BKFC and the BANK agree
to honor the terms of the Deferred Compensation Agreements (hereinafter referred
to as the "DEFERRED COMPENSATION AGREEMENTS") entered into by and between Larry
Hatfield, J. Michael Lonnemann, Robert Grimm, Harold Luersen, Donald Beckmeyer
and Steven McLane (hereinafter referred to collectively as the "DEFERRED
COMPENSATION PARTICIPANTS") and FSB, dated November 1, 1992 and as amended on
December 20, 1999.
SECTION 6.19. EMPLOYMENT AGREEMENTS. At the BKFC EFFECTIVE TIME, Larry
N. Hatfield, J. Michael Lonnemann and Cynthia R. Towhey shall receive the
payments and benefits due such individuals for termination in the event of a
change of control of FTFC provided by the EMPLOYMENT AGREEMENTS.
SECTION 6.20 EMPLOYEE BENEFIT PLANS. All employees of FTFC and FSB
immediately prior to the BKFC EFFECTIVE TIME who are employed by BKFC or the
BANK (hereinafter
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referred to collectively as the "EMPLOYERS") immediately following the BKFC
EFFECTIVE TIME (hereinafter referred to as the "TRANSFERRED EMPLOYEES") will be
covered by the EMPLOYERS' employee benefit plans (hereinafter referred to as the
"EMPLOYEE BENEFIT PLANS") on substantially the same basis as any employee of the
EMPLOYERS in a comparable position. Notwithstanding the foregoing, BKFC and the
BANK may determine to continue any of the FTFC or FSB benefit plans for
TRANSFERRED EMPLOYEES in lieu of offering participation in the EMPLOYEE BENEFIT
PLANS providing similar benefits (e.g., medical and hospitalization benefits),
to terminate any of FTFC's or FSB's benefit plans, or to merge any such benefit
plans with the EMPLOYEE BENEFIT PLANS, provided the result is the provision of
benefits to TRANSFERRED EMPLOYEES that are substantially similar to the benefits
provided to the EMPLOYERS' employees generally. Service to FTFC or FSB by a
TRANSFERRED EMPLOYEE prior to the EFFECTIVE TIME shall be recognized as service
to the EMPLOYERS for purposes of eligibility to participate under the EMPLOYERS'
sick leave policies, paid vacation policies and medical, long-term disability
and life insurance plans. BKFC and the BANK agree that any pre-existing
condition, limitation or exclusion in its medical, long-term disability and life
insurance plans shall not apply to TRANSFERRED EMPLOYEES or their covered
dependents who are covered under a medical or hospitalization indemnity plan
maintained by FTFC or FSB on the BKFC EFFECTIVE TIME and who then change
coverage to the EMPLOYERS' medical or hospitalization indemnity health plan at
the time such TRANSFERRED EMPLOYEES are first given the option to enroll.
Nothing contained in this Section 6.20 shall prohibit the EMPLOYERS from
modifying or terminating any of the EMPLOYEE BENEFIT PLANS after the BKFC
EFFECTIVE TIME, nor shall anything contained in this Section 6.20 require the
EMPLOYERS to continue the employment of any employee of FTFC or FSB after the
BKFC EFFECTIVE TIME.
ARTICLE SEVEN
CLOSING MATTERS
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF BKFC, THE BANK, FTFC AND
FSB. Notwithstanding any other provision of this AGREEMENT, the obligations of
BKFC, the BANK, FTFC and FSB to effect the BKFC MERGER and the BANK MERGER shall
be subject to the fulfillment of each of the following conditions:
(a) This AGREEMENT shall have been validly adopted by the
affirmative vote of the holders of at least the
number of outstanding FTFC shares required under Ohio
law and the FTFC Articles of Incorporation to adopt
such agreements;
(b) All permits, approvals, consents, authorizations,
exemptions or waivers of any federal or state
governmental body or agency necessary or appropriate
for consummation of the BKFC MERGER and the BANK
MERGER shall have been obtained;
40
<PAGE> 95
(c) All waivers, consents and approval of every person,
in addition to those required under subsections (a)
and (b) of this Section 7.01, necessary or
appropriate for the consummation of the BKFC MERGER
and the BANK MERGER shall have been obtained;
(d) FTFC shall have received a written opinion of WEBB,
dated the date of this AGREEMENT and the PROXY
STATEMENT, to the effect that the EXCHANGE RATE is
fair to the holders of the FTFC common shares from a
financial point of view;
(e) There shall not be in effect an order or decision of
a court of competent jurisdiction which prevents or
materially delays the consummation of the BKFC MERGER
or the BANK MERGER;
(f) There shall not be in effect any federal or state
law, rule or regulation which prevents or materially
delays consummation of the BKFC MERGER and the BANK
MERGER;
(g) BKFC and FTFC shall have received an opinion of
counsel to the effect that the BKFC MERGER, when
consummated in accordance with the terms hereof, will
constitute a reorganization within the meaning of
Section 368(a) of the CODE; and
(h) The REGISTRATION STATEMENT (including any
post-effective amendment thereto) shall be effective
under the ACT and no proceeding shall be pending or,
to the knowledge of BKFC, threatened by the SEC to
suspend the effectiveness of the REGISTRATION
STATEMENT.
SECTION 7.02. CONDITIONS TO OBLIGATIONS OF BKFC AND THE BANK. In
addition to the conditions contained in Section 7.01 of this AGREEMENT, the
obligations of BKFC and the BANK to effect the BKFC MERGER and the BANK MERGER
shall also be subject to the fulfillment of each of the following conditions:
(a) The representations and warranties of each of FTFC
and FSB contained in Article Three of this AGREEMENT
shall be true in all material respects at and as of
the date hereof and at and as of the BKFC EFFECTIVE
TIME as if made at and as of such time;
(b) Each of FTFC and FSB shall have duly performed and
complied in all material respects with all
agreements, covenants and conditions required by this
AGREEMENT to be performed or complied with by it
before or at the BKFC EFFECTIVE TIME;
(c) There shall not have been a material adverse change
in the financial condition, assets, liabilities,
obligations, properties or business of FTFC and FSB,
taken as a whole, after the date of this AGREEMENT,
except
41
<PAGE> 96
changes resulting from action taken by FTFC or FSB
pursuant to Section 5.03 of this AGREEMENT;
(d) The consolidated shareholders' equity of FTFC at the
BKFC EFFECTIVE TIME and as calculated in accordance
with generally accepted accounting principles shall
not be less than $14,000,000, exclusive of up to
$450,000 in expenses recognized by FTFC in connection
with the BKFC MERGER and exclusive of reserves,
accruals and charges taken or established by FTFC or
FSB at the request of BKFC in accordance with Section
5.03 of this AGREEMENT;
(e) Neither FTFC nor FSB shall have incurred any damage,
destruction or similar loss, not covered by
insurance, materially affecting its businesses or
properties;
(f) The holders of not more than 5% of the FTFC common
shares shall have delivered a written demand for
appraisal of such shares in the manner provided in
Section 2.06 of this AGREEMENT;
(g) Each of FTFC and FSB shall have delivered to BKFC a
certificate dated the BKFC EFFECTIVE TIME and signed
by the President and Treasurer of FTFC and FSB to the
effect set forth in subsections (a), (b), (c), (d),
(e) and (f) of this Section 7.02;
(h) Each of FTFC and FSB shall have obtained all
consents, authorizations or approvals of, or
exemptions or waivers by, any federal or state
governmental body or agency required to be obtained
by it in connection with the BKFC MERGER or the BANK
MERGER or the taking of any action contemplated
hereby;
(i) There shall not be any action or proceeding commenced
by or before any court or governmental agency or
authority in the United States, or threatened by any
governmental agency or authority in the United
States, that challenges or seeks to prevent or delay
the consummation of the BKFC MERGER or the BKFC
MERGER or seeks to impose material limitations on the
ability of BKFC to exercise full rights of ownership
of the assets or business of FTFC or FSB;
(j) There shall not have been proposed, nor shall there
be in effect, any federal or state law, rule,
regulation, order or statement of policy that, in the
reasonable judgment of BKFC, would: (i) prevent or
delay the consummation of the BKFC MERGER or the BANK
MERGER or interfere with the reasonable operation of
the business of FTFC or FSB, (ii) materially
adversely affect the ability of BKFC or the BANK to
enjoy the economic or other benefits of the BKFC
MERGER or the BANK MERGER; or (iii) impose any
material adverse condition, limitation or
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<PAGE> 97
requirement on BKFC or the BANK in connection with
the BKFC MERGER or the BANK MERGER;
(k) BKFC shall have received the final written opinion of
Crowe Chizek & Company, LLP, that the BKFC MERGER
will qualify for the pooling of interests method of
accounting;
(l) FTFC and FSB shall have obtained all consents to, or
authorizations or approvals of, the transactions
contemplated by this AGREEMENT of any party to any
contract, obligation, lease or other agreement to
which FTFC and FSB is a party and which requires such
consent, authorization or approval;
(m) All of the holders of vested options granted under
the STOCK OPTION PLANS shall have exercised such
options in accordance with the terms thereof;
(n) Each holder of UNVESTED OPTIONS shall have executed
and delivered a STOCK OPTION AWARD AGREEMENT to BKFC;
(o) The ESOP shall have been terminated;
(p) The maximum aggregate amount payable by FTFC, FSB,
BKFC or the BANK to the employees of FTFC or FSB in
connection with the consummation of the transactions
contemplated by this AGREEMENT pursuant to the
EMPLOYMENT AGREEMENTS is $1,211,124;
(q) FSB and each DEFERRED COMPENSATION PARTICIPANT shall
have executed and delivered to BKFC or the BANK an
amendment to each of the DEFERRED COMPENSATION
AGREEMENTS; and
(r) FTFC shall have signed such affidavits, receipts,
certificates or other evidence required by Section
1701.79(f) of the Ohio Revised Code.
SECTION 7.03. CONDITIONS TO OBLIGATIONS OF FTFC AND FSB. In addition to
the conditions contained in Section 7.01 of this AGREEMENT, the obligation of
FTFC and FSB to effect the BKFC MERGER and the BANK MERGER shall also be subject
to the fulfillment of each of the following conditions:
(a) The representations and warranties of BKFC and the
BANK contained in Article Four of this AGREEMENT
shall be true in all material respects at and as of
the date hereof and as of the BKFC EFFECTIVE TIME as
if made at and as of such time, except to the extent
that such representations and warranties are made as
of a specific date;
43
<PAGE> 98
(b) Each of BKFC and the BANK shall have duly performed
and complied in all material respects with all
agreements, covenants and conditions required by this
AGREEMENT to be performed or complied with by them
before or at the BKFC EFFECTIVE TIME;
(c) There shall not have been a material adverse change
in the financial condition, assets, liabilities,
obligations, properties, business or prospects of
BKFC or the BANK after the date of this AGREEMENT;
(d) BKFC shall have delivered to FTFC a certificate dated
the BKFC EFFECTIVE TIME and signed by the Chairman
and the President of BKFC to the effect set forth in
subsections (a), (b) and (c) of this Section 7.03;
(e) BKFC and the BANK shall have obtained all consents,
authorizations or approvals of, or exemptions or
waivers by any federal or state governmental body or
agency required to be obtained by it in connection
with the BKFC MERGER and the BANK MERGER or the
taking of any action contemplated thereby;
(f) Neither BKFC nor the BANK shall have incurred any
damage, destruction or similar loss, not covered by
insurance, materials affecting its business or
properties; and
(g) There shall not be any action or proceeding commenced
by or before any court or governmental agency or
authority in the United States, or threatened by any
governmental agency or authority in the United
States, that challenges or seeks to prevent or delay
the consummation of the BKFC MERGER or the BANK
MERGER.
ARTICLE EIGHT
TERMINATION
SECTION 8.01. TERMINATION. This AGREEMENT may be terminated at any time
prior to the BKFC EFFECTIVE TIME, whether before or after approval by the
shareholders of FTFC:
(a) By mutual consent of the Boards of Directors of FTFC,
FSB, BKFC and the BANK; or
(b) By the Board of Directors of FTFC or BKFC if:
(i) The BKFC MERGER shall not have been
consummated on or before September 30, 2000;
or
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<PAGE> 99
(ii) Any event occurs which, in the reasonable
opinion of either Board, would preclude
satisfaction of any of the conditions set
forth in Section 7.01 of this AGREEMENT; or
(c) By the Board of Directors of BKFC if any event occurs
which, in the reasonable opinion of such Board, would
preclude compliance with any of the conditions set
forth in Section 7.02 of this AGREEMENT; or
(d) By the Board of Directors of FTFC if any event occurs
which, in the reasonable opinion of such Board, would
preclude compliance with any of the conditions set
forth in Section 7.03 of this AGREEMENT.
SECTION 8.02. WRITTEN NOTICE OF TERMINATION. In order to terminate this
AGREEMENT pursuant to Section 8.01 of this AGREEMENT, the party so acting shall
give written notice of such termination to the other party. This AGREEMENT shall
terminate on the date such notice is given.
SECTION 8.03. EFFECT OF TERMINATION. In the event of the termination of
this AGREEMENT, the provisions of this AGREEMENT shall become void and have no
effect; provided, however, that (a) the provisions set forth in Sections 6.06,
6.07 and 6.08 of this AGREEMENT shall survive such termination and shall remain
in full force and effect and (b) a termination of this AGREEMENT shall not
affect the liability of any party for an uncured and material breach of any term
or condition of this AGREEMENT.
SECTION 8.04. AMENDMENT. This AGREEMENT may only be amended by the
unanimous consent of FTFC, FSB, BKFC and the BANK by action taken by their
respective Boards of Directors, at any time before or after approval of this
AGREEMENT by the shareholders of FTFC, but after such approval no amendment
shall be made which materially and adversely affects the rights of such
shareholders without the further approval of such shareholders. This AGREEMENT
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
SECTION 8.05. WAIVER. Any term or provision of this AGREEMENT (other
than the requirement for shareholder approval) may be waived in writing at any
time by the party which is, or whose shareholders are, entitled to the benefits
thereof.
ARTICLE NINE
MISCELLANEOUS
SECTION 9.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants in this AGREEMENT shall expire on, and
be terminated and extinguished at, the BKFC EFFECTIVE TIME, other than covenants
which by their terms are to survive or be performed after the BKFC EFFECTIVE
TIME; provided, however, that no such
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<PAGE> 100
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive BKFC or the BANK (or any director, officer or
controlling person thereof) of any defense in law or equity which otherwise
would be available against the claims of any person, including, without
limitation, any shareholder or former shareholder of either BKFC or FTFC.
SECTION 9.02. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If addressed to BKFC or the BANK:
Robert W. Zapp
President
The Bank of Kentucky Financial Corporation
1065 Burlington Pike
Florence, Kentucky 41042
with a copy to:
Wilbert L. Ziegler
Ziegler & Schneider, P.S.C.
541 Buttermilk Pike
Suite 500
Covington, Kentucky 41047
If addressed to FTFC or FSB:
Larry N. Hatfield
President
Fort Thomas Financial Corporation
25 North Fort Thomas Avenue
Fort Thomas, Kentucky 41075
With a copy to:
Kevin M. Houlihan
Elias, Matz, Tiernan & Herrick LLP
734 15th Street, N.W.
Washington, D.C. 20005
SECTION 9.03. ENTIRE AGREEMENT. This AGREEMENT (including the exhibits,
documents and instruments referred to herein or therein) (a) 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; (b) is not intended to and shall
46
<PAGE> 101
not confer any rights or remedies hereunder upon any person other than BKFC or
FTFC; (c) shall not be assigned by operation of law or otherwise; and (d) shall
be governed in all respects, including validity, interpretation and effect, by
the laws of the State of Ohio.
SECTION 9.04. EXECUTION IN COUNTERPARTS. This AGREEMENT may be executed
in two or more counterparts which together shall constitute a single AGREEMENT.
SECTION 9.05. HEADINGS. The headings of articles and sections herein
are for convenience of reference only, do not constitute a part of this
AGREEMENT and shall not be deemed to limit or affect any of the provisions
hereof.
IN WITNESS WHEREOF, BKFC, the BANK, FTFC and FSB have caused this
AGREEMENT to be executed by their duly authorized officers as of the day and
year first above written.
Attest: The Bank of Kentucky Financial Corporation
By /s/ Robert W. Zapp
---------------------------------------
/s/ Robert Fulkerson its President and CEO
------------------------ ---------------------------------------
Attest: The Bank of Kentucky, Inc.
By /s/ Robert W. Zapp
---------------------------------------
/s/ Robert Fulkerson its President and CEO
------------------------ ---------------------------------------
Attest: Fort Thomas Financial Corporation
By /s/ Larry N. Hatfield
---------------------------------------
/S/J. Michael Lonnemann its President
------------------------ ---------------------------------------
Attest: Fort Thomas Savings Bank, FSB
By /s/ Larry N. Hatfield
---------------------------------------
/s/ J. Michael Lonnemann its President
------------------------ ---------------------------------------
47
<PAGE> 102
ACKNOWLEDGMENT
STATE OF KENTUCKY )
) SS:
COUNTY OF CAMPBELL )
BE IT REMEMBERED that on this 21st day of December, 1999, personally
came before me, a Notary Public in and for the State and County aforesaid,
Robert W. Zapp, President of The Bank of Kentucky Financial Corporation, a
savings and loan holding company incorporated under the laws of Kentucky, and
duly executed the Agreement and Plan of Reorganization before me and
acknowledged the same to be his act and deed and the act and deed of said
Corporation and that the facts therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 21st day
of December, 1999.
/s/ Peggy Talbot
-----------------------------------------
Notary Public
BE IT REMEMBERED that on this 21st day of December, 1999, personally
came before me, a Notary Public in and for the State and County aforesaid,
Robert W. Zapp, President of The Bank of Kentucky, Inc., a state bank
incorporated under the laws of Kentucky, and duly executed the Agreement and
Plan of Reorganization before me and acknowledged the same to be his act and
deed and the act and deed of said Corporation and that the facts therein are
true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 21st day
of December, 1999.
/s/ Peggy Talbot
-----------------------------------------
Notary Public
BE IT REMEMBERED that on this 21st day of December, 1999, personally
came before me, a Notary Public in and for the State and County aforesaid, Larry
N. Hatfield, President of Fort Thomas Financial Corporation, a savings and loan
holding company incorporated under the laws of Ohio, and duly executed the
Agreement and Plan of Reorganization before me and acknowledged the same to be
his act and deed and the act and deed of said Corporation and that the facts
therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 21st day
of December, 1999.
/s/ Peggy Talbot
-----------------------------------------
Notary Public
48
<PAGE> 103
BE IT REMEMBERED that on this 21st day of December, 1999, personally
came before me, a Notary Public in and for the State and County aforesaid, Larry
N. Hatfield, President of Fort Thomas Savings Bank, FSB, a federal savings bank
incorporated under the laws of the United States of America, and duly executed
the Agreement and Plan of Reorganization before me and acknowledged the same to
be his act and deed and the act and deed of said Corporation and that the facts
therein are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 21st day
of December, 1999.
/s/ Peggy Talbot
-----------------------------------------
Notary Public
49
<PAGE> 104
EXHIBITS A-F TO THE AGREEMENT AND PLAN OF REORGANIZATION HAVE BEEN OMITTED.
<PAGE> 105
Appendix B
SECTION. 1701.85 DISSENTING SHAREHOLDER'S DEMAND FOR FAIR
CASH VALUE OF SHARES.
(A) (1) A shareholder of a domestic corporation is entitled to relief
as a dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division
(C) of section 1701.84 of the Revised Code in the case of a merger pursuant to
section 1701.80 of the Revised Code and a dissenting shareholder entitled to
relief under division (E) of section 1701.84 of the Revised Code in the case of
a merger pursuant to section 1701.801 [1701.80.1] of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 [1701.80.1] of the Revised Code, the dissenting
shareholder shall deliver to the corporation a written demand for payment with
the same information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on
the constituent corporation involved constitutes service on the surviving or the
new entity, whether the demand is served before, on, or after the effective date
of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates representing the
shares as to which he seeks relief, the dissenting shareholder, within fifteen
days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholder within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the
<PAGE> 106
shares. A request under this paragraph by the corporation is not an admission by
the corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 [1701.80.1] of
the Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept
<PAGE> 107
and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D) (1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind their
adoption of the action involved;
(c) The dissenting shareholder withdraws his demand, with the
consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and neither the
shareholder nor the corporation has filed or joined in a complaint under
division (B) of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger
or consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the
demand until either the termination of the rights and obligations arising from
it or the purchase of the shares by the corporation, all other rights accruing
from such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
<PAGE> 108
Appendix C
April 7, 2000
Board of Directors
Fort Thomas Financial Corporation
25 North Fort Thomas Avenue
Fort Thomas, Kentucky 41075
Dear Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
Fort Thomas Financial Corporation ("FTFC" or the "Company"), of the
consideration to be received by such stockholders in the merger (the "Merger")
between the Company and Bank of Kentucky Financial Corporation ("BKFC"). We have
not been requested to opine as to, and our opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Merger.
Pursuant to the Agreement and Plan of Reorganization, dated December 21, 1999,
by and among the Company and BKFC (the "Agreement"), at the effective time of
the Merger, BKFC will acquire all of the Company's issued and outstanding shares
of common stock. The holders of the Company's common stock will receive in
exchange for each share of Company common stock, shares of BKFC common stock
based on an exchange ratio of .5645 shares of BKFC common stock for each share
of FTFC common stock.
In addition, the holders of unexercised and outstanding options awarded pursuant
to the Company's 1996 Stock Option Plans will receive merger consideration as
described in Sections 2.01, 3.07, and 5.04 of the Agreement. The complete terms
of the proposed transaction are described in the Agreement, and this summary is
qualified in its entirety by reference thereto.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, savings institutions and bank and savings
institution holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by the Company including (i) the Agreement and Plan of
Reorganization by and among BKFC, Bank of Kentucky, Inc., BKFC Merger Survivor,
FTFC, and Fort Thomas Savings Bank (ii) Annual Reports, Proxy Statements and
Form 10-Ks for the years ended September 30, 1996, 1997 and 1998, (iii) Form
10-Q for the quarters ended December 31, 1998, March 31,1999, and June 30, 1999
and other information we deemed relevant. We discussed with senior management
and the boards of directors of the Company and its wholly owned subsidiary, Fort
Thomas Savings
<PAGE> 109
Board of Directors
Fort Thomas Financial Corporation
April 7, 2000
Page 2
Bank, the current position and prospective outlook for the Company. We
considered historical quotations and the prices of recorded transactions in the
Company's common stock since its initial public offering. We reviewed financial
and stock market data of other savings institutions, particularly in the
mid-western region of the United States, and the financial and structural terms
of several other recent transactions involving mergers and acquisitions of
savings institutions or proposed changes of control of comparably situated
companies.
For BKFC, we reviewed the audited financial statements, 10-K's, and Proxy
Statements for the years ended December 31, 1998, 1997, and 1996, Form 10-Q for
the quarters ended March 31, 1999, June 30, 1999, and September 30, 1999 and
certain other information deemed relevant. We also discussed with senior
management of BKFC, the current position and prospective outlook for BKFC.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by the Company
and BKFC and the material otherwise made available to us, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including forecasts and
asset valuations we received from the Company, we assumed (with your consent)
that they had been reasonably prepared reflecting the best currently available
estimates and judgment of the Company's management. In addition, we have not
made or obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of the Company or BKFC.
We have further relied on the assurances of management of the Company and BKFC
that they are not aware of any facts that would make such information inaccurate
or misleading. We express no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger, as set forth in the Agreement,
to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
<PAGE> 110
Board of Directors
Fort Thomas Financial Corporation
April 7, 2000
Page 3
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the Company in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/ Keefe, Bruyette, & Woods, Inc.
Keefe, Bruyette, & Woods, Inc.
