Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4/A First Bancorp S-4 Ammended 154 782K
2: EX-5 Opinion re: Legality 2 10K
3: EX-8 Opinion re: Tax Matters 4 16K
8: EX-22 Published Report Regarding Matters Submitted to a 1 6K
Vote of Security Holders
4: EX-24.A Power of Attorney 3 7K
5: EX-24.B Power of Attorney 2 7K
6: EX-24.C Power of Attorney 1 4K
7: EX-24.D Power of Attorney 2 9K
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*AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1994 *
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REGISTRATION NO. 33-51401
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST BANCORPORATION OF OHIO
(Exact name of Registrant as specified in its charter)
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OHIO 6711 34-1339938
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification Number)
106 S. MAIN STREET, AKRON, OHIO 44308 (216) 384-8000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
TERRY E. PATTON
SENIOR VICE PRESIDENT AND SECRETARY
FIRST BANCORPORATION OF OHIO
106 S. MAIN STREET, AKRON, OHIO 44308 (216) 384-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
Kevin C. O'Neil, Esq. John C. Vorys, Esq.
Brouse & McDowell Vorys, Sater, Seymour and Pease
500 First National Tower Suite 2100, 221 East Fourth Street
Akron, Ohio 44308 Cincinnati, Ohio 45201
(216) 535-5711 (513) 723-4000
Approximate date of commencement of proposed sale of securities to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If the securities being registered on this Form are being
offered in connection with the formation of a holding
company and there is compliance with General Instruction
G, check the following box: [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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FIRST BANCORPORATION OF OHIO
CROSS REFERENCE SHEET
ITEM
NO. FORM S-4 CAPTION CAPTION OR LOCATION IN PROSPECTUS AND PROXY STATEMENT
1. Forepart of Registration Statement and Outside Facing page of Registration Statement; Cross-Reference
Front Cover Page of Prospectus Sheet; Outside front cover page of Prospectus and
Proxy Statement
2. Inside Front and Outside Back Cover Pages of Inside front cover page of Prospectus and Proxy
Prospectus Statement; Available Information; Incorporation of
Certain Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; Terms of Merger; Pro Forma Condensed
and Other Information Combined Financial Statements (Unaudited)
4. Terms of the Transaction Summary; Background of and Reasons for Merger;
Terms of Merger; Description of Bancorporation
Capital Stock; Comparison of Bancorporation
and Great Northern Capital Stock
5. Pro Forma Financial Information Pro Forma Condensed Combined Financial
Statements (Unaudited)
6. Material Contracts with the Company Being Summary; Background of and Reasons for Merger;
Acquired Terms of Merger
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Comparison of Bancorporation and Great
Indemnification for Securities Act Liabilities Northern Capital Stock; Terms of Merger;
Part II - Undertakings
10. Information with Respect to S-3 Registrants Available Information; Incorporation of Certain
Documents by Reference
11. Incorporation of Certain Information by Reference Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other than Not Applicable
S-2 or S-3 Registrants
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ITEM
NO. FORM S-4 CAPTION CAPTION OR LOCATION IN PROSPECTUS AND PROXY STATEMENT
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3 Companies Not Applicable
17. Information with Respect to Companies Other than Summary; Terms of the Merger; Business of Great
S-2 or S-3 Companies Northern; Management's Discussion and Analysis of Great
Northern's Financial Condition and Results of Operations;
Appendix E
18. Information if Proxies, Consents or Authorizations Summary; Introduction; Special Meeting of Great Northern
are to be Solicited Stockholders; Rights of Dissenting Stockholders;
Terms of Merger
19. Information if Proxies, Consents or Authorizations Not Applicable
are not to be Solicited, or in an Exchange Offer
GREAT NORTHERN FINANCIAL CORPORATION
524 West Park Avenue
Barberton, Ohio 44203
January 14, 1994
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
of Great Northern Financial Corporation ("Great Northern") to be held at Great
Northern's offices at 1394 Cleveland-Massillon Road, Copley, Ohio, on Tuesday,
February 15, 1994, at 9:30 a.m. local time.
At the Special Meeting, holders of Great Northern Common Stock will be
asked to adopt the Agreement of Affiliation and Plan of Merger dated September
28, 1993, by and between Great Northern and First Bancorporation of Ohio
("Bancorporation"). On the date upon which the merger of Great Northern with
and into Bancorporation (the "Merger") becomes effective, each outstanding
share of Great Northern Common Stock will be cancelled and exchanged for 3.7460
shares of Bancorporation Common Stock, subject to adjustment based upon the
average closing price of First Bancorporation of Ohio Common Stock as discussed
in the accompanying Prospectus.
Your Board of Directors believes that the Merger is in the best
interests of Great Northern's stockholders and will provide significant value
to all Great Northern stockholders. Additional information is contained in the
accompanying Prospectus and Proxy Statement, which I urge you to read
carefully.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE ADOPTION OF THE AGREEMENT AND PLAN OF MERGER.
The Board of Directors has received opinions from Trident Financial
Corporation, Great Northern's financial advisor, to the effect that, as of the
date the Agreement of Affiliation and Plan of Merger was signed and as of the
date of the accompanying Prospectus and Proxy Statement, the exchange ratio for
exchanging Great Northern Common Stock for Bancorporation Common Stock pursuant
to the Agreement of Affiliation and Plan of Merger was fair to the holders of
Great Northern Common Stock.
A Proxy is enclosed for your use. Please indicate your voting
instructions and sign, date and mail this Proxy promptly in the return envelope
provided. Whether or not you plan to attend the Special Meeting in person, it
is important that you return the enclosed Proxy so that your shares of Great
Northern Common Stock will be voted.
Sincerely,
EMIL A. VOELZ, JR.
Chairman and President
GREAT NORTHERN FINANCIAL CORPORATION
524 West Park Avenue
Barberton, Ohio 44203
__________________________________________________________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
__________________________________________________________________________
February 15, 1994
A Special Meeting of Stockholders of Great Northern Financial
Corporation ("Great Northern") will be held at Great Northern's offices at 1394
Cleveland-Massillon Road, Copley, Ohio, on Tuesday, February 15, 1994, at 9:30
a.m. local time, for the purpose of voting on the adoption of the Agreement of
Affiliation and Plan of Merger dated September 28, 1993 (the "Agreement"), by
and between First Bancorporation of Ohio ("Bancorporation") and Great Northern.
The Agreement provides for the merger of Great Northern with and into First
Bancorporation, as described in the accompanying Prospectus and Proxy
Statement.
Only Great Northern stockholders of record as of the close of business
on December 21, 1993, have the right to receive notice of, and to vote at, the
Special Meeting and any adjournment(s) thereof.
The accompanying document constitutes the Proxy Statement of Great
Northern for the Special Meeting. A copy of the Agreement of Affiliation and
Plan of Merger is attached to the Prospectus and Proxy Statement as Appendix A.
You are cordially invited to attend the meeting in person. Whether or
not you plan to attend the meeting, you are urged to complete, date, sign, and
return the enclosed Proxy in the envelope provided as soon as possible.
By Order of the Board of Directors
JAMES A. HALL,
Secretary
January 14, 1994
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE COMPLETE,
SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE
PLEASE DO NOT RETURN YOUR GREAT NORTHERN STOCK CERTIFICATES
WITH THE ENCLOSED PROXY
PROXY STATEMENT PROSPECTUS
GREAT NORTHERN FIRST BANCORPORATION
FINANCIAL CORPORATION OF OHIO
SPECIAL MEETING OF STOCKHOLDERS COMMON STOCK, NO PAR VALUE
TO BE HELD ON FEBRUARY 15, 1994 (NOT TO EXCEED 1,882,440 SHARES)
This Prospectus and Proxy Statement is being furnished to the holders
of common stock, no par value, of Great Northern Financial Corporation, an Ohio
corporation ("Great Northern"), in connection with the solicitation of proxies
by the Board of Directors of Great Northern for use at a Special Meeting of
Great Northern's stockholders to be held at 9:30 a.m. on Tuesday, February 15,
1994, at Great Northern's offices at 1394 Cleveland-Massillon Road, Copley,
Ohio, and at any adjournments thereof (the "Great Northern Special Meeting").
This Prospectus and Proxy Statement also constitutes a Prospectus of
First Bancorporation of Ohio, an Ohio corporation ("Bancorporation"), in
respect of up to 1,882,440 shares of Bancorporation Common Stock to be issued
in connection with the proposed merger (the "Merger") of Great Northern with
and into Bancorporation. Upon consummation of the Merger, each outstanding
share of Great Northern Common Stock, other than shares held by Great Northern
stockholders who properly perfect dissenters' rights, will be exchanged for
3.7460 shares of Bancorporation Common Stock, subject to adjustment depending
upon the average closing price of Bancorporation Common Stock as discussed in
the accompanying Prospectus and Proxy Statement. See "TERMS OF MERGER -
Conversion of Great Northern Capital Stock into Bancorporation Capital Stock."
The outstanding shares of Bancorporation Common Stock are, and the shares
of Bancorporation Common Stock offered hereby will be, quoted on the NASDAQ
National Market System ("NASDAQ"). The closing sales price of Bancorporation
Common Stock reported on NASDAQ on December 21, 1993, was $25.75 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS AND PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OF FIRST BANCORPORATION OF OHIO OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS, OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
THE DATE OF THIS PROSPECTUS AND PROXY STATEMENT IS JANUARY 14, 1994.
AVAILABLE INFORMATION
Bancorporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"). Bancorporation
has filed with the Commission a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering the Bancorporation securities to be issued to Great
Northern stockholders in the Merger. As permitted by the rules and regulations
of the Commission, this Prospectus and Proxy Statement omits certain
information, exhibits and undertakings contained in the Registration Statement.
Reference is made to the Registration Statement and to the exhibits thereto for
further information. Statements contained herein concerning such documents are
not necessarily complete and, in each instance, reference is made to the copy
of such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements and other information filed with the Commission by
Bancorporation under the Exchange Act, may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at the Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Room 1800, 75
Park Place, New York, New York 10007. Copies of such material may also be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
reports, proxy statements and other information concerning Bancorporation may
be inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS AND PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS OF
BANCORPORATION BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND PROXY
STATEMENT) ARE AVAILABLE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS AND PROXY STATEMENT IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE
DIRECTED TO TERRY E. PATTON, SECRETARY, FIRST BANCORPORATION OF OHIO, 106 S.
MAIN STREET, AKRON, OHIO 44308 (TELEPHONE (216) 384-8000). IN ORDER TO ENSURE
TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE NO LATER THAN
FEBRUARY 10, 1994.
The following documents filed with the Commission under the Exchange Act
by Bancorporation are hereby incorporated by reference into this Prospectus and
Proxy Statement: (a) Bancorporation's Annual Report on Form 10-K for the year
ended December 31, 1992; (b) Bancorporation's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1993, June 30, 1993, and September 30, 1993;
(c) Bancorporation's Current Reports on Form 8-K filed on October 22, 1993 and
November 4, 1993; (d) the description of the rights to purchase Bancorporation
Common Stock contained in Bancorporation's Registration Statement on Form 8-A
filed on November 4, 1993; and (e) the description of Bancorporation's Common
Stock contained in (i) Bancorporation's registration statement on Form S-14
(No. 2-73592), filed with the Commission on August 5, 1981, and incorporated by
reference in Bancorporation's current report on Form 8-K, filed with the
Commission on January 15, 1982, in lieu of Form 8-B, to report Bancorporation's
acquisition of two banks whose securities were registered pursuant to Section
12 of the Exchange Act and Bancorporation's resulting status as a successor
issuer pursuant to Rule 12g-3(a) (file no. 0-10161) and (ii) amendments
updating such description filed with the Commission on Form 10-Q for the
quarter ended June 30, 1984, and on Form 8-K filed on November 4, 1993.
For your convenience, a copy of Bancorporation's 1992 Annual Report to
Shareholders is enclosed herewith.
The information relating to Bancorporation contained in this Prospectus
and Proxy Statement should be read together with the information in the
documents incorporated by reference.
-i-
All documents filed by Bancorporation under Sections 13(a), 13(c), 14, or
15 (d) of the Exchange Act after the date of this Prospectus and Proxy
Statement and prior to the date of the Great Northern Special Meeting shall be
deemed to be incorporated by reference in this Prospectus and Proxy Statement
and to be a part hereof from the date of filing such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated
or deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement, as so modified or superseded, shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus and Proxy Statement.
Great Northern is not required to file any documents with the Commission
under the Securities Act or the Exchange Act and, accordingly, no information
or documents relating to Great Northern are incorporated herein by reference.
_______________________________________________________________
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND PROXY STATEMENT AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY BANCORPORATION OR GREAT NORTHERN. THIS PROSPECTUS AND PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS AND PROXY STATEMENT OR
THE SOLICITATION OF A PROXY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER, SOLICITATION OF AN OFFER, OR PROXY SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS AND PROXY STATEMENT, NOR ANY DISTRIBUTION OF THE
SECURITIES OFFERED PURSUANT TO THIS PROSPECTUS AND PROXY STATEMENT SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF BANCORPORATION OR GREAT
NORTHERN OR ANY OF THEIR RESPECTIVE SUBSIDIARIES SINCE THE DATE OF THIS
PROSPECTUS AND PROXY STATEMENT.
-ii-
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TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION . . . . . . . . . . . . . . i
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE . . . . . . . . . . . . . . . . i
SUMMARY . . . . . . . . . . . . . . . . . . . . . 1
INTRODUCTION . . . . . . . . . . . . . . . . . . 13
SPECIAL MEETING OF GREAT NORTHERN
STOCKHOLDERS
Date, Time and Place . . . . . . . . . . . . 13
Purpose of Meeting . . . . . . . . . . . . . 13
Shares Outstanding and Entitled to Vote;
Record Date . . . . . . . . . . . . . . . 13
Vote Required . . . . . . . . . . . . . . . . 13
Voting; Solicitation and Revocation
of Proxies . . . . . . . . . . . . . . . 13
BACKGROUND OF AND REASONS FOR MERGER
Background of Merger . . . . . . . . . . . . 14
Reasons for Merger - Bancorporation . . . . . 15
Reasons for Merger - Great Northern . . . . . 16
Opinion of Great Northern's
Financial Advisor . . . . . . . . . . . . 17
Recommendation of Great Northern's
Board of Directors . . . . . . . . . . . 18
TERMS OF MERGER
General . . . . . . . . . . . . . . . . . . . 19
Conversion of Great Northern Capital Stock
into Bancorporation Capital Stock . . . . 19
Conduct of Bancorporation's Business
Pending the Merger . . . . . . . . . . . 21
Conduct of Great Northern's Business
Pending the Merger . . . . . . . . . . . 21
Conditions to Merger . . . . . . . . . . . . 22
Regulatory Approvals . . . . . . . . . . . . 24
Actions Required for Regulatory Approval . . 24
Waiver of Conditions, Amendment, or
Termination of the Merger Agreement . . . 24
Effective Time . . . . . . . . . . . . . . . 25
Interests of Great Northern Executive
Officers and Directors . . . . . . . . . 26
Release Pay for Employees of
Great Northern . . . . .. . . . . . . . . . 27
Certain Federal Income Tax Consequences . . 28
Accounting Treatment of Merger . . . . . . 28
Resales of Bancorporation Capital Stock
Received in Merger . . . . . . . . . . 29
Bancorporation's Articles of Incorporation
and Code of Regulations . . . . . . . . 29
RIGHTS OF DISSENTING STOCKHOLDERS . . . . . . . 29
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS (UNAUDITED) . . . . . . . 30
BUSINESS OF BANCORPORATION . . . . . . . . . . 34
BUSINESS OF GREAT NORTHERN . . . . . . . . . . 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF GREAT
NORTHERN'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . 43
REGULATORY MATTERS . . . . . . . . . . . . . . 57
DESCRIPTION OF BANCORPORATION CAPITAL STOCK .. . 65
COMPARISON OF BANCORPORATION AND GREAT NORTHERN
CAPITAL STOCK . . . . . . . . . . . . . . .. . 66
LEGAL OPINION . . . . . . . . . . . . . . . .. . 72
EXPERTS . . . . . . . . . . . . . . . . . . . . 72
APPENDICES
A. Agreement of Affiliation and Plan of Merger
B. Fairness Opinion of Trident Financial Corporation
C. Form of Voting Agreement
D. Ohio Dissenters' Rights Statute
E. Great Northern Financial Corporation Consolidated
Financial Statements for the Nine Month Periods
Ended September 30, 1993 and 1992, and for the
Years Ended December 31, 1992, 1991 and 1990
-iii-
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS AND PROXY STATEMENT AND IS NOT INTENDED TO BE A COMPLETE
STATEMENT OF ALL MATERIAL FACTS REGARDING THE MATTERS TO BE CONSIDERED AT THE
SPECIAL MEETING OF STOCKHOLDERS OF GREAT NORTHERN. THIS SUMMARY IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION CONTAINED
ELSEWHERE IN THIS PROSPECTUS AND PROXY STATEMENT, THE APPENDICES HERETO AND
THE DOCUMENTS REFERRED TO AND INCORPORATED HEREIN.
INTRODUCTION
The Boards of Directors of Bancorporation and Great Northern have each
unanimously approved the Agreement of Affiliation and Plan of Merger dated as
of September 28, 1993, by and between Bancorporation and Great Northern (the
"Merger Agreement"). A copy of the Merger Agreement is attached hereto as
Appendix A. The Merger Agreement provides for the proposed merger of Great
Northern with and into Bancorporation (the "Merger"). The terms of the Merger
and information regarding the Great Northern Special Meeting are summarized
below.
PARTIES TO THE MERGER
FIRST BANCORPORATION OF OHIO. Bancorporation is a bank holding company
organized in 1981 under the laws of the State of Ohio and registered under the
Bank Holding Company Act of 1956, as amended. As of September 30, 1993,
Bancorporation had total consolidated assets of $3.9 billion and total
shareholder's equity of $383.8 million. Bancorporation's subsidiaries include
First National Bank of Ohio, The Old Phoenix National Bank of Medina, Elyria
Savings & Trust National Bank, The First National Bank in Massillon, Peoples
Federal Savings Bank, Peoples Savings Bank, Bancorp Trust Company, N.A. and
FBOH Credit Life Insurance Company. On September 30, 1993, Bancorporation and
its subsidiaries employed approximately 2,800 full and part-time employees.
See "BUSINESS OF BANCORPORATION."
Bancorporation's principal business consists of owning and supervising
its subsidiaries which primarily operate in Ashtabula, Cuyahoga, Erie, Geauga,
Knox, Lake, Lorain, Medina, Portage, Richland, Stark, Summit and Wayne Counties
in Ohio. Although Bancorporation is principally a banking organization, its
nonbanking subsidiaries also provide securities brokerage services, corporate
and personal trust services, equipment lease financing and other financial
services. Bancorporation directs the overall policies and financial resources
of the subsidiaries, but the day-to-day affairs, including lending practices,
services, and interest rates, are managed by their own officers and directors,
some of whom are also officers and directors of Bancorporation. Through
Bancorp Trust Company, N.A., with its principal office in Naples, Florida,
Bancorporation offers trust services to customers in the Southern Florida
area. FBOH Credit Life Insurance engages in underwriting of credit life and
credit accident and health insurance directly related to the extension of
credit by the subsidiary banks to their customers.
GREAT NORTHERN FINANCIAL CORPORATION. Great Northern is a savings and
loan holding company incorporated under the laws of the State of Ohio in 1984
and registered under the Home Owners' Loan Act of 1933 ("HOLA"). Headquartered
in Barberton, Ohio, Great Northern owns all of the outstanding shares of Great
Northern Savings Co., a savings and loan association formed under Ohio law
("Great Northern Savings"). As of September 30, 1993, Great Northern had total
consolidated assets of $385.2 million and total shareholder's equity of $27.4
million. Great Northern Savings conducts business through eleven offices
located in Summit, Medina and Wayne Counties, Ohio. On September 30, 1993,
Great Northern and its subsidiaries employed approximately 125 full and
part-time employees. See "BUSINESS OF GREAT NORTHERN."
1
The principal executive offices of Bancorporation are located at 106 S.
Main Street, Akron, Ohio 44308, and its telephone number is (216) 384-8000.
The principal executive offices of Great Northern are located at 524 West Park
Avenue, Barberton, Ohio 44203, and its telephone number is (216) 753-8411.
TERMS OF MERGER
FORMAT Great Northern will be merged with and into
Bancorporation, and Bancorporation will be the
surviving corporation. See "TERMS OF MERGER -
General."
CONVERSION OF GREAT NORTHERN Upon consummation of the Merger, each
COMMON STOCK outstanding share of Great Northern Common Stock
will be cancelled and exchanged for the right to
receive 3.7460 shares of Bancorporation Common
Stock (the "Exchange Ratio"), subject to
adjustment if the average closing
price of Bancorporation Common Stock for the 20
trading days before the Effective Time (the
"Average Price") exceeds $28. If the Average
Price exceeds $28, the exchange ratio will be
adjusted to the number equal to the quotient of
104.88, divided by the Average Price (the
"Adjusted Exchange Ratio").
If the Average Price is $28 or less and the
Exchange Ratio is accordingly used to determine
the number of shares of Bancorporation Common
Stock to be issued in exchange for each common
share of Great Northern, the value of the shares
of Bancorporation Common Stock received by Great
Northern shareholders in exchange for each Great
Northern share will fluctuate up or down,
depending upon the then current market value of
Bancorporation Common Stock. If the Average Price
is $28 or more and the Adjusted Exchange Ratio
is accordingly used, the value of the shares of
Bancorporation Common Stock received in exchange
for each share of Great Northern will equal
$104.88 and will not fluctuate.
The following table illustrates the application
of the Exchange Ratio and the Adjusted Exchange
Ratio:
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MARKET VALUE OF
BANCORPORATION COMMON
AVERAGE STOCK EXCHANGED FOR EACH
PRICE EXCHANGE RATIO GREAT NORTHERN SHARE
$20 3.7460 $ 74.92
21 3.7460 78.67
22 3.7460 82.41
23 3.7460 86.16
24 3.7460 89.90
25 3.7460 93.65
26 3.7460 97.40
27 3.7460 101.14
28 3.7460 104.88
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2
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(table continued)
29 3.6168 104.88
30 3.4963 104.88
31 3.3835 104.88
32 3.2778 104.88
If the application of the Exchange
Ratio or the Adjusted Exchange Ratio
would result in the right to receive
a fraction of Bancorporation Common
Stock, cash will be paid by
Bancorporation to Great Northern
stockholders in lieu of such
fractional share. If the Average
Price is below $20, Great Northern
has the right to terminate the
Merger. See "TERMS OF MERGER -
Conversion of Great Northern Capital
Stock into Bancorporation Capital
Stock," "DESCRIPTION OF
BANCORPORATION CAPITAL STOCK" and
"COMPARISON OF BANCORPORATION AND
GREAT NORTHERN CAPITAL STOCK."
VALUE OF THE MERGER As of December 21, 1993, based on
the Exchange Ratio and the closing
sales price of Bancorporation Common
Stock as reported on NASDAQ on that
date, the Merger had a per share
value of $96.46 to holders of Great
Northern Common Stock. The
approximate total value of all of
the Bancorporation Common Stock to
be issued in the Merger as of
December 21, 1993, equalled $48.5
million. The total costs and
expenses of the Merger to be
incurred by Bancorporation and Great
Northern are estimated to be
approximately $777,500, not including
certain other restructuring costs.
EFFECTIVE TIME The Merger will be consummated after
the adoption of the Merger Agreement
by the requisite vote of the Great
Northern stockholders, the receipt
of the necessary regulatory
approvals and the satisfaction or
waiver of all other conditions to
the consummation of the Merger
specified by the Merger Agreement.
The time that the Merger is
consummated is referred to herein as
the "Effective Time." See "TERMS OF
MERGER - Effective Time,"
"Conditions to Merger," and
"Regulatory Approvals." It is
currently anticipated that the
Merger will be consummated during
the second quarter of 1994.
TAX AND ACCOUNTING Consummation of the Merger is
TREATMENT conditioned upon the receipt by
Bancorporation of an opinion of
counsel to the effect that the
Merger will constitute a tax-free
reorganization under Section
368(a)(1)(A) of the Internal Revenue
Code. Consummation of the Merger
is also conditioned upon receipt
by Bancorporation of a letter from
its independent auditors that the
Merger will be accounted for as a
"pooling-of-interests." See "TERMS
OF MERGER - Certain Federal Income
Tax Consequences" and "Accounting
Treatment of Merger."
3
CONDITIONS In addition to those conditions
listed above under "Tax and
Accounting Treatment," consummation
of the Merger is conditioned upon
the adoption of the Merger Agreement
by the requisite vote of the Great
Northern stockholders; the receipt of
all necessary approvals of the
Merger from government regulatory
agencies; the aggregate of
fractional shares and shares subject
to rights of dissenting shareholders
shall not be more than 10% of the
maximum number of shares of
Bancorporation Common Stock; the
absence of a material adverse change
consolidated financial condition,
in the results of operations, or
business of Bancorporation or Great
Northern; the truth and accuracy of
the representations and warranties of
each party as set forth in the
Merger Agreement; the performance of
obligations by each party; and
certain other conditions. See
"TERMS OF MERGER - Conditions to
Merger" and "Regulatory Approvals."
RIGHT OF GREAT NORTHERN Great Northern may terminate the
TO TERMINATE MERGER Merger Agreement if the Average
AGREEMENT BASED UPON Price is less than $20 per share.
PRICE See ""TERMS OF MERGER - Waiver of
Conditions, Amendment, or
Termination of the Merger Agreement."
NO SOLICITATION Great Northern has agreed that
neither it nor any of its
subsidiaries will solicit or
initiate any offers from any person
to acquire Great Northern or any of
its subsidiaries or any material
amount of its assets or any of its
equity securities.
BACKGROUND OF MERGER
The capital problems of many savings associations and the long-term
viability of the thrift industry received prominent media attention during the
1980s and early 1990s. Although the capital of Great Northern has met or
exceeded all regulatory requirements for more than the past ten years, the
media attention prompted the Board of Directors to evaluate the effect of the
negative publicity on the business of Great Northern. In connection with such
consideration, the directors generally discussed the future prospects of Great
Northern, particularly in relation to the manner by which shareholder value
could be maximized.
In 1992, the directors decided to retain Trident
Financial Corporation, an investment banking firm experienced in the thrift
industry ("Trident"), to assist them in the evaluation of such future
prospects. As they reviewed their alternatives, including the option of
remaining an independent community financial institution and the option of
merging with another financial institution, the directors came to the
conclusion that they could not make informed decisions about the viability of
Great Northern's options without a meaningful investigation. As a result, the
Board of Directors decided to conduct a confidential investigation of the
possibility of pursuing a merger of Great Northern with another financial
institution.
4
In August 1992, therefore, the Board of Directors conducted through
Trident a confidential inquiry into the possible interest of a limited number
of entities in pursuing an acquisition of Great Northern. Due to a variety of
factors, each of the entities contacted, including Bancorporation, declined to
pursue the possibility. In view of such response, the Board of Directors
elected to terminate all further inquiries and to focus exclusively on
operating Great Northern in the future on a profitable basis.
In the late spring of 1993, however, the Board of Directors decided to
revisit the possibility of a merger with another financial institution. In
July 1993, Trident again conducted a confidential inquiry into the possible
interest of a number of entities in pursuing an acquisition of Great Northern.
Following such inquiry, five of the entities contacted elected to conduct a due
diligence review of the books and records of Great Northern. Upon the
completion of such due diligence review, three of the entities, including
Bancorporation, submitted on August 30, 1993, general proposals to the Board of
Directors in respect of the acquisition of Great Northern.
At lengthy meetings on September 2 and 8, 1993, the directors
carefully reviewed each of the proposals. The Bancorporation proposal called
for an exchange of Great Northern shares for Bancorporation Common stock at a
proposed exchange ratio (the "Proposed Exchange Ratio") which was substantially
similar to the Exchange Ratio. A second proposal offered an exchange of Great
Northern shares for a combination of stock and cash. The aggregate value of
such combination was substantially less than the aggregate value of the
Bancorporation proposal.
The third proposal initially called for the payment of cash for Great
Northern shares in an amount approximately equal to the value of the
Bancorporation proposal. Further discussions between Trident and the third
proponent revealed, however, that the amount of cash which the third proponent
intended to offer to the Great Northern shareholders was materially less than
originally proposed.
Following extensive review and discussion of the three proposals, the
Board of Directors of Great Northern elected to pursue negotiations exclusively
with Bancorporation. Such decision was based primarily on the perception by
the directors of a material difference between the aggregate value of the
Bancorporation proposal and the aggregate values of each of the two other
proposals.
As the terms and conditions of the transaction with Bancorporation
were negotiated, the directors supervised the negotiation of material issues
and reviewed the various drafts of the Merger Agreement. The progress of
negotiations and the content of such drafts were considered in detail during
extensive meetings of the Board of Directors on September 23 and 25, 1993.
At the meeting on September 25, 1993, the directors focused on the one
primary issue which then remained for negotiation and resolution. Such issue
concerned the amount of Great Northern's unfunded pension liability, an
actuarial deficiency present in many pension plans. Bancorporation and Great
Northern could not reach an agreement on the total amount of such unfunded
liability. Each of Great Northern and Bancorporation recognized, however,
that the Proposed Exchange Ratio would have to be decreased if they reached
agreement on the amount of such liability.
After a lengthy discussion of the issue, the directors concluded that
if Great Northern and Bancorporation reached such agreement and that if the
agreed liability fell below a maximum amount established by the Board of
Directors, then the terms and conditions of the draft Merger Agreement would
provide for a transaction which was fair to and in the best interests of the
Great Northern shareholders. If, however, such agreement could not be reached
or if the agreed liability exceeded the maximum amount established, then
negotiations with Bancorporation would have to be terminated.
5
In connection with the September 25, 1993, meeting, the directors
received the oral opinion of Trident that the Proposed Exchange Ratio, as
adjusted within the parameters established by the Board of Directors, would be
fair to the shareholders of Great Northern from a financial point of view.
Accordingly, the Board of Directors approved the terms and conditions of the
Merger Agreement and authorized the execution of the Merger Agreement subject
to the resolution of the unfunded pension liability within the amount
established by the Board of Directors.
In the late afternoon of September 27, 1993, Great Northern and
Bancorporation, after consultation with their actuaries, resolved the
disagreement over the unfunded pension liability in a manner which did not
exceed the maximum amount set by the Board of Directors. On September 28,
1993, Trident issued its preliminary written opinion that the Exchange Ratio
and Adjusted Exchange Ratio were fair to the Great Northern shareholders from a
financial point of view and the Merger Agreement was executed by Great Northern
and Bancorporation.
REASONS FOR MERGER
BANCORPORATION. After careful review and consideration,
Bancorporation's Board of Directors has determined that the terms of the Merger
are in the best interests of its stockholders. The Merger with Great Northern
represents the continued realization of Bancorporation's long-standing
philosophy of acquiring retail oriented financial institutions for continued
customer growth. In addition, Bancorporation believes that it will realize
earnings growth over the intermediate to long term as a result of the Merger
through substantial cost savings from consolidating the operations of Great
Northern.
The Merger represents a continuation of Bancorporation's acquisition
strategy of combining with banking institutions in Ohio and contiguous states
where Bancorporation already has or intends to obtain a significant market
position. The Merger will expand Bancorporation's existing operations in its
major Northeastern Ohio market, providing both stronger market positions and
opportunities to achieve efficiencies for the combined operations in that
market. Bancorporation will draw on its experience with previous acquisitions
in seeking to achieve an effective consolidation of Great Northern's operations
with those of Bancorporation. See "BACKGROUND OF AND REASONS FOR MERGER -
Reasons for Merger - Bancorporation."
GREAT NORTHERN. After careful review and consideration, Great
Northern's Board of Directors has determined that the terms of the Merger are
fair to, and in the best interests of, Great Northern and its stockholders.
Great Northern's directors believe that the Merger will provide significant
value to all Great Northern stockholders and, at the same time, enable holders
of Great Northern Common Stock to participate in the expanded opportunities for
growth that the Merger will make possible. Accordingly, Great Northern's
directors unanimously recommend that Great Northern stockholders vote FOR the
Merger. See "BACKGROUND OF AND REASONS FOR MERGER - Reasons for Merger - Great
Northern" and "Recommendation of Great Northern's Board of Directors." For
information on the interests of certain members of Great Northern's Board of
Directors and management in the Merger, see "TERMS OF MERGER - Interests of
Great Northern Executive Officers and Directors."
6
GREAT NORTHERN SPECIAL MEETING
MEETING DATE, TIME The Great Northern Special
AND PLACE Meeting will be held on
Tuesday, February 15, 1994, at
9:30 a.m., local time, at Great
Northern's offices at 1394
Cleveland-Massillon Road, Copley,
Ohio. See "SPECIAL MEETING OF
GREAT NORTHERN STOCKHOLDERS -
Purpose of Meeting."
PURPOSE OF MEETING The purpose of the Great Northern
Special Meeting is to vote on the
adoption of the Merger Agreement.
SHARES ENTITLED TO VOTE Shares of Great Northern Common
Stock are the only shares entitled
to vote at the Special Meeting.
REQUIRED VOTES TO ADOPT The affirmative vote of the holders
MERGER AGREEMENT of a majority of the outstanding
shares of Great Northern Common
Stock is required to adopt the
Merger Agreement.
SHARES OUTSTANDING AND December 21, 1993, is the record
RECORD DATE date for the Great Northern Special
Meeting. On such date, there
were 418,520 shares of Great
Northern Common Stock outstanding.
Only Great Northern stockholders
of record as of such date are
entitled to notice of, and to vote at,
the Great Northern Special Meeting.
SHARES OWNED BY DIRECTORS, As of December 21, 1993, Great
OFFICERS AND AFFILIATES OF Northern's directors and executive
GREAT NORTHERN officers and their affiliates were
entitled to cast 80,627 votes at
the Great Northern Special Meeting,
which represents 38.53% of the total
number of votes necessary to
approve the Merger. Mr. Emil A.
Voelz, Jr. and Mr. Darrell F. Terpe,
each of whom is a director of
Great Northern, have entered into
agreements in their personal capacities
with Bancorporation in which they have
each agreed to vote their shares of
Great Northern Common Stock for
the adoption of the Merger Agreement.
The total of the shares held by
Messrs. Voelz and Terpe equal 21.42%
of the total number of votes
necessary to approve the Merger. See
"SPECIAL MEETING OF GREAT
NORTHERN STOCKHOLDERS - Vote Required."
DISSENTERS' RIGHTS Any stockholder of Great Northern
who does not vote in favor of the
approval of the Merger Agreement and
who delivers a written demand for
appraisal of such stockholder's
shares in the manner provided by
Section 1701.85 of the Ohio General
Corporation Law (a copy of which is
attached hereto as Appendix D),
shall be entitled, if and when the
Merger becomes effective, and upon
strict compliance with certain
procedures set forth in Section
1701.85, to receive the fair cash value
of the Great Northern Common Stock owned
by such stockholder at the time and
manner set forth herein. See
"RIGHTS OF DISSENTING SHAREHOLDERS."
7
RECOMMENDATION OF DIRECTORS
The Boards of Directors of Bancorporation and Great Northern
unanimously have approved the Merger Agreement. The Board of Directors of Great
Northern unanimously has recommended the adoption of the Merger Agreement by
the Great Northern stockholders. Stockholder approval of the Merger is not
required by the Bancorporation stockholders. See "BACKGROUND OF AND REASONS
FOR MERGER - Recommendation of Great Northern's Board of Directors" and "TERMS
OF MERGER - Conduct of Great Northern's Business Pending the Merger."
GREAT NORTHERN'S INVESTMENT BANKER'S OPINION
Trident has delivered its written opinion to Great Northern's Board of
Directors to the effect that, as of the date the Merger Agreement was signed
and as of the date of this Prospectus and Proxy Statement, the terms of the
Merger Agreement in respect of the Exchange Ratio and Adjusted Exchange Ratio
are fair to the holders of Great Northern Common Stock from a financial point
of view. A copy of the form of opinion of Trident dated as of the date of this
Prospectus and Proxy Statement is attached hereto as Appendix B. The opinion
should be read in its entirety for a description of the procedures followed,
assumptions and qualifications made and matters considered by Trident, and the
limitations of the opinion. See also "BACKGROUND OF AND REASONS FOR MERGER -
Opinion of Great Northern's Financial Advisor." Bancorporation did not retain
the services of an investment banking company.
COMPARISON OF RIGHTS OF HOLDERS OF BANCORPORATION CAPITAL STOCK AND GREAT
NORTHERN CAPITAL STOCK
The rights of the holders of Great Northern Common Stock currently are
governed by Ohio law, Great Northern's Articles of Incorporation, as amended,
and Great Northern's Code of Regulations, as amended. At the Effective Time,
Great Northern's stockholders (except holders who perfect dissenters' rights)
will become Bancorporation shareholders and their rights will be governed
thereafter by Ohio law and by Bancorporation's Amended and Restated Articles of
Incorporation and its Amended Code of Regulations (as both further amended
pursuant to the Merger Agreement filed as of the Effective Time).
The rights of a holder of Great Northern Common Stock are similar in
most respects to the rights of a holder of Bancorporation Common Stock.
Bancorporation Common Stock, however, has associated rights which trade with
the Common Stock, which arise pursuant to a Shareholders Rights Agreement
("Bancorporation Rights Agreement"), but which are not currently exercisable.
Each share of Bancorporation Common Stock issued to stockholders of Great
Northern in the Merger will be accompanied by one Bancorporation Right under
the Bancorporation Rights Agreement. All references to the Bancorporation
Common Stock in this Prospectus and Proxy Statement include the associated
rights ("Bancorporation Rights"). See "COMPARISON OF BANCORPORATION AND
GREAT NORTHERN CAPITAL STOCK."
MARKET PRICES
Bancorporation Common Stock is included for quotation on NASDAQ. Great
Northern Common Stock is not actively traded and has no established public
market, although a brokerage firm made a limited market in its stock. The
information presented in the table below sets forth the high and low sale
prices as reported on NASDAQ for Bancorporation Common Stock on September 27,
1993 (the date preceding the public announcement of the Merger Agreement) and
the last sale price known to Great Northern as of August 26, 1993, as reported
by the brokerage firm making a limited market in its stock. In addition, the
table indicates the high and low sale prices as reported on NASDAQ for
Bancorporation Common Stock on December 21, 1993.
8
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BANCORPORATION GREAT NORTHERN EQUIVALENT
COMMON COMMON VALUE
STOCK STOCK PER SHARE(1)
Sale Prices, August 26, 1993
High .............................. $24.500(2) N/A N/A
Low ............................... $24.125(2) N/A N/A
Last .............................. $24.500(2) $39.000 N/A
Sale Prices, September 27, 1993
High .............................. $27.375 N/A $102.547
Low ............................... $26.875 N/A $100.674
Sale Prices, December 21, 1993
High ............................. $26.500 N/A $ 99.269
Low .............................. $25.750 N/A $ 96.459
<FN>
________________________
(1) The Equivalent Value Per Share is calculated by multiplying the high and
low sale prices of Bancorporation Common Stock on such dates by the initial
Exchange Ratio.
(2) Adjusted for 2-for-1 stock split of August 30, 1993.
No assurance can be given as to the market price of shares of Bancorporation
Common Stock if and when the Merger is consummated, or when the shares of
Bancorporation Common Stock are actually issued.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for
each of the five years in the period ended December 31, 1992, and the nine-month
periods ended September 30, 1993 and 1992, for (a) Bancorporation on a
historical basis, (b) Great Northern on a historical basis, and (c)
Bancorporation and Great Northern on a pro forma combined basis. The results of
operations for the nine-month periods ended September 30, 1993 and 1992 are
unaudited. This table should be read in conjunction with the financial
statements and other financial information of Bancorporation and Great Northern,
respectively, included herein or incorporated herein by reference and the pro
forma condensed consolidated combined financial information giving effect to the
Merger included elsewhere in this Prospectus and Proxy Statement. THE PRO FORMA
COMBINED INFORMATION PRESENTED BELOW IS NOT NECESSARILY INDICATIVE OF THE
RESULTS WHICH ACTUALLY WOULD HAVE BEEN OBTAINED IF THE MERGER HAD BEEN
CONSUMMATED IN THE PAST OR WHICH MAY BE OBTAINED IN THE FUTURE.
9
SELECTED CONSOLIDATED FINANCIAL DATA
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NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ----------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
BANCORPORATION (Dollars in thousands)
Income Statement Data:
Net Interest Income $ 138,278 133,463 179,979 151,908 140,523 137,405 124,787
Provision for Loan Losses 5,430 11,619 17,363 11,373 11,659 8,793 6,028
Income before Cumulative Effect
of Change in Accounting 41,577 37,042 50,700 39,558 34,912 27,094 39,117
Net Income $ 41,577 37,042 50,700 39,558 34,912 27,094 40,399
Balance Sheet Data (period end):
Assets $3,955,418 3,776,728 3,916,198 3,765,739 3,722,137 3,618,017 3,542,776
Deposits 3,378,466 3,229,102 3,384,113 3,438,306 3,229,177 3,125,950 3,099,860
Loans 2,386,956 2,309,332 2,321,778 2,248,377 2,154,488 2,145,532 2,033,078
Shareholders' Equity 383,767 349,753 358,265 327,433 307,926 291,622 281,954
Capital Ratios:
Shareholders' Equity
to Total Assets 9.70% 9.26% 9.15% 8.70% 8.27% 8.06% 7.96%
GREAT NORTHERN
Income Statement Data:
Net Interest Income $ 7,398 7,221 9,507 9,234 8,635 8,003 7,681
Provision for Loan Losses 102 262 294 454 320 99 258
Income before Cumulative
Effect of Change in Accounting 2,159 2,039 2,573 2,568 2,104 1,905 1,880
Net Income $ 2,352 2,039 2,573 2,568 2,104 1,905 1,880
Balance Sheet Data (period end):
Assets $ 385,229 366,217 387,389 350,801 332,000 316,797 312,978
Deposits 312,271 295,411 317,810 287,901 278,159 265,072 263,071
Loans 231,897 211,279 209,260 228,609 254,444 254,908 249,869
Shareholders' Equity 27,360 25,277 25,611 23,799 21,867 20,270 18,697
Capital Ratios:
Shareholders' Equity
to Total Assets 7.10% 6.90% 6.61% 6.78% 6.59% 6.40% 5.97%
PRO FORMA COMBINED
Income Statement Data:
Net Interest Income $ 145,676 140,684 189,486 161,142 149,158 145,408 132,468
Provision for Loan Losses 5,532 11,881 17,657 11,827 11,979 8,892 6,286
Income before Cumulative
Effect of Change in Accounting 43,929 39,081 53,273 42,126 37,016 28,999 40,997
Net Income $ 43,929 39,081 53,273 42,126 37,016 28,999 42,279
Balance Sheet Data (period end):
Assets $4,342,402 4,144,700 4,305,342 4,118,295 4,055,892 3,936,569 3,857,509
Deposits 3,690,737 3,524,513 3,701,923 3,726,207 3,507,336 3,391,022 3,362,931
Loans 2,618,853 2,520,611 2,531,038 2,476,986 2,408,932 2,400,440 2,282,947
Shareholders' Equity 412,882 376,785 385,631 352,987 331,548 313,674 302,406
Capital Ratios:
Shareholders' Equity
to Total Assets 9.51% 9.09% 8.96% 8.57% 8.17% 7.97% 7.84%
10
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COMPARATIVE PER SHARE DATA
The following table sets forth per common share book value, market
value, cash dividends paid, income before cumulative effect of change in
accounting and net income of (a) Bancorporation on a historical basis, (b)
Bancorporation on a pro forma basis adjusted to give effect to the Merger as if
the Merger had been effected for the period presented, (c) Great Northern on a
historical basis, and (d) Great Northern on a pro forma equivalent basis for
one share of Great Northern Common Stock as if converted to 3.7460 shares of
Bancorporation Common Stock, in each case as adjusted for all applicable stock
splits. The following information should be read in conjunction with the
historical financial statements of Bancorporation and Great Northern included
herein or incorporated by reference in this Prospectus and Proxy Statement and
the pro forma condensed consolidated combined financial information giving
effect to the Merger included elsewhere in the Prospectus and Proxy Statement.
See "AVAILABLE INFORMATION;" "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE;"
"PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)" and "Appendix
E." THE INFORMATION PRESENTED BELOW IS NOT NECESSARILY INDICATIVE OF THE
RESULTS WHICH ACTUALLY WOULD HAVE BEEN OBTAINED IF THE MERGER HAD BEEN
CONSUMMATED IN THE PAST OR WHICH MAY BE OBTAINED IN THE FUTURE.
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
HISTORICAL PER SHARE DATA
BANCORPORATION
Net Income Per Common Share
Before Cumulative Effect of
Change in Accounting $ 1.65 1.47 2.02 1.58 1.39 1.08 1.56
Net Income Per Common Share 1.65 1.47 2.02 1.58 1.39 1.08 1.61
Cash Dividends Paid
Per Common Share 0.67 0.61 0.82 0.80 0.74 0.69 0.63
Book Value Per Common
Share (at period end) 15.21 13.89 14.22 13.04 12.26 11.62 11.32
GREAT NORTHERN
Net Income Per Common Share
Before Cumulative Effect of
Change in Accounting $4.67 4.56 5.74 5.88 5.02 4.54 4.48
Net Income Per Common Share 5.09 4.56 5.74 5.88 5.02 4.54 4.48
Cash Dividends Paid
Per Common Share 1.44 1.34 1.82 1.52 1.16 0.76 0.41
Book Value Per Common
Share (at period end) 65.37 60.40 61.19 56.86 52.25 48.43 44.67
PRO FORMA COMBINED
Net Income Per Common Share
Before Cumulative Effect of
Change in Accounting $1.62 1.45 1.97 1.56 1.37 1.07 1.52
Net Income Per Common Share 1.62 1.45 1.97 1.56 1.37 1.07 1.57
Cash Dividends Paid
Per Common Share 0.62 0.57 0.77 0.75 0.69 0.65 0.58
Book Value Per Common
Share (at period end) 15.23 13.93 14.24 13.07 12.28 11.62 11.29
11
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NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ---------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
EQUIVALENT PRO FORMA COMBINED
PER GREAT NORTHERN SHARE
Net Income Per Common Share
Before Cumulative Effect of
Change in Accounting $ 6.07 5.42 7.38 5.85 5.14 4.03 5.69
Net Income Per Common Share 6.07 5.42 7.38 5.85 5.14 4.03 5.87
Cash Dividends Paid
Per Common Share 2.32 2.12 2.87 2.79 2.58 2.42 2.18
Book Value Per Common
Share (at period end) 57.05 52.17 53.35 48.97 46.02 43.54 42.30
12
INTRODUCTION
This Prospectus and Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of Great Northern for use
at the Great Northern Special Meeting. This Prospectus and Proxy Statement
also serves as a Prospectus for the issuance of Bancorporation Common Stock
upon the Effective Time. This Prospectus and Proxy Statement is being mailed
to stockholders of Great Northern commencing on or about January 14, 1994.
All information contained in this Prospectus and Proxy Statement relating
to Bancorporation has been furnished by Bancorporation, and all information
contained in this Prospectus and Proxy Statement relating to Great Northern has
been furnished by Great Northern. The party furnishing any such information is
responsible for the accuracy thereof.
SPECIAL MEETING OF GREAT NORTHERN STOCKHOLDERS
DATE, TIME, AND PLACE
The Great Northern Special Meeting will be held on Tuesday, February 15,
1994, commencing at 9:30 a.m., local time, at Great Northern's office at 1394
Cleveland-Massillon Road, Copley, Ohio.
PURPOSE OF MEETING
The purpose of the Great Northern Special Meeting is to consider and vote
upon the adoption of the Merger Agreement.
SHARES OUTSTANDING AND ENTITLED TO VOTE; RECORD DATE
The close of business on December 21, 1993, has been fixed by the Board
of Directors of Great Northern as the record date for the determination of
holders of shares of Great Northern Common Stock entitled to notice of and to
vote at, the Great Northern Special Meeting. As of December 21, 1993, there
were approximately 418,520 shares of Great Northern Common Stock issued and
outstanding, and held by approximately 257 stockholders of record. Holders of
record of Great Northern Common Stock on the record date are entitled to one
vote per share and are entitled to exercise dissenters rights. See "RIGHTS OF
DISSENTING STOCKHOLDERS."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of
Great Northern Common Stock outstanding on the record date is required to adopt
the Merger Agreement. As of December 21, 1993, Great Northern's directors and
executive officers and their affiliates were entitled to cast 80,627 votes at
the Great Northern Special Meeting, representing 38.53% of the total number of
votes necessary to adopt the Merger Agreement. Emil A. Voelz, Jr. and Darrell
F. Terpe, each of whom is a director of Great Northern, have entered into
agreements in their personal capacities with Bancorporation in which they have
agreed to vote their shares in favor of the Merger Agreement. As of December
21, 1993, Mr. Voelz and Mr. Terpe were entitled to cast votes at the Great
Northern Special Meeting, representing 21.42% of the total number of votes
necessary to adopt the Merger Agreement.
VOTING; SOLICITATION AND REVOCATION OF PROXIES
A holder of Great Northern Common Stock may use the enclosed form of
proxy to vote such stockholder's shares if he is unable to attend the Great
Northern Special Meeting in person or wishes to have his shares voted by proxy
even if he does attend the meeting. Any proxy given pursuant to this
solicitation may be revoked at any time
13
before it is exercised by notice of such revocation to the Secretary of Great
Northern or by submitting a proxy having a later date, or by such person
appearing at the Great Northern Special Meeting and voting in person. All
proxies validly submitted and not revoked will be voted in the manner specified
therein. If no specification is made, the proxies will be voted in favor of
the adoption of the Merger Agreement.
Great Northern will bear the cost of any solicitation of proxies from its
stockholders. In addition to using the mails, proxies may be solicited by
personal interview, telephone and wire. Banks, brokerage houses, other
institutions, nominees and fiduciaries will be requested to forward their proxy
soliciting material to their principals and obtain authorizations for the
execution of proxies. Officers and other employees of Great Northern and its
subsidiaries, acting on Great Northern's behalf, may solicit proxies
personally. Great Northern does not expect to pay any other compensation for
the solicitation of proxies, but will, upon request, pay the standard charges
and expenses of banks, brokerage houses, other institutions, nominees, and
fiduciaries for forwarding proxy materials to and obtaining proxies from their
principals. No such payment, however, will be made to any of Great Northern's
subsidiaries acting through their nominees or acting as a fiduciary.
BACKGROUND OF AND REASONS FOR MERGER
BACKGROUND OF MERGER
The capital problems of many savings associations and the long-term
viability of the thrift industry received prominent media attention during the
1980s and early 1990s. Although the capital of Great Northern has met or
exceeded all regulatory requirements for more than the past ten years, the
media attention prompted the Board of Directors to evaluate the effect of the
negative publicity on the business of Great Northern. In connection with such
consideration, the directors generally discussed the future prospects of Great
Northern, particularly in relation to the manner by which stockholder value
could be maximized.
In 1992, the directors decided to retain Trident to assist them in the
evaluation of such future prospects. As they reviewed their alternatives,
including the option of remaining an independent community financial
institution and the option of merging with another financial institution, the
directors came to the conclusion that they could not make informed decisions
about the viability of Great Northern's options without a meaningful
investigation. As a result, the Board of Directors decided to conduct a
confidential investigation of the possibility of pursuing a merger of Great
Northern with another financial institution.
In August 1992, therefore, the Board of Directors conducted through
Trident a confidential inquiry into the possible interest of a limited number
of entities in pursuing an acquisition of Great Northern. Due to a variety or
factors, each of the entities contacted, including Bancorporation, declined to
pursue the possibility. In view of such response, the Board of Directors
elected to terminate all further inquiries and to focus exclusively on
operating Great Northern in the future on a profitable basis.
In the late spring of 1993, however, the Board of Directors decided to
revisit the possibility of a merger with another financial institution. In
July 1993, Trident again conducted a confidential inquiry into the possible
interest of a number of entities in pursuing an acquisition of Great Northern.
Following such inquiry, five of the entities contacted elected to conduct a due
diligence review of the books and records of Great Northern. Upon the
completion of such due diligence review, three of the entities, including
Bancorporation, submitted on August 30, 1993, general proposals to the Board of
Directors in respect of the acquisition of Great Northern.
At lengthy meetings on September 2 and 8, 1993, the directors carefully
reviewed each of the proposals. The Bancorporation proposal called for an
exchange of Great Northern shares for Bancorporation Common stock at a proposed
exchange ratio (the "Proposed Exchange Ratio") which was substantially similar
to the Exchange Ratio. A second proposal offered an exchange of Great Northern
shares for a combination of stock and cash. The aggregate value of such
combination was substantially less than the aggregate value of the
Bancorporation proposal.
14
The third proposal initially called for the payment of cash for Great
Northern shares in an amount approximately equal to the value of the
Bancorporation proposal. Further discussions between Trident and the third
proponent revealed, however, that the amount of cash which the third proponent
intended to offer to the Great Northern stockholders was materially less than
originally proposed.
Following extensive review and discussion of the three proposals, the
Board of Directors of Great Northern elected to pursue negotiations exclusively
with Bancorporation. Such decision was based primarily on the perception by
the directors of a material difference between the aggregate value of the
Bancorporation proposal and the aggregate values of each of the two other
proposals.
As the terms and conditions of the transaction with Bancorporation were
negotiated, the directors supervised the negotiation of material issues and
reviewed the various drafts of the Merger Agreement. The progress of
negotiations and the content of such drafts were considered in detail during
meetings of the Board of Directors on September 23 and 25, 1993.
At the meeting on September 25, 1993, the directors focused on the one
primary issue which then remained for negotiation and resolution. Such issue
concerned the amount of Great Northern's unfunded pension liability, an
actuarial deficiency present in many pension plans. Bancorporation and Great
Northern could not reach an agreement on the total amount of such unfunded
liability. Each of Great Northern and Bancorporation recognized, however, that
the Proposed Exchange Ratio would have to be decreased if they reached
agreement on the amount of such liability.
After a lengthy discussion of the issue, the directors concluded that if
Great Northern and Bancorporation reached such agreement and that if the agreed
liability fell below a maximum amount established by the Board of Directors,
then the terms and conditions of the draft Merger Agreement would provide for a
transaction which was fair to and in the best interests of the Great Northern
stockholders. If, however, such agreement could not be reached or if the
agreed liability exceeded the maximum amount established, then negotiations
with Bancorporation would have to be terminated.
In connection with the September 25, 1993, meeting, the directors
received the oral opinion of Trident that the Proposed Exchange Ratio, as
adjusted within the parameters established by the Board of Directors, would be
fair to the stockholders of Great Northern from a financial point of view.
Accordingly, the Board of Directors approved the terms and conditions of the
Merger Agreement and authorized the execution of the Merger Agreement subject
to the resolution of the unfunded pension liability within the amount
established by the Board of Directors.
In the late afternoon of September 27, 1993, Great Northern and
Bancorporation, after consultation with their actuaries, resolved the
disagreement over the unfunded pension liability in a manner which did not
exceed the maximum amount set by the Board of Directors. On September 28,
1993, Trident issued its preliminary written opinion that the Exchange Ratio
and Adjusted Exchange Ratio were fair to the Great Northern stockholders from a
financial point of view and the Merger Agreement was executed by Great Northern
and Bancorporation.
REASONS FOR MERGER - BANCORPORATION
After careful review and consideration, Bancorporation's Board of
Directors unanimously concluded that the terms of the Merger were in the best
interests of the stockholders of Bancorporation. The Merger with Great
Northern continues Bancorporation's long-standing philosophy of acquiring
retail-oriented financial institutions for continued customer growth closely
related to its core banking business within Northern Ohio and contiguous
states. The Merger will expand Bancorporation's existing banking and savings
association operations in its major Northern Ohio markets, providing both
stronger market positions and opportunities to achieve efficiencies for the
combined operations in those markets.
15
In approving the Merger, Bancorporation's Board of Directors reviewed a
number of factors, including certain risks of the Merger, with a view to
increasing stockholder value in the intermediate and long term. These factors
included the reports of Bancorporation's management on the due diligence review
of Great Northern and the strategic implications of the Merger. The strategic
matters considered by Bancorporation's Board and management included the
reports that the Merger will result in (a) anticipated cost savings
attributable to consolidation of operations, increased efficiencies, economies
of scale, and related factors, (b) improved positions in Bancorporation's major
markets, and (c) a combined entity with increased financial resources. Certain
risks of the Merger considered by Bancorporation's Board and management
included Great Northern's loan quality, litigation, regulatory, and other legal
contingencies, the uncertainties inherent in any combination of two companies,
immediate book value and short term earnings dilution for Bancorporation Common
Stock, and the effort that would be necessary to achieve the anticipated cost
savings and enhanced income. Bancorporation believes that its prior experience
in effecting successful mergers will assist it in achieving the anticipated
cost savings. See "SUMMARY" and "BACKGROUND OF AND REASONS FOR MERGER."
During the review process, Bancorporation's management believed it could
achieve cost reductions over time through consolidating the operations of Great
Northern, especially where those operations will overlap or become redundant,
and by achieving greater efficiencies. See "TERMS OF MERGER - Conduct of Great
Northern's Business Pending the Merger." The cost reductions are expected to
result from consolidation of certain facilities, elimination of duplicate data
processing and other corporate overhead, and consolidation of other operations.
Bancorporation believes that the anticipated level of cost savings may be
significant due to this being an "in-market" merger involving consolidations of
overlapping and redundant operations. While Bancorporation believes that these
anticipated cost reductions are realistic and achievable, no assurance can be
given that the cost reductions, in fact, will be achieved, or will be achieved
within the time frame planned by Bancorporation, or that any cost savings which
are achieved will not be offset by declining revenues or other charges to
earnings. In the event that such cost reductions are not achieved, or are not
achieved within the time frame planned by Bancorporation, there would be a
reduction, which, however, would not be material in amount, in Bancorporation's
anticipated earnings on a combined basis after the Merger. See "SUMMARY."
Immediately after the Effective Time, Bancorporation anticipates that,
subject to the receipt of necessary regulatory approvals, it will merge Great
Northern Savings with and into First National Bank of Ohio, and that this
merger will facilitate the planned consolidation of the operations of
Bancorporation and Great Northern.
REASONS FOR MERGER - GREAT NORTHERN
The terms of the Merger and the Merger Agreement, including the exchange
ratio of 3.7460 shares (subject to adjustment, see "TERMS OF MERGER -
Conversion of Great Northern Capital Stock into Bancorporation Capital Stock")
of Bancorporation Common Stock for each share of Great Northern Common Stock,
were the result of arms-length negotiations between Great Northern and
Bancorporation and their respective representatives. In the course of reaching
its decision to approve the Merger and the Merger Agreement, the Board of
Directors of Great Northern considered numerous factors, including the
following:
(a) Great Northern's prospects in an uncertain future environment for
savings and loan associations;
(b) economic conditions and prospects for the markets in which Great
Northern operates, including competitive pressures in the financial services
industry in general;
(c) the prospect for higher dividends and market liquidity provided by
Bancorporation Common Stock;
(d) the business, results of operations, asset quality, and financial
condition of Bancorporation; and
(e) the opinion rendered by Trident to the effect that, as of September
28, 1993, the Exchange Ratio and Adjusted Exchange Ratio were fair to the
holders of Great Northern Common Stock from a financial point of view. See
"BACKGROUND OF AND REASONS FOR MERGER - Opinion of Great Northern's Financial
Advisor."
16
OPINION OF GREAT NORTHERN'S FINANCIAL ADVISOR
The full text of Trident's opinion dated as of the date of this
Prospectus and Proxy Statement is attached as Appendix B to this Prospectus and
Proxy Statement and is incorporated herein by reference. The description of the
opinion set forth herein is qualified in its entirety by reference to Appendix
B. Great Northern stockholders are urged to read the opinion in its entirety
for a description of the procedures followed, assumptions and qualifications
made, matters considered and limitations undertaken by Trident.
In connection with rendering its opinion, Trident reviewed and analyzed,
among other things, the following: (i) this Proxy Statement and Prospectus;
(ii) the Merger Agreement; (iii) certain publicly available information
concerning Great Northern, including the audited financial statements of Great
Northern for each of the years in the five-year period ended December 31, 1992,
and Great Northern's unaudited financial statements for the nine-month periods
ended September 30, 1992 and 1993; (iv) certain publicly available information
concerning Bancorporation, including the audited financial statements of
Bancorporation for each of the years in the three year period ended December
31, 1992 and Bancorporation's unaudited financial statements for the nine month
periods ended September 30, 1992 and 1993; (v) certain other internal
information, primarily financial in nature, concerning the business and
operations of Great Northern and Bancorporation furnished to Trident by Great
Northern and Bancorporation for purposes of its analysis; (vi) certain
information supplied by Great Northern concerning the limited trading of, and
the limited trading market for, Great Northern Common Stock; (vii) information
with respect to the trading market for Bancorporation Common Stock; (viii)
certain publicly available information with respect to other companies that
Trident believed to be comparable to Great Northern and the trading markets for
such other companies' securities; and (ix) certain publicly available
information concerning the nature and terms of other transactions that Trident
considered relevant to its inquiry. Trident also met with certain officers
and employees of Great Northern and Bancorporation to discuss the foregoing as
well as other matters Trident believed relevant to its inquiry.
In Trident's review and analysis and in arriving at its preliminary
opinion, Trident assumed and relied upon the accuracy and completeness of all
of the financial and other information provided by Bancorporation and Great
Northern, or that is publicly available, and did not attempt independently to
verify any such information. Trident did not conduct a physical inspection of
the properties or facilities of Great Northern or Bancorporation, nor did it
make or obtain any independent evaluations or appraisals of any of such
properties or facilities. Trident did not specifically evaluate
Bancorporation's loan portfolio or the adequacy of Bancorporation's reserve for
possible loan losses.
In conducting the analysis and arriving at its preliminary opinion,
Trident considered such financial and other factors as it deemed
appropriate under the circumstances, including, among others, the following:
(i) the historical and current financial condition and results of operations of
Great Northern and Bancorporation, including interest income, interest expense,
net interest income, net interest margin, interest sensitivity, non-interest
income and expense, earnings, dividends, book value, return on assets, return
on equity, capitalization, the amount and type of non-performing assets and the
reserve for possible loan losses; (ii) the business prospects of Great Northern
and Bancorporation; (iii) the economy in Great Northern's and Bancorporation's
market areas; (iv) the historical and current market for Great Northern Common
Stock and Bancorporation Common Stock and for the equity securities of certain
other companies that Trident believed to be comparable to Great Northern and
Bancorporation; and (v) the nature and terms of certain other acquisition
transactions that Trident believed to be relevant. In addition, Trident
considered the nature and extent of the process employed by Great Northern in
pursuing the possible interest of Bancorporation in the Merger. Trident also
took into account its assessment of general economic, market, financial and
regulatory conditions and trends, as well as its knowledge of the thrift
industry, its experience in connection with similar transactions, and its
knowledge of securities valuation generally. Trident's opinion necessarily was
based upon conditions as they existed and could be evaluated on September 28,
1993, and as of the date of this Prospectus and Proxy Statement.
In connection with the opinion dated as of the date of this Prospectus
and Proxy Statement, Trident performed procedures to update certain of its
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith.
17
The summary contained in this section does not purport to be a complete
description of the presentations by Trident to Great Northern's Board of
Directors or of the analyses performed by Trident. The preparation of a
fairness opinion is not necessarily susceptible to partial analysis or summary
description. Trident believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its analyses,
without considering all analyses, or of the above summary, without considering
all factors and analyses, would create an incomplete view of the processes
underlying the analyses set forth in the Trident report and opinion. In
addition, Trident may have given various analyses more or less weight than
other analyses, and may have deemed various assumptions more or less probable
than other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Trident's view of
the actual value of Great Northern or the combined company. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analyses.
In performing its analyses, Trident made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Great Northern or
Bancorporation. The analyses performed by Trident are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of Trident's analysis of the fairness of
the Exchange Ratio and Adjusted Exchange Ratio to Great Northern's stockholders
from a financial point of view and were provided to the Great Northern Board of
Directors in connection with the delivery of Trident's opinion. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. In addition, as described above, Trident's
opinion and presentation to the Great Northern Board of Directors was one of
many factors taken into consideration by the Great Northern Board of Directors
in making its determination to approve the Merger Agreement.
Trident, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwriting and valuations for corporate
and other purposes. Trident has extensive experience with the valuation of
financial institutions. Great Northern's Board of Directors selected Trident as
its financial advisor because Trident is a nationally recognized investment
banking firm specializing in financial institutions and because of its
substantial experience in transactions similar to the Merger. Trident is not
affiliated with either Great Northern or Bancorporation.
For its services as financial advisor, Great Northern paid Trident a
retainer of $25,000 and a fee of $50,000 upon execution of the Merger
Agreement. An additional fee equal to 1.0% of the aggregate value of the
Merger, less $75,000, will be payable to Trident upon consummation of the
Merger. Great Northern has also agreed to reimburse Trident for its reasonable
out-of-pocket expenses and to indemnify Trident against certain liabilities,
including certain liabilities under federal securities laws.
TRIDENT'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF GREAT NORTHERN
ONLY AND ONLY TO THE EXCHANGE RATIO AND ADJUSTED EXCHANGE RATIO AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY GREAT NORTHERN STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE GREAT NORTHERN SPECIAL MEETING.
RECOMMENDATION OF GREAT NORTHERN'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF GREAT NORTHERN UNANIMOUSLY RECOMMENDS THAT ITS
STOCKHOLDERS VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT. See "TERMS OF
MERGER - Conduct of Great Northern's Business Pending the Merger."
18
TERMS OF MERGER
This portion of the Prospectus and Proxy Statement describes various
aspects of the Merger. The following description does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement
attached hereto as Appendix A and incorporated herein by reference. The
stockholders of Great Northern are urged to read the Merger Agreement in its
entirety.
GENERAL
The Merger Agreement provides that, subject to the satisfaction or waiver
of certain conditions (including, among other things, the adoption of the
Merger Agreement by the stockholders of Great Northern and the receipt of all
necessary regulatory approvals), Great Northern will be merged with and into
Bancorporation at the Effective Time. The separate corporate existence of
Great Northern will cease at the Effective Time, Bancorporation will be the
surviving corporation in the Merger, the subsidiaries of Great Northern will be
merged with subsidiaries of Bancorporation or become subsidiaries of
Bancorporation, and the stockholders of Great Northern will become stockholders
of Bancorporation. See "TERMS OF MERGER - Effective Time."
CONVERSION OF GREAT NORTHERN CAPITAL STOCK INTO BANCORPORATION CAPITAL STOCK
CONVERSION OF GREAT NORTHERN COMMON STOCK. At the Effective Time, each
share of Great Northern Common Stock then issued and outstanding (other than
shares of Great Northern Common Stock (a) owned by Bancorporation for its own
account, (b) held in the treasury of Great Northern, and (c) shares as to
which dissenters' rights have been perfected) will be cancelled and exchanged
for the right to receive 3.7460 shares of Bancorporation Common Stock,
subject to adjustment. If the Average Price exceeds $28,
then the Exchange Ratio will be adjusted to the number equal to the quotient of
104.88, divided by the Average Price. Cash will be paid in lieu of issuing any
fractional share of Bancorporation Common Stock.
If the Average Price is $28 or less and the Exchange Ratio is accordingly
used to determine the number of shares of Bancorporation Common Stock to be
issued in exchange for each common share of Great Northern, the value of the
shares of Bancorporation Common Stock received by Great Northern stockholders
in exchange for each Great Northern share will fluctuate up or down, depending
upon the then current market value of Bancorporation Common Stock. If the
Average Price is $28 or more and the Adjusted Exchange Ratio is accordingly
used, the value of the shares of Bancorporation Common Stock received in
exchange for each share of Great Northern will equal $104.88 and will not
fluctuate.
The following table illustrates the application of the Exchange Ratio and
the Adjusted Exchange Ratio:
[Download Table]
MARKET VALUE OF
BANCORPORATION COMMON
AVERAGE STOCK EXCHANGED FOR EACH
PRICE EXCHANGE RATIO GREAT NORTHERN SHARE
$20 3.7460 $74.92
21 3.7460 78.67
22 3.7460 82.41
23 3.7460 86.16
24 3.7460 89.90
25 3.7460 93.65
26 3.7460 97.40
27 3.7460 101.14
28 3.7460 104.88
--- ---------- ----------
29 3.6168 104.88
30 3.4963 104.88
31 3.3835 104.88
32 3.2778 104.88
19
If the application of the Exchange Ratio or the Adjusted Exchange
Ratio would result in the right to receive a fraction of Bancorporation Common
Stock, cash will be paid by Bancorporation to Great Northern stockholders in
lieu of such fraction. See "TERMS OF MERGER - Conversion of Great Northern
Capital Stock into Bancorporation Capital Stock;" "DESCRIPTION OF
BANCORPORATION CAPITAL STOCK" and "COMPARISON OF BANCORPORATION AND GREAT
NORTHERN CAPITAL STOCK."
NO EFFECT ON BANCORPORATION COMMON STOCK. At the Effective Time, each
share of Bancorporation Common Stock then issued and outstanding will continue
to be one share of Bancorporation Common Stock.
NO FRACTIONAL SHARES OF BANCORPORATION COMMON STOCK TO BE ISSUED. No
fractional shares of Bancorporation Common Stock will be issued in the Merger.
In lieu of fractional shares, each holder of shares of Great Northern Common
Stock who otherwise would have been entitled to a fraction of a share of
Bancorporation Common Stock, upon surrender of his certificates representing
shares of Great Northern Common Stock, will be paid the cash value (without
interest) of such fraction, which will be equal to such fraction multiplied by
the average of the high and low sales prices of Bancorporation Common Stock as
reported on NASDAQ on the trading day immediately preceding the Effective Time.
MANNER OF EXCHANGING GREAT NORTHERN CERTIFICATES FOR BANCORPORATION
CERTIFICATES. Bancorporation has selected First National Bank of Ohio as the
exchange agent (the "Exchange Agent") to effect the exchange of certificates in
connection with the Merger. Promptly after the Effective Time, the Exchange
Agent will mail to each stockholder of record (other than holders of Great
Northern Common Stock who have demanded and perfected dissenters' rights) a
notice advising the holder of the effectiveness of the Merger, accompanied by a
transmittal form (the "Transmittal Form"). The Transmittal Form will contain
instructions with respect to the surrender of certificates representing Great
Northern Common Stock to be exchanged for Bancorporation Common Stock (together
with cash in lieu of any fractional share) and will specify that delivery will
be effected, and risk of loss and title to such certificates will pass, only
upon proper delivery of the certificates to the Exchange Agent.
GREAT NORTHERN STOCK CERTIFICATES SHOULDNOT BE FORWARDED TO THE
EXCHANGE AGENT UNTIL A GREAT NORTHERN STOCKHOLDER HAS RECEIVED A TRANSMITTAL
FORM AND SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY.
RIGHTS OF HOLDERS OF GREAT NORTHERN STOCK CERTIFICATES PRIOR TO
SURRENDER. Upon surrender to the Exchange Agent of certificates representing
shares of Great Northern Common Stock, the holder thereof will be entitled to
receive in exchange therefor a certificate(s) representing the appropriate
number of shares of Bancorporation Common Stock to which such holder is
entitled and cash in lieu of any fractional shares of Bancorporation Common
Stock. Unless and until the certificates representing shares of Great Northern
Common Stock are so surrendered, no dividend or other distribution declared or
payable to holders of record of Bancorporation Common Stock as of any time
subsequent to the consummation of the Merger will be paid to the holder of any
such unsurrendered certificate, and such holder's other rights as a stockholder
of Bancorporation (including, if applicable, the right to vote on any matter
submitted to Bancorporation stockholders for their approval) will be suspended,
unless Bancorporation otherwise consents for such period as it deems
appropriate. Upon surrender of such certificates to the Exchange Agent, the
former Great Northern stockholder will receive certificates representing the
Bancorporation Common Stock into which such stockholder's shares of Great
Northern Common Stock, as the case may be, were converted and the dividends or
other distributions (without interest) that have theretofore become payable
with respect to such Bancorporation Common Stock, and such stockholder's other
rights as a stockholder will thereupon be restored.
LOST CERTIFICATES. Any Great Northern stockholder who has lost or
misplaced a certificate for any of his shares of Great Northern Common Stock
should immediately contact James A. Hall, Secretary, at Great Northern at (216)
753-8411, and a written statement detailing the procedures to be followed for
replacing the lost certificate will be mailed to the stockholder. Until a
replacement certificate is obtained, the Great Northern stockholder will be
unable to properly submit the Transmittal Form.
20
TREATMENT OF STOCK OPTIONS OUTSTANDING UNDER GREAT NORTHERN EMPLOYEE
STOCK OPTION PLANS. As of December 10, 1993, there were unexercised options
outstanding under various employee stock option plans of Great Northern
(collectively, the "Great Northern Option Plans") to purchase 84,000 shares of
Great Northern Common Stock at prices varying from $18.80 to $22.99 per share.
As of that date, all outstanding options to purchase shares of Great Northern
Common Stock were exercisable. See "TERMS OF MERGER - Interests of Great
Northern Executive Officers and Directors." On or before the Effective Time,
it is assumed that all such options under the Great Northern Options Plans will
be exercised by the holders thereof for shares of Great Northern Common Stock.
In the event any of the options are not exercised by the Effective Time, they
will lapse. Under the Merger Agreement, Great Northern has agreed not to grant
additional options under the Great Northern Option Plans without the consent of
Bancorporation.
CONDUCT OF BANCORPORATION'S BUSINESS PENDING THE MERGER
The Merger Agreement requires Bancorporation (including its
subsidiaries) to conduct its business, during the period from the date the
Merger Agreement was signed until the Effective Time, in such a manner so as
not to materially interfere with the ability to consummate the Merger, to
delay the Effective Time or to have a material adverse effect upon the
transaction.
CONDUCT OF GREAT NORTHERN'S BUSINESS PENDING THE MERGER
GENERAL. The Merger Agreement requires Great Northern (including its
subsidiaries) to conduct its business, during the period from the date the
Merger Agreement was signed until the Effective Time, in the ordinary course
substantially consistent with its practices in effect on the date the Merger
Agreement was signed. In addition, the Merger Agreement restricts Great
Northern from engaging in certain transactions during the interim period from
the date the Merger Agreement was signed until the Effective Time, unless
approved in writing by Bancorporation, including, among other things, (a)
amending, repealing, or otherwise modifying the Articles of Incorporation or
Code of Regulations of Great Northern, or comparable organizational documents
of any of the subsidiaries of Great Northern, (b) entering into or increasing
any loan or credit commitment to, or investing or agreeing to invest in, any
person or entity if, after giving effect to such new or increased loan,
commitment or investment, the aggregate loans, commitments and/or investments,
on a consolidated basis, to such person or entity would exceed $250,000 without
first consulting with Bancorporation or, in the case of persons or entities to
which Great Northern and its subsidiaries have outstanding aggregate credit
commitments, loans and/or investments exceeding $250,000, increasing or
agreeing to increase the loan or credit commitment to such persons or entities,
without first consulting with Bancorporation (except that Great Northern and
its subsidiaries may honor contractual obligations in existence on the date of
the Merger Agreement), (c) selling, assigning or disposing of certain of its
significant assets to a third party or purchasing or acquiring certain
significant assets from a third party, (d) entering into any transaction,
agreement, or commitment outside the ordinary course of its business which is
material to Great Northern and its subsidiaries taken as a whole, (e) issuing
or selling any capital stock or other securities (with certain limited
exceptions, including pursuant to the exercise of employee stock options
outstanding on the date of the Merger Agreement), (f) acquiring beneficial
ownership of more than 5% of any class of equity securities of any corporation,
(g) declaring a dividend, except for a regular quarterly cash dividend on Great
Northern Common Stock not in excess of 48c. per share, or (h) adopting or
amending (with certain limited exceptions) any of its employee compensation,
bonus, or benefit plans or increasing the compensation or fringe benefits of
any present or former director, officer, or employee or paying any bonus,
compensation, or benefit not required by any existing plan or arrangement.
NO SOLICITATION OF ALTERNATIVE ACQUISITION TRANSACTIONS. The Board of
Directors of Great Northern is recommending unanimously that the holders of
Great Northern Common Stock vote in favor of adoption of the Merger Agreement
at the Great Northern Special Meeting. Great Northern has agreed that neither
it nor any of its subsidiaries will solicit or initiate any offers from any
other person to acquire Great Northern, any of its subsidiaries, any material
amount of its assets or any of its equity securities.
21
ADDITIONAL GREAT NORTHERN RESERVES, ACCRUALS, CHARGES, AND EXPENSES.
The Merger Agreement provides that Bancorporation and Great Northern will
consult and cooperate with each other prior to the Effective Time (a) to
conform Great Northern's approach to determining the level of the allowance for
loan losses to the approach used by Bancorporation, (b) to determine
appropriate accruals, reserves and charges for Great Northern to establish and
take in respect of excess facilities and equipment capacity, separation and
release costs, write-down or write-off of various assets, and other appropriate
accounting adjustments, taking into account Bancorporation's business plan
following the Merger, and (c) to determine the amount and timing for
recognizing, for financial accounting purposes, the expenses of the Merger and
the restructuring charges related to or to be incurred in connection with the
Merger. Great Northern will, on a basis mutually satisfactory to Great
Northern and Bancorporation, establish and take all such reserves, accruals and
charges and recognize, for financial accounting purposes, such expenses and
charges, provided that all conditions to Bancorporation's and Great Northern's
obligations to consummate the Merger have been satisfied or waived and that
such reserves, accruals and changes are consistent with generally accepted
accounting principles.
The Merger Agreement provides that Bancorporation and Great Northern
will cooperate with each other prior to the Effective Time to conform Great
Northern's approach to determining the level of allowance for loan losses to
the approach used by Bancorporation. The factors that have led Bancorporation
to a determination that an increase in Great Northern's allowance for loan
losses is necessary to conform Great Northern's loan accounting and allowance
policies to those of Bancorporation are (a) differences in plans regarding
ultimate recovery of certain loans, (b) differences in systematic approaches to
loan grading and potential loss content of criticized loans, which is heavily
dependent on underlying economic assumptions, and (c) difference in required
level of unallocated allowance.
It is the objective of Bancorporation and Great Northern that all such
reserves, and a portion of the accruals, charges, and expenses, will be taken
in the 1993 fiscal year or, in all events, not later than immediately prior to
the Effective Time. See "SUMMARY;" "TERMS OF MERGER - Conditions to Merger."
Great Northern is not required to take any such action that is not consistent
with generally accepted accounting principles.
CONDITIONS TO MERGER
CONDITIONS FOR BOTH BANCORPORATION AND GREAT NORTHERN. The
obligations of each of Bancorporation and Great Northern to consummate the
Merger are subject to the fulfillment or waiver of certain conditions,
including, but not limited to, the following significant conditions:
(a) the Merger Agreement shall have been adopted by the requisite vote
of the stockholders of Great Northern;
(b) there shall have been received all necessary approvals of the
transactions contemplated by the Merger Agreement from governmental agencies
(other than immaterial approvals), and such approvals shall not include any
conditions or requirements which, in the reasonable opinion of the Board of
Directors of Bancorporation, would have a Material Adverse Effect (as defined
below) on the anticipated economic and business benefits to Bancorporation,
taken as a whole;
(c) the Registration Statement shall have been declared effective by
the Securities and Exchange Commission and shall not be subject to a stop
order;
(d) Bancorporation shall have received a letter from Bancorporation's
independent auditors, Coopers & Lybrand, stating that, for financial reporting
purposes, the Merger qualifies for pooling-of-interests accounting treatment;
(e) Bancorporation shall have received a written opinion from its
legal counsel as to certain federal income tax consequences of the Merger; and
22
(f) no temporary restraining order, injunction, or other order by any
federal or state court or agency which enjoins or prohibits consummation of the
Merger shall have been issued and remain in effect.
CONDITIONS FOR BANCORPORATION. The obligation of Bancorporation to
consummate the Merger is also subject to the fulfillment or waiver of
additional conditions including, but not limited to, the following:
(a) Great Northern shall have performed in all material respects all
of its obligations contained in the Merger Agreement required to be performed
at or prior to the Effective Time;
(b) the representations and warranties of Great Northern contained in
the Merger Agreement shall be true and correct as of the Effective Time, except
(among other exceptions) as expressly contemplated by the Merger Agreement and
to the extent that the inaccuracy of Great Northern's representations or
warranties, individually or in the aggregate, shall not have a Material Adverse
Effect on Great Northern;
(c) there shall not have been any change in the financial condition,
results of operations, or business of Great Northern and its subsidiaries that
either individually or in the aggregate would have a Material Adverse Effect on
Great Northern, other than as a result of any action taken by Great Northern at
the written request of Bancorporation pursuant to the Merger Agreement to
establish specified additional reserves, accruals, charges, or expenses, and
the consolidated net worth of Great Northern as of December 31, 1993 shall not
be less than $27,400,000, as increased by $450,000 for each full quarter in
1994 before the Effective Time;
(d) the aggregate of the fractional shares and of the shares of the
holders of Great Northern Stock who have taken steps to perfect their rights as
dissenting stockholders shall not be more than 10% of the maximum number of
shares of Bancorporation Common Stock which could be issued in the Merger; and
(e) receipt by Bancorporation of an opinion of Great Northern's legal
counsel.
CONDITIONS FOR GREAT NORTHERN. The obligation of Great Northern to
consummate the Merger is also subject to the fulfillment or waiver of
additional conditions including, but not limited to, the following:
(a) Bancorporation shall have performed in all material respects all
of its obligations contained in the Merger Agreement required to be performed
at or prior to the Effective Time;
(b) the representations and warranties of Bancorporation contained in
the Merger Agreement shall be true and correct as of the Effective Time except
(among other exceptions) as expressly contemplated by the Merger Agreement and
to the extent that the untruthfulness or inaccuracy of Bancorporation's
representations or warranties, individually or in the aggregate, shall not have
a Material Adverse Effect on Bancorporation;
(c) there shall not have been any change in the financial condition,
results of operations, or business of Bancorporation and its subsidiaries that
either individually or in the aggregate would have a Material Adverse Effect on
Bancorporation; and
(d) receipt by Great Northern of an opinion of Bancorporation's legal
counsel.
"Material Adverse Effect" is defined in the Merger Agreement to mean a
material adverse effect (other than as a result of changes (1) in banking laws
or regulations of general applicability or interpretations thereof by courts or
governmental entities, (2) in generally accepted accounting principles, or (3)
that should, under the circumstances, reasonably have been anticipated in light
of disclosures made in certain reports filed with the Securities and Exchange
Commission by Bancorporation prior to the date of the Merger Agreement or in
writings delivered by one party to the other party prior to the date of the
Merger Agreement) on the respective financial condition, results of operations,
or business of Bancorporation and its subsidiaries, or Great Northern and its
subsidiaries, as the case may be, taken as a whole, or on the ability of
Bancorporation or Great Northern, as the case may be, to consummate the
transactions contemplated by the Merger Agreement, provided that the effect of
any action taken by Great Northern, at the written request of Bancorporation
pursuant to the Merger Agreement
23
to establish specified additional reserves, accruals, charges, or expenses
shall not be taken into consideration in determining whether any Material
Adverse Effect has occurred. See "TERMS OF MERGER - Conduct of Great
Northern's Business Pending the Merger."
REGULATORY APPROVALS
Consummation of the Merger is subject to and conditioned upon receipt
by Bancorporation and Great Northern of all necessary and material regulatory
approvals. Approvals must be obtained from the Board of Governors of the
Federal Reserve System ("Federal Reserve"), the Office of the Comptroller of
the Currency ("OCC"), the Office of Thrift Supervision ("OTS"), and the Ohio
Division of Savings and Loan Associations ("Division"). Applications for these
approvals have all been filed, but to date approvals have not been granted by
any of the agencies. The Merger may not be consummated until all of these
regulatory approvals are received and until the 30th day after approval is
received from the later of the Federal Reserve or the OTS.
ACTIONS REQUIRED FOR REGULATORY APPROVAL
MERGER AGREEMENT PROVISIONS. The Merger Agreement provides that each
of Bancorporation and Great Northern shall use its diligent efforts to resolve
any objections asserted with respect to the Merger by the Federal Reserve, the
Department of Justice, any state banking or insurance entity, or any other
governmental entity (including, without limitation, objections under any
antitrust and banking laws). In the event a suit is threatened or instituted
challenging the Merger as violative of the antitrust laws, the Merger Agreement
requires each of Bancorporation and Great Northern to use its diligent efforts
to avoid the filing of, resist, or resolve such suit. Bancorporation and Great
Northern must use their diligent efforts to take such action as may be required
(a) by the Federal Reserve Board, the Department of Justice, any state banking
or insurance authority, or any other governmental entity in order to resolve
such objections as any of them may have to the Merger, or (b) by any Federal or
state court of the United States, in any suit brought by a private party or
governmental entity challenging the Merger as violative of any antitrust laws,
in order to avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order, or other order, which has the effect
of preventing the consummation of the Merger.
DIVESTITURES. Bancorporation does not anticipate that it will be
required to divest assets and deposit liabilities now held by it or by Great
Northern in order to obtain regulatory approvals for the Merger. "TERMS OF
MERGER - Conditions to Merger."
WAIVER OF CONDITIONS, AMENDMENT, OR TERMINATION OF THE MERGER AGREEMENT
WAIVER. The Merger Agreement provides that either Bancorporation or
Great Northern may extend the time for the performance of the obligations of
the other, waive any inaccuracies in the representations or warranties of the
other party contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement, waive compliance with any of the conditions
or covenants of the other party contained in the Merger Agreement, or waive or
modify performance of any of the obligations of the other party under the
Merger Agreement. Notwithstanding these provisions, the Merger cannot be
completed unless the approvals of the Merger by the Federal Reserve, OCC, OTS
and the Division, and certain other regulatory authorities are obtained and
unless the stockholders of Great Northern adopt the Merger Agreement by the
requisite affirmative vote. See "TERMS OF MERGER - Regulatory Approvals" and
"SPECIAL MEETING OF GREAT NORTHERN STOCKHOLDERS - Vote Required."
AMENDMENT. The Merger Agreement may be amended, either before or
after its adoption by the stockholders of Great Northern, upon authorization by
the respective Boards of Directors of Great Northern and Bancorporation. Any
such amendment, however, made subsequent to the adoption of the Merger
Agreement by the stockholders of Great Northern may not (a) alter the amount or
change the form of the consideration contemplated by the Merger Agreement, or
(b) alter or change any of the terms of the Merger Agreement if such alteration
or change would adversely affect the holders of Great Northern Common Stock.
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TERMINATION. The Merger Agreement may be terminated at any time prior
to the consummation of the Merger, whether before or after adoption of the
Merger Agreement by the stockholders of Great Northern, under the following
circumstances:
(a) by the Boards of Directors of each of Bancorporation
and Great Northern;
(b) by the Board of Directors of either Bancorporation or Great
Northern if the Merger shall not have been consummated on or before September
28, 1994;
(c) by the Board of Directors of Great Northern if any of the
conditions to Great Northern's obligation to consummate the Merger have not
been met or waived by Great Northern at such time as such conditions can no
longer be satisfied;
(d) by the Board of Directors of Bancorporation if any of the
conditions to Bancorporation's obligation to consummate the Merger have not
been met or waived by Bancorporation at such time as such conditions can no
longer be satisfied;
(e) by the Board of Directors of either Bancorporation or Great
Northern if any regulatory agency has denied approval of the Merger and neither
Bancorporation nor Great Northern has timely filed a request for
reconsideration or a petition seeking review of such order;
(f) by the Board of Directors of Great Northern if the Average Price
is less than $20.00; or
(g) by the Board of Directors of either Bancorporation or Great
Northern in the event of a material breach by the other party of any
representation, warranty, covenant, or agreement contained in the Merger
Agreement, which breach is not cured as soon as reasonably practicable after
written notice thereof is given to the party committing such breach.
EXPENSES. If the Merger Agreement is terminated by Bancorporation or
Great Northern because of the material breach by the other party of any
representation, warranty, covenant, undertaking, or restriction contained in
the Merger Agreement and if the terminating party is not in material breach of
any representation, warranty, covenant, undertaking, or restriction contained
in the Merger Agreement, then the breaching party shall pay all costs and
expenses of the terminating party; provided, however, that if the Merger
Agreement is terminated under other circumstances, all costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby, will be paid by the party incurring such costs and
expenses. If termination is due to a willful breach, the payment of expenses
pursuant to the Merger Agreement shall not constitute the nonbreaching party's
sole legal remedy.
EFFECTIVE TIME
Upon satisfaction of all conditions under the Merger Agreement that
have not been waived, Bancorporation and Great Northern will file appropriate
certificates with the Secretary of State of the State of Ohio. The Merger will
become effective when such filing has been made, whereupon Bancorporation will
be the surviving corporation and the separate existence of Great Northern will
cease. Delays in the completion of the Merger, however, could occur as a
result of delays in obtaining the necessary regulatory approvals. The Merger
Agreement may be terminated by the Board of Directors of either Bancorporation
or Great Northern, whether before or after approval of the Merger by the
stockholders of Great Northern, at any time on or after September 28, 1994.
If not so terminated by either Board of Directors, the Effective Time
will occur as promptly as practicable after the date all of the conditions to
the Merger are satisfied or duly waived or at such other time and date as
Bancorporation and Great Northern may agree. Bancorporation and Great Northern
currently anticipate that the Merger will be completed during the second
quarter of 1994. See "TERMS OF MERGER - Regulatory Approvals" and "Actions
Required for Regulatory Approval."
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INTERESTS OF GREAT NORTHERN EXECUTIVE OFFICERS AND DIRECTORS IN MERGER
The executive officers and directors of Great Northern have certain
interests in the Merger as a result of certain employment agreements,
compensation plans and indemnification agreements, some of which contain
provisions which are activated upon a "change of control" of Great Northern.
Under such agreements and plans, a change of control either has occurred as a
result of the execution of the Merger Agreement or will occur immediately prior
to or at the Effective Time.
EMPLOYMENT AGREEMENTS WITH SENIOR OFFICERS. Great Northern has entered
into employment agreements with each of Emil A. Voelz, Jr., Frank D. Heckel,
Gerald F. Hawkins, A. Edward Wilcox and Robert M. Critchfield ("Senior
Officers"). Each such employment agreement provides the executive with certain
protection in the event of a change of control of Great Northern. Under these
agreements a change of control of Great Northern occurred on September 28,
1993, as the result of the execution of the Merger Agreement. As a result of
this change of control, each Employment Agreement provides that in the event
that the employment of the Senior Officer is terminated within one year after a
change of control for any reason other than "cause," retirement or upon certain
notice, or his position changes from its present capacity or circumstances, or
there is a material reduction in the Senior Officer's responsibilities,
authority or other benefits, Great Northern is required to pay to the Senior
Officer an amount equal to the total of the present value of the product of
three, multiplied by the Senior Officer's annual salary in effect at the time,
less the costs of providing certain health care and pension benefits. Great
Northern, however, is not obligated to pay any amount which is in excess of the
then maximum amount which it could deduct for federal income tax purposes.
Under the Merger Agreement, Bancorporation has agreed to assume the
payment obligation of Great Northern under each of the employment agreements in
consideration for certain agreements from each of the Senior Officers. These
agreements include the resignation of the Senior Officers as officers and
directors of Great Northern as of the Effective Time, a recognition of certain
noncompetition provisions contained in the employment agreements and a release
of Bancorporation from all claims. In addition, each of the Senior Officers
has agreed to accept the full cash payment required by the employment
agreements and to waive any right to health care and pension benefits. The
maximum aggregate value of the payments under the employment agreements for all
of the Senior Officers is approximately $1,528,000. This value was determined
based on the assumptions that all such Senior Officers' employment would be
terminated, that they would be entitled to the payment as of the Effective
Time, and that all applicable limitations under the Internal Revenue Code would
be imposed.
STOCK OPTION PLANS. The following table sets forth, for each
executive officer of Great Northern as of December 10, 1993, the number of
shares of Great Northern Common Stock subject to options held by the executive
officer under the 1987 Non-Qualified Stock Option Plan and the 1991
Non-Qualified Stock Option Plan:
[Download Table]
1987 Plan 1991 Plan
--------- ---------
Emil A. Voelz, Jr. 11,250 10,000
Frank D. Heckel 5,550 5,460
Gerald F. Hawkins 5,550 5,460
A. Edward Wilcox 5,550 5,460
Robert M. Critchfield 4,200 3,124
James A. Hall 3,300 3,124
Peter G. Geniatakis 3,300 3,124
Jerilynn Ferguson 3,300 3,124
Edward B. Schwiger -0- 3,124
------- -------
42,000 42,000
======= =======
All options were granted at the then fair market value as follows: the
1987 Plan - $18.80 per share; the 1991 Plan - $22.99 per share. Each of the
1987 Plan and 1991 Plan has a provision making all such options vested and
currently exercisable upon a change of control. In the event any of the
options are not exercised prior to the Effective Time, the options will lapse.
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INDEMNIFICATION. The Merger Agreement requires Bancorporation, for a
period of three years after the Effective Time and to the fullest extent
permitted by Ohio law, to indemnify, defend, and hold harmless each person who
was on the date of the Merger Agreement or had been at any time prior to the
date of the Merger Agreement, or who becomes prior to the Effective Time, a
director, officer, trustee, employee or agent of Great Northern or any Great
Northern subsidiary or was serving at Great Northern's request in any such
capacity for any other corporation or entity (collectively, the "Indemnitees")
against any and all Losses (as defined in the Merger Agreement) arising out of,
or relating to, any threatened, pending, or completed claims or other
proceeding, by, on behalf of, in the right of, or against Great Northern or any
of its subsidiaries or their affiliates, or by any present or former
stockholder of Great Northern (collectively, "Claims"), for any Claim which is
based upon, arises out of, or relates to the Merger, this Prospectus and Proxy
Statement, the Merger Agreement, any of the transactions contemplated by the
Merger Agreement, the events leading up to the execution of the Merger
Agreement, any statement, recommendation or solicitation related to the Merger
or Merger Agreement, and any breach of duty in connection with the foregoing.
In 1988 and 1989, Great Northern entered into separate indemnification
agreements with its executive officers and directors. The indemnification
agreements provide that if the party to the agreement acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of Great Northern and if, with respect to any criminal matter, the
party had no reason to believe the conduct was unlawful, Great Northern would
indemnify such party against expenses and amounts paid in connection with
claims related to the services by such party to Great Northern. While the
expenses incurred by the party are to be paid by Great Northern promptly as
incurred by the party, the party must repay such expenses only if unsuccessful
on the merits of the claim and only if either the party failed to cooperate
reasonably with Great Northern concerning the claim or if it is proved by
clear and convincing evidence that the party's actions were taken with a
deliberate intent to cause injury to Great Northern or undertaken with
reckless disregard for the best interest of Great Northern. In accordance with
the Merger Agreement, Bancorporation has agreed to assume the obligations
of Great Northern under the indemnification agreements.
In enforcing their rights under the Merger Agreement, (a) each of the
parties to an indemnification agreement with Great Northern will be entitled to
the procedures and the benefits set forth in such indemnification agreement,
and (b) each of the Indemnitees will be entitled to the procedures and the
benefits available pursuant to Article Sixth of Bancorporation's Amended and
Restated Articles of Incorporation or Ohio law. If a party is covered by both
the Merger Agreement and an indemnification agreement, such party can elect
which form of indemnification such party prefers.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Bancorporation has
agreed to maintain Great Northern's directors and officers' liability insurance
in full force and effect without reduction of coverage for a period of 18
months after the Effective Time.
RELEASE PAY FOR EMPLOYEES OF GREAT NORTHERN
Bancorporation has agreed to provide compensation to any Great Northern
employee who is not employed by Bancorporation or whose employment is
terminated by Bancorporation within 150 days after the Effective Time, unless
the termination of employment is for cause. Payment is conditioned upon
receipt from such person of a release of matters relating to employment and
termination. The amount payable will be calculated as follows: (i) all such
Great Northern employees will receive a minimum of four weeks of salary (net of
taxes), and (ii) all such employees of Great Northern with more than two years
of service will receive two weeks of salary (net of taxes) for each full year
of service up to a maximum payment of 26 weeks of salary. The total payments
under this provision to all such employees, however, cannot exceed $650,000.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Bancorporation will receive an opinion of Brouse & McDowell as of the
Effective Time substantially to the effect that the federal income tax
consequences of the Merger will be as follows:
(a) the Merger will qualify as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
(b) no gain or loss will be recognized by Bancorporation as a result
of the consummation of the Merger,
(c) no gain or loss will be recognized by a stockholder of Great
Northern upon the exchange of the shares of Great Northern Common Stock for
Bancorporation Common Stock (including the Bancorporation Rights) pursuant to
the Merger, except that gain or loss will be recognized by a stockholder of
Great Northern Common Stock on receipt of cash in lieu of a fractional share
interest in Bancorporation Common Stock; and
(d) a stockholder of Great Northern who receives cash in lieu of a
fractional interest in Bancorporation Common Stock will be treated as if the
fractional share were distributed as part of the exchange and then as having
received a cash distribution in redemption of such fractional share, resulting
in gain or loss upon receipt of such cash taxed as provided in Section 302 of
the Internal Revenue Code.
The above tax opinion will be given solely to Bancorporation and will
be based upon certain customary representations and assumptions referred to in
the opinion letter and will be expressly contingent upon satisfaction of the
continuity of interest requirement of the Treasury Regulations. This
requirement will be satisfied if the stockholders of Great Northern receive and
retain Bancorporation Common Stock equal in value, as of the effective date of
the Merger, to at least 50% of the value of all of the formerly outstanding
shares of Great Northern Common Stock, as of that date. The management of
Great Northern has advised Bancorporation that, to the best of its knowledge,
there is no plan or intention on the part of the Great Northern stockholders to
sell, exchange, or otherwise dispose of Bancorporation Common Stock received in
the Merger that would result in failure to satisfy the continuity of interest
requirement. It is a condition to consummation of the Merger that
Bancorporation receive the above tax opinion as of the Effective Time.
In addition, any cash payment to a stockholder who exercises his
dissenter's rights will be a taxable transaction. Any cash payment received by
a dissenting holder of Great Northern Stock who has perfected appraisal rights
in exchange for such holder's shares will be treated as having been received as
a distribution in redemption of such holder's shares the consequences of which
will be determined in accordance with Section 302 of the Internal Revenue Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS BASED UPON CURRENT LAW.
SUCH DISCUSSION MAY NOT BE APPLICABLE TO A GREAT NORTHERN STOCKHOLDER WHO
ACQUIRED SHARES OF GREAT NORTHERN COMMON STOCK PURSUANT TO THE EXERCISE OF A
STOCK OPTION OR OTHERWISE AS COMPENSATION. BECAUSE EACH STOCKHOLDER'S TAX
CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS URGED TO CONSULT HIS OWN TAX
ADVISOR CONCERNING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
STOCKHOLDER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, AND OTHER
TAX LAWS AND ANY PROPOSED CHANGES IN SUCH TAX LAWS.
ACCOUNTING TREATMENT OF MERGER
It is anticipated that the Merger, if completed as proposed, will
qualify as a pooling-of-interests for accounting and financial reporting
purposes. Accordingly, under generally accepted accounting principles, the
assets and liabilities of Great Northern will be combined with those of
Bancorporation and carried forward at book values. In addition, the statements
of operations of Great Northern will be combined with the statements of
operations of Bancorporation on a retroactive basis. The obligation of
Bancorporation to consummate the Merger is conditioned, among other matters,
upon its receipt of a letter from Coopers & Lybrand, independent auditors, that
the Merger will qualify for pooling-of-interests accounting treatment under
generally accepted accounting principles. See "PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS (UNAUDITED)."
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RESALES OF BANCORPORATION COMMON STOCK RECEIVED IN MERGER
The Bancorporation Common Stock that will be issued if the Merger is
consummated will have been registered under the Securities Act and will be
freely transferable, except for shares received by persons, including directors
and executive officers of Great Northern, who may be deemed to be affiliates of
Great Northern, as that term is used in (i) paragraphs (c) and (d) of Rule 145
promulgated under the Rules and Regulations of the Securities Act, and/or (ii)
Accounting Series Releases 130 and 135, as amended, of the Commission.
Affiliates may not sell their Bancorporation Common Stock acquired pursuant to
the Merger, except (x) pursuant to an effective registration statement under
the Securities Act covering those shares, (y) in compliance with Rule 145, or
(z) in the opinion of counsel reasonably satisfactory to Bancorporation,
pursuant to another applicable exemption from the registration requirements of
the Securities Act. This Prospectus and Proxy Statement does not cover any
resales of Bancorporation Common Stock received by affiliates of Bancorporation
or Great Northern. Forms of the agreements of the affiliates of Bancorporation
and Great Northern are set forth as exhibits to the Merger Agreement, which is
attached hereto as Appendix A.
BANCORPORATION'S ARTICLES OF INCORPORATION AND CODE OF REGULATIONS
The Amended and Restated Articles of Incorporation of Bancorporation
currently in effect will be the articles of incorporation of Bancorporation as
the surviving corporation after the Merger. The Code of Regulations of
Bancorporation in effect immediately prior to the Merger will be the
Regulations of Bancorporation after the Merger.
RIGHTS OF DISSENTING STOCKHOLDERS
GREAT NORTHERN STOCKHOLDERS
Holders of Great Northern Common Stock who so desire are entitled to
relief as dissenting stockholders under Section 1701.84 of the Ohio Revised
Code. A stockholder of Great Northern, however, will be entitled to such
relief only if he complies strictly with all of the procedural and other
requirements of Section 1701.85. The following summary does not purport to be
a complete statement of the method of compliance with Section 1701.85 and is
qualified in its entirety by reference to the copy of Section 1701.85 attached
hereto as Appendix D.
A Great Northern stockholder who wishes to perfect his rights as a
dissenting stockholder in the event the Merger Agreement is adopted:
(a) must have been a record holder of the Great Northern Common Stock
as to which he seeks relief as of the date fixed for the determination of
stockholders entitled to notice of the Great Northern Special Meeting;
(b) must not have voted his Great Northern Common Stock in favor of
adoption of the Merger Agreement; and
(c) must deliver to Great Northern, not later than 10 days after the
Great Northern Special Meeting, a written demand for payment of the fair cash
value of the shares as to which he seeks relief. This written demand must
state the name of the stockholder, his address, the number of shares as to
which he seeks relief, and the amount claimed as the fair cash value thereof.
A vote against adoption of the Merger Agreement will not satisfy the
requirements of a written demand for payment as described in clause (c) of the
immediately preceding paragraph. Any written demand for payment should be
mailed or delivered to: Great Northern Financial Corporation, 524 West Park
Avenue, Barberton, Ohio 44203, Attention: James A. Hall. As the written demand
must be delivered within the 10-day period following the Great Northern Special
Meeting, it is recommended, although not required, that a stockholder using the
mails should use certified or registered mail, return receipt requested, to
confirm that he has made a timely delivery.
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If Great Northern sends the dissenting stockholder, at the address
specified in his demand, a request for the certificate(s) representing his
shares, the stockholder must deliver the certificate(s) to Great Northern
within 15 days of the sending of such request. Great Northern may endorse the
certificate(s) with a legend to the effect that the stockholder has demanded
the fair cash value of the shares represented by the certificate(s). Failure
to deliver the certificate(s) within 15 days of the request terminates the
stockholder's rights as a dissenting stockholder. Great Northern must notify
the stockholder of its election to terminate his rights as a dissenting
stockholder within 20 days after the lapse of the 15 day period.
Unless the dissenting stockholder and Great Northern shall agree on
the fair cash value per share of Great Northern Common Stock as to which relief
is sought, either may, within three months after the service of the written
demand by the stockholder, file a petition in the Court of Common Pleas of
Summit County, Ohio. If the court finds that the stockholder is entitled to be
paid the fair cash value of any shares, the court may appoint one or more
appraisers to receive evidence and to recommend a decision on the amount of the
fair cash value.
Fair cash value will be determined as of the day prior to the Great
Northern Special Meeting, will be the amount a willing seller and willing buyer
would accept or pay with neither being under compulsion to sell or buy, will
not exceed the amount specified in the stockholder's written demand, and will
exclude any appreciation or depreciation in market value resulting from the
Merger. The court shall make a finding as to the fair cash value of a share
and render judgment against Great Northern for its payment with interest at
such rate and from such date as the court considers equitable. The costs of
proceedings shall be assessed or apportioned as the court considers equitable.
The rights of any dissenting stockholder will terminate if (a) he has
not complied with Section 1701.85 of the Ohio Revised Code, unless Great
Northern by its Board of Directors waives such failure, (b) Great Northern
abandons or is finally enjoined or prevented from carrying out, or the
stockholders of Great Northern rescind their adoption of, the Merger, (c) the
dissenting stockholder withdraws his written demand, with the consent of Great
Northern by its Board of Directors, or (d) Great Northern and the dissenting
stockholder shall not have agreed upon the fair cash value per share of Great
Northern Common Stock and neither shall have timely filed or joined in a
petition in an appropriate court for a determination of the fair cash value of
the shares. For a discussion of the tax consequences to a stockholder
exercising dissenters' rights, see "TERMS OF MERGER - Certain Federal Income
Tax Consequences."
Because a proxy which does not contain voting instructions will,
unless revoked, be voted for adoption of the Merger Agreement, a Great Northern
stockholder who wishes to exercise his dissenters' rights must either not sign
and return his proxy or, if he signs and returns his proxy, vote against or
abstain from voting on the adoption of the Merger Agreement.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)
The financial information on the following pages presents (a) the
historical combined balance sheets of both Bancorporation and Great Northern at
September 30, 1993 and the pro forma condensed combined balance sheet as of
September 30, 1993, giving effect to the Merger as if it had occurred on that
date; and (b) the historical condensed combined statements of income of both
Bancorporation and Great Northern and the pro forma condensed combined
statements of income for the nine months ended September 30, 1993 and 1992, and
the years ended December 31, 1992, 1991 and 1990, giving effect to the Merger
as if it had occurred at January 1, 1992, 1991 and 1990. THE PRO FORMA
INFORMATION PRESENTED BELOW IS NOT NECESSARILY INDICATIVE OF THE RESULTS WHICH
ACTUALLY WOULD HAVE BEEN OBTAINED IF THE MERGER HAD BEEN CONSUMMATED IN THE
PAST OR WHICH MAY BE OBTAINED IN THE FUTURE.
30
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FIRST BANCORPORATION OF OHIO
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)(1)
SEPTEMBER 30, 1993
(DOLLARS IN THOUSANDS)
GREAT
FIRST NORTHERN PRO FORMA
BANCORPORATION FINANCIAL ADJUSTMENTS PRO FORMA
OF OHIO CORPORATION DR/(CR)(2) COMBINED
--------------- ----------- ---------- ---------
ASSETS
Cash and due from banks $ 206,568 3,532 1,755 211,855
U.S. government and its agencies 945,181 128,410 - 1,073,591
State and municipal obligations 152,579 152,579
Other securities 89,673 13,418 - 103,091
Federal funds sold and securities
purchased under agreement to resell 52,785 600 - 53,385
Loans (net of unearned income) 2,386,956 231,897 - 2,618,853
Less: Allowance for loan and lease
losses (31,169) (576) - (31,745)
Premises and equipment 69,339 1,525 - 70,864
Other assets 83,506 6,423 - 89,929
---------- -------- ------ ----------
Total assets $3,955,418 385,229 1,755 4,342,402
========== ======= ====== =========
LIABILITIES
Non-interest bearing deposits $ 631,632 - - 631,632
Interest-bearing deposits 2,746,834 312,271 - 3,059,105
---------- ------- ------ ---------
Total deposits 3,378,466 312,271 - 3,690,737
Federal funds purchased and securities
sold under agreements to repurchase
and other borrowings 150,395 40,245 - 190,640
Interest, taxes and other liabilities 42,790 5,353 - 48,143
---------- -------- ------ ----------
Total liabilities 3,571,651 357,869 - 3,929,520
---------- ------- ------ ---------
CAPITAL
Shareholders' equity:
Preferred stock - - - -
Common stock 83,043 700 (1,755) 85,498
Retained earnings 300,724 26,660 - 327,384
---------- ------- ------ ---------
Total equity capital 383,767 27,360 (1,755) 412,882
---------- ------- ------ ---------
Total liabilities and equity capital $3,955,418 385,229 (1,755) 4,342,402
========== ======= ====== =========
<FN>
_______________________
(1) The Pro Forma Condensed Combined Balance Sheet assumes the issuance of
1,882,440 shares of First Bancorporation of Ohio Common Stock in exchange
for all of the outstanding shares and outstanding options of Great
Northern Financial Corporation Common Stock. This assumes an exchange
ratio of 3.746 shares of First Bancorporation of Ohio Common Stock for
each share of Great Northern Financial Corporation Common Stock.
(2) Represents cash received from the exercise of Great Northern Financial
Corporation outstanding stock options.
31
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PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30,
1993 1992
--------------------------------- --------------------------------
FIRST GREAT FIRST GREAT
BANCOR- NORTHERN PRO BANCOR- NORTHERN PRO
PORATION FINANCIAL FORMA PORATION FINANCIAL FORMA
OF OHIO CORP COMBINED OF OHIO CORP COMBINED
INTEREST INCOME:
Interest and fees on loans $150,972 13,761 164,733 158,095 15,574 173,669
Interest on investment securities 56,841 6,154 62,995 62,090 6,060 68,150
Interest on federal funds sold 1,824 41 1,865 2,277 228 2,505
-------- ------- ------- -------- ------- -------
Total interest income 209,637 19,956 229,593 222,462 21,862 244,324
-------- ------ ------- ------- ------ -------
INTEREST EXPENSE:
Interest on deposits 68,598 10,352 78,950 85,783 12,276 98,059
Interest on securities sold
under agreements to repurchase
and other borrowings 2,761 2,206 4,967 3,216 2,365 5,581
-------- ------- ------- ------- ------ -------
Total interest expense 71,359 12,558 83,917 88,999 14,641 103,640
-------- ------- ------- ------- ------ -------
NET INTEREST INCOME 138,278 7,398 145,676 133,463 7,221 140,684
Provision for loan losses 5,430 102 5,532 11,619 262 11,881
-------- ------- ------- ------- ------ -------
Net interest income after provision
for loan losses 132,848 7,296 140,144 121,844 6,959 128,803
Other income 41,206 915 42,121 37,446 961 38,407
Other expense 113,185 5,167 118,352 105,899 4,847 110,746
-------- ------- ------- ------- ------ -------
Income before income taxes,
and cumulative effect of
a change in accounting 60,869 3,044 63,913 53,391 3,073 56,464
Income taxes 19,292 885 19,984 16,349 1,034 17,383
-------- ------- ------- ------- ------ -------
Income before cumulative effect
of a change in accounting 41,577 2,159 43,929 37,042 2,039 39,081
Cumulative effect of a change
in accounting - 193 - - - -
-------- ------- ------- ------- ------ -------
Net income $ 41,577 2,352 43,929 37,042 2,039 39,081
======== ====== ======= ======= ====== =======
Net income per common share before
cumulative effect of a
change in accounting - 4.67 - -
======== ==== ====== ======
Net income per common share $ 1.65 5.09 1.47 4.56
======== ==== ==== ====
Pro forma net income per
common share, conversion ratio
of 3.746 $1.62 1.45
===== ====
<FN>
(1) The cumulative effect of a change in accounting for Great Northern
Financial Corporation in 1993 is reclassified in income taxes in the 1993 Pro
Forma Combined column based upon the immateriality of the change.
32
[Enlarge/Download Table]
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------
1992 1991 1990
----------------------------- --------------------------- ----------------------------
FIRST GREAT FIRST GREAT FIRST GREAT
BANCOR- NORTHERN PRO BANCOR- NORTHERN PRO BANCOR- NORTHERN PRO
PORATION FINANCIAL FORMA PORATION FINANCIAL FORMA PORATION FINANCIAL FORMA
OF OHIO CORP COMBINED OF OHIO CORP COMBINED OF OHIO CORP COMBINED
----------------------------------------------------------------------------------------
INTEREST INCOME:
Interest and fees on loans $209,524 20,252 229,776 219,638 24,305 243,943 230,730 25,677 256,407
Interest on investment
securities 82,248 8,178 90,426 88,025 7,115 95,140 82,709 5,069 87,778
Interest on federal funds
sold 3,112 283 3,395 7,910 395 8,305 13,017 600 13,617
-------- -------- --------- ------- ------- -------- ------- ------- -------
Total interest income 294,884 28,713 323,597 315,573 31,815 347,388 326,456 31,346 357,802
------- ------- ------- ------- ------ ------- ------- ------ -------
INTEREST EXPENSE:
Interest on deposits 110,656 16,051 126,707 156,495 19,481 175,976 174,538 20,190 194,728
Interest on securities sold
under agreements to
repurchase and other
borrowings 4,249 3,155 7,404 7,170 3,100 10,270 11,395 2,521 13,916
-------- ------ -------- -------- ------ ------- ------- ------ -------
Total interest expense 114,905 19,206 134,111 163,665 22,581 186,246 185,933 22,711 208,644
------- ------ ------- ------- ------ ------- ------- ------ -------
NET INTEREST INCOME 179,979 9,507 189,486 151,908 9,234 161,142 140,523 8,635 149,158
Provision for loan losses 17,363 294 17,657 11,373 454 11,827 11,659 320 11,979
------- ------ ------- ------- ------ ------- ------- ------ -------
Net interest income
after provision
for loan losses 162,616 9,213 171,829 140,535 8,780 149,315 128,864 8,315 137,179
Other income 50,792 1,159 51,951 44,575 1,121 45,696 38,264 648 38,912
Other expense 140,314 6,476 146,790 130,137 5,993 136,130 121,059 5,687 126,746
-------- ------ ------- ------- ------ ------- ------- ----- -------
Income before income
taxes 73,094 3,896 76,990 54,973 3,908 58,881 46,069 3,276 49,345
Income taxes 22,394 1,323 23,717 15,415 1,340 16,755 11,157 1,172 12,329
-------- ------ ------- ------- ------ ------ ------- ------ -------
Net income $ 50,700 2,573 53,273 39,558 2,568 42,126 34,912 2,104 37,016
======== ====== ======= ======= ====== ======= ======= ====== =======
Net income per common
share $2.02 5.74 1.58 5.88 1.39 5.02
===== ==== ==== ==== ==== ====
Pro forma net income
per common share,
conversion ratio of 3.746 $1.97 1.56 1.37
===== ==== ====
33
BUSINESS OF BANCORPORATION
OVERVIEW
First Bancorporation of Ohio is a bank holding company organized in
1981 under the laws of the State of Ohio and registered under the Bank Holding
Company Act of 1956, as amended. At September 30, 1993, Bancorporation had
total consolidated assets of approximately $3.9 billion and total shareholder
equity of $383.8 million. Although principally a regional banking
organization, Bancorporation's subsidiaries provide a wide range of banking,
fiduciary and financial services to corporate, institutional and individual
customers throughout Northern Ohio and Southern Florida. At September 30,
1993, Bancorporation's subsidiaries operated 141 full service offices and 129
automated teller machines located in 15 counties in the States of Ohio and
Florida.
Bancorporation's principal business consists of owning and supervising
its subsidiaries which primarily operate in Ashtabula, Cuyahoga, Erie, Geauga,
Knox, Lake, Lorain, Medina, Portage, Richland, Stark, Summit and Wayne
Counties, Ohio. Bancorporation directs the overall policies and financial
resources of the subsidiaries, but the day-to-day affairs, including lending
practices, services, and interest rates, are managed by their own officers and
directors, some of whom are also officers and directors of Bancorporation.
Through Bancorp Trust Company, N.A., with its principal office in Naples,
Florida, Bancorporation offers trust services to customers throughout Southern
Florida. FBOH Credit Life Insurance Company was formed in 1985 to engage in
underwriting of credit life and credit accident and health insurance directly
related to the extension of credit by the Banks to their customers. At
September 30, 1993, Bancorporation and its subsidiaries had approximately 2,800
full and part-time employees.
SUBSIDIARIES
Bancorporation's wholly-owned subsidiaries include First National Bank
of Ohio, The Old Phoenix National Bank of Medina, Elyria Savings & Trust
National Bank, The First National Bank in Massillon (collectively, the
"Banks"), Peoples Federal Savings Bank, Peoples Savings Bank, Bancorp Trust
Company, N.A. and FBOH Credit Life Insurance Company (all collectively, the
"Subsidiaries").
In addition to the customary services of accepting funds for deposit
and making loans, Bancorporation's banking subsidiaries provide a wide range of
specialized services tailored to specific markets, including personal and
corporate trust services, personal financial services, cash management services
and international banking services. Bancorporation's subsidiaries which are
savings and loan associations provide demand, savings and time deposit
accounts, consumer and commercial loans, while its non-banking subsidiaries
provide insurance sales services, reinsurance of credit life and accident and
health insurance on loans made by Subsidiary banks, securities brokerage
services, equipment lease financing, and other financial services.
Presented in the following schedule is further specific information
concerning each of the material operating Subsidiaries:
[Download Table]
COUNTIES DATE OF DATE OF TYPE NUMBER
SUBSIDIARY OF ORGANI- AFFILI- OF OF
OPERATION ZATION BUSINESS ATION CHARTER OFFICES
First National Stark, 1947 Commercial 12/31/81 Federal 65
Bank of Ohio Summit, bank with
Cuyahoga trust services
and
Portage
The Old Phoenix Medina 1873 Commercial 12/31/81 Federal 14
National Bank and bank with
of Medina Cuyahoga trust services
Elyria Savings Lorain, 1901 Commercial 12/12/83 Federal 23
& Trust National Cuyahoga bank with
Bank and trust services
Erie
34
[Download Table]
Peoples Federal Knox, 1892 Savings 10/26/88 Federal 12
Savings Bank Medina, Association
Richland,
Summit
and Wayne
The First Stark 1933 Commercial 3/21/89 Federal 8
National Bank bank with
in Massillon trust services
Bancorp Trust Collier 1990 National 2/17/90 Federal 2
Company, N.A. and Lee, Trust
Florida Company
Peoples Savings Ashtabula, 1890 Savings 9/30/90 State 17
Bank Geauga, and Lake Association
Each Bank is engaged in commercial banking in its respective
geographical market. Commercial banking includes the acceptance of demand,
savings and time deposits and the granting of commercial and consumer loans for
the financing of both real and personal property. Other services include
automated banking programs, credit cards, the rental of safe deposit boxes,
letters of credit, leasing, discount brokerage and credit life insurance. The
Banks also operate trust departments which offer estate and trust services.
Each Bank offers its services primarily to consumers and small and medium size
businesses in its respective geographical market. None of the Banks are
engaged in lending outside the continental United States. None of the Banks
are dependent upon any one significant customer or a specific industry.
Peoples Federal Savings Bank and Peoples Savings Bank operate as
savings associations in their geographical markets. As savings associations,
their business includes the acceptance of demand, savings and time deposit
accounts and the granting of consumer and commercial loans primarily secured by
real property. Peoples Federal Savings Bank and Peoples Savings Bank offer
their services principally to consumers and small businesses located in their
geographical markets. They are not engaged in lending outside the continental
United States and are not dependent upon any one significant customer or a
specific industry. Bancorporation has filed applications with the necessary
regulatory agencies to convert both Peoples Federal Savings Bank and Peoples
Savings Bank from federal and state savings associations, respectively, to
national banks. Bancorporation believes the necessary approvals will be
received in early 1994.
Bancorp Trust Company, N.A. is engaged in providing personal trust
services in its geographical markets. These services include acting as trustee
in personal trusts, custodial and investment agency services, guardianships and
service as personal representative in decedent estates.
COMPETITION
The market for banking and bank-related services is highly competitive.
Bancorporation and its Subsidiaries compete with other providers of financial
services such as other bank holding companies, commercial banks, savings and
loan associations, consumer and commercial financing companies, equipment
leasing companies, credit unions, money market funds, insurance companies and a
growing list of other local, regional, and national institutions that offer
financial services. Mergers between financial institutions within Ohio and in
neighboring states have added competitive pressure. Bancorporation competes by
offering quality and innovative services at competitive prices.
OTHER ACQUISITIONS
Bancorporation is engaged on a regular basis in discussions concerning
possible acquisitions of other financial institutions.
35
BUSINESS OF GREAT NORTHERN
Incorporated under Ohio law in 1984, Great Northern is registered as a
savings and loan holding company under the Home Owners' Loan Act of 1933, as
amended. The principal subsidiary of Great Northern is Great Northern Savings
Co., a savings and loan association incorporated under Ohio law in 1916 ("Great
Northern Savings"). The business activity of Great Northern is limited
primarily to the ownership of all of the outstanding shares of Great Northern
Savings.
The only other subsidiary of Great Northern is GN Financial Services
Agency, Inc. ("GN Financial"), an Ohio corporation which is an insurance
agency licensed by the Ohio Department of Insurance. GN Financial is
authorized to sell life, accident and variable insurance products. In order to
meet the regulatory requirements of the Ohio Department of Insurance, one
voting share of GN Financial is held by Emil A. Voelz, Jr., the Chairman
and President of Great Northern. All of the remaining outstanding shares of
GN Financial are owned by Great Northern.
Great Northern Savings principally is engaged in the business of making
permanent first mortgage loans secured by residential or other real property.
Loan funds are obtained primarily from savings deposits, loan repayments and
borrowings from the Federal Home Loan Bank ("FHLB") of Cincinnati. The deposit
accounts at Great Northern Savings are insured by the Savings Association
Insurance Fund ("SAIF") of the FDIC. Great Northern Savings is subject to
regulation, examination and oversight by the FDIC, as well as by the Division
and OTS.
Great Northern Savings conducts business from eleven full service
offices located in northeast Ohio. As of September 30, 1993, Great Northern
Savings and its subsidiary employed approximately 125 full and part-time
employees.
LENDING
The revenue of Great Northern Savings consists primarily of interest
income generated by lending activities, including the origination of
conventional fixed-rate and variable-rate mortgage loans for the construction
or acquisition of single-family homes located in the primary market area of
Great Northern Savings. Construction and permanent mortgage loans on
condominiums and on multi-unit and commercial properties are also offered by
Great Northern Savings. In addition to mortgage lending, Great Northern
Savings makes consumer loans, including loans secured by deposit accounts,
automobiles and mobile homes as well as home equity and home improvement loans.
36
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The following table presents certain information on the composition of
Great Northern Savings' loan and mortgage-backed securities portfolio at the
dates indicated:
AT SEPTEMBER 30, AT DECEMBER 31,
----------------------------------------- -----------------------------------
1993 1992 1992 1991
-------------------- ------------------ --------------- -----------------
PERCENT PERCENT PERCENT PERCENT
OF TOTAL OF TOTAL OF TOTAL OF TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
(DOLLARS IN THOUSANDS)
Type of loan:
Residential real estate loans:
Interim construction loans $ 13,445 3.68% 5,704 1.67% 8,161 2.24% 5,804 1.80%
Permanent loans 189,215 51.77 177,601 52.02 173,826 47.70 194,070 60.21
Nonresidential real estate
loans 30,431 8.33 22,177 6.49 24,147 6.62 20,218 6.27
Mortgage-backed securities 134,164 36.71 130,576 38.24 155,729 42.73 94,134 29.21
Consumer loans 10,974 3.00 10,930 3.20 10,293 2.82 12,251 3.80
Less:
Loans in process 12,193 3.34 5,059 1.48 6,993 1.92 3,706 1.15
Deferred loan origination
fees (25) (.01) 74 .02 174 .05 30 .01
Allowance for loan losses 576 .16 402 .12 502 .14 432 .13
--------- -------- -------- -------- -------- -------- -------- --------
Total loans and mortgage-
backed securities $365,485 100.00% 341,453 100.00% 364,487% 00.00 322,309 100.00%
Type of security: ========= ======== ======== ======== ======== ======== ======== ========
Residential real estate:
1-4 family $321,187 87.88% 298,698 87.47% 322,659 88.54% 278,361 86.37%
Other dwelling units 15,637 4.28 15,183 4.45 15,057 4.13 15,647 4.85
Nonresidential real estate 30,431 8.33 22,177 6.49 24,147 6.62 20,218 6.27
Deposit accounts 344 .09 395 .12 372 .10 617 .19
Other 10,630 2.91 10,535 3.09 9,921 2.72 11,634 3.61
Less:
Loans in process 12,193 3.34 5,059 1.48 6,993 1.92 3,706 1.15
Deferred loan origination
fees (25) (.01) 74 .02 174 .05 30 .01
Allowance for loan losses 576 .16 402 .12 502 .14 432 .13
--------- -------- -------- -------- -------- -------- -------- --------
Total loans and mortgage-
backed securities $365,485 100.00% 341,453 100.00% 364,487 100.00% 322,309 100.00%
========= ======== ======== ======== ======== ======== ======== ========
The loan portfolio of Great Northern Savings is comprised primarily of
first mortgage loans secured by one- to four-family residences. To a limited
extent, Great Northern Savings also originates loans on two- to four-family
residences and multifamily housing (over four) units. Each of the residential
loans is secured by a mortgage on the underlying real estate and improvements
thereon.
In accordance with OTS regulations, Great Northern Savings makes
residential loans in an amount up to 95% of the value of the real estate and
improvements (the "Loan-to-Value Ratio" or "LTV"). Although permitted by OTS
regulations, Great Northern Savings generally does not originate residential
loans in an amount over an 80% LTV. For those occasions when loans with LTVs
in excess of 80% are originated, the borrower must obtain private mortgage
insurance.
In addition to fixed rate mortgage loans for terms up to 30 years,
Great Northern Savings offers adjustable-rate residential loans ("ARMs") for
terms up to 30 years. The interest rate adjustment periods on the ARMs are
generally one or three years. The maximum adjustment at each adjustment date
is usually 2%, with a maximum adjustment of 6% over the term of the loan. The
interest rate adjustments on ARMs presently originated by Great Northern
Savings are tied to changes in various indices acceptable to the OTS. Of the
total residential loans of Great Northern Savings outstanding at September 30,
1993, approximately $114.3 million, or 56.1%, were ARMs and approximately $89.3
million, or 43.9%, were fixed-rate loans.
37
Great Northern Savings also offers construction loans to individuals
for financing the construction of single-family residences to be occupied by
the borrower and to professional home builders who intend to sell the dwellings
upon completion of construction. Each of such construction loans is secured by
a mortgage on the real estate on which the dwelling is to be constructed, as
well as on the dwelling under construction. The total construction loan
portfolio of Great Northern Savings at September 30, 1993, equalled
approximately $23.7 million and represented approximately 10.1% of total
outstanding loans.
Construction loans are offered for a term which corresponds to the
proposed construction period. Such period usually spans nine to 12 months.
Interest rates on construction loans are both adjustable and fixed. Of the
total construction loans of Great Northern Savings at September 30, 1993,
approximately $11.2 million, or 47%, were ARMs, and approximately $12.5
million, or 53%, were fixed rate loans.
Great Northern Savings also makes loans secured by nonresidential real
estate. Such loans are secured by developed building lots on which the
borrowers intend to construct residences or by commercial properties. The
total nonresidential real estate loans of Great Northern Savings equalled $30.4
million at September 30, 1993, and represented approximately 13.01% of total
outstanding loans. Of such total nonresidential real estate loans,
approximately $7.3 million, or 23.94%, consisted of developed building lot
loans and the remainder were loans secured by commercial real estate. Of the
total nonresidential real estate loans at September 30, 1993, approximately
$28.7 million, or 94.2%, were adjustable-rate loans and $1.8 million, or 5.8%,
were fixed rate loans.
A savings association's investment in nonresidential real estate loans
is limited to 400% of the association's capital. At September 30, 1993, the
total nonresidential real estate loans of Great Northern Savings were well
below the 400% limit.
Great Northern Savings makes various types of consumer loans, including
loans made to depositors on the security of their savings deposits, loans made
for the purchase of automobiles and boats and home improvement and unsecured
loans. Ohio law limits the total investments by a savings association in
consumer and certain other types of loans to 20% of the association's assets.
At September 30, 1993, the total consumer loans of Great Northern Savings
equalled approximately $11 million, or 4.75% of total outstanding loans and
2.87% of Great Northern Savings' total assets. Consumer loans are made with
fixed rates of interest for terms of up to fifteen years.
The aggregate amount of loans which Great Northern Savings may make to
any one borrower (including related entities), with certain exceptions, is
limited in general to 15% of the unimpaired capital and unimpaired surplus
(collectively, "Unimpaired Capital") of Great Northern Savings and an
additional 10% of Unimpaired Capital if the additional amount is secured by
certain forms of "readily marketable collateral." Real estate is not "readily
marketable collateral." The largest amount which Great Northern Savings could
have loaned to one borrower under this formula based on its unimpaired capital
at September 30, 1993, was $6,367,000. The largest amount which Great Northern
Savings had outstanding to one borrower at such date was approximately
$3,500,000.
ORIGINATIONS AND SALES
Great Northern Savings sells some of the mortgage loans which it
originates. The loans are either sold in their entirety ("Whole Loans") or in
part ("Participations"), without recourse, to one or more purchasers for the
purpose of providing additional funds for lending and reducing the risk
resulting from concentration. When Whole Loans or Participations are sold,
Great Northern Savings generally continues to service the loans by collecting
periodic payments of principal, interest, taxes and insurance from mortgagors
and by remitting appropriate amounts to the loan purchaser. As a fee for its
loan servicing activities, Great Northern Savings retains a certain portion of
the interest paid on each Whole Loan or Participation which has been sold.
The sale of Whole Loans and Participations has enabled Great Northern
Savings to reduce its dependence on savings deposits as a source of funds for
mortgage lending. Accordingly, Great Northern Savings has, to a limited
extent, decreased its exposure to the adverse affect of the rapid change in
short-term deposit interest rates on its average cost of funds. In addition,
the retention of a servicing fee in connection with the sale of Whole Loans and
Participations increases Great Northern Savings' income without a corresponding
commitment of assets.
38
The following table presents Great Northern Savings mortgage loan
origination, purchase and sale activity for the periods indicated:
[Enlarge/Download Table]
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ---------------------------
1993 1992 1991
---- ---- ----
(DOLLARS IN THOUSANDS)
Loans originated:
Construction $16,487 16,151 8,182
1- to 4-family 42,301 26,061 10,094
5 or more units 142 1,645 868
Nonresidential real estate 6,111 1,821 3,908
Consumer loans 3,644 2,706 5,816
Total loans originated ------- ------- -------
$68,685 48,384 28,868
======= ======= =======
Loans and mortgage-backed
securities purchased: $ 2,268 8,229 7,399
Loans insured, guaranteed or
collateralized mortgage-backed
securities 48,932 112,899 74,522
------- ------- -------
Total loans and mortgage-
backed securities purchased $51,200 121,128 81,921
======= ======= =======
Loans and mortgage-backed securities
sold:
Residential real estate loans $ - 3,071 4,592
Mortgage-backed securities - - 11,053
------- ------- -------
Total loans and mortgage-
backed securities sold $ - 3,071 15,645
======= ======= =======
DELINQUENT LOANS, NON-PERFORMING ASSETS AND CLASSIFIED ASSETS
When a borrower fails to make a required payment on a loan, Great
Northern Savings attempts to cause the deficiency to be cured by contacting the
borrower. In most cases, deficiencies are cured promptly.
For mortgage loans, a notice is mailed to the borrower after a payment
is 15 days past due. A late penalty or default interest is assessed either 15
or 30 days after the due date depending upon the provisions of the specific
promissory note. After a payment is 20 days past due, the Loan Service
Department of Great Northern Savings will contact the borrower by telephone and
letter. After payment is 60 days past due, Great Northern Savings sends the
borrower a demand letter, if required by the promissory note. When a loan
becomes delinquent more than 60 days, a field call and inspection of the
security is performed. If the inspection indicates that the value of the
collateral is less than the book value of the loan, a valuation allowance is
established for such loan.
When deemed appropriate by management, Great Northern Savings
institutes action to foreclose on the real estate. A decision as to whether
and when to initiate foreclosure proceedings is based on such factors as the
amount of the outstanding loan in relation to the original indebtedness, the
extent of the delinquency and the borrower's ability and willingness to
cooperate in curing delinquencies. If a foreclosure occurs, the real estate is
sold at public sale and may be purchased by Great Northern Savings.
Real estate acquired, or deemed acquired, by Great Northern Savings as
a result of foreclosure proceedings is classified as real estate owned ("REO")
until it is sold. When property is so acquired, or deemed to have been
acquired, it is recorded by Great Northern Savings at the lower of the book
value of the related loan or the estimated fair value of the real estate at the
date of acquisition, and any write-down resulting therefrom is charged to the
book balance of the property. Interest accrual ceases the earlier of the date
the loan becomes 90 days past due or upon the acquisition of the real estate,
and all costs incurred from such date in maintaining the property, are
expensed. Costs relating to the development and improvement of the property
are capitalized to the extent of net realizable value.
39
In the case of delinquencies on consumer loans, the borrower is
contacted after a payment is ten days past due and a late penalty is assessed.
When a consumer loan secured by an automobile or other collateral becomes more
than 60 days past due, an estimate is made of the value of the collateral. If
the estimate of value indicates that the value of the collateral is less than
the book value of the loan, a specific allowance for loss is established.
The following table reflects the amount of loans in a delinquent status
as of the dates indicated:
[Enlarge/Download Table]
SEPTEMBER 30, 1993 DECEMBER 31, 1992
--------------------------------- -----------------------------------
PERCENT PERCENT
OF TOTAL OF TOTAL
NUMBER AMOUNT LOANS NUMBER AMOUNT LOANS
------ ------ -------- ------ ------ ---------
(DOLLARS IN THOUSANDS)
Loans delinquent for (1):
30 - 59 days 39 $1,117 .48% 60 1,784 .84%
60 - 89 days 7 272 .12 8 572 .27
90 days and over 22 976 .42 32 1,988 .94
-- ------ ---- ----- ------- ------
Total delinquent loans 68 $2,365 1.02% 100 4,344 2.05%
== ====== ==== ===== ======= ======
<FN>
______________________
(1) The number of days a loan is delinquent is measured from the day the
payment was due under the terms of the loan agreement.
When any loan is delinquent 90 days or more, Great Northern Savings
ceases to accrue interest on the loan. Unsecured consumer loans are charged
off when they have been delinquent 120 days.
The following table sets forth information with respect to the accrual
and non-accrual status of Great Northern Savings' loans which are 90 days or
more past due and other non-performing assets at the dates indicated:
[Enlarge/Download Table]
AT SEPTEMBER 30, AT DECEMBER 31,
---------------- -------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
Loans accounted for on a
non-accrual basis:
Residential real estate $ 879 1,918 451
Consumer 81 61 14
------ ----- -----
Total non-accrual loans 960 1,979 465
Other non-performing assets (1) 3,997 3,859 6,005
------ ----- -----
Total non-performing assets $4,957 5,838 6,470
====== ===== =====
Total non-performing assets
as a percentage of total assets 1.29% 1.51% 1.84%
Specific loan loss allowance $ - 2 88
General loan loss allowance (unallocated
as to any specific loan type) 576 500 345
------ --- ---
Total loan loss allowance $ 576 502 433
====== === ===
Loan loss allowance as a percent
of non-accrual loans 60.00% 25.37% 93.12%
Loan loss allowance as a percent
of non-performing assets 11.62% 8.60% 6.69%
<FN>
_________________
(1) Other non-performing assets represent real estate acquired by Great
Northern Savings through foreclosure, which is carried at the lower of the fair
value of the real estate or the unpaid principal balance of the loan at the
date of foreclosure, not to exceed net realizable value. Loans which have been
restructured are also included.
During the nine-month period ended September 30, 1993, approximately
$303,000 of interest income would have been recorded on non-accruing loans had
such loans been accruing. There are no loans which are not currently
classified as non-accrual, 90 days past due or restructured that management
believes may be so classified in the near future because of concerns as to the
ability of the borrowers to comply with repayment terms.
40
OTS regulations require that each savings association classify its own
assets on a regular basis. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the insured association
will sustain some loss if the deficiencies are not corrected. "Doubtful"
assets have the same weaknesses as "substandard" assets, with the additional
characteristics that (i) the weaknesses make collection or liquidation in full
on the basis of currently existing facts, conditions and values questionable
and (ii) there is a high possibility of loss. An asset classified "loss" is
considered uncollectible and of such little value that its continuance as an
asset of the association is not warranted. The regulations also contain a
"special mention" category, consisting of assets which do not currently expose
an association to a sufficient degree of risk to warrant classification but
which possess credit deficiencies or potential weaknesses deserving
management's close attention.
Generally, Great Northern Savings classifies, at least as
"substandard," all loans that are delinquent more than 60 days, unless
management believes the delinquency status is short-term due to unusual
circumstances. Loans delinquent fewer than 60 days may also be classified if
the loans have the characteristics described above rendering classification
appropriate. Most loans classified as substandard solely because they are
delinquent more than 60 days do not become 90 days past due and therefore are
not included as non-accruing loans.
[Enlarge/Download Table]
The aggregate amounts of the classified assets of Great Northern
Savings at the dates indicated were as follows:
AT SEPTEMBER 30, AT DECEMBER 31,
---------------- -------------------------------
1993 1992 1991
-------- -------- --------
(DOLLARS IN THOUSANDS)
Classified assets
Substandard $4,948 6,344 7,810
Doubtful - - -
Loss 462 439 1,695
------- ----- -----
Total classified assets $5,410 6,783 9,505
====== ===== =====
Federal examiners are authorized to classify a savings association's
assets. If a savings association does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS. Great Northern Savings had no disagreements with the
examiners regarding the classification of assets at the time of the last
examination.
OTS regulations require that Great Northern Savings establish prudent
general allowances for loan losses inherent in its portfolio. If an asset, or
portion thereof, is classified as loss, the association must either establish
specific allowances for losses in the amount of 100% of the portion of the
asset classified loss, or charge off such amount.
ALLOWANCE FOR LOAN LOSSES
Senior management, with oversight provided by the Board of Directors,
reviews on a monthly basis the allowance for loan losses as it relates to a
number of relevant factors, including but not limited to, trends in the level
of non-performing assets and classified loans, current and anticipated economic
conditions in the primary lending area, past loss experience and possible
losses arising from specific problem assets. To a lesser extent, management
also considers loan concentrations to single borrowers and changes in the
composition of the loan portfolio. While management believes that it uses the
best information available to determine the allowance for loan losses,
unforeseen market conditions could result in adjustments, and net earnings
could be significantly affected if circumstances differ substantially from the
assumptions used in making the final determination. At September 30, 1993, the
allowance for loan losses totalled $575,842.
41
The following table sets forth an analysis of Great Northern Savings'
allowance for losses on loans for the periods indicated.
[Enlarge/Download Table]
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -------------------------
1993 1992 1991
---- ------ -----
(DOLLARS IN THOUSANDS)
Balance at beginning of period: $502 433 755
Loans charged-off:
Residential real estate (29) (223) (753)
Consumer - (2) (23)
----- ------ -----
Total charge-offs (29) (225) (776)
Recoveries - - -
Provision for possible loan losses 103 294 454
---- --- ---
Balance at end of period $576 502 433
==== === ===
Ratio of net charge-offs to average
loans outstanding during the period .01% .10% .32%
INVESTMENTS
OTS regulations require that Great Northern Savings maintain a minimum
amount of liquid assets, which may be invested in U.S. Treasury obligations,
securities of various federal agencies, certificates of deposit at insured
banks, bankers' acceptances and federal funds. Great Northern Savings is also
permitted to make investments in certain commercial paper, corporate debt
securities rated in one of the four highest rating categories by one or more
nationally recognized statistical rating organizations, and mutual funds, as
well as other investments permitted by federal regulations.
The following table sets forth the composition of Great Northern
Savings' interest-bearing deposits and investment portfolio at the dates
indicated:
[Enlarge/Download Table]
AT SEPTEMBER 30, 1993 AT DECEMBER 31, 1992
------------------------------- -------------------------
BOOK PERCENT BOOK PERCENT
VALUE OF TOTAL VALUE OF TOTAL
----- -------- ----- --------
(DOLLARS IN THOUSANDS)
Interest-bearing deposits with
other financial institutions $ 600 7.3% 900 8.0%
Municipal Bonds - - 60 0.5
U.S. Government and agency
obligations 5,304 64.2 7,224 64.1
FHLB stock 2,359 28.5 3,092 27.4
----- ---- ----- ------
Total interest-bearing
deposits, investment securities
and FHLB stock $8,263 100.0% 11,276 100.0%
====== ====== ====== ======
DEPOSITS AND BORROWINGS
Deposits have traditionally been the primary source of Great Northern
Savings' funds for use in lending and other investment activities. See footnote
no. 8 to the Great Northern Financial Corporation Consolidated Financial
Statements attached hereto as Appendix E. In addition to deposits, Great
Northern Savings derives funds from interest payments and principal repayments
on loans and income on earning assets. Loan payments are a relatively stable
source of funds, while deposit inflows and outflows fluctuate more in response
to general interest rates and money market conditions. Borrowings from other
financial institutions have been used on a short-term basis to compensate for
reductions in the availability of funds and from other sources or on a longer
term basis for general business purposes.
The FHLB system functions as a central reserve bank providing credit for
its member institutions and certain other financial institutions. As a member
in good standing of the FHLB of Cincinnati, Great Northern Savings is
authorized to apply for advances from the FHLB of Cincinnati, provided certain
standards of creditworthiness and certain collateralization requirements have
been met. Advances are made pursuant to several different programs,
42
each having its own interest rate and range of maturities. Depending on the
program, limitations on the amount of advances are based either on a fixed
percentage of an institution's regulatory capital or on the FHLB's assessment
of the institution's creditworthiness. Under current regulations, a savings
association must meet certain qualifications to be eligible for FHLB advances.
SUBSIDIARIES
Great Northern Savings has one subsidiary, G.N.S. Corporation, an Ohio
corporation formed as a holding and management company for real estate owned by
Great Northern Savings ("GNS"). As of September 30, 1993, GNS did not own or
hold any real estate or other property and is currently inactive.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF GREAT NORTHERN'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Through Great Northern Savings, Great Northern is primarily engaged in
the business of attracting savings deposits from the general public and
investing such funds in permanent mortgage loans secured by one- to four-family
residential real estate located primarily in Summit, Medina and Wayne Counties,
Ohio. Great Northern also originates loans for the construction of one- to
four-family residential real estate and loans secured by multifamily real
estate (over four units) and by nonresidential real estate. In addition, Great
Northern invests in U.S. Government obligations, interest-bearing deposits,
certificates of deposit in other financial institutions, mortgage-backed
securities and other investments permitted by applicable law.
Great Northern's profitability is primarily dependent upon its net
interest income, which is the difference between interest income on its loan
and investment portfolios and interest paid on deposits and borrowed funds.
Net interest income is directly affected by the relative amounts of
interest-earning assets and interest-bearing liabilities of Great Northern and
the interest rates earned or paid on such amounts. Great Northern's
profitability is also affected by the provision for loan losses and the level
of other income and operating and other expenses. Income other than interest
consists primarily of service charges, loan fees and commissions on annuity
sales. Operating and other expenses primarily include salaries and employees
benefits, occupancy of premises, federal deposit insurance premiums and state
franchise taxes.
The operating results of Great Northern are also affected by general
economic conditions, the monetary and fiscal policies of federal agencies and
the policies of the agencies which regulate financial institutions. Great
Northern's interest expense is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by the demand for real estate loans and other types of loans, which
is in turn affected by the interest rates at which such loans are made, general
economic conditions affecting loan demand and the availability of funds for
lending activities.
CHANGES IN FINANCIAL CONDITION
SEPTEMBER 30, 1993, COMPARED TO DECEMBER 31, 1992
At September 30, 1993, the total assets of Great Northern equalled
$385.2 million, a $2.2 million, or .56%, decrease from the $387.4 million in
total assets at December 31, 1992.
Net first mortgage loans were $220.3 million at September 30, 1993, a
$21.9 million, or 11.03%, increase from the $198.5 million in net first
mortgage loans at December 31, 1992. Such increase was offset during the nine
month period by a decrease of $21.6 million in mortgage- backed securities.
Management utilized unusually high mortgage-backed securities repayments during
the period to fund record loan demand. In addition, due to a low dividend
yield, a block of FHLB stock in excess of the minimum investment required was
sold, causing a decrease of $732 thousand in the amount of FHLB stock held.
43
At September 30, 1993, Great Northern's allowance for loan losses
totaled $576 thousand, an increase of $74 thousand from such allowance at
December 31, 1992. The September 30, 1993, allowance for loan losses was .25%
of total loans and 10.65% of the $5.4 million in internally classified assets
at September 30, 1993. Classified assets at December 31, 1992, were $6.8
million.
Deposits decreased by $5.5 million, or 1.74%, from $317.8 million to
$312.3 million, during the nine months ended September 30, 1993, as depositors
sought alternative investments to replace maturing certificates of deposit
which would otherwise have been renewed at much lower prevailing interest
rates. The deposit mix also changed, with savings accounts increasing $2.4
million, or 2.82%, while demand accounts and certificates of deposit decreased
$2.1 million, or 5.49%, and $5.7 million, or 2.91%, respectively, during the
nine month period. Accrued expenses and other liabilities increased $1.6
million, or 63.42%, from $2.6 million to $4.2 million, primarily due to accrued
interest on deposits which were only credited semiannually.
DECEMBER 31, 1992, COMPARED TO DECEMBER 31, 1991
At December 31, 1992, the total assets of Great Northern equalled
$387.4 million, a $36.6 million, or 10.43%, increase from the $350.8 million in
total assets at December 31, 1991. Generally, the increase in assets was
attributable to the purchase of two branch offices.
Net first mortgage loans decreased $17.5 million, or 8.09%, from
$215.9 million to $198.5 million during the year ended December 31, 1992, while
mortgage-backed securities increased $61.6 million, or 65.43%, during the
period. The decrease in net first mortgage loans was primarily due to
management's decision during the first eight months of 1992 to sell the
majority of fixed rate residential loans originated during the period to avoid
undue exposure to rising interest rates. Cash inflows in excess of the amounts
needed to fund loan originations were invested primarily in collateralized
mortgage obligations with the expectation that repayments on such securities
would be used to fund future loan demand. For the balance of 1992, management
decided that the sale of additional fixed rate residential mortgage loans
originated was unnecessary to manage Great Northern's interest rate risk.
During the year ended December 31, 1992, Great Northern sold two real
estate owned properties. As a result of such sales, real estate owned
decreased from $5.5 million to $3 million, or 44.63%.
Deposits increased $29.9 million, or 10.39%, from $287.9 million to
$317.8 million during the year ended December 31, 1992. Of such increase,
$16.1 million, or 5.59%, was attributable to the purchase of the two branch
offices. In addition, the deposit mix changed, with savings and demand
accounts increasing $38.3 million, or 45.93%, from $83.5 million to $121.6
million and with certificates of deposit decreasing $8.4 million, or 4.12%,
from $204.6 million to $196.2 million. The change in such mix was partially
attributable to the branch purchases and to depositor reluctance to invest for
longer terms at the low prevailing interest rates. Borrowings from the FHLB
increased $5.2 million, or 15.01%, during the year ended December 31, 1992.
The additional borrowings were invested in mortgage-backed securities.
At December 30, 1992, Great Northern's allowance for loan losses
totaled $502 thousand, which represented an increase of $69 thousand from such
allowance at December 31, 1991. Additions to the allowance during 1992 reflect
the level of internally classified assets as well as management's assessment of
current and anticipated economic conditions, such as increasing unemployment
and declining consumer confidence indicators, both of which generally mirror
the economic trends in the Great Northern market area. Because the loan loss
allowance is based on estimates, it is monitored regularly on an ongoing basis
and adjusted as necessary to provide an adequate allowance. At December 31,
1992, Great Northern's allowance for loan losses consisted entirely of general
valuation allowances, as defined by OTS regulations, and represented .24% of
the total amount of loans outstanding and 7.40% of internally classified
assets. General valuation allowances, as defined by OTS regulations, are added
as a component of regulatory risk-based capital.
44
COMPARISON OF RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
General. Net income for the nine months ended September 30, 1993,
equalled $2.4 million, an increase of $313 thousand, or 15.34%, from the $2.0
million in net income for the nine months ended September 30, 1992. The
increase in net income was partially attributable to the adoption of Statement
of Financial Standards No. 109, which favorably impacted net income by $193
thousand.
Net Interest Income. Total interest income decreased from $21.9
million at September 30, 1992, to $20.0 million at September 30, 1993, an 8.72%
decrease, as existing adjustable rate mortgages and mortgage-backed securities
adjusted to lower market rates and as new loans and mortgage-backed securities
were added to the portfolio at interest rates below those being repaid.
Similarly, total interest expense decreased $2.1 million, or 14.23%, from $14.6
million at September 30, 1992, to $12.6 million at September 30, 1993 as
maturing certificates of deposits were renewed at lower rates or transferred to
savings or demand accounts whose interest rates were declining.
Net interest income, after the provision for loan losses, increased
$337 thousand, or 4.8%, from $7.0 million to $7.3 million during the nine month
period.
Non-Interest Income. The $46 thousand decrease in non-interest income
from $962 thousand at September 30, 1992, to $915 thousand at September 30,
1993, was primarily the result of three items. Loan fees and service charges
increased $143 thousand due to higher loan volume and increased checking
account service charges. Commissions on annuity or security sales decreased
$137 thousand as a result of lower annuity sales attributed to less attractive
interest rates and sales volume dropping to sustainable levels. Other
non-operating income decreased $81 thousand, or 76.06%, from $107 thousand to
$26 thousand for the nine months ended September 30, 1993, compared to the nine
months ended September 30, 1992, because 1992 includes the reversal of an $85
thousand specific allowance for loss on a loan.
Operating and Other Expenses. Operating and other expenses increased
$320 thousand, or 6.60%, from $4.8 million at September 30, 1992, to $5.2
million at September 30, 1993. The largest contributor to the increase in
non-interest expense was the increase of $241 thousand in compensation and
related expenses. Such increase was primarily a consequence of staffing for
record high loan volume in addition to normal salary increases.
YEARS ENDED DECEMBER 31, 1992 AND 1991
General. Net income for the year ended December 31, 1992, was $2.6
million, an amount equal to net income for the year ended December 31, 1991.
Net Interest Income. Total interest income for 1992 was $28.7
million, a decrease of $3.1 million, or 9.75%, from the $31.8 million in total
interest income in 1991. The decrease was a result of existing adjustable rate
loans and mortgage-backed securities adjusting to lower market rates and the
origination and purchase of new loans and mortgage-backed securities at
interest rates lower than those being repaid, causing a $3.3 million decrease
due to the lower rates which was partially offset by a $146 thousand increase
due to volume. Total interest expense decreased $3.4 million, or 14.95%, from
$22.6 million at December 31, 1991, to $19.2 million at December 31, 1992,
primarily due to the substantially lower interest rates paid on renewed
certificates of deposit. The lower rates caused $4.1 million of the decrease,
partially offset by a $746 thousand increase due to volume.
Provision for losses on loans decreased from $454 thousand in 1991 to
$294 thousand in 1992 as total non-performing assets decreased from $6.5
million in 1991 to $5.8 million in 1992 after having increased in 1991 from
$4.4 million in 1990.
Net interest income, after the provision for loan losses, increased
4.93% from $8.8 million at December 31, 1991, to $9.2 million at December 31,
1992.
45
Operating and Other Expense. Non-interest expense increased $483
thousand, or 8.05%, from $6.0 million to $6.5 million during 1992. The
increase in compensation and related expenses of $279 thousand was a major
component of such increase. Several of the compensation items causing the
increase were an $85 thousand increase in pension expense and a $34 thousand
increase in performance based compensation. The balance of the increase was
the result of staff additions required by the purchase of the two branch
offices and normal salary increases. The increase in other non-interest
expense was made up of a number of items, the most significant of which were a
$91 thousand increase in legal and professional fees and a $32 thousand
increase in franchise tax.
YEARS ENDED DECEMBER 31, 1991 AND 1990
General. Net income increased from $2.1 million in 1990 to $2.6
million in 1991, an increase of $464 thousand, or 22.07%. The most significant
factor for such increase was the increase in Great Northern's interest rate
spread.
Net Interest Income. Total interest income for the year ended
December 31, 1991, increased $467 thousand, or 1.50%, from $31.3 million at
December 31, 1990, to $31.8 million at December 31, 1991. Included in such
increase was an increase of $1.5 million due to volume and an offsetting
decrease of $1.1 million attributable to lower interest rates. Total interest
expense of $22.6 million for the year ended December 31, 1991, represented a
$130 thousand decrease from the $22.7 million in total interest expense in
1990. The decrease was attributable to lower interest rates on liabilities,
offset by an increase due to higher average interest bearing liabilities in
1991.
Net interest income, after provision for losses on loans, increased
$466 thousand, or 5.60%, from $8.3 million at December 31, 1990, to $8.8
million at December 31, 1991.
Non-Interest Income. Non-interest income increased $473 thousand, or
73.06%, during the year ended December 31, 1991. Commissions on annuity sales
increased $432 thousand, accounting for a substantial portion of such increase
as 1991 was the first full year of annuity sales. Also contributing to the
non-interest income increase was a $96 thousand gain on sale of mortgage-backed
securities for 1991. No mortgage- backed securities sales occurred in 1990.
Non-Interest Expense. Non-interest expense increased $307 thousand,
or 5.39%, from $5.7 million at December 31, 1990, to $6.0 million at December
31, 1991. Compensation and related expenses contributed $213 thousand of the
increase, with an increase of $105 thousand for payroll costs related to the
first full year of annuity sales, a $44 thousand increase in performance based
compensation and a $69 thousand increase in the cost of employee health care
coverage. Also affecting non-interest expense was a $93 thousand increase in
the cost of the federal premium for insurance of deposits which resulted
primarily from an increase in the premium rate.
Federal Income Taxes. The increase from the year ended December 31,
1990, of $168 thousand, or 14.33%, is essentially the result of a 19.30%
increase in income before federal income tax.
YIELDS EARNED AND RATES PAID
The following table sets forth certain information in relation to
Great Northern's average balance sheet and reflects the average yield on
interest-earning assets and the average cost of interest-bearing liabilities
for the years indicated. Such yields and costs are derived by dividing income
or expense by the average daily balance of interest-earning assets or
interest-bearing liabilities, respectively, for the years presented. Average
balances are derived from daily balances, which include nonaccruing loans in
the loan portfolio, net of the allowance for loss.
46
[Enlarge/Download Table]
AVERAGE CONSOLIDATED BALANCE SHEETS, FULLY-TAX
EQUIVALENT INTEREST RATES AND INTEREST DIFFERENTIAL
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1992 1991 1990
-------------------------------- ------------------------------- ------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- -------- ------- -------- ------ ------- -------- ------
Interest earning assets:
Investment securities and
mortgage-backed securities $133,191 8,182 6.14% 89,423 7,245 8.10% 57,061 5,077 8.90%
Federal funds sold 8,668 283 3.26 7,365 395 5.36 7,627 600 7.87
Loans, net of unearned
income 216,251 20,252 9.37 243,862 24,181 9.92 254,845 25,677 10.08
Less allowance for possible
loan losses 467 757 585
---------- ---------- --------- --------- --------- ---------
Net loans 215,784 20,252 9.39 243,105 24,181 9.95 254,260 25,677 10.10
Cash and due from banks 1,946 - - 1,530 - - 1,246 - -
Other assets 8,268 - - 5,801 - - 5,431 - -
--------- --------- --------
Total assets $367,857 28,717 - 347,224 31,821 - 325,625 31,354 -
======== ======= ======== ======= ======== =======
Interest bearing liabilities
Deposits:
Demand-
interest bearing $ 33,889 1,152 3.40 25,952 1,241 4.78 24,854 1,238 4.98
Savings 66,992 2,776 4.14 50,094 2,719 5.43 46,864 2,580 5.51
Certificates and other
time deposits 195,692 12,123 6.19 205,625 15,521 7.55 199,315 16,372 8.21
-------- ------- -------- ------- -------- -------
Total deposits $296,573 16,051 5.41 281,671 19,481 6.92 271,033 20,190 7.45
Federal funds purchased,
securities sold under
agreements to repurchase
and other borrowings 39,573 3,155 7.97 34,671 3,100 8.94 27,000 2,521 9.34
Other liabilities 6,728 - - 7,053 - - 5,913 - -
Shareholders' equity 24,983 - - 23,829 - - 21,679 - -
--------- ---------- ------------------ --------- ----------
Total liabilities and
shareholders' equity $367,857 19,206 - 347,224 22,581 - 325,625 22,711 -
======== ======= ======== ======= ======== =======
Total earnings assets $357,643 28,717 8.03 339,893 31,821 9.36 318,948 31,354 9.83
======== ======= ======== ======= ======== =======
Total interest bearing $336,146 19,206 5.71 316,342 22,581 7.14 298,033 22,711 7.62
======== ======= ======== ======= ======== =======
liabilities
Net yield on earnings assets 9,511 2.66 9,240 2.72 8,643 2.71
======== ==== ======== ==== ======== ====
Interest rate spread 2.32 2.22 2.21
==== ==== ====
<FN>
__________________________
(1) Interest income on tax-exempt securities has been adjusted to a fully-taxable equivalent basis.
(2) Non-accrual loans have been included in the average balances.
47
The following table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected Great Northern's interest income and expense during
the years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to (i) changes in volume (change in volume multiplied by current year rate),
(ii) changes in rate (change in rate multiplied by prior year volume) and
(iii) total changes in rate and volume. The combined effects of changes in
both volume and rate, which cannot be separately identified, have been
allocated to the change due to volume:
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1992 AND 1991 1991 AND 1990
---------------------------------- ---------------------------------------
YIELD/ YIELD/
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ------ ----- ------ ------ -----
(DOLLARS IN THOUSANDS)
Interest Income
Investments and mortgage-backed
securities $ 2,689 (1,752) 937 2,621 (453) 2,168
Loans (2,586) (1,343) (3,929) (1,089) (407) (1,496)
Federal funds sold 43 (155) (112) (14) (191) (205)
-------- ------- ------- ------- --------- -------
Total interest income 146 (3,250) (3,104) 1,518 (1,051) 467
-------- ------- -------- ------ ------- ------
Interest Expense
Demand-interest bearing 270 (359) (89) 52 (49) 3
Savings 700 (643) 57 175 (36) 139
Certificates and other time deposits (615) (2,783) (3,398) 476 (1,327) (851)
Federal funds purchased, securities sold
under agreement to repurchase
and other borrowings 391 (336) 55 686 (107) 579
-------- ------- ------- ------- ------- -------
Total interest expense 746 (4,121) (3,375) 1,389 (1,519) (130)
-------- -------- -------- ------ ------- -------
Net interest income $ (600) 871 271 129 468 597
======== ======== ======= ======= ======= =======
LIQUIDITY AND CAPITAL RESOURCES
Great Northern's principal sources of funds are deposits, repayments
on loans and mortgage-backed securities, maturities of investment securities
and funds provided by operations. While scheduled loan and mortgage-backed
securities amortization and maturing interest-bearing deposits and investment
securities are relatively reliable sources of funds, deposit flows and loan and
mortgage-backed securities prepayments are greatly influenced by economic
conditions, the general level of interest rates and competition. The particular
sources of funds utilized by Great Northern from time to time are selected
based on comparative costs and availability.
48
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Great Northern's liquidity is a product of its operating, investing and financing activities. These activities for the
periods presented are summarized below:
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31
------------------- -----------------------------
1993 1992 1992 1991 1990
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Net income $2,352 2,039 2,573 2,568 2,104
Adjustments to reconcile net earnings
to net cash provided by operating activities 2,476 728 1,286 393 684
------ ----- ------ ------ ------
Net cash provided by operating activities 4,828 2,767 3,860 2,961 2,788
Net cash provided by (used in)
investment activities 1,224 (21,293) (36,679) (19,696) (15,716)
Net cash provided by (used in) financing
activities (6,157) 18,158 34,212 16,389 12,632
------- ------ ------ ------ ------
Net increase (decrease) in cash (105) (369) 1,394 (346) (296)
Cash at beginning of year 3,637 2,243 2,243 2,589 2,885
------ ------ ------ ------ ------
Cash at end of year $3,532 1,874 3,637 2,243 2,589
====== ====== ====== ====== ======
The OTS requires savings associations to maintain a minimum level of
investments in specified types of liquid assets. OTS regulations presently
require Great Northern Savings to maintain an average daily balance of
investments in United States Treasury, federal agency obligations and other
investments having maturities of five years or less. Such minimum requirement
is an amount equal to 5% of the sum of Great Northern Savings' average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. The liquidity requirement, which may be changed from time to time by
OTS to reflect changing economic conditions, is intended to provide a source of
relatively liquid funds upon which Great Northern Savings may rely if necessary
to fund deposit withdrawals and other short-term funding needs. Great Northern
Savings' regulatory liquidity at September 30, 1993, was 7.03%, or
approximately $6.6 million in excess of the minimum requirement.
CAPITAL REQUIREMENTS
Great Northern Savings is required by applicable law and regulations
to meet certain minimum capital standards. Such capital standards include a
tangible capital requirement, a core capital requirement or leverage ratio and
a risk-based capital requirement. See "REGULATORY MATTERS." Great Northern
Savings exceeded all of its capital requirements at September 30, 1993.
The tangible capital requirement requires savings associations to
maintain "tangible capital" of not less than 1.5% of the association's adjusted
total assets. "Tangible capital" is defined in OTS regulations as core
capital, minus any "intangible assets."
"Core capital" is defined by OTS as being comprised of common
shareholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in consolidated
subsidiaries, certain nonwithdrawable accounts and pledged deposits of mutual
associations and "intangible assets," primarily certain purchased mortgage
servicing rights and qualifying supervisory goodwill, which may be included in
"core capital" until January 1, 1995, in accordance with a phase-out schedule.
OTS regulations require savings associations to maintain a leverage ratio, or
"core capital," of at least 3% of the association's total assets. The OTS has
proposed to increase such requirement to 4% to 5%, except for those
associations with the highest examination ratings and acceptable levels of
risk. See "REGULATORY MATTERS."
49
OTS regulations require that savings associations maintain "risk-based
capital" in an amount not less than 8% of risk-weighted assets. "Risk-based
capital" is defined as "core capital," plus certain additional items of
capital, which in the case of Great Northern Savings includes a general loan
loss allowance of $576 thousand as of September 30, 1993.
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The following table sets forth the regulatory capital of Great Northern Savings at September 30, 1993 and December 31, 1992:
EXCESS OF ACTUAL
CURRENT CAPITAL OVER CURRENT APPLICABLE
ACTUAL CAPITAL REQUIREMENT REQUIREMENT ASSET TOTAL
---------------------- ---------------------- --------------------- -----------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------ -------
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1993:
Tangible capital $25,298 6.57% 5,776 1.50% 19,522 5.07% 385,047
Core capital 25,298 6.57 11,551 3.00 13,747 3.57 385,047
Risk-based capital 25,874 14.78 14,000 8.00 11,874 6.78 175,002
DECEMBER 31, 1992:
Tangible capital $23,466 6.06% 5,807 1.50% 17,659 4.56% 387,156
Core capital 23,466 6.06 11,615 3.00 11,851 3.06 387,156
Risk-based capital 23,966 14.32 13,391 8.00 10,575 6.32 167,389
<FN>
For information concerning regulatory capital on a pro forma basis after the sale of the Conversion Stock, see
"REGULATORY MATTERS."
ASSET AND LIABILITY MANAGEMENT
Great Northern's interest rate spread is the principal determinant of
income. The interest rate spread and, therefore, net interest income, can vary
considerably over time because asset and liability repricing do not coincide.
Moreover, the long-term or cumulative effect of interest rate changes can be
substantial. Interest rate risk is defined as the sensitivity of an
institution's earnings and net asset values to changes in interest rates.
Great Northern manages exposure to interest rate risk to maintain the projected
four-quarter percentage change in net interest income and the projected change
in the market value of portfolio equity within the limits established by the
Board of Directors, assuming a permanent and instantaneous parallel shift in
interest rates. Great Northern is currently attempting to manage its interest
rate risk by offering an interest rate higher than the prevailing market rate
on three-year certificates of deposit and originating loans with terms shorter
than 30 years as well as adjustable rate loans.
One of the principal methods utilized by Great Northern to monitor its
interest rate risk has been the analytical review of interest rate risk reports
provided by the OTS. Such reports analyze Great Northern's interest rate
sensitivity gap, which is the difference between interest-bearing liabilities
and interest-earning assets subject to repricing within a given time frame. A
positive gap occurs when interest- earning assets exceed interest-bearing
liabilities repricing during a designated time frame. Conversely, a negative
gap occurs when interest- bearing liabilities exceed interest-earning assets
repricing within a designated time frame. At December 31, 1992, Great Northern
had a positive cumulative one-year gap of 17.26%. A positive gap may leave
Great Northern's earnings vulnerable to declining interest rates because when
interest rates are declining, the interest income earned on assets may decline
more rapidly than the interest expense paid on Great Northern liabilities as
interest-earning assets reprice at a faster pace than interest-bearing
liabilities. An increase in interest rates would be expected to cause interest
income to increase more rapidly than interest expense. Notwithstanding Great
Northern's positive gap, it is possible that an increase in interest rates will
adversely affect income due to other economic effects of rising interest rates.
50
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1992, which are
scheduled to reprice or mature in each of the time periods shown. The OTS
incorporates national prepayment assumptions for loans and decay rates for
deposits when preparing this report in an effort to more accurately reflect
interest rate risk.The impact of general interest rate movements on Great
Northern's net interest income may not necessarily be as the table indicates
because other factors may cause assets and liabilities to mature or reprice at
different times. It has been Great Northern's recent experience that a
majority of loans repay prior to scheduled maturity, although there is no
assurance that such prepayment experience will continue.
[Enlarge/Download Table]
INTEREST RATE SENSITIVITY
DECEMBER 31, 1992
-----------------
OVER OVER NON-
ONE DAY TO 3 MONTHS TO 6 MONTHS TO AFTER SENSITIVE
3 MONTHS 6 MONTHS 1 YEAR 1 YEAR FUNDS TOTAL
---------- ------------ ---------- ------ --------- -----
(DOLLARS IN THOUSANDS)
Assets
Loans and mortgage-backed
securities $144,022 32,878 54,414 132,688 485 364,487
Investment securities and
interest-bearing deposits 6,000 - 60 1,224 - 7,284
Federal funds sold 900 - - - - 900
FHLB stock 3,092 - - - - 3,092
Other assets - - - - 11,626 11,626
---------- --------- --------- ---------- ------- --------
Total 154,014 32,878 54,474 133,912 12,111 387,389
-------- ------- ------- ------- ------- -------
Liabilities and Shareholders'
Equity
Interest bearing deposits 68,696 46,232 51,749 148,968 2,165 317,810
FHLB borrowings 77 6,077 1,654 31,836 - 39,644
Other liabilities - - - - 4,324 4,324
Shareholders' equity - - - - 25,611 25,611
----------- ---------- --------- ----------- -------- ---------
Total 68,773 52,309 53,403 180,804 32,100 387,389
-------- -------- ------- -------- -------- --------
Gap $ 85,241 (19,431) 1,071 (46,892) (19,989)
======== ========= ======= ========= =========
Cumulative gap $ 85,241 65,810 66,881 19,989
======== ======== ======= ========
Cumulative gap as a percent
of total assets 22.00% 16.99% 17.26% 5.16%
====== ====== ====== =====
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and results of operations in terms of historical dollars without
considering changes in the relative purchasing power of money over time because
of inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of Great Northern are monetary in nature. As a result, interest
rates have a more significant impact on Great Northern's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the prices of goods and
services.
51
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In December 1990, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," which
is effective for fiscal years beginning after December 15, 1992. The Statement
establishes accounting standards for all employers' postretirement benefits
other than pensions, focusing primarily on postretirement health care benefits.
SFAS No. 106 changes the prevailing practice of accounting for postretirement
benefits on a "pay-as-you- go" basis to the practice of accruing the expected
cost of such benefits during the years that the employee or director renders
the related service. Great Northern has no benefits covered by SFAS No. 106.
In addition to SFAS No. 106, the FASB has issued SFAS No. 112,
"Employers Accounting for Postemployment Benefits." The Statement, which is
effective for years beginning after December 15, 1993, establishes standards of
financial accounting for the estimated cost of benefits provided by an employer
to former or inactive employees after employment but before retirement
(postemployment benefits). Postemployment benefits include, but are not
limited to, salary continuation, supplemental unemployment benefits, severance
benefits or continuation of health care benefits and life insurance coverage.
Management does not believe the adoption of SFAS No. 112 will have a material
effect on Great Northern's financial condition or results of operations.
In June 1993, the FASB adopted SFAS No. 114, "Accounting by Creditors
For Impairment of a Loan." It is applicable to all creditors and to all loans
that are individually and specifically evaluated for impairment,
uncollateralized as well as collateralized, except those loans that are
accounted for at fair value or at the lower of cost or fair value. It would
require that impaired loans be measured at the present value of expected future
cash flows by discounting those cash flows at the loan's effective interest
rate. The provisions of this proposed Statement would apply to financial
statements issued for fiscal years beginning after December 15, 1994.
Management does not believe the adoption of the Statement will have a material
effect on Great Northern's financial condition or results of operations.
In June 1993, the FASB also adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." This Statement addresses
the accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
Such investments should be classified in three categories and accounted for as
follows: (i) debt securities that the entity has the positive intent and
ability to hold to maturity are to be classified as held to maturity and
reported at amortized cost; (ii) debt and equity securities that are held for
current resale are to be classified as trading securities and reported at fair
value, with unrealized gains and losses included in earnings; and (iii) debt
and equity securities not classified as either securities held to maturity or
trading securities are to be classified as securities available for sale and
reported at fair value, with unrealized gains and losses excluded from earnings
and reported as a separate component of shareholders' equity. SFAS No. 115 is
effective for fiscal years beginning after December 15, 1993. Management does
not believe that adoption of SFAS No. 115 will have a material effect on Great
Northern's financial condition or results of operations.
52
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GREAT NORTHERN FINANCIAL CORPORATION
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1992 1991 1990 1989 1988
----------- --------- --------- -------- -------
RESULTS OF OPERATIONS
Interest income $ 28,713 31,815 31,346 29,992 28,565
Conversion to fully-tax equivalent 4 6 8 9 11
----------- -------- ------- -------- --------
Interest income* 28,717 31,821 31,354 30,001 28,576
Interest expense 19,206 22,581 22,711 21,989 20,884
--------- ------- ------- ------- -------
Net interest income* 9,511 9,240 8,643 8,012 7,692
Provision for possible loan losses 294 454 320 99 258
Other income 1,159 1,121 648 426 485
Other expense 6,476 5,993 5,687 5,496 5,055
--------- ------- ------- ------- -------
Income before Federal
income taxes* 3,900 3,914 3,284 2,843 2,864
Federal income taxes 1,323 1,340 1,172 929 973
Fully-tax equivalent adjustment 4 6 8 9 11
---------- -------- -------- -------- --------
Federal income taxes* 1,327 1,346 1,180 938 984
--------- ------- ------- ------- -------
Net income $ 2,573 2,568 2,104 1,905 1,880
========= ======= ======= ======= =======
Per Share:
Net income $ 5.74 5.88 5.02 4.54 4.48
Cash dividends 1.82 1.52 1.16 0.76 .41
Dividend payout ratio 31.71% 25.85% 23.11% 16.74% 9.15%
AVERAGE RATIOS
Return on total assets 0.70% 0.74% 0.65% 0.61% 0.60%
Return on shareholders' equity 10.30% 10.78% 9.71% 9.34% 10.20%
Shareholders' equity to total
assets 6.79% 6.86% 6.66% 6.54% 5.92%
BALANCE SHEET DATA
Total assets (at December 31) $ 387,389 350,801 332,000 316,797 312,798
Daily averages:
Total assets 367,857 347,224 325,625 311,932 311,103
Earning assets 357,643 339,893 318,948 305,650 301,910
Deposits and other funds 336,146 316,342 298,033 285,931 285,215
Shareholders' equity 24,983 23,829 21,679 20,396 18,427
<FN>
* Fully-tax equivalent basis
53
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GREAT NORTHERN FINANCIAL CORPORATION
INVESTMENT SECURITIES
(DOLLARS IN THOUSANDS)
BOOK VALUE OF INVESTMENT SECURITIES
-----------------------------------
DECEMBER 31,
-----------------------------------------------
1992 1991 1990
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Government agency
obligations $ 7,224 5,125 5,166
Obligations of states and
political subdivisions 60 115 165
Mortgage-backed securities 155,729 94,134 48,327
Other securities - 3,546 4,322
----------- ------- -------
$ 163,013 102,920 57,980
========= ======= ======
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MATURITIES OF THE INVESTMENT SECURITIES AT DECEMBER 31, 1992
------------------------------------------------------------------------------------
OVER ONE YEAR OVER FIVE YEARS
ONE YEAR OR LESS THROUGH FIVE YEARS THROUGH TEN YEARS OVER TEN YEARS
------------------- ------------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT YIELDS AMOUNT YIELDS AMOUNT YIELDS AMOUNT YIELDS
-------- --------- -------- --------- -------- --------- -------- --------
U.S. Government agency
obligations $ 2,000 3.95% 5,224 5.47% - - - -
Obligations of states and
political subdivisions 60 10.70% - - - - - -
Mortgage-backed securities 4,005 7.77% 10,491 7.41% 2,530 7.33% 138,703 5.73%
Other securities - - - - - - - -
--------- ------- ---------- ------ -------- ------- --------- -------
$ 6,065 6.54% 15,715 6.77% 2,530 7.33% 138,703 5.73%
======= ====== ======= ====== ====== ====== ======== ======
54
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GREAT NORTHERN FINANCIAL CORPORATION
LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-----------------------------------------------------------------------
1992 1991 1990 1989 1988
---------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural $ - - - - -
Installment to individuals,
net of unearned income 10,343 12,301 10,138 9,236 8,913
Real estate 198,917 216,308 244,306 245,672 240,956
Lease financing - - - - -
------------ ---------- ---------- ---------- ----------
Total loans 209,260 228,609 254,444 254,908 249,869
Less allowance for possible
loan losses 502 433 755 506 499
---------- -------- -------- -------- --------
Net loans $208,758 228,176 253,689 254,402 249,370
======== ======= ======= ======= =======
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GREAT NORTHERN FINANCIAL CORPORATION
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------------------------------------------------
1992 1991 1990 1989 1988
-----------------------------------------------------------------------------------------------------------------
Non-accrual loans $1,979 465 2,044 1,813 1,119
Restructured loans 826 527 677 36 -
------ ------ ------ ------- -------
Total non-performing loans 2,805 992 2,721 1,849 1,119
Other real estate owned 3,033 5,478 1,703 1,751 2,039
------ ------ ------ ------ ------
Total non-performing assets $5,838 6,470 4,424 3,600 3,158
====== ====== ====== ====== ======
Loans past due 90 days or more
accruing interest $ 10 35 11 - 69
======= ======= ======= ======= =======
Total non-performing assets as a
percent of total loans and other real
estate owned at year end 2.75% 2.76% 1.73% 1.40% 1.25%
====== ======= ======= ====== ======
55
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GREAT NORTHERN FINANCIAL CORPORATION
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
DECEMBER 31,
-------------------------------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
Allowance for possible loan losses
at beginning of period $ 433 755 506 499 672
Loans Charged off:
Commercial, financial and agricultural - - - - -
Installment to individuals 2 23 60 40 43
Real estate 223 753 11 52 388
Lease financing - - - - -
----------- ---------- --------- ---------- ----------
Total 225 776 71 92 431
---------- -------- -------- --------- --------
Recoveries:
Commercial, financial and agricultural - - - - -
Installment to individuals - - - - -
Real estate - - - - -
Lease financing - - - - -
----------- --------- --------- ---------- ----------
Total - - - - -
----------- --------- --------- ---------- ----------
Net charge-offs 225 776 71 92 431
---------- -------- -------- --------- ---------
Provision for possible loan losses
charged to operating expense 294 454 320 99 258
---------- -------- -------- --------- ---------
Allowance for possible loan losses
at end of period $ 502 433 755 506 499
========= ======== ======== ======== ========
Average loans outstanding
net of unearned income $216,251 243,862 254,845 253,877 260,584
======== ======= ======= ======= =======
Ratio to average loans:
Net charge-offs 0.10% 0.32% 0.03% 0.04% 0.17%
Provision for possible loan losses
charged to operating expense 0.14% 0.19% 0.13% 0.04% 0.10%
Allowance for possible loan losses
at end of period 0.23% 0.18% 0.30% 0.20% 0.19%
========== ======== ======== ======== ========
Loans outstanding at end of period $209,260 228,609 254,444 254,908 249,869
======== ======= ======= ======= =======
Allowance for possible loan losses:
As a percent of loans outstanding
at end of period 0.24% 0.19% 0.30% 0.20% 0.20%
As a multiple of net charge-offs 2.23x 0.56x 10x 5.50x 1.16x
========== ========= ======= ========== =========
56
REGULATORY MATTERS
GENERAL
Bank holding companies, savings and loan holding companies, banks and savings
associations are regulated extensively under federal and state law. To the
extent the following information describes statutory or regulatory provisions,
it is qualified in its entirety by reference to the particular statutory or
regulatory provisions.
The operations of financial institutions are significantly affected by
general economic conditions, the monetary and fiscal policies of the federal
government and the policies of federal and state regulatory authorities. Great
Northern Savings is a savings association organized under the laws of the State
of Ohio and, as a member of SAIF, its deposits are insured by the FDIC. As
such, Great Northern Savings is subject to regulation, examination and
oversight by the Division, OTS and the FDIC. Great Northern Savings must file
periodic reports with these governmental agencies concerning its activities and
financial condition. Joint examinations are conducted periodically by the
Division and OTS to determine whether Great Northern Savings is in compliance
with various regulatory requirements. Great Northern Savings is also subject to
certain reserve requirements under regulations of the Federal Reserve. After
the Merger, Great Northern Savings will cease to exist as a chartered
institution and therefore will not be subject to separate regulation.
Bancorporation's financial institution subsidiaries are First National Bank
of Ohio, The Old Phoenix National Bank of Medina, Elyria Savings & Trust
National Bank, The First National Bank in Massillon (collectively, the
"Banks"), Peoples Federal Savings Bank ("Peoples Federal"), Peoples Savings
Bank ("Peoples") and Bancorp Trust Company, N.A. ("Bancorp Trust").
The Banks, as national banks and members of the Federal Reserve System, are
subject to the supervision of and regular examination by OCC and the Federal
Reserve. As insured banks under the Federal Deposit Insurance Act, they are
all members of the Bank Insurance Fund ("BIF") and are regulated by the FDIC.
OCC representatives regularly conduct examinations of the affairs and records
of the subsidiary banks and all national banks must furnish quarterly and
annual reports to OCC.
Peoples Federal is a federally-chartered savings association the deposits of
which are insured as a member of SAIF by the FDIC. Peoples Federal is subject
to regulation and supervision by OTS and the FDIC. Peoples Federal is
obligated to make periodic reports to OTS.
Peoples, like Great Northern Savings, is a savings association organized
under the laws of the State of Ohio, the deposits of which are insured as a
member of SAIF by the FDIC. Peoples is likewise subject to regulation,
examination and oversight by and reporting to the Division, OTS and the FDIC.
Peoples is also subject to certain reserve requirements of the Federal Reserve.
Bancorporation has filed application with OTS and OCC for approval to convert
Peoples and Peoples Federal into national banks. Bancorporation intends to
file applications with the Federal Reserve with regard to each association upon
receiving OTS and OCC approval. To date, Bancorporation has received OTS
approval to convert Peoples. Assuming Bancorporation receives all necessary
approvals and converts Peoples and Peoples Federal into national banks,
Bancorporation will not control any savings association.
Bancorp Trust is a federally-chartered national trust company subject to the
supervision of and regular examination by OCC. Its activities, which consist
primarily of making trust services available in the State of Florida, are also
subject to regulation by the laws of the State of Florida. As a condition of
receiving its charter from OCC, Bancorp Trust was required to become a member
of the Federal Reserve System and purchase stock in the Federal Reserve Bank of
Atlanta.
57
The periodic examinations by the regulatory agencies are intended to test
institutions' compliance with various regulatory requirements and to determine
if operations are conducted in a safe and sound manner. The regulatory
structure also gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of
nonperforming and other assets and the establishment of adequate loan loss
reserves for regulatory purposes. Any change in such regulation, whether by
OTS, OCC, the FDIC, the Division, the Federal Reserve or Congress, could
materially and adversely impact the operations of Bancorporation, Great
Northern or any of their respective subsidiary financial institutions.
REGULATION OF BANK HOLDING COMPANIES
Bancorporation is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). Bank holding companies are
subject to regulation by the Federal Reserve. Under Federal Reserve policy, a
bank holding company is expected to act as a source of financial strength to
each subsidiary bank and to commit resources to support such subsidiary banks.
The BHCA requires the prior approval of the Federal Reserve in any case where
a bank holding company proposes to acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank that is not already
majority-owned by it, or to merge or consolidate with any other bank holding
company. The BHCA prohibits the Federal Reserve from approving an application
from a bank holding company to acquire shares of a bank located outside the
state in which the operations of the holding company's banking subsidiaries are
principally conducted, unless such an acquisition is specifically authorized by
statute of the state in which the bank whose shares are to be acquired is
located. At present, many states, including Ohio, have adopted legislation
permitting such acquisitions by bank holding companies and such legislation is
pending in the legislatures of other states.
The BHCA also prohibits a bank holding company, with certain exceptions, from
acquiring more than 5% of the voting shares of any company that is not a bank
and from engaging in any business other than banking or managing or controlling
banks. Under the BHCA, the Federal Reserve is authorized to approve the
ownership of shares by a bank holding company in any company the activities of
which the Federal Reserve has determined to be so closely related to banking or
to managing or controlling banks as to be a proper incident thereto. The
Federal Reserve has by regulation determined that certain activities are
closely related to banking within the meaning of the BHCA. These activities
include: operating a savings association, mortgage company, finance company,
credit card company or factoring company; performing certain data processing
operations; providing investment and financial advice; and acting as an
insurance agent for certain types of credit-related insurance.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to the
bank holding company or any of its subsidiaries, on investments in the stock or
other securities of the bank holding company or its subsidiaries and on the
taking of such stock or securities as collateral for loans to any borrower.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of any services.
Bancorporation is also under the jurisdiction of the Commission and certain
state securities commissions for matters relating to the offering and sale of
its securities. Bancorporation is subject to the disclosure and regulatory
requirements of the Securities Act and the Exchange Act, as administered
by the Commission.
REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES
Bancorporation and Great Northern are registered as savings and loan holding
companies under HOLA, due to their control of savings associations. The
regulation of savings and loan holding companies is the province of OTS.
58
With certain exceptions, a savings and loan holding company must obtain prior
written approval of OTS before acquiring control of an insured institution or
savings and loan holding company through the acquisition of stock or through a
merger or some other business combination. HOLA prohibits OTS from approving
an acquisition by a savings and loan holding company which would result in the
holding company controlling savings associations in more than one state,
subject to certain exceptions, including where the statutes of the state in
which the savings association to be acquired is located specifically permit a
savings association chartered by such state to be acquired by an out-of-state
savings association or savings and loan holding company. Ohio presently has
legislation permitting such an interstate acquisition by a savings and loan
association or savings and loan holding company. HOLA also prohibits savings
and loan holding companies and their subsidiaries which are not savings
associations from engaging in unrelated business activities other than those
specifically exempted by statute or regulation.
REGULATION OF NATIONAL BANKS
As national banks and members of the Federal Reserve System, the Banks are
subject to the supervision of and regular examination by OCC and the Federal
Reserve. As insured banks under the Federal Deposit Insurance Act, all of the
Banks are regulated by the FDIC and are members of BIF. Areas of operation
subject to regulation by federal laws, regulations and regulatory agencies
include reserves on deposits, interest rates and other terms of deposits,
investments, loans, fiduciary activities, mergers and acquisitions, issuance of
securities, payment of dividends, establishment of branches, transactions with
officers and principal shareholders, and other aspects of bank operations.
Representatives of OCC regularly conduct examinations of the affairs and
records of national banks, and all national banks must furnish quarterly and
annual reports to OCC.
STATE REGULATION OF SAVINGS ASSOCIATIONS
Regulation by the Division affects the internal organization of Great
Northern Savings and Peoples as well as their savings, mortgage lending and
other investment activities. Ohio law prescribes the permissible investments
and activities of Ohio savings associations, including the types of lending
that such associations may engage in and the investments in real estate,
subsidiaries and corporate or government securities that such associations may
make. The ability of Ohio savings associations to engage in these
state-authorized investments is subject to oversight and approval by the FDIC,
if such investments or activities are not permissible for a federally chartered
savings association.
The Division must approve any mergers involving or acquisitions of control of
Ohio savings associations. The Division may initiate certain supervisory
measures or formal enforcement actions against Ohio savings associations.
Ultimately, if the grounds provided by law exist, the Division may place an
Ohio savings association in conservatorship or receivership.
In addition to being governed by the laws of Ohio specifically governing
savings associations, Great Northern Savings and Peoples are governed by Ohio
General Corporation Law, to the extent such law does not conflict with the laws
specifically governing savings associations.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OTS. OTS is an office in the Department of Treasury and is subject to the
general oversight of the Secretary of the Treasury. The Director of OTS is
responsible for the regulation and supervision of all savings associations, the
deposits of which are insured by the FDIC. Among other functions, OTS issues
and enforces regulations affecting federally-insured savings associations and
regularly examines such institutions. OTS imposes assessments on associations
based on asset size to defray the costs of general supervision and examination.
QUALIFIED THRIFT LENDER TEST. Savings associations are required to maintain
a specified level of investments in assets that are designated as qualifying
thrift investments ("QTL Test"). Such investments are generally related to
residential real estate and manufactured housing. To meet the QTL Test, the
qualified thrift investments of an association must equal or exceed 65% of the
association's portfolio assets.
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If a savings association fails to meet the QTL Test, the association may be
subject to certain regulatory restrictions. A savings association which fails
to meet the QTL Test will not be eligible for FHLB advances to the fullest
possible extent and its holding company will become subject to bank holding
company limits. At September 30, 1993, Great Northern Savings, Peoples Federal
and Peoples had qualified thrift investments adequate to satisfy the QTL test.
FEDERAL HOME LOAN BANKS
The FHLBs, now under the jurisdiction of the Federal Housing Finance Board,
serve as credit sources for their members. As members of the FHLB of
Cincinnati, Great Northern Savings, Peoples Federal and Peoples are each
required to maintain an investment in the capital stock of the FHLB of
Cincinnati in an amount equal to the greater of 1.0% of the aggregate
outstanding principal amount of their respective residential mortgage loans,
home purchase contracts and similar obligations at the beginning of each year,
or 5.0% of advances from the FHLB of Cincinnati. Great Northern Savings,
Peoples Federal and Peoples are in compliance with this requirement at
September 30, 1993. While Peoples Federal is a party to a credit agreement
with the FHLB of Cincinnati whereby it can obtain advances, it has no advances
outstanding from the FHLB of Cincinnati; at September 30, 1993, Peoples had
$1.6 million in outstanding one-day advances, and Great Northern Savings had
$40.2 million in outstanding advances. After the Merger, Great Northern
Savings will not be a member of the FHLB of Cincinnati; Peoples and Peoples
Federal or one of them may remain a member of the FHLB of Cincinnati after
their respective anticipated conversions to national banks.
FEDERAL DEPOSIT INSURANCE CORPORATION
The FDIC is an independent federal agency which insures the deposits, up to
prescribed statutory limits, of federally-insured banks and savings
associations and safeguards the safety and soundness of the financial
institution industry. Two separate insurance funds are maintained and
administered by the FDIC. In general, banking institutions are members of BIF
and savings associations are SAIF members. A depository institution generally
is prohibited from converting from one insurance fund to the other until August
9, 1994, except with the prior approval of the FDIC in certain limited cases.
The insurance fund conversion provisions do not prohibit a SAIF member from
either converting to a bank charter, as long as the resulting bank remains a
SAIF member, or merging with a bank, as long as the bank continues to pay the
SAIF insurance assessments on the deposits acquired. Exit and entrance fees
must be paid to the FDIC in full conversions.
For each semi-annual assessment period beginning January 1, 1993, a
transitional risk-based insurance system was implemented by the FDIC for all
SAIF and BIF members. Under the rule implementing the transitional system, the
FDIC assigns an institution to one of three capital categories: (1) well
capitalized, (2) adequately capitalized or (3) undercapitalized. An
institution is also assigned by the FDIC to one of three supervisory subgroups
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information which the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds (which may include, if applicable,
information provided by the institution's state supervisor). An institution's
assessment rate depends on the capital category and supervisory category to
which it is assigned. Under the transitional system, there are nine assessment
risk classifications (i.e., combinations of capital groups and supervisory
subgroups) to which differing assessment rates are applied. Assessment rates
range from 0.23% of deposits for an institution in the highest category (i.e.,
well capitalized and "financially sound") to 0.31% of deposits for an
institution in the lowest category (i.e., undercapitalized and "substantial
probability of loss"). The assessment rates for Great Northern Savings and the
financial institution subsidiaries of Bancorporation generally remained at the
same level imposed in 1992 under the transition rule.
On June 17, 1993, the FDIC adopted a final rule establishing the permanent
risk-based premium system that will be implemented with semiannual assessment
periods commencing on January 1, 1994. Except for limited changes, the
structure of the permanent system is substantially the same as the transitional
system now in effect. The FDIC is authorized to raise insurance premiums for
SAIF members in certain circumstances. If the FDIC
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determines to increase the assessment rate for all SAIF institutions,
institutions in all risk categories could be affected. Any increase in
premiums could adversely affect earnings of Peoples, Peoples Federal and Great
Northern Savings.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or OTS.
CAPITAL
The Federal Reserve has adopted risk-based capital guidelines for bank
holding companies. The guidelines became fully phased in at the end of 1992.
Capital levels as measured by these standards also are used to categorize
financial institutions for purposes of the new prompt corrective action
provisions. See "REGULATORY MATTERS." The minimum guideline for the ratio of
total capital ("Total Capital") to risk- weighted assets (including certain
off-balance sheet items such as standby letters of credit) is 8% ("Total
Risk-Based Capital"). The Total Risk-Based Capital ratio must be at least 10%
to be considered well capitalized. See "REGULATORY MATTERS."
At least half of the minimum Total Risk-Based Capital ratio (4%) must be
composed of common stockholders' equity, minority interests in the equity
accounts of consolidated subsidiaries and a limited amount of perpetual
preferred stock, less goodwill and certain other intangibles ("Tier 1
Risk-Based Capital"). To be considered well capitalized, the Tier 1 Risk-Based
Capital ratio must be at least 6%. See "REGULATORY MATTERS -- Prompt
Corrective Regulatory Action." The remainder of Total Risk-Based Capital may
consist of subordinated debt, other preferred stock and a limited amount of
loan and lease loss allowance.
The Federal Reserve also has established minimum leverage ratio guidelines
for bank holding companies. The guidelines provide for a minimum ratio of Tier
1 Risk-Based Capital to average assets (excluding the loan and lease loss
allowance, goodwill and certain other intangibles) ("Leverage Ratio") of 3% for
bank holding companies that meet certain criteria, including having the highest
regulatory rating. To be considered well capitalized, the Leverage Ratio must
be at least 5%. The guidelines further provide that bank holding companies
making acquisitions will be expected to maintain strong capital positions
substantially above the minimum levels. OTS has not imposed capital
requirements on savings and loan holding companies.
The following tables set forth the Total Risk-Based Capital, Tier 1 Risk-Based
Capital, and Leverage Ratios for Bancorporation and Great Northern,
individually and on a pro forma combined basis, as of September 30, 1993:
[Download Table]
Total Tier 1
Risk-Based Risk-Based Leverage Ratio
---------- ---------- --------------
Bancorporation 16.26% 15.01% 9.45%
Great Northern 15.95% 15.62% 7.11%
Pro Forma Combined 16.24% 15.05% 9.24%
Each of the subsidiary financial institutions of Bancorporation and Great
Northern is subject to similar capital requirements adopted by OCC or OTS, as
the case may be. OTS also imposes a tangible capital requirement, which
requires savings associations to maintain "tangible capital" of not less than
1.5% of the association's adjusted total assets. "Tangible capital" is defined
as core capital minus any "intangible assets," such as goodwill. At September
30, 1993, each financial institution subsidiary of Bancorporation and Great
Northern satisfied the minimum capital ratio requirements under the capital
ratio guidelines. Failure by any financial institution subsidiary of
Bancorporation or Great Northern to comply in the future with applicable
capital standards may be subject to sanctions and limitations upon operations.
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LIMITS ON DIVIDENDS AND OTHER PAYMENTS
Bancorporation and Great Northern are legal entities separate and distinct
from their respective subsidiary financial institutions. There are various
legal limitations on the extent to which such subsidiary banks and savings
associations may finance or otherwise supply funds to their parent holding
companies. Under federal law, subsidiary banks may not, subject to certain
limited exceptions, make loans or extensions of credit to, or investments in
the securities of, their bank holding companies. Subsidiary banks are also
subject to collateral security requirements for any loans or extension of
credit permitted by such exceptions.
Each national bank subsidiary of Bancorporation is required by federal law to
obtain the prior approval of OCC for the declaration and payment of dividends
if the total of all dividends declared by the board of directors of the bank in
any year will exceed the total of (i) the bank's net profits for that year,
plus (ii) the retained net profits for the preceding two years, less any
required transfers to surplus. In addition, these banks may only pay dividends
to the extent that retained net profits (including any portion transferred to
surplus) exceed bad debts. Similar limitations are imposed upon capital
distributions, including cash dividends, by Great Northern Savings, Peoples and
Peoples Federal as savings associations. As of September 30, 1993, the
financial institution subsidiaries of Bancorporation, without obtaining
governmental approvals, could declare aggregate dividends of approximately
$13.4 million. As of September 30, 1993, Great Northern Savings, without
obtaining governmental approval, could declare dividends of approximately $7.6
million.
PROMPT CORRECTIVE REGULATORY ACTION
On December 19, 1992, a major banking bill entitled the Federal Deposit
Insurance Corporation Improvement Act of 1991 was enacted. FDICIA
substantially revised the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and revised several other federal banking statutes.
Among other things, FDICIA established a system of prompt corrective action
to resolve the problems of undercapitalized institutions, which became
effective on December 19, 1992. The federal banking agencies have established
five capital levels for insured depository institutions -- "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized." FDICIA requires or permits such agencies to
take certain supervisory actions depending upon an insured institution's
capital level. FDICIA requires the banking agencies to appoint a receiver or
conservator for an institution within 90 days after it becomes "critically
undercapitalized" unless the institution's primary regulator determines, with
the concurrence of the FDIC, that other action would better achieve FDICIA's
purposes.
Under the final rules implementing the prompt corrective action provisions, a
financial institution that has a Total Risk-Based Capital of 10% or greater, a
Tier 1 Risk-Based Capital ratio of 6% or greater and a Leverage Ratio of 5% or
greater is deemed to be "well capitalized." An institution with a Total
Risk-Based Capital ratio of 8% or greater, a Tier 1 Risk-Based Capital ratio of
4% or greater and a Leverage Ratio of 4% or greater (or a Leverage Ratio of 3%
or greater and a CAMEL 1 rating), is considered to be "adequately capitalized."
An institution that has a Total Risk-Based Capital of less than 8%, a Tier 1
Risk-Based Capital ratio of less than 4%, and a Leverage Ratio that is less
than 4% (or a Leverage Ratio of less than 3% and a CAMEL 1 rating), is
considered "undercapitalized." An institution that has a Total Risk-Based
Capital less than 6%, a Tier 1 Risk-Based Capital ratio of less than 3% or a
Leverage Ratio that is less than 3% is considered to be "significantly
undercapitalized." An institution that has tangible equity (core capital minus
intangible assets other than qualifying supervisory goodwill and purchased
mortgage servicing rights) to total assets ratio equal to or less than 2% is
deemed to be "critically undercapitalized." At September 30, 1993, the
financial institution subsidiaries of Bancorporation and Great Northern were
considered either "well capitalized" or "adequately capitalized" under the
prompt corrective action rules.
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An institution that is not "well capitalized" generally is prohibited from
accepting brokered deposits and offering interest rates on deposits higher than
the prevailing rate in its market. Also, "pass through" insurance coverage may
not be available for certain employee benefit accounts. FDICIA requires the
holding company of any undercapitalized depository institution to guarantee, in
part, certain aspects of such depository institution's capital plan for such
plan to be acceptable.
An undercapitalized institution is required to submit an acceptable capital
restoration plan to its appropriate federal banking agency. The plan must
specify (i) the steps the institution will take to become adequately
capitalized, (ii) the capital levels to be attained each year, (iii) how the
institution will comply with any regulatory sanctions then in effect against
the institution and (iv) the types and levels of activities in which the
institution will engage. The banking agency may not accept a capital
restoration plan unless the agency determines, among other things, that the
plan "is based on realistic assumptions, and is likely to succeed in restoring
the institution's capital" and "would not appreciably increase the risk ... to
which the institution is exposed."
FDICIA also authorizes the appropriate federal banking agency, after notice
and an opportunity for a hearing, to treat a well capitalized, adequately
capitalized or undercapitalized insured depository institution as if it had a
lower capital-based classification, if the institution is in an unsafe or
unsound condition or engaging in an unsafe or unsound practice. Thus, an
adequately capitalized institution can be subjected to the restrictions of
undercapitalized institutions (provided that a capital restoration plan cannot
be required of the institution) and an undercapitalized institution can be
subjected to the restrictions applicable to significantly undercapitalized
institutions.
FDICIA contains numerous other provisions and operational restrictions,
including accounting, audit and reporting requirements, termination of the "too
big to fail" doctrine beginning in 1995 (except in special cases), limitations
on the FDIC's payment of deposits at foreign branches, new regulatory standards
in such areas as asset quality, earnings, capital distributions and
compensation, and revised regulatory standards for, among other things, power
of state banks, real estate lending and capital adequacy. FDICIA also
requires that a depository institution provide 90 days' prior notice of the
closing of any branch.
The FDIC is required, by regulation or order, to "restrict the activities" of
critically undercapitalized institutions. The restrictions must include
prohibitions on the institution's doing any of the following without prior FDIC
approval: entering into any material transactions not in the usual course of
business, extending credit for any highly leveraged transaction, engaging in
any covered transaction (as defined in Section 23A of the Federal Reserve Act)
with an affiliate, paying excessive compensation or bonuses, and paying
interest on new or renewed liabilities that would increase the institution's
average cost of funds to a level significantly exceeding prevailing rates in
the market.
TRANSACTIONS WITH AFFILIATES
Sections 23A and 23B of the Federal Reserve Act (the "FRA") restrict
transactions by insured depository institutions and their subsidiaries with
their affiliates. An affiliate of an institution is any company or entity
which controls, is controlled by or is under common control with the
institution. Generally, Sections 23A and 23B (i) limit the extent to which an
institution or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such institution's capital stock and
surplus (i.e., tangible capital) and (ii) require that all such transactions be
on terms substantially the same, or at least as favorable to the institution or
subsidiary, as those provided to a non-affiliate. The term "covered
transaction" includes the making of loans, purchase of assets, issuance of a
guarantee and other similar types of transactions. Certain additional
restrictions apply to savings associations.
A financial institution's authority to extend credit to executive officers,
directors and greater than 10% shareholders, as well as entities such persons
control, is subject to Sections 22(g) and 22(h) of the FRA and Regulation O
promulgated thereunder by the Federal Reserve. Among other things, such loans
must be made on terms substantially similar to those offered to unaffiliated
individuals, the amount of loans an institution may make to such persons are
based, in part, on the institution's capital position, and certain approval
procedures must be followed in making such loans.
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STANDARDS FOR SAFETY AND SOUNDNESS
FDICIA requires the federal bank regulatory agencies to prescribe, by
regulation, standards for all insured depository institutions and depository
institution holding companies relating to: (i) internal controls, information
systems and audit systems; (ii) loan documentation; (iii) credit underwriting;
(iv) interest rate risk exposure; (v) asset growth; and (vi) compensation, fees
and benefits. The compensation standards would prohibit employment contracts,
compensation or benefit arrangements, stock option plans, fee arrangements or
other compensatory arrangements that would provide excessive compensation, fees
or benefits or could lead to material financial loss. In addition, the federal
banking regulatory agencies would be required to prescribe by regulation
standards specifying: (i) maximum classified assets to capital ratios; (ii)
minimum earnings sufficient to absorb losses without impairing capital; and
(iii) to the extent feasible, a minimum ratio of market value to book value for
publicly traded shares of depository institutions and depository institution
holding companies. Final regulations implementing these standards were supposed
to have been promulgated by August 1, 1993 and are to be effective by December
1, 1993. The agencies proposed regulations to establish these standards in
November 1993. The impact, if any, of these standards on the operations of
depository insured institutions cannot be determined until the standards are
issued in final form.
UNIFORM LENDING STANDARDS
Pursuant to FDICIA, the federal banking agencies have adopted uniform
regulations and guidelines prescribing standards for extensions of credit that
are secured by liens on interests in real estate or made for the purpose of
financing the construction of a building or other improvements to real estate,
which became effective March 19, 1993. Under those regulations and guidelines,
financial institutions must adopt and maintain written policies that establish
appropriate limits and standards for extensions of credit that are secured by
liens or interests in real estate or are made for the purpose of financing
permanent improvements to real estate. These policies must establish loan
portfolio diversification standards, prudent underwriting standards (including
loan-to-value limits) that are clear and measurable, loan administration
procedures and documentation, approval and reporting requirements.
COMMUNITY REINVESTMENT
Under the Community Reinvestment Act ("CRA"), a financial institution has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with CRA. CRA
requires the appropriate federal banking agencies, in connection with their
examination of financial institutions, to assess the institutions' records of
meeting the credit needs of their communities and to take such record into
account in its evaluation of certain applications by each such institution.
Effective July 1, 1990, the CRA requires public disclosure of an institution's
CRA rating and requires that the appropriate federal banking agency provide a
written evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system.
ENFORCEMENT
Under FDICIA, OTS has primary enforcement responsibility over savings
associations and savings and loan holding companies, OCC has primary
enforcement responsibility over national banks, the Federal Reserve has primary
enforcement responsibility over state member banks and bank holding companies,
and the FDIC has primary enforcement responsibility over state nonmember banks.
The FDIC has the authority to recommend that enforcement action be taken with
respect to institutions over which it does not have primary enforcement
authority. If action is not taken, the FDIC has authority to take such action
under certain circumstances. These agencies have the authority to bring
enforcement actions against those institutions and certain "institution-related
parties," including stockholders, and any attorneys, appraisers and accountants
who knowingly or recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. Such enforcement actions can take
the form of capital directives, cease-and-desist orders, removal and
prohibition orders and civil penalties, which can range from $25,000 per day to
as high as $1 million per day, if a finding of reckless disregard is made.
Federal criminal
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penalties for most financial institution crimes, which are enforced by the
Department of Justice, include fines of up to $1 million and imprisonment for
up to 30 years. In addition to the prompt corrective action system, any
financial institution that fails to satisfy any of its capital requirements is
subject to possible enforcement actions by its appropriate federal banking
agency. In this regard, the appropriate federal banking agency could require
one or more of the following corrective actions: (i) increasing the amount of
the institution's regulatory capital to a specified level or levels; (ii)
convening a meeting or meetings with the agency's supervision staff; (iii)
reducing the rate of earnings that may be paid on accounts; (iv) limiting the
receipt of deposits to those made to existing accounts; (v) ceasing or limiting
the issuance of new accounts of any or all classes or categories; except in
exchange for existing accounts; (vi) ceasing or limiting lending or the making
of a particular type or category of loan; (vii) ceasing or limiting the
purchase of loans or the making of specified other investments; (viii) limiting
operational expenditures to specified levels; (ix) increasing liquid assets and
maintaining such increased liquidity at specified levels; or (x) taking such
other action or actions as the agency may deem necessary or appropriate for the
safety and soundness of the institution, or depositors or investors in the
institution. The agency also could impose harsher measures such as the
appointment of a receiver or conservator or a forced merger into another
institution.
FDICIA amends the grounds for the appointment of a conservator or receiver
for an insured depository institution to include the following events: (i)
consent by the board of directors of the institution; (ii) cessation of the
institution's status as an insured depository institution; (iii) the
institution is undercapitalized and has no reasonable prospect of becoming
adequately capitalized when required to do so, fails to submit an acceptable
capital plan or materially fails to implement an acceptable capital plan; or
(iv) the institution is critically undercapitalized or otherwise has
substantially insufficient capital. FDICIA provides that an institution's
directors shall not be liable to its shareholders or creditors for acquiescing
in or consenting to the appointment of the FDIC or RTC as receiver or
conservator or to a supervisory acquisition of the institution.
The imposition of any of these measures on Bancorporation, Great Northern or
any of their financial institution subsidiaries could have a substantial
adverse effect on operations and profitability. The appropriate federal
banking agency may also require the institution to raise additional capital
through the issuance of stock or other capital instruments.
DESCRIPTION OF BANCORPORATION CAPITAL STOCK
BANCORPORATION COMMON SHARES
Bancorporation's Amended and Restated Articles ("Articles") have authorized
40,000,000 shares of Common Stock, no par value, of which 25,227,467 were
outstanding as of December 21, 1993. Of the authorized shares of Common Stock,
1,008,970 shares are unreserved and available for issuance. These shares may be
issued and sold without further stockholder action provided that the issuance
and sale is made in compliance with the corporate governance documents of
Bancorporation and Ohio law. Each share of Bancorporation Common Stock is
accompanied by one Right pursuant to the Bancorporation Rights Agreement. On
December 31, 1993, Bancorporation had 6,673 stockholders of record.
Each share of Bancorporation Common Stock is entitled to (a) dividends when
and as declared by the directors, but after payment of dividends to any
Preferred Stock that may hereafter be issued, (b) to one vote per share on each
matter properly submitted to stockholders for their vote, and (c) to
participate ratably in the net assets of Bancorporation in the event of
liquidation, after any Preferred Stock of Bancorporation that may hereafter be
issued. Holders of Bancorporation Common Stock have no preemptive rights for
the purchase of additional shares of any class of Bancorporation, nor do they
have the right to cumulate their voting power.
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BANCORPORATION PREFERRED STOCK
Bancorporation has authorized 3,500,000 shares of Preferred Stock, no par
value, of which no shares were outstanding as of December 21, 1993. Of the
authorized shares of Preferred Stock, 3,200,00 shares are unreserved and
available for issuance. These shares may be issued and sold without further
shareholder action provided that the issuance and sale is made in compliance
with the corporate governance documents of Bancorporation and Ohio law.
The holders of Preferred Stock are entitled to one vote per share on matters
on which they are entitled to vote, and the other terms thereof may be fixed by
Bancorporation's Board of Directors, including dividend rate, liquidation
price, redemption price, sinking fund provisions, conversion rights, and
restrictions on issuance of shares of the same series or any other class or
series as may be determined by the directors. As to dividend, redemption, and
liquidation rights, each series of Preferred Stock of Bancorporation will be
senior to Bancorporation Common Stock. Bancorporation has created a class of
Preferred Stock entitled the "Series A Preferred Stock," and has reserved
300,000 shares for issuance thereunder. The Series A Preferred Stock was
created pursuant to the Bancorporation's Rights Agreement. See "COMPARISON OF
BANCORPORATION AND GREAT NORTHERN CAPITAL STOCK."
COMPARISON OF BANCORPORATION AND GREAT NORTHERN CAPITAL STOCK
BANCORPORATION COMMON STOCK AND GREAT NORTHERN COMMON STOCK
If the Merger is consummated, all stockholders of Great Northern (except
holders of Great Northern Common Stock who perfect their dissenter rights) will
become stockholders of Bancorporation. Bancorporation is a corporation
organized under, and governed by, Ohio law, Bancorporation's Articles, and its
Amended Code of Regulations ("Regulations"). Great Northern is also a
corporation organized under, and governed by, Ohio law, and is governed by its
Articles of Incorporation, as amended, and its Code of Regulations. The rights
of a holder of Great Northern Common Stock are similar in most respects and
different in other respects from the rights of a holder of Bancorporation
Common Stock. Certain of these similarities and differences are summarized
below.
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OHIO GENERAL
CORPORATION LAW, BANCORPORATION'S ARTICLES AND REGULATIONS, AND GREAT
NORTHERN'S ARTICLES OF INCORPORATION, AS AMENDED, AND ITS CODE OF REGULATIONS.
VOTING RIGHTS
CUMULATIVE VOTING AND PREEMPTIVE RIGHTS. Each stockholder of Bancorporation
and Great Northern has the right to cast one vote for each share owned on all
matters submitted to a vote of stockholders. No holder of shares of any class
of capital stock of Bancorporation or Great Northern is entitled to the right
of cumulative voting or to preemptive rights.
NOMINATIONS. Any stockholder of Bancorporation who determines to nominate a
person for election as a director must deliver written notice to the Secretary
of Bancorporation not later than (a) with respect to an election to be held at
an Annual Meeting of Stockholders for the election of directors, 90 days in
advance of such meeting, and (b) with respect to such an election to be held at
a Special Meeting of Stockholders, the close of business on the seventh day
following the date on which notice of such meeting is first given to
stockholders. The notice must set forth specific information regarding the
nominating stockholder and nominee. The chairman of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with this
procedure. Great Northern's nomination provisions are similar except that
nominations for the Annual Meeting must be made by February 1st or the sixtieth
day before the anniversary of the most recent Annual Meeting, or in certain
circumstances within a reasonable period after such anniversary.
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SPECIAL MEETINGS. A special meeting of the stockholders of Bancorporation
can be called by the President, by the Board of Directors acting at a meeting,
by a majority of the Board when not in a meeting, or by stockholder(s) owning
one-half or more of the outstanding shares of Common Stock. The provisions for
calling a special meeting of the stockholders of Great Northern do not differ
significantly from those of Bancorporation.
MERGERS, CONSOLIDATIONS, DISSOLUTIONS, COMBINATIONS, AND OTHER TRANSACTIONS.
Subject to the provisions discussed in "State Takeover Statutes" below, Ohio
law requires adoption of a merger, consolidation, dissolution, disposition of
all or substantially all of the corporation's assets, and a "majority share
acquisition" or "combination" involving issuance of shares with one-sixth or
more of the voting power of the corporation by the affirmative vote of the
holders of shares entitled to exercise at least two-thirds of the voting power
of the corporation on such proposal, unless the articles of incorporation
specify a different proportion (but not less than a majority). Adoption by the
affirmative vote of the holders of two-thirds of any class of shares, unless
otherwise provided in the articles, may also be required if the rights of
holders of that class are affected in certain respects by the merger or
consolidation. Except for the "Fair Price and Supermajority Vote Provisions"
discussed below, Bancorporation's Articles, as well as Great Northern's
Articles of Incorporation, as amended, require adoption by the affirmative vote
of the holders of shares entitling them to exercise a majority of the voting
power of Bancorporation or Great Northern, on any such proposal, and by the
affirmative vote of the majority of any class if a class vote is required.
FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS. Article Seventh of
Bancorporation's Articles require that a merger or consolidation of
Bancorporation into or with a corporation, person, or entity that is the
beneficial owner of 10% or more of the issued and outstanding shares of a class
of Bancorporation capital stock ("Interested Party"), or the sale, lease or
other disposition of all or substantially all of the assets of Bancorporation
to an Interested Party, requires the approval of 80% of the outstanding voting
shares of each class of Bancorporation stock entitled to vote as a class. This
supermajority vote requirement is waived in the event the transaction has been
approved (i) by the Board of Directors prior to the time the Interested Party
beneficially owns 10% or more of the outstanding capital stock of
Bancorporation, or (ii) at any time before its consummation by two-thirds vote
of the total members of the Bancorporation Board of Directors and a majority of
the directors who either were appointed prior to the time the party
beneficially owned 4% or more of an outstanding class of capital stock or were
recommended to succeed such a director by a majority of such directors;
provided, that the transaction is structured in such a manner that the price to
be paid by the Interested Party is fair to all stockholders of Bancorporation.
A Bancorporation stockholder must receive a price equal to the highest price
per share previously paid to a stockholder by the Interested Party for a share
of Bancorporation capital stock of the same class. If that supermajority vote
requirement is waived, the transaction may be approved by the holders of at
least two-thirds of the outstanding capital stock.
Article Eight of Great Northern's Articles of Incorporation, as amended,
requires a supermajority vote of 75% on certain matters, including the adoption
of an agreement of merger, if the Great Northern Board of Directors recommends
against approval. Article Twelve contains protective provisions requiring
supermajority approvals of certain "business combinations" involving a "control
person," who is defined as someone who has obtained 20% or more of the voting
power of Great Northern.
SHAREHOLDER RIGHTS PLAN
Pursuant to the terms of the First Bancorporation of Ohio Shareholder Rights
Agreement dated October 21, 1993 ("Rights Agreement"), between Bancorporation
and First National Bank of Ohio, as rights agent, a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Bancorporation
Common Stock (sometimes hereinafter "Common Stock") was declared by the
Bancorporation Board of Directors. Each Right entitles the registered holder
to purchase from the Bancorporation one 1/100th of a share of the Series A
Preferred Stock at a price of $90 ("Purchase Price"), subject to adjustment.
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Until the earlier to occur of (i) ten days following a public announcement
that a person or group (an "Acquiring Person") have acquired beneficial
ownership of 15% or more of the outstanding Common Stock or (ii) ten business
days (or such later date as may be determined by action of the Board of
Directors prior to such time as any person becomes an Acquiring Person)
following the commencement or announcement of a tender offer or exchange offer
by a person or group for 15% or more of the outstanding Common Stock (the
earlier of such dates being called the "Distribution Date"), the Rights will be
distributed.
The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the
Distribution Date the shares of Common Stock will contain a notation
incorporating the Rights Agreement by reference. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common Stock.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on October 20, 2003 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed by
Bancorporation.
Shares of Preferred Stock purchasable upon exercise of the Rights will not be
redeemable. Each share of Preferred Stock will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of Common
Stock. In the event of liquidation, the holders of the Preferred Shares will
be entitled to a minimum preferential liquidation payment of $1.00 per share
but will be entitled to an aggregate payment of 100 times the payment made per
share of Common Stock. Each share of Preferred Stock will have 100 votes,
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock is
exchanged, each share of Preferred Stock will be entitled to receive 100 times
the amount received per share of Common Stock. These rights are protected by
customary antidilution provisions.
In the event that any person or group of affiliated or associated
persons becomes the beneficial owner of 15% or more of the outstanding Common
Stock (except pursuant to a tender offer for all of the Common Stock at a price
and on terms determined by a majority of the Continuing Directors to be fair to
and otherwise in the best interests of Bancorporation and its stockholders)
proper provision shall be made so that each holder of a Right, other than
Rights beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
shares of Common Stock (or cash, other securities or property) having a market
value of two times the Purchase Price of the Right.
In the event that, after the Rights become exercisable, Bancorporation is
acquired in a merger or other business combination transaction with an
Acquiring Person or an affiliate thereof, or 50% or more of its consolidated
assets or earning power are sold to an Acquiring Person or an affiliate
thereof, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon exercise thereof at the then current
Purchase Price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market
value of two times the Purchase Price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock and prior to the acquisition by such person or group of 50% or
more of the outstanding Common Stock, the Board of Directors of Bancorporation
may exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, at an exchange ratio of one share of
Common Stock (or a fraction of a share of Preferred Stock having equivalent
market value) per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price. No fractional share of Preferred Stocks will be issued (other
than fractions which are interest multiples of one-hundredth of a share of
Preferred Stock, which may, at the election of Bancorporation, be evidenced by
depositary receipts) and, in lieu thereof, an adjustment in cash will be made
based on the market price of the Preferred Shares on the last trading day prior
to the date of exercise.
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At any time within ten days after a person or group of affiliated or
associated persons acquire beneficial ownership of 15% or more of the
outstanding Common Stock (unless the Board of Directors extends such ten-day
period), the Board of Directors of Bancorporation may redeem the rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price"),
upon the approval of a majority of the Continuing Directors. The redemption of
the rights may be made effective at such time on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price. The Rights are also redeemable under other circumstances
as specified in the Rights Agreement.
The terms of the Rights may be amended by the Board of Directors of
Bancorporation without the consent of the holders of the Rights upon the
approval of a majority of the Continuing Directors, including an amendment to
lower certain thresholds described above to not less than the greater of (i)
any percentage greater than the largest percentage of the outstanding shares of
Common Stock then known to Bancorporation to be beneficially owned by any
person or group of affiliated or associated persons and (ii) 10%, except that
from and after such time as any person becomes an Acquiring Person no such
amendment may adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of Bancorporation, including, without limitation, the right to
vote or to receive dividends.
A copy of the Shareholder Rights Agreement is included as an exhibit to the
Form 8-A filed by Bancorporation with the Commission on November 4, 1993. The
foregoing description of the Rights Agreement does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement.
Great Northern has not adopted a shareholder rights or similar plan.
OHIO ANTI-TAKEOVER STATUTES
The statutes described below apply to both Bancorporation and Great Northern.
OHIO CONTROL SHARE ACQUISITION ACT. The Ohio Control Share Acquisition Act
provides that certain notice and informational filings and special stockholder
meeting and voting procedures must be followed prior to consummation of a
proposed "control share acquisition," which is defined as any acquisition of an
issuer's shares which would entitle the acquiror, immediately after such
acquisition, directly or indirectly, to exercise or direct the voting power of
the issuer in the election of directors within any of the following ranges of
such voting power: (a) one-fifth or more but less than one-third of such voting
power; (b) one-third or more but less than a majority of such voting power; or
(c) a majority or more of such voting power. Assuming compliance with the
notice and information filings prescribed by statute, the proposed control
share acquisition may be made only if, at a duly convened special meeting of
stockholders, 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
acquiror and the directors and officers of the issuer. The Control Share
Acquisition Act may be made inapplicable to a company by its corporate
governance documents, but those of Bancorporation and Great Northern do not so
provide.
OHIO MERGER MORATORIUM STATUTE. The Ohio Merger Moratorium provisions
prohibit certain business combinations and transactions between an "issuing
public corporation" and a beneficial owner of 10% or more of the shares of the
corporation (an "interested shareholder") for at least three years after the
interested shareholder attains 10% ownership, unless the board of directors of
the issuing public corporation approves the transaction before the interested
shareholder attains 10% ownership. 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
the disposition of assets, mergers and consolidations, voluntary dissolutions
and the transfer of shares ("Moratorium Transactions").
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Subsequent to the three-year period, a Moratorium Transaction may take place
provided that certain conditions are satisfied, including (a) the board of
directors approves the transaction, (b) the transaction is approved by the
holders of shares with at least two-thirds of the voting power of the
corporation (or a different proportion set forth in the articles of
incorporation), including at least a majority of the outstanding shares after
excluding shares controlled by the interested shareholder, or (c) the business
combination results in stockholders, other than the interested shareholder,
receiving a fair price plus interest for their shares. The Merger Moratorium
provisions are applicable to all corporations formed under Ohio law, but 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. Bancorporation has not taken any such corporate action to
opt out of the Ohio Merger Moratorium statute and the statute does not apply
to Great Northern.
AMENDMENT TO CHARTER DOCUMENTS
The Articles of Bancorporation presently require that two-thirds of the
voting power of Bancorporation approve any amendment to the Articles, except
that with regard to Article Seventh dealing with certain business combinations
requires a vote of 80% of the voting power of Bancorporation, unless the
amendment is approved by 75% of the Board and by a majority of the Continuing
Directors, then by two-thirds of the voting power. The Articles of
Incorporation of Great Northern, as amended, require a majority of the voting
power of Great Northern approve any amendment, unless the Board recommends
against such amendment, then by 75% of the voting power. See "COMPARISON OF
BANCORPORATION AND GREAT NORTHERN CAPITAL STOCK."
Directors may not amend the code of regulations of an Ohio corporation. The
Regulations of Bancorporation provide for amendment by stockholders holding a
majority of the voting power at a meeting, but require that all amendments by
written action of the stockholders without a meeting must be approved
unanimously by the stockholders entitled to vote thereon. In addition, any
amendments regarding the calling of special meetings of stockholders,
classification of directors, nomination of or removal of directors, or
amendment to the Regulations, must be approved by stockholders holding at least
two-thirds of the voting power of Bancorporation at a meeting. The Code of
Regulations of Great Northern requires a majority of the voting power of Great
Northern to approve any amendment.
DIRECTORS
NUMBER; CLASSIFICATION. The Regulations of Bancorporation presently provide
that the number of directors shall not be greater than 24, divided into three
classes. The stockholders of Bancorporation at the 1988 Annual Meeting of
Shareholders fixed the number of Directors at 22. The respective terms of the
three classes of directors are staggered so that at any time the term of a
class will expire at the next annual meeting of stockholders. After the
expiration date for each class, members of that class will be elected to
three-year terms.
Great Northern's Articles of Incorporation, as amended, provide that the
number of directors is fixed at nine, divided into three classes. The
respective terms of the classes are staggered so that the term of one class
expires each year. After the expiration date for each class, members of that
class will be elected to three-year terms.
REMOVAL. Bancorporation's Regulations provide that Bancorporation's
stockholders may remove a director for good cause by a vote of two-thirds of
the capital stock entitled to vote for directors. Directors of Great Northern
may be removed with or without cause by stockholders holding not less than a
majority of the voting power of the corporation to elect directors.
INDEMNIFICATION. Under Ohio law, Ohio corporations are authorized to
indemnify directors, officers, employees, and agents within prescribed limits
and must indemnify them under certain circumstances. Ohio law does not provide
statutory authorization for a corporation to indemnify directors, officers,
employees, and agents for settlements, fines, or judgments in the context of
derivative suits. It provides, however, that directors (but not officers,
employees, and agents) are entitled to mandatory advancement of expenses,
including attorneys' fees,
70
incurred in defending any action, including derivative actions, brought against
the director, provided the director agrees to cooperate with the corporation
concerning the matter and to repay the amount advanced if it is proved by clear
and convincing evidence that his act or failure to act was done with deliberate
intent to cause injury to the corporation or with reckless disregard for the
corporation's best interests.
Ohio law does not authorize payment of expenses or judgments to a director,
officer, employee, or agent after a finding of negligence or misconduct in a
derivative suit absent a court order. Indemnification is required, however, to
the extent such person succeeds on the merits. In all other cases, if a
director, officer, employee, or agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, indemnification is discretionary except as otherwise provided by a
corporation's articles, code of regulations, or by contract except with respect
to the advancement of expenses of directors.
Under Ohio law, a director is not liable for monetary damages unless it is
proved by clear and convincing evidence that his action or failure to act was
undertaken with deliberate intent to cause injury to the corporation or with
reckless disregard for the best interests of the corporation. There is,
however, no comparable provision limiting the liability of officers, employees,
or agents of a corporation. The statutory right to indemnification is not
exclusive in Ohio, and Ohio corporations may, among other things, procure
insurance for such persons.
Bancorporation's Articles provide that Bancorporation shall indemnify to the
fullest extent permitted by law any person made or threatened to be made a
party to any action, suit, or proceeding by reason of the fact that he is or
was a director, officer, employee or agent of Bancorporation, or of any other
corporation or organization for which he was serving as a director, officer,
employee or agent at the request of Bancorporation. The indemnification
provisions contained in Great Northern's Code of Regulations are substantially
the same as Bancorporation's provisions. Great Northern has also entered into
separate indemnification agreements with each of its executive officers and
directors. See "TERMS OF MERGER - Interests of Great Northern Executive
Officers and Directors." Both Bancorporation and Great Northern have acquired
insurance for their obligations to provide indemnification to their officers
and directors.
DIVIDENDS
An Ohio corporation may pay dividends out of surplus, however created, but
must notify its stockholders if a dividend is paid out of capital surplus. The
ability of Bancorporation and Great Northern to pay cash dividends to their
respective stockholders is largely dependent on the amount of dividends which
may be declared and paid to each of them by their respective subsidiaries.
There are a number of statutory and regulatory requirements applicable to the
payment of dividends by banks, savings associations and bank holding companies.
See "REGULATORY MATTERS."
The Board of Directors of Bancorporation reviews the declaration and payment
of dividends on a quarterly basis in light of cash needs, general business
conditions, availability of dividends from subsidiaries and regulatory
policies. There can, of course, be no assurance as to declaration or the
amount of future dividends on shares of Bancorporation Common Stock. The Board
of Directors of Great Northern reviews the declaration and payment of dividends
by Great Northern quarterly in light of financial requirements and regulatory
guidelines at the time. There can, of course, be no assurance as to
declaration or the amount of future dividends on Great Northern's Common Stock.
See "BACKGROUND OF AND REASONS FOR MERGER - Background of Merger."
REPURCHASES
Under Ohio law, a corporation may by action of its board of directors
purchase or redeem its own shares if authorized to do so by its articles of
incorporation or under certain other circumstances, but may not do so if
immediately thereafter its assets would be less than its liabilities plus its
stated capital, if any, or if the corporation is insolvent or would be rendered
insolvent by such a purchase or redemption. Bancorporation's and Great
Northern's articles permit their respective boards of directors to authorize
the repurchase or redemption of shares to the extent permitted by law.
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BANCORPORATION PREFERRED STOCK AND GREAT NORTHERN PREFERRED STOCK; TRANSFER
AGENT
The terms and provisions of Bancorporation's Preferred Stock are delineated
above under "DESCRIPTION OF BANCORPORATION CAPITAL - Bancorporation Preferred
Stock." Great Northern does not have any form of preferred stock authorized.
Bancorporation's transfer agent is First National Bank of Ohio and Great
Northern's transfer agent is Great Northern.
ANTI-TAKEOVER EFFECT
Bancorporation has adopted certain corporate governance provisions which may
have anti-takeover effects. These provisions may discourage or delay takeover
attempts or a change of control of Bancorporation. In addition, they may tend
to insulate current directors and management against the possibility of
removal, and may give holders of a minority of Bancorporation Common Stock the
power to veto a business combination which the holders of a majority of the
stock may believe to be desirable and beneficial. These provisions include
those listed above under COMPARISON OF BANCORPORATION AND GREAT NORTHERN
CAPITAL STOCK, as follows: (i) all subparagraphs under "Voting Rights;" (ii) "-
Shareholder Rights Plan;" (iii) "- Amendment to Charter Documents;" (iv) "-
Directors," "- Classification," "- Removal," and "- Indemnification."
LEGAL OPINION
The validity of the shares of Bancorporation Common Stock to be issued by
Bancorporation under the Merger Agreement and certain tax matters relating to
the Merger will be passed upon for Bancorporation by its counsel, Brouse &
McDowell, 500 First National Tower, Akron, Ohio 44308. Philip A. Lloyd II, a
Brouse & McDowell partner, is a director of Bancorporation and beneficially
owns 116,406 shares of Bancorporation Common Stock.
EXPERTS
The consolidated financial statements of Bancorporation incorporated in this
Proxy Statement and Prospectus by reference, in Bancorporation's Annual Report
on Form 10-K for the year ended December 31, 1992, have been so incorporated in
reliance upon the report of Coopers & Lybrand, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Bancorporation incorporated in this
Proxy Statement and Prospectus by reference, in Bancorporation's Annual Report
on Form 10-K for the year ended December 31, 1991, have been so incorporated in
reliance upon the report of KPMG Peat Marwick, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Great Northern as of December 31,
1992, 1991 and for each of the years in the three-year period ended December
31, 1992 have been included herein in reliance upon the report of KPMG Peat
Marwick, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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APPENDIX A
AGREEMENT OF AFFILIATION AND PLAN OF MERGER
AGREEMENT OF AFFILIATION
AND PLAN OF MERGER
THIS AGREEMENT OF AFFILIATION AND PLAN OF MERGER, dated as of September
28, 1993 (this "Agreement"), is made by and between First Bancorporation of
Ohio, an Ohio corporation ("FBOH"), and Great Northern Financial Corporation,
an Ohio corporation ("GNFC").
WHEREAS, the respective Boards of Directors of FBOH and GNFC have each
determined that it is in the best interests of their respective stockholders
for GNFC to merge with and into FBOH upon the terms and subject to the
conditions set forth herein;
WHEREAS, the respective Boards of Directors of FBOH and GNFC have each
approved the merger of GNFC with and into FBOH, upon the terms and subject to
the conditions set forth herein;
WHEREAS, the Board of Directors of FBOH have determined
contemporaneously with the merger of GNFC with and into FBOH, to merge the
wholly owned subsidiary of GNFC, Great Northern Savings Co., an Ohio savings
and loan association, and its subsidiary, G.N.S. Corporation, an Ohio
corporation, with and into a wholly owned subsidiary of FBOH, being First
National Bank of Ohio, a national banking association ("FNBO"), and to retain
as a separate entity, GN Financial Services Agency, Inc., an Ohio corporation;
WHEREAS, for Federal income tax purposes, it is intended that the merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the merger shall
be accounted for as a "pooling of interests;"
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein, and subject to the
terms and conditions set forth herein, the parties hereto hereby agree as
follows:
1. THE MERGER
1.1. MERGER.
1.1.1. MERGER. At the Effective Time (as hereinafter defined), GNFC
will be merged with and into FBOH (the "Merger") in accordance with the
provisions of Section 1701.78 of the Ohio General Corporation Law ("OGCL").
FBOH shall be the surviving corporation in the Merger and shall continue after
the Merger to be incorporated under the laws of the State of Ohio (the
"Surviving Corporation"). The Merger shall have the effects specified in the
OGCL. The name of the Surviving Corporation shall be "First Bancorporation of
Ohio."
A-1
1.1.2. EFFECTIVE TIME. As soon as practicable following the Closing
(as hereinafter defined), FBOH and GNFC (the "Constituent Corporations") shall
cause a certificate of merger complying with the requirements of Section
1701.81 of the OGCL (the "Ohio Certificate of Merger") to be filed with the
Secretary of State of the State of Ohio. The Merger will become effective at
the time and date which the Ohio Certificate of Merger is filed with the
Secretary of State of the State of Ohio (the "Effective Time").
1.1.3. CONSUMMATION OF MERGER. The closing of the Merger (the
"Closing") will take place (i) at 10:00 a.m. (local time) at the principal
executive offices of FBOH as promptly as practicable after the date on which
all of the conditions set forth in Article 6 are satisfied or duly waived, or
(ii) at such other time and place and on such other date as FBOH and GNFC may
agree.
1.1.4. ARTICLES OF INCORPORATION AND REGULATIONS. The Amended and
Restated Articles of Incorporation and Code of Regulations of FBOH in effect
immediately prior to the Effective Time will be the Amended and restated
Articles of Incorporation and Regulations of the Surviving Corporation after
the Effective Time, until duly amended in accordance with their respective
terms and the OGCL.
1.1.5. DIRECTORS AND OFFICERS. The directors and officers of FBOH
immediately prior to the Effective Time will be the directors and officers,
respectively, of the Surviving Corporation, from and after the Effective Time,
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the terms
of the Surviving Corporation's Amended and Restated Articles of Incorporation
and Code of Regulations and the OGCL.
1.1.6. SERVICE OF PROCESS. B.&McD., Inc., whose address is 106 S.
Main Street, Akron, Summit County, Ohio 44308, is the statutory agent upon whom
any process, notice or demand against FBOH, or the Surviving Corporation may be
served.
2. CONVERSION OF SHARES
2.1. CONVERSION OF SHARES. At the Effective Time,
(a) each then-outstanding share of Common Stock, no par value, of GNFC
("Common Stock" or "Share") (other than shares of Common Stock (i) held in the
treasury of GNFC, or (ii) owned by FBOH for its own account), will, by virtue
of the Merger, automatically be cancelled and extinguished in consideration and
exchanged for the right to receive 3.746 (subject to adjustment pursuant to
Section 2.1(d) and (e)) (the "Exchange Ratio") Common Shares, no par value, of
FBOH ("FBOH Common Stock");
(b) each Share issued and held in GNFC's treasury will, by virtue of
the Merger, automatically be cancelled and retired and all rights in respect
thereof will cease to exist;
(c) each then-outstanding share of FBOH Common Stock shall continue to
be an issued and outstanding Common Share, no par value, of the Surviving
Corporation and any shares of FBOH Common Stock held in FBOH's treasury
immediately prior to the Effective Time shall continue to be held in the
treasury of the Surviving Corporation at the Effective Time;
(d) if the average of the daily closing prices of a share of FBOH
Common Stock as reported on the NASDAQ National Market System during the period
of 20 trading days ending at the trading day immediately preceding the
Effective Time (the "FBOH Average Price") is greater than $28 (the "Cap
A-2
Price"), then the Exchange Ratio shall be lowered by multiplying the Cap Price
by 3.746 and then dividing the product thereof by the FBOH Average Price. As
an example, if the FBOH Average Price is $30, the Exchange Ratio would equal
3.4963; and
(e) if between the date of this Agreement and the Effective Time, the
shares of FBOH Common Stock shall be changed into a different number of shares
by reason of any reclassification, recapitalization, split-up, combination or
exchange of shares, or if a stock dividend or stock split thereon shall be
declared with a record date within said period, appropriate adjustment or
adjustments shall be made to the Exchange Ratio established by Section 2.1(a)
and the adjusted Exchange Ratio established by Section 2.1(d).
2.2. EXCHANGE OF CERTIFICATES.
2.2.1. EXCHANGE AGENT. FNBO shall act as agent of FBOH for purposes
of, among other things, mailing and receiving transmittal letters and
distributing certificates for FBOH Common Stock and cash in lieu of fractional
shares of FBOH Common Stock, to GNFC stockholders (the "Exchange Agent"). Prior
to the Effective Time, FBOH and the Exchange Agent shall enter into an exchange
agent agreement providing for, among other things, the matters set forth in
this Section 2.2.
Except as set forth herein, from and after the Effective Time, each
holder of a certificate that immediately prior to the Effective Time
represented outstanding shares of Common Stock ("Certificate") shall be
entitled to receive in exchange therefor, upon surrender thereof to the
Exchange Agent, a certificate for the number of shares of FBOH Common Stock
(together with cash in lieu of a fractional share of FBOH Common Stock, if any)
(the "Common Stock Consideration" or "Merger Consideration"); to which such
holder is entitled in accordance with the terms of this Agreement. The
Exchange Agent shall not be entitled to vote or to exercise any rights of
ownership with respect to the shares of FBOH Common Stock held by it from time
to time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares for the account
of the persons entitled thereto. Within 180 days following the Effective Time,
the Exchange Agent shall deliver to FBOH any shares of FBOH Common Stock and
funds (including any interest with respect thereto) which FBOH has made
available to the Exchange Agent and which have not been disbursed to holders of
Certificates, and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat, or other similar
laws) with respect to the shares of FBOH Common Stock and cash in lieu of
fractional shares deliverable or payable upon due surrender of their
Certificates.
In the event that any holder of GNFC Common Stock cancelled and retired
in accordance with this Agreement is unable to deliver the Certificate which
represents such shares of the holder, FBOH, in the absence of actual notice
that any shares theretofore represented by any such Certificate have been
acquired by a bona fide purchaser, shall deliver to such holder the number of
shares of Common Stock to which such holder is entitled in accordance with the
provisions of this Agreement upon the presentation of the following: (i)
evidence to the reasonable satisfaction of FBOH that any such Certificate has
been lost, wrongfully taken or destroyed; (ii) such security or indemnity as
may be reasonably requested by FBOH to indemnify and hold FBOH and the transfer
agent harmless; or (iii) evidence satisfactory to FBOH 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.
A-3
2.2.2. NOTICE OF EXCHANGE. Promptly after the Effective Time, FBOH
shall cause the Exchange Agent to mail and/or make available to each record
holder of a Certificate a notice and letter of transmittal advising such holder
of the effectiveness of the Merger and the procedures to be used in effecting
the surrender of the Certificate for exchange therefor and specifying that
delivery shall be effected, and risk of loss and title to the Certificate shall
pass, only upon proper delivery of the Certificate to the Exchange Agent, and
such other matters as FBOH shall reasonably specify. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal duly
executed and completed in accordance with the instructions thereon, and such
other documents as may reasonably be requested by FBOH or the Exchange Agent,
and subject to any withholding of taxes, the Exchange Agent shall promptly
deliver to the person entitled thereto the appropriate Merger Consideration,
and the surrendered Certificate shall, by virtue of such delivery,
automatically be cancelled.
2.2.3. RIGHT TO MERGER CONSIDERATION. Until surrendered and
exchanged in accordance with this Section 2.2, each Certificate shall, from and
after the Effective Time, represent solely the right to receive the Common
Stock Consideration, as the case may be, together with any dividends or other
distributions as provided in Section 2.2.4, and shall have no other rights.
Neither GNFC nor FBOH shall be liable to any holder of shares of Common Stock
for any Merger Consideration (or dividends, distributions or interest with
respect thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.2.4. DISTRIBUTION WITH RESPECT TO UNEXCHANGED CERTIFICATES. No
dividends (cash or stock) or other distributions with respect to FBOH Common
Stock declared or paid by FBOH after the Effective Time with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate, and such holder's other rights as a shareholder of FBOH shall be
suspended, until the holder of such Certificate surrenders such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, (i) there shall be paid to the holder of the certificates
representing shares of FBOH Common Stock, as the case may be, issued in
exchange therefor, without interest, (A) the amount of dividends or other
distributions, if any, with a record date after the Effective Time theretofore
payable with respect to such shares of FBOH Common Stock, as the case may be,
and (B) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such shares of FBOH Common Stock, as the case may be, and (ii) all rights of
the holder of such Certificate as a shareholder of FBOH shall be restored. The
Surviving Corporation shall pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by GNFC (in accordance with its historical practices and record dates) on
Shares in accordance with the terms of this Agreement on or prior to the
Effective Time and which remain unpaid at the Effective Time.
2.2.5. FRACTIONAL SHARES. No certificates representing fractional
shares of FBOH Common Stock shall be issued upon the surrender for exchange of
a Certificate or Certificates. No dividends or distributions of FBOH shall be
payable on or with respect to any fractional share and any such fractional
share interest will not entitle the owner thereof to vote or to any rights of
stockholders of FBOH. In lieu of any such fractional share, a holder of shares
of Common Stock otherwise entitled to a fractional share of FBOH Common Stock
shall be entitled to receive promptly from the Exchange Agent a cash payment
(without interest) in an amount equal to the fraction of such share of FBOH
Common Stock to which such holder would otherwise be entitled multiplied by the
average of the high and low sales prices of FBOH Common Stock as reported on
the NASDAQ National Market System on the trading day immediately preceding the
Exchange Time.
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2.3. DISSENTERS' RIGHTS. To the extent provided by the OGCL, any
holder of record of the Common Stock as of the date fixed for the determination
of stockholders of GNFC entitled to notice of the GNFC Meeting (as hereinafter
defined) and who shall have filed with GNFC, not later than ten (10) days
after such meeting, a written demand for payment of the fair cash value of such
shares in compliance with Section 1701.85 of the OGCL, and whose shares shall
not have been voted in favor of the Merger or adoption of this Agreement, shall
cease at the Effective Time to have any of the rights of a stockholder in
respect of such shares and shall only have the right to be paid the fair cash
value of such shares under Sections 1701.84 and 1701.85 of the OGCL. Any
former holder of Common Stock who after the Effective Time (i) surrenders his
certificates representing shares of Common Stock for exchange pursuant to
Section 2.3 hereof, or (ii) validly withdraws his written demand for payment of
fair cash value of such shares pursuant to Sections 1701.84 and 1702.85 of the
OGCL, will thereupon be entitled to receive the Merger Consideration as of the
Effective Time pursuant to this Agreement.
2.4. CLOSING OF GNFC'S TRANSFER BOOKS. At the close of business on the
business day immediately preceding the date of the Effective Time, the stock
transfer books of GNFC will be closed and no transfer of Shares will thereafter
be made. If, after the Effective Time, any Certificates are presented to the
Surviving Corporation, they will be cancelled, retired and exchanged as
provided in Section 2.1.
2.5. EMPLOYEE STOCK OPTIONS. GNFC Disclosure Letter (as hereinafter
defined) sets forth a list of each employee stock option outstanding on the
date of this Agreement, all of which are or will be fully exercisable at the
Effective Time pursuant to the terms of the plans (collectively, the "Company
Stock Options"), to purchase Common Stock heretofore granted pursuant to the
GNFC nonqualified stock option plan(s), in each case as amended and in effect
on the date of this Agreement (collectively, the "Company Option Plans"). GNFC
Disclosure Letter also sets forth with respect to each Company Stock Option the
option exercise price, the number of shares subject to the option, the dates of
grant, vesting, exercisability and expiration of the option and that the option
is a nonqualified stock option. All rights under GNFC Stock Options shall be
treated as provided in this Section 2.5. It is the understanding of FBOH, that
holders of the Company Stock Options shall exercise all such options prior to
or at the Effective Time or such options shall lapse. Without the written
consent of FBOH, no additional options shall, after the date of this Agreement,
be granted under the GNFC Option Plans.
3. REPRESENTATIONS AND WARRANTIES OF FBOH
FBOH hereby represents and warrants to GNFC that:
3.1. CORPORATE ORGANIZATION. FBOH is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which its ownership or lease of property or
the nature of the business conducted by it makes such qualification necessary,
except for such jurisdictions in which the failure to be so qualified would not
have a Material Adverse Effect (as hereinafter defined) on FBOH. FBOH is
registered as a bank holding company under the Bank Holding Company Act of
1956, as amended (the "BHCA"). FBOH has the requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as it is now being conducted.
3.2. AUTHORITY. FBOH has the requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
and
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approved by the Board of Directors of FBOH, including provisions for the
resolution of certain issues by management, and no other corporate proceedings
on the part of FBOH are necessary to authorize this Agreement or to consummate
the transactions so contemplated. This Agreement has been duly executed and
delivered by, and constitutes a valid and binding obligation of, FBOH,
enforceable against FBOH in accordance with its terms, except as enforceability
hereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforcement of creditors'
rights generally and except that the availability of the equitable remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceedings may be brought.
3.3. CAPITALIZATION. The authorized capital stock of FBOH consists of
40,000,000 shares of FBOH Common Stock and 3,500,000 shares of preferred stock.
As of August 31, 1993, (i) 12,612,434 shares of FBOH Common Stock (including
treasury shares) were validly issued and outstanding, fully paid and
nonassessable and not issued in violation of any preemptive right of any
stockholder of FBOH, and (ii) no shares of preferred stock were issued and
outstanding. Since August 31, 1993 and through the date of this Agreement, FBOH
has not issued any additional shares of FBOH Common Stock or preferred stock
other than pursuant to the exercise of employee stock purchase rights or stock
options under FBOH Option Plans (as hereinafter defined) outstanding on August
31, 1993. Except as contemplated by this Agreement or in the FBOH Disclosure
Letter (which is a letter attached hereto as Exhibit 3.3, dated the date of
this Agreement, from FBOH to GNFC, such letter being identified by GNFC
executing a copy thereof), as of the date of this Agreement, there are no
shares of capital stock of FBOH authorized, issued or outstanding and there are
no outstanding subscriptions, options, warrants, scrip, rights, calls,
convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
or other securities of FBOH obligating, or which may obligate, FBOH to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of FBOH or obligating, or which may obligate, FBOH to grant,
extend or enter into any subscription, option, warrant, scrip, right, call,
convertible security or other similar agreement, arrangement or commitment.
Except as set forth in the FBOH Disclosure Letter, there are no voting trusts
or other similar agreements, arrangements or commitments to which FBOH or any
FBOH Subsidiary (as hereinafter defined) is a party with respect to the voting
of the capital stock of FBOH. All of the shares of FBOH Common Stock issuable
in exchange for the Common Stock at the Effective Time in accordance with this
Agreement will be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and will not be subject to preemptive rights. FBOH has
reserved for issuance the number of shares of FBOH Common Stock necessary to
satisfy FBOH's obligations under Section 2.1.
3.4. SUBSIDIARIES. The FBOH Disclosure Letter sets forth, as of the
date of this Agreement, the name and state of incorporation of each banking,
savings and loan and each other significant subsidiary (as hereinafter defined)
of FBOH (collectively, the "FBOH Subsidiaries"). Except as set forth in the
FBOH Disclosure Letter, each of the FBOH Subsidiaries is a bank or a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of incorporation or organization and is
duly qualified to do business as a foreign corporation in each jurisdiction in
which its ownership or lease of property or the nature of the business
conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would not have a Material
Adverse Effect on FBOH. Each of the FBOH Subsidiaries has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its businesses as they are now being conducted.
Except as set forth in the FBOH Disclosure Letter, as of the date of
this Agreement, all outstanding shares of capital stock of each FBOH Subsidiary
are owned by FBOH or another FBOH Subsidiary and are validly issued, fully paid
and nonassessable, have not been issued in violation of any preemptive right
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and are owned free and clear of all liens, claims, charges, options,
encumbrances or agreements with respect thereto. Except as set forth in the
FBOH Disclosure Letter, as of the date of this Agreement, neither the FBOH nor
any FBOH Subsidiary owns beneficially more than 5% of any class of equity
securities or any similar interests of any corporation, bank, business, trust,
association or similar organization. There are, as of the date of this
Agreement, no outstanding subscriptions, options, warrants, scrip, rights,
calls, convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
or other securities of any FBOH Subsidiary obligating, or which may obligate,
any FBOH Subsidiary to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of its capital stock or obligating, or which may
obligate, any FBOH Subsidiary to grant, extend or enter into any subscription,
option, warrant, scrip, right, call, convertible security or other similar
agreement, arrangement or commitment.
3.5. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENT, ETC.
(a) None of the information with respect to FBOH or any FBOH
Subsidiary provided by FBOH for inclusion in the Registration Statement to be
filed with the Securities and Exchange Commission (the "Commission") by FBOH on
Form S-4 (or any other appropriate form) under the Securities Act of 1933, as
amended (the "Securities Act") for the purpose of registering the shares of
FBOH Common Stock to be issued in the Merger (the "Registration Statement")
will, at the time it becomes effective and at the time of GNFC Meeting (as
hereinafter defined), contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading. None of the information with respect to FBOH or any
FBOH Subsidiary provided by FBOH for inclusion in any proxy statement or
information statement or notice of GNFC, or any amendments or supplements
thereto, required to be mailed to GNFC's stockholders in connection with the
Merger (the "Proxy" or "Proxy Statement") will, at the time of the mailing of
the Proxy Statement, and at the time of GNFC Meeting, contain any statement
which, at the time it is made and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or which
omits to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for GNFC
Meeting which has become false or misleading. The Registration Statement will
comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations promulgated thereunder.
(b) All documents that FBOH is responsible for filing with any
Governmental Entity will comply as to form in all material respects with
applicable law. None of the information with respect to FBOH or any FBOH
Subsidiary provided by FBOH for inclusion in any document to be filed with any
regulatory authority in connection with the transactions contemplated hereby
will contain any statement of a material fact which is untrue as of the time
that such statement is made.
3.6. CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth in the
FBOH Disclosure Letter, neither the execution and delivery of this Agreement by
FBOH, nor the consummation by FBOH of the transactions contemplated hereby, nor
compliance by FBOH with any of the provisions hereof will (a) conflict with or
result in any breach of any provision of its Amended and Restated Articles of
Incorporation or Code of Regulations, (b) violate, conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
of, or result in the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of FBOH or any of the FBOH
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or
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obligation to which FBOH or any FBOH Subsidiary is a party or to which they or
any of their respective properties or assets may be subject, except for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of liens or other encumbrances, which, individually or in the
aggregate, will not have a Material Adverse Effect on FBOH, (c) violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to FBOH or any FBOH Subsidiary or any of their respective properties
or assets, except for such violations which, individually or in the aggregate,
will not have a Material Adverse Effect on FBOH, or (d) require any consent,
approval, authorization or permit of or from, or filing with or notification
to, any court, governmental authority or other regulatory or administrative
agency or commission, domestic or foreign ("Governmental Entity"), except (i)
pursuant to the Exchange Act and the Securities Act, (ii) filing the
certificate of merger pursuant to the OGCL, (iii) filings required under the
securities or blue sky laws of the various states, (iv) filings with, and
approval by, the Board of Governors of the Federal Reserve System (the "FRB"),
(v) filings with, and approval by, the Office of the Comptroller of the
Currency (the "OCC"), (vi) filings with, and approval by, the Office of Thrift
Supervision ("OTS"), (vii) filings with, and approval by, the Ohio Division of
Savings and Loan Associations ("Division"), (viii) filings and approvals
pursuant to any applicable state takeover laws ("State Takeover Approvals"),
(ix) consents, approvals, authorizations, permits, filings or notifications in
connection with compliance with applicable provisions of federal and state
securities laws relating to the regulation of broker-dealers, investment
advisors, or stock transfer agents, or (x) consents, approvals, authorizations,
permits, filings or notifications which have either been obtained or made prior
to the Closing or which, if not obtained or made, will neither, individually or
in the aggregate, have a Material Adverse Effect on FBOH nor restrict FBOH's
legal authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby.
3.7. REPORTS AND FINANCIAL STATEMENTS. Since January 1, 1990, FBOH and
each FBOH Subsidiary have filed all reports, registrations and statements,
together with any required amendments thereto, that each was required to file
with the Commission, including, but not limited to Forms 10-K, Forms 10-Q,
Forms 8-K and proxy statements (collectively, the "FBOH Reports"). As of their
respective dates (but taking into account any amendments filed prior to the
date of this Agreement), the FBOH Reports complied, or, with respect to FBOH
Reports filed after the date of this Agreement, will comply, in all material
respects with all the rules and regulations promulgated by the Commission and
did not contain, or, with respect to FBOH Reports filed after the date of this
Agreement, will not contain, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim financial statements of FBOH included in the FBOH Reports (the "FBOH
Financial Statements") have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated financial
position of FBOH and the FBOH Subsidiaries as at the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
3.8. TAXES. Except as set forth in the FBOH Disclosure Letter, FBOH
and each FBOH Subsidiary have prepared in good faith and duly and timely filed,
all federal, state, local and foreign income, franchise, sales, real and
personal property and other tax returns and reports required to be filed by
them on or before the date of this Agreement, except where the failure to file
would not have a Material Adverse Effect on FBOH. Except as set forth in the
FBOH Disclosure Letter, FBOH and each FBOH Subsidiary have paid, or have
adequately reserved or have made adequate accruals (in accordance with
generally accepted accounting principles) with respect to, all taxes, interest
and penalties shown to be owing on all such returns or reports. There are no
liens for federal, state, local or foreign taxes upon
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the assets of FBOH or of any FBOH Subsidiary, except for statutory liens for
taxes and assessments not yet delinquent or the validity of which is being
contested in good faith by appropriate proceedings. As of the date of this
Agreement, except as set forth in the FBOH Disclosure Letter, neither FBOH nor
any of the FBOH Subsidiaries is a party to any action or proceeding, nor is any
such action or proceeding threatened, by any Governmental Entity for the
assessment or collection of taxes which are material in amount, and no
deficiency notices or reports have been received by FBOH or any of the FBOH
Subsidiaries in respect of any material deficiencies for any tax, assessment or
government charges.
3.9. EMPLOYEE PLANS. All of the FBOH employee plans ("FBOH Employee
Plans") have been maintained, operated and administered in substantial
compliance with their terms, and FBOH, all of the FBOH Subsidiaries and all of
the FBOH Employee Plans currently comply, and have at all relevant times
complied, in all material respects with the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code, and any other applicable laws.
3.10. MATERIAL CONTRACTS. Except as set forth in the FBOH
Disclosure Letter or disclosed in the FBOH Reports, neither FBOH nor any FBOH
Subsidiary is, as of the date of this Agreement, a party to, or is bound by,
(a) any material lease not made in the ordinary course of business of FBOH, (b)
any agreement, arrangement, or commitment not made in the ordinary course of
business which materially restricts the conduct of any line of business of
FBOH, (c) any material agreement, indenture or other instrument not
specifically disclosed in the FBOH Financial Statements relating to the
borrowing of money by FBOH or the guarantee by FBOH of any such obligation
(other than trade payables and instruments relating to transactions entered
into in the ordinary course of business), (d) any agreement, arrangement or
commitment with or to a labor union, or (e) any other contract or agreement or
amendment thereto that would be required to be filed as an exhibit to a Form
10-K filed by FBOH with the Commission as of the date of this Agreement (the
"FBOH Contracts"). Neither FBOH nor any FBOH Subsidiary is in default under
any FBOH Contract, which default is reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on FBOH, and there
has not occurred any event that with the lapse of time or the giving of notice
or both would constitute such a default.
3.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the FBOH Disclosure Letter or disclosed in FBOH Reports filed by FBOH with the
Commission prior to the date of this Agreement, since December 31, 1992 to the
date of this Agreement, there has not been any change in the financial
condition, results of operations or business of FBOH and the FBOH Subsidiaries
that either individually or in the aggregate would have a Material Adverse
Effect on FBOH.
3.12. LITIGATION. Except as disclosed in the FBOH Disclosure Letter
or in FBOH Reports filed by FBOH with the Commission prior to the date of this
Agreement, there is no litigation, action, arbitration or proceeding pending,
or, to the best knowledge of FBOH, threatened against or affecting FBOH or any
FBOH Subsidiary which, either individually or in the aggregate, is having, or
insofar as reasonably can be foreseen, will have, a Material Adverse Effect on
FBOH, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator, outstanding against FBOH or any FBOH
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
3.13. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in the
FBOH Disclosure Letter or in FBOH Reports filed by FBOH with the Commission
prior to the date of this Agreement, the businesses of FBOH and the FBOH
Subsidiaries are not being conducted, and have not been conducted since
December 31, 1990, in violation of any law, ordinance, regulation, judgment,
order, decree, license or permit of any Governmental Entity, except for
possible violations which individually or in the
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aggregate do not, and, insofar as reasonably can be foreseen, in the future
will not, have a Material Adverse Effect on FBOH. Except as set forth in the
FBOH Disclosure Letter, no investigation or review by any Governmental Entity
with respect to FBOH or any of the FBOH Subsidiaries outside the ordinary
course of business and not generally applicable to entities engaged in the same
business is pending or, to the knowledge of FBOH, threatened, and no
Governmental Entity has indicated an intention to conduct the same in each case
other than those the outcome of which will not have a Material Adverse Effect
on FBOH.
3.14. AGREEMENTS WITH BANK REGULATORS. As of the date of this
Agreement, except as set forth in the FBOH Disclosure Letter, neither FBOH nor
any FBOH Subsidiary is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, any Governmental Entity outside the
ordinary course of business and not generally applicable to entities engaged in
the same business, including, without limitation, cease and desist or other
orders of any bank regulatory authority, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its credit
policies or its management, nor has FBOH been advised by any Governmental
Entity that it is contemplating issuing, requiring or requesting (or is
considering the appropriateness of issuing, requiring or requesting) any such
order, directive, agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter or similar undertaking. Except as set
forth in the FBOH Disclosure Letter, there are no (i) material violations or
(ii) violations with respect to which refunds or restitutions which are
material in amount to FBOH and the FBOH Subsidiaries taken as a whole may be
required, cited in any compliance report to FBOH or any FBOH Subsidiary as a
result of an examination by any bank regulatory authority.
3.15. FBOH OWNERSHIP OF STOCK. Except as disclosed in the FBOH
Disclosure Letter neither FBOH nor, to the best of its knowledge, any of its
affiliates or associates (i) beneficially owns, directly or indirectly, or (ii)
are parties to any agreement, arrangement or commitment for the purpose of
acquiring, holding, voting or disposing of, in each case, Shares (other than
Shares held in a fiduciary, trust, custodial or agency capacity by a bank or
trust subsidiary of FBOH) which in the aggregate, represent 1% or more of the
outstanding Shares.
3.16. ACCOUNTING MATTERS. Except as set forth in the FBOH
Disclosure Letter, neither FBOH nor, to the best of its knowledge, any of its
affiliates, has taken or agreed to take any action that would prevent FBOH from
accounting for the business combination to be effected by the Merger as a
"pooling of interests." FBOH has received from its independent accountants,
Coopers & Lybrand, a letter stating that based upon Coopers & Lybrand's review
of the letter from FBOH to GNFC regarding the proposed terms and conditions of
the transactions contemplated in this Agreement, that such firm is currently
unaware of any reason why it would not be able to provide the letter to FBOH
required under Section 6.1(d).
3.17. FEES. Neither FBOH nor any FBOH Subsidiary has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement.
3.18. FBOH ACTION. The Board of Directors of FBOH (at a meeting
duly called and held) has by the requisite vote (i) determined that the Merger
is advisable and in the best interests of FBOH and its stockholders, and (ii)
authorized and approved this Agreement, and the transactions contemplated
hereby and thereby, including the Merger.
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3.19. VOTE REQUIRED. No vote of the holders of any class or series
of FBOH capital stock are necessary to approve this Agreement and the
transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF GNFC
GNFC hereby represents and warrants to FBOH that:
4.1. CORPORATE ORGANIZATION. GNFC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Ohio and
is duly qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which its ownership or lease of property or
the nature of the business conducted by it makes such qualification necessary,
except for such jurisdictions in which the failure to be so qualified would not
have a Material Adverse Effect on GNFC. GNFC is registered as a savings and
loan holding company with OTS (as defined herein). GNFC has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted. GNFC has
delivered to FBOH as attachments to the GNFC Disclosure Letter true and
complete copies of its Articles of Incorporation, as amended, and its Code of
Regulations, as amended (the "Corporate Governance Documents") as currently in
effect.
4.2. AUTHORITY. GNFC has the requisite corporate power and authority
to execute and deliver this Agreement and, except for any required approval of
GNFC's stockholders and the approval of the applicable Regulatory Authorities,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized and approved by the Board of Directors of GNFC and no
other corporate proceedings on the part of GNFC are necessary to authorize this
Agreement or to consummate the transactions so contemplated, subject only to
approval by the stockholders of GNFC as provided in Section 6.1(a). This
Agreement has been duly executed and delivered by, and constitutes a valid and
binding obligation of, GNFC, enforceable against GNFC in accordance with its
terms, except as enforceability hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought, and
except as enforceability hereof may be limited by laws relating to the safety
and soundness of insured depository institutions as set forth in 12 U.S.C.
Section 1818(b) or to the appointment of a conservator or receiver by the
Federal Deposit Insurance Corporation.
4.3. CAPITALIZATION. The authorized capital stock of GNFC consists of
5,000,000 shares of Common Stock. As of the date of this Agreement 420,000
shares of Common Stock (including 1,480 treasury shares) were validly issued
and outstanding, fully paid and nonassessable and not issued in violation of
any preemptive right of any Company stockholder. Since the date of this
Agreement, GNFC has not issued any additional Shares other than pursuant to the
exercise of Company Stock Options outstanding on the date of this Agreement.
Except as contemplated by this Agreement or in GNFC Disclosure Letter (which is
a letter attached hereto as Exhibit 4.3, dated the date of this Agreement, from
GNFC to FBOH, such letter being identified by FBOH executing a copy thereof),
there are no shares of capital stock of GNFC authorized, issued or outstanding
and there are no outstanding subscriptions, options, warrants, scrip, rights,
calls, convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
or other securities of GNFC obligating, or which may obligate, GNFC to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of GNFC or obligating, or which may obligate, GNFC to grant,
extend or enter into any subscription, option, warrant, scrip, right, call,
convertible security or other
A-11
similar agreement, arrangement or commitment. Except as set forth in GNFC
Disclosure Letter, there are no voting trusts or other similar agreements,
arrangements, or commitments to which GNFC or any Company Subsidiary (as
hereinafter defined) is a party with respect to the voting of the capital stock
of GNFC.
As of the date of this Agreement, there were outstanding Company Stock
Options to purchase 84,000 shares of Common Stock and all of which are either
currently exercisable or will become exercisable upon the execution of this
Agreement. The total number of shares of Common Stock outstanding immediately
prior to the Effective Time shall not exceed 504,000 shares (including all
shares of Common Stock which would become outstanding upon exercise of all the
unexercised employee stock options).
4.4. SUBSIDIARIES. GNFC Disclosure Letter sets forth, as of the date
of this Agreement, the name and state of incorporation of each subsidiary of
GNFC (collectively, the "Company Subsidiaries") and the authorized capital
stock of each Company Subsidiary. Except as set forth in GNFC Disclosure
Letter, each of GNFC Subsidiaries is a savings association or a corporation
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or organization and is duly qualified
to do business as a foreign corporation in each jurisdiction in which its
ownership or lease of property or the nature of the business conducted by it
makes such qualification necessary, except for such jurisdictions in which the
failure to be so qualified would not have a Material Adverse Effect on GNFC.
Each of GNFC Subsidiaries has the requisite corporate power and authority to
own, lease and operate its properties and assets and to carry on its businesses
as they are now being conducted. GNFC has delivered to FBOH as attachments to
the GNFC Disclosure Letter true and complete copies of its subsidiaries'
articles of incorporation and code of regulations, both as currently in effect.
Except as set forth in GNFC Disclosure Letter, as of the date of this
Agreement, all outstanding shares of capital stock of each Company Subsidiary
are owned by GNFC or another Company Subsidiary and are validly issued, fully
paid and nonassessable, have not been issued in violation of any preemptive
right and are owned free and clear of all liens, claims, charges, options,
encumbrances or agreements with respect thereto. Except as set forth in GNFC
Disclosure Letter, as of the date of this Agreement, neither GNFC nor any
Company Subsidiary owns beneficially more than 5% of any class of equity
securities or any similar interests of any corporation, bank, business, trust,
association or similar organization. There are, as of the date of this
Agreement, no outstanding subscriptions, options, warrants, scrip, rights,
calls, convertible securities or any other similar agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
or other securities of any Company Subsidiary obligating, or which may
obligate, any Company Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of its capital stock or
obligating, or which may obligate, any Company Subsidiary to grant, extend or
enter into any subscription, option, warrant, scrip, right, call, convertible
security or other similar agreement, arrangement or commitment.
4.5. INFORMATION IN DISCLOSURE DOCUMENTS REGISTRATION STATEMENT, ETC.
(a) None of the information with respect to GNFC or any Company
Subsidiary provided in writing by GNFC for inclusion in the Registration
Statement will, at the time it becomes effective and at the time of GNFC
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. None of the information with respect to GNFC or any Company
Subsidiary provided in writing by GNFC for inclusion in the Proxy Statement
will, at the time of the mailing of the Proxy Statement, and at the time of
GNFC Meeting, contain any
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statement which, at the time it is made and in light of the circumstances under
which it is made, is false or misleading with respect to any material fact, or
which omits to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for GNFC Meeting which has become false or misleading. The Proxy
Statement will comply as to form in all material respects with the provisions
of the Exchange Act, and the rules and regulations promulgated thereunder.
(b) All documents that GNFC is responsible for filing with any
Governmental Entity will comply as to form in all material respects with
applicable law. None of the information with respect to GNFC or any Company
Subsidiary provided by GNFC for inclusion in any document to be filed with any
regulatory authority in connection with the transactions contemplated hereby
will contain any statement of a material fact which is untrue as of the time
that such statement is made.
4.6. CONSENT AND APPROVALS; NO VIOLATION. Except as set forth in GNFC
Disclosure Letter, neither the execution and delivery of this Agreement by
GNFC, nor the consummation by GNFC of the transactions contemplated hereby, nor
compliance by GNFC with any of the provisions hereof, will (a) conflict with or
result in any breach of any provision of its Corporate Governance Documents,
(b) violate, conflict with, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration of, or result in the creation of any
lien, security interest, charge or other encumbrance upon any of the properties
or assets of GNFC or any of GNFC Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which GNFC or
any Company Subsidiary is a party or to which they or any of their respective
properties or assets may be subject, except for such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens or other
encumbrances, that are set forth in GNFC Disclosure Letter or which,
individually or in the aggregate, will not have a Material Adverse Effect on
GNFC, (c) violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to GNFC or any Company Subsidiary or any
of their respective properties or assets, except for such violations which,
individually or in the aggregate, will not have a Material Adverse Effect on
GNFC, or (d) require any consent, approval, authorization or permit of or from,
or filing with or notification to, any Governmental Entity, except (i) pursuant
to the Exchange Act, (ii) filing certificates of merger pursuant to the OGCL,
(iii) filings required under the securities or blue sky laws of the various
states, (iv) filings with, and approval by, the FRB, (v) filings with, and
approval by, the OCC, (vi) filings with, and approval by, the OTS, (vii)
filings with, and approval by the Division, (viii) filings and approvals
pursuant to any applicable State Takeover Approvals, or (ix) consents,
approvals, authorizations, permits, filings or notifications which have either
been obtained or made prior to the Closing or which, if not obtained or made,
will neither, individually or in the aggregate, have a Material Adverse Effect
on GNFC nor restrict GNFC's legal authority to execute and deliver this
Agreement and consummate the transactions contemplated hereby.
4.7. FINANCIAL STATEMENTS. Since January l, 1990, the audited
consolidated financial statements and unaudited interim financial statements of
GNFC (the "Company Financial Statements") have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the notes thereto) and fairly present the
consolidated financial position of GNFC and GNFC Subsidiaries as at the dates
thereof and the consolidated results of operations and cash flows for the
periods then ended subject, in the case of the unaudited interim financial
statements, to normal year-end and audit adjustments and any other adjustments
described therein.
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4.8. TAXES. Except as set forth in GNFC Disclosure Letter, GNFC and
each Company Subsidiary have prepared in good faith and duly and timely filed,
or caused to be duly and timely filed, all federal, state, local and foreign
income, franchise, sales, real and personal property and other tax returns and
reports required to be filed by them on or before the date of this Agreement,
except where the failure to file would not have a Material Adverse Effect on
GNFC. Except as set forth in GNFC Disclosure Letter, GNFC and each Company
Subsidiary have paid, or have adequately reserved or have made adequate
accruals (in accordance with generally accepted accounting principles) with
respect to, all taxes, interest and penalties shown to be owing on all such
returns and reports. The GNFC Disclosure Letter sets forth, as of the date of
this Agreement, the following information with respect to GNFC and each Company
Subsidiary: (i) the most recent tax year through which the IRS has completed
its examination of such corporation, (ii) whether there is an examination
pending by the IRS with respect to such corporation and, if so, the tax years
involved, (iii) whether such corporation has executed or filed with the IRS any
agreement which is still in effect extending the period for assessment and
collection of any federal tax and, if so, the tax years covered by such
agreement and the expiration date of such extension, and (iv) whether there are
any existing material disputes as to state, local or foreign taxes. Except as
set forth in GNFC Disclosure Letter, there are no liens for federal, state,
local or foreign taxes upon the assets of GNFC or of any Company Subsidiary,
except for statutory liens for taxes and assessments not yet delinquent or the
validity of which is being contested in good faith by appropriate proceedings.
Except as set forth in GNFC Disclosure Letter, neither GNFC nor any of GNFC
Subsidiaries is a party to any action or proceeding, nor is any such action or
proceeding threatened, by any Governmental Entity for the assessment or
collection of taxes which are material in amount, and no deficiency notices or
reports have been received by GNFC or any of GNFC Subsidiaries in respect of
any material deficiencies for any tax, assessment, or government charges.
After the date of this Agreement, GNFC will promptly notify FBOH of (i) the
commencement or threat of any such action or proceeding involving an amount of
taxes material to GNFC and its subsidiaries taken as a whole, and (ii) the
receipt by GNFC or GNFC Subsidiaries of any such deficiency notices or reports
in respect of any material deficiencies.
4.9. EMPLOYEE PLANS. All employee bonus, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase, employee
stock ownership, stock appreciation rights, savings, consulting, severance,
collective bargaining, group insurance, fringe benefit and other employee
benefit, incentive and welfare plans, policies, contracts and arrangements,
formal or informal, written or oral, and all trust agreements related thereto,
now in effect and relating to any present or former directors, officers or
employees of GNFC or GNFC Subsidiaries, whether or not described in Section
3(3) of ERISA ("Company Employee Plans"), are identified in GNFC Disclosure
Letter. GNFC has previously delivered or made available to FBOH copies of all
Company Employee Plans, in each case as in effect on the date of this
Agreement. All of GNFC Employee Plans have been maintained, operated and
administered in substantial compliance with their terms, and GNFC, all of GNFC
Subsidiaries and all of GNFC Employee Plans currently comply, and have at all
relevant times complied, in all material respects with ERISA, the Code, and any
other applicable laws. With respect to each Company Employee Plan which is a
pension plan (as defined in Section 3(2) of ERISA): (a) each pension plan as
amended (and any trust relating thereto) intended to be a qualified plan under
Section 401(a) of the Code either has been determined by the Internal Revenue
Service ("IRS") to be so qualified or is the subject of a pending application
for such determination that was timely filed, (b) except as set forth in GNFC
Disclosure Letter, is fully funded for termination purposes and pursuant to all
such requirements, and there is no accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the Code), whether or not waived,
and no waiver of the minimum funding standards of such sections has been
requested from the IRS, (c) no reportable event described in Section 4043 of
ERISA has occurred, (d) no defined benefit plan has been terminated, nor has
the Pension Benefit Guaranty Corporation ("PBGC") instituted proceedings to
terminate a defined benefit plan or to appoint a trustee or administrator of a
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defined benefit plan, and no circumstances exist that constitute grounds under
Section 4042 of ERISA entitling the PBGC to institute any such proceedings, and
(e) no pension plan is a "multi-employer plan" within the meaning of Section
3(37) of ERISA. Except as set forth in GNFC Disclosure Letter, no Company
Employee Plan provides benefits, including, without limitation, death or
medical benefits (whether or not insured), with respect to current or former
employees beyond their retirement or other termination of service (other than
(i) temporary coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any "employee pension plan," as that term is defined
in Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of GNFC or GNFC Subsidiaries, or (iv) benefits the
full cost of which are borne by the current or former employee (or his or her
beneficiary)).
4.10. MATERIAL CONTRACTS. Except as set forth in GNFC Disclosure
Letter, neither GNFC nor any Company Subsidiary is, as of the date of this
Agreement, a party to, or is bound by, (a) any material lease not made in the
ordinary course of business of GNFC, (b) any agreement, arrangement, or
commitment not made in the ordinary course of business which materially
restricts the conduct of any line of business of GNFC, (c) any benefit
agreements providing for aggregate payments to any person in any calendar year
in excess of $70,000, (d) any material agreement, indenture or other instrument
not specifically disclosed in GNFC Financial Statements relating to the
borrowing of money by GNFC or the guarantee by GNFC of any such obligation
(other than trade payables and instruments relating to transactions entered
into in the ordinary course of business) or (e) any agreement, arrangement or
commitment with or to a labor union (the agreements and other documents
referred to in clauses (a) through (e) of this sentence, collectively, the
"Company Contracts"). Neither GNFC nor any Company Subsidiary is in default
under any Company Contract, which default is reasonably likely to have, either
individually or in the aggregate, a Material Adverse Effect on GNFC, and there
has not occurred any event that with the lapse of time or the giving of notice
or both would constitute such a default.
4.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
GNFC Disclosure Letter, since December 31, 1992 to the date of this Agreement,
there has not been any change in the financial condition, results of operations
or business of GNFC and the subsidiaries of GNFC that either individually or in
the aggregate would have a Material Adverse Effect on GNFC, other than as a
result of proposals for the acquisition of GNFC and responses thereto and the
impact thereof on the operating performance of GNFC.
4.12. LITIGATION. Except as disclosed in GNFC Disclosure Letter,
there is no litigation, action, arbitration or proceeding pending, or, to the
best knowledge of GNFC, threatened against or affecting GNFC or any Company
Subsidiary which, either individually or in the aggregate, is having, or
insofar as reasonably can be foreseen will have, a Material Adverse Effect on
GNFC, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator, outstanding against GNFC or any Company
Subsidiary having, or which, insofar as reasonably can be foreseen, in the
future would have, any such effect.
4.13. COMPLIANCE WITH LAWS AND ORDERS. Except as disclosed in GNFC
Disclosure Letter, the businesses of GNFC and GNFC Subsidiaries are not being
conducted, and have not been conducted since December 31, 1990, in violation of
any law, ordinance, regulation, judgment, order, decree, license or permit of
any Governmental Entity (including, without limitation, zoning ordinances,
building codes, and environmental, civil rights, and occupational health and
safety laws and regulations and, in the case of Company Subsidiaries that are
savings and loans or thrifts, all statutes, rules and regulations pertaining to
the conduct of such business), except for possible violations which
individually or in the aggregate do not, and, insofar as reasonably can be
foreseen, in the future will not, have a Material Adverse Effect
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on GNFC. Except as set forth in GNFC Disclosure Letter, no investigation or
review by any Governmental Entity with respect to GNFC or any of GNFC
Subsidiaries outside the ordinary course of business and not generally
applicable to entities engaged in the same business is pending or, to the
knowledge of GNFC, threatened, nor has any Governmental Entity indicated an
intention to conduct the same in each case other than those the outcome of
which will not have a Material Adverse Effect on GNFC.
4.14. AGREEMENTS WITH REGULATORS. As of the date of this Agreement,
except as disclosed in GNFC Disclosure Letter, neither GNFC nor any Company
Subsidiary is a party to any written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, any Governmental Entity outside the ordinary course of
business and not generally applicable to entities engaged in the same business,
including, without limitation, cease and desist orders of any regulatory
authority, which restricts materially the conduct of its business, or in any
manner relates to its capital adequacy, its credit policies or its management,
nor has GNFC been advised by any Governmental Entity that it is contemplating
issuing, requiring, or requesting (or is considering the appropriateness of
issuing, requiring or requesting) any such order, directive, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment
letter or similar undertaking. Except as set forth in GNFC Disclosure Letter,
there are no (i) material violations, or (ii) violations with respect to which
refunds or restitutions which are material in amount to GNFC and GNFC
Subsidiaries taken as a whole may be required, cited in any compliance report
to GNFC or any Company Subsidiary as a result of an examination by any
regulatory authority.
4.15. COMPANY OWNERSHIP OF STOCK. Except as disclosed in GNFC
Disclosure Letter, as of the date of this Agreement, neither GNFC nor, to the
best of its knowledge, any of its affiliates or associates (i) beneficially
owns directly or indirectly, or (ii) are parties to any agreement, arrangement
or commitment for the purpose of acquiring, holding, voting or disposing of, in
each case, shares of FBOH Common Stock (other than shares of FBOH Common Stock
held in a fiduciary, trust, custodial or agency capacity by a subsidiary of
GNFC) which in the aggregate, represent 1% or more of the outstanding shares of
FBOH Common Stock.
4.16. ACCOUNTING MATTERS. Except as set forth in GNFC Disclosure
Letter, neither GNFC nor, to the best of its knowledge, any of its affiliates,
has taken or agreed to take any action that would prevent FBOH from accounting
for the business combination to be effected by the Merger as a "pooling of
interests."
4.17. BROKER FEES. Except for fees paid and payable to Trident
Financial Corporation, neither GNFC nor any Company Subsidiary has paid or
become obligated to pay any broker fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this
Agreement.
4.18. COMPANY ACTION. The Board of Directors of GNFC (at a meeting
duly called and held) has by the requisite vote (i) determined that the Merger
is advisable and in the best interests of GNFC and its stockholders, (ii)
authorized and approved this Agreement and the transactions contemplated hereby
and thereby, including the Merger, and (iii) directed that the Merger be
submitted for consideration by GNFC's stockholders entitled to vote thereon at
the GNFC Meeting. Trident Financial Corporation, GNFC's financial advisor, has
provided the Board of Directors of GNFC with its opinion that, as of the date
of such duly called meeting of the Board, the Merger Consideration is fair,
from a financial point of view, to the stockholders of GNFC. Trident has also
informed the Board on September
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28, 1993, that absent a materially adverse change, it believes it will be able
to render its opinion as of the date of the prospectus and Proxy contained in
the Registration Statement.
4.19. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock entitled to vote thereon is
the only vote of the holders of any class or series of Company capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
4.20. CONDUCT OF GNFC TO DATE. Except as disclosed in GNFC
Disclosure Letter, from and after December 31, 1992 to the date of this
Agreement: (a) GNFC and GNFC Subsidiaries have carried on their respective
businesses in the ordinary and usual course consistent with their current
practices, (b) GNFC has not issued or sold any of its capital stock (except
shares of Common Stock issued upon exercise of employee stock options
outstanding on or before December 31, 1992), or any corporate debt securities
which would be classified as long-term debt on the balance sheets of GNFC, (c)
GNFC has not granted any option for the purchase of its capital stock, effected
any stock split, or otherwise changed its authorized capitalization, (d) GNFC
has not declared, set aside, or paid any dividend or other distribution in
respect of its capital stock, or, directly or indirectly, redeemed or otherwise
acquired any of its capital stock, except regular quarterly cash dividends in
an amount not to exceed 48 cents per share of Common Stock, (e) GNFC has
neither incurred nor prepaid any corporate debt securities or instruments which
are or would be classified as long-term debt on the balance sheet of GNFC, (f)
neither GNFC nor any Company Subsidiary has sold, assigned, transferred, or
otherwise disposed of to a third party (i) equity securities in or issued by
any Company Subsidiary, (ii) branch offices of any Company Subsidiary, (iii)
assets constituting any other line of business, or (iv) any of its other
material properties or assets other than for a fair consideration in the
ordinary course of business, (g) neither GNFC nor any Company Subsidiary has
purchased or otherwise acquired from a third party equity securities in or
issued by such third party other than in the ordinary course of business,
branch offices of such third party, assets constituting any other line of
business, or any other material properties or assets outside the ordinary
course of its business, (h) neither GNFC nor any Company Subsidiary has:
increased the rate of compensation of, or paid any bonus to, any of its
directors, officers, or other employees, except as required under existing
plans and policies, entered into any new, or amended or supplemented any
existing, or secured, collateralized, or funded any, employment, management,
consulting, deferred compensation, severance, or other similar contract,
entered into, terminated, or substantially modified any Company Employee Plan
in respect of any of its present or former directors, officers, or other
employees, or agreed to do any of the foregoing, (i) neither GNFC nor any
Company Subsidiary, has entered into any transaction, contract, lease,
agreement or commitment requiring the approval of the Board of Directors of
GNFC or any Company Subsidiary, or amended, modified or terminated any
contract, lease or other agreement to which it is a party in a manner requiring
the approval of the Board of Directors of GNFC or any Company Subsidiary, and
(j) no Company Subsidiary has entered into any material transaction, contract,
lease, agreement or commitment outside the ordinary course of business
requiring the approval of the Board of Directors of such Subsidiary or amended,
modified or terminated outside the ordinary course of business any material
contract, lease or other agreement to which it is a party in a manner requiring
the approval of the Board of Directors of such Subsidiary.
4.21. ENVIRONMENTAL MATTERS. For purposes of this Agreement, the
following terms shall have the indicated meanings:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any Governmental Entity relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air,
water vapor, surface water, ground water,
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drinking water supply, surface soil, subsurface soil, plant and animal
life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The
term Environmental Law includes, without limitation; the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42
U.S.C. Section 9601, et seq.; the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901, et seq.; the Clean Air Act, as
amended, 42 U.S.C. Section 7401, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances Control Act, as amended, 125 U.S.C. Section 9601, et seq.;
the Emergency Planning and Community Right to Know Act, 42 U.S.C.
Section 11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. Section
300f, et seq.; all comparable state and local laws; and any common law
(including without limitation common law that may impose strict
liability) that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or
by quantity, including any material containing any such substance as a
component. Hazardous Substances include, without limitation, petroleum
or any derivative or by-product thereof, asbestos, radioactive material,
and polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned, operated or managed (including those held in trust) by
GNFC, as the case may be, or any of their subsidiaries.
Except as set forth in GNFC Disclosure Letter, to the best of GNFC's knowledge,
neither GNFC nor any of its subsidiaries has been or is in violation of or
liable under any Environmental Law, except for any such violations or
liabilities which would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on GNFC. To the best of GNFC's
knowledge, none of the Loan Portfolio Properties and Other Properties Owned by
GNFC or any of its subsidiaries has been since such properties have been owned,
operated or managed by GNFC or any of its subsidiaries, or is in violation of
or liable under any Environmental Law, except for any such violations or
liabilities which, individually or in the aggregate, would not have a Material
Adverse Effect on GNFC. To the best of GNFC's knowledge, there are no actions,
suits, demands, notices, claims, investigations or proceedings pending or
threatened relating to the liability of the Loan Portfolio Properties and Other
Properties Owned by GNFC or its subsidiaries under any Environmental Law,
including, without limitation, any notices, demand letters or requests for
information from any federal or state environmental agency relating to any such
liabilities under or violations of Environmental Law, except such as would not,
individually or in the aggregate, have a Material Adverse Effect on GNFC.
5. COVENANTS
5.1. ACQUISITION PROPOSALS. Each of GNFC and GNFC Subsidiaries shall
not, directly or indirectly, and shall instruct and otherwise use its diligent
efforts to cause their respective officers, directors, employees, agents and
advisors not to, directly or indirectly, solicit or initiate any proposals or
offers from any person relating to any acquisition or purchase of all or a
material amount of the assets of, or any equity securities of, or any merger,
consolidation or business combination with, GNFC or any of GNFC Subsidiaries
(such transactions are referred to herein as "Acquisition Transactions"),
provided,
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however, that nothing contained in this Section 5.1 shall restrict or prohibit
any disclosure by GNFC that is upon the written advice of its legal counsel
determined to be required under applicable law.
5.2. INTERIM OPERATIONS OF GNFC. During the period from the date of
this Agreement to the Effective Time, except as specifically contemplated by
this Agreement, as required by law, as set forth in GNFC Disclosure Letter, or
as otherwise approved in writing by FBOH (which shall not be unreasonably
withheld):
5.2.1. CONDUCT OF BUSINESS. GNFC shall, and shall cause each of
GNFC Subsidiaries to, conduct their respective businesses only in, and not take
any action except in, the ordinary course of business substantially consistent
with current practices (which practices include any workout arrangements for
troubled loans). GNFC shall use all diligent efforts to (i) maintain and
preserve intact the business organization of GNFC and each of GNFC
Subsidiaries, keep available the services of its and their present officers and
employees, and keep the branch operations fully staffed with competent
employees, (ii) preserve the goodwill of those having business relationships
with GNFC or GNFC Subsidiaries, (iii) maintain and keep its properties in as
good repair and condition as at present, except for depreciation due to
ordinary wear and tear, (iv) attempt to resolve such loans which FBOH has
identified in writing to GNFC as "troubled," in a workout arrangement which
conditions and terms shall be satisfactory to FBOH, (v) keep in full force and
effect insurance and bonds comparable in amount and scope of coverage to that
now maintained by it, provided however, in the event that any such insurance
(including, without limitation, directors' and officers' liability insurance)
is cancelled or not renewable at its expiration at current or standard rates,
GNFC shall consult with FBOH in order to determine whether to exercise its
right to extend the discovery period and in evaluating available alternatives
to replace the current insurance, (vi) perform in all material respects all
obligations required to be performed by each of GNFC and each of GNFC
Subsidiaries under all material contracts, leases and documents relating to or
affecting its assets, properties, and business, and (vii) comply with and
perform in all material respects all obligations and duties imposed upon it by
all federal, state, municipal, and local laws, and all rules, regulations and
orders imposed by federal, state, municipal or local governmental agencies.
5.2.2. NEGATIVE COVENANTS. GNFC shall not and shall not permit any
of GNFC Subsidiaries to make any change or amendment to, or to repeal, their
respective articles of incorporation or codes of regulations (or comparable
governing instruments). Neither GNFC nor any Company Subsidiary shall after the
date of this Agreement enter into or increase any loan or credit commitment
(including standby letters of credit) to, or invest (as a venture capital or
similar investment) or agree to invest (as a venture capital or similar
investment) in, any person or entity if, after giving effect to such new or
increased loan, commitment or investment, the aggregate loans, commitments
and/or investments, on a consolidated basis, to such person or entity would
exceed $250,000, without first consulting with FBOH, and in the case of persons
or entities to which GNFC and GNFC Subsidiaries on a consolidated basis have
outstanding aggregate loans, commitments and/or investments exceeding $250,000,
neither GNFC nor any Company Subsidiary shall increase or agree to increase the
loan or credit commitment to, or invest (as a venture capital or similar
investment) or agree to invest (as a venture capital or similar investment) in,
such person without first consulting with FBOH; provided, however, that nothing
in this paragraph shall prohibit GNFC or any Company Subsidiary from honoring
any contractual obligation in existence on the date of this Agreement (a list
of such obligations in excess of $250,000, and the terms of each, is attached
hereto as Exhibit 5.2.2).
Neither GNFC nor any Company Subsidiary shall sell, assign, transfer
or otherwise dispose of to a third party, (i) branch offices of any Company
Subsidiary, or (ii) any of its material properties or assets. Neither GNFC nor
any Company Subsidiary shall purchase or otherwise acquire from a third
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party, branch offices of such third party, assets constituting any other line
of business, or any other material properties or assets outside the ordinary
course of its business. Neither GNFC nor any Company Subsidiary shall enter
into any transaction, contract, lease, agreement or commitment (or any
amendment to any transaction, contract, lease, agreement or commitment) outside
of the ordinary course of business which is material to GNFC and GNFC
Subsidiaries taken as a whole.
5.2.3. CAPITAL STOCK. GNFC shall not, and shall not permit any of
GNFC Subsidiaries to, issue or sell any shares of capital stock or any other
securities of any of them (other than pursuant to Company Stock Options
outstanding on the date of this Agreement) or issue any securities convertible
into or exchangeable for, or options, warrants to purchase, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
enter into any contract, commitment or arrangement with respect to the issuance
of, any shares of capital stock or any other securities of any of them or enter
into any arrangement, contract or commitment with respect to the purchase or
voting of shares of their capital stock, or adjust, split, combine or
reclassify any of their capital stock or other securities or make any other
changes in their capital structures. Neither GNFC nor any Company Subsidiary
shall acquire beneficial ownership of more than 5% of any class of equity
securities or any similar interests of any corporation, bank, business, trust,
association or similar organization.
5.2.4. DIVIDENDS. GNFC shall not and shall not permit any of GNFC
Subsidiaries to declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to,
or purchase or redeem, any shares of the capital stock of any of them other
than (a) GNFC's regular quarterly cash dividends (to the extent legally
permitted) in an amount not to exceed 48 cents per share of Common Stock, and
(b) dividends paid (to the extent legally permitted) by any Company Subsidiary
to another Company Subsidiary or GNFC with respect to such Company Subsidiary's
capital stock. From the date of this Agreement to the earlier of the Effective
Time or the termination of this Agreement, GNFC shall not, without the prior
written consent of FBOH, make any changes in its practice of setting dividend
record or dividend payment dates.
5.2.5. EMPLOYEE PLANS, COMPENSATION, ETC. GNFC shall not, and shall
not permit any of GNFC Subsidiaries to, adopt or amend any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit
agreements, trusts, plans, funds or other arrangements for the benefit or
welfare of any present or former director, officer or employee of GNFC or any
Company Subsidiary or increase the compensation or fringe benefits of any
present or former director, officer or employee (except in the case of
employees who are not Senior Officers (as defined below), individual merit
increases in accordance with past practices may be granted up to five percent
of the total compensation of all employees, excluding from such total the
compensation for the Senior Officers, or pay any bonus, compensation or benefit
not required by any existing plan or arrangement (including, without
limitation, the granting of stock options or stock appreciation rights) or take
any action or grant any benefit not required under the terms of any existing
agreements, trusts, plans, funds or other such arrangements or enter into any
contract, agreement, commitment or arrangement to do any of the foregoing;
provided, however, that notwithstanding the foregoing, GNFC shall, upon FBOH's
request, take all steps necessary for purposes of maintaining in effect the
GNFC 401(k) savings plan ("GNFC 401K Plan") or other Company Employee Plan.
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5.2.6. CONFORMING ACCOUNTING AND RESERVE POLICIES; RESTRUCTURING
EXPENSES.
(a) Notwithstanding that GNFC believes that it has established all
reserves and taken all provisions for possible loan losses required by
generally accepted accounting principles and applicable laws, rules and
regulations, GNFC recognizes that FBOH has adopted different loan,
accrual and reserve policies (including loan classifications and levels
of reserves for possible loan losses). From and after the date of this
Agreement to the Effective Time, GNFC and FBOH shall consult and
cooperate with each other with respect to conforming, as specified in a
notice from FBOH to GNFC, based upon such consultation, GNFC's loan,
accrual and reserve policies to those policies of FBOH.
(b) In addition, from and after the date of this Agreement to the
Effective Time, GNFC and FBOH shall consult and cooperate with each
other with respect to determining, as specified in a notice from FBOH to
GNFC, based upon such consultation, appropriate accruals, reserves and
charges to establish and take 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 taking into account the Surviving Corporation's business
plan following the Merger.
(c) GNFC and FBOH shall consult and cooperate with each other with
respect to determining, as specified in a notice from FBOH to GNFC,
based upon such consultation, the amount and the timing for recognizing
for financial accounting purposes the expenses of the Merger and the
restructuring charges related to or to be incurred in connection with
the Merger.
(d) At the request of FBOH, and in an amount and on a basis
satisfactory to GNFC, GNFC shall promptly establish and take such
reserves and accruals as FBOH shall request to conform, on a mutually
satisfactory basis, GNFC's loan, accrual and reserve policies to FBOH's
policies, shall establish and take such accruals, reserves and charges
in order to implement such policies in respect of excess facilities and
equipment capacity, severance costs, litigation matters, write-off or
write-down of various assets and other appropriate accounting
adjustments, and to recognize for financial accounting purposes such
expenses of the Merger and restructuring charges related to or to be
incurred in connection with the Merger; provided, however, that it is
the objective of FBOH and GNFC that such reserves, accruals and charges
be taken as of or prior to December 31, 1993, but in no event later than
immediately prior to the Closing; and provided, further, that GNFC shall
not be obligated to take any such action pursuant to this Section 5.2.6
unless and until (i) FBOH specifies its request in a writing delivered
by FBOH to GNFC, (ii) all conditions to the obligations of GNFC and FBOH
to consummate the Merger set forth in Sections 6.1 through 6.3 have been
waived or satisfied by the appropriate party, and (iii) GNFC shall not
be required to take any such action that it believes is not consistent
with generally accepted accounting principles. In addition, at the
request of FBOH, GNFC agrees to request the OTS to grant GNFC a thirty
day extension so that GNFC can close its books as of April 30, 1994
rather than as of March 31, 1994.
5.3. INTERIM OPERATIONS OF FBOH. During the period from the date of
this Agreement to the Effective Time, except as specifically contemplated by
this Agreement, as required by law, or as otherwise approved in writing by GNFC
(which shall not be unreasonably withheld) FBOH shall, and shall cause each of
the FBOH Subsidiaries to, conduct their respective businesses in such a manner
so as not to materially interfere with the ability to consummate the Merger,
delay the Effective Time or have a Material Adverse Effect upon the
transactions contemplated by the Agreement.
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5.4. EMPLOYEE MATTERS.
(a) As of the Effective Time, FBOH will assume the obligations of the
currently existing GNFC employment contracts for Emil A. Voelz, Jr., Frank D.
Heckel, Gerald F. Hawkins, A. Edward Wilcox and Robert M. Critchfield ("Senior
Officers"), to the extent such obligations can be assumed or benefits
thereunder provided as a matter of law, provided however, that the total cost
and expense to FBOH for the assumption of the severance obligations thereunder
shall not exceed $1,527,585. On or prior to the Effective Time each of the
Senior Officers shall enter into agreements with FBOH acknowledging the
effectiveness of the non-competition and confidentiality provisions of such
employment contracts and providing a standard release to FBOH regarding matters
related to employment and termination. Notwithstanding any provision to the
contrary contained therein, FBOH agrees that the non-competition provisions in
the employment contracts shall be limited to a term of one year which term
shall commence as of the Effective Time. GNFC represents that there are no
other employment contracts, consulting or like agreements, with any person or
party, either written or oral, express or implied.
(b) FBOH is not required to hire any employees of GNFC or its
subsidiaries, but may if it so desires. GNFC represents that other than the
Senior Officers, all other employees are "at will." FBOH agrees to pay the
separation monies in consideration for a standard release to FBOH regarding
matters related to employment and termination listed in this Section to
employees of GNFC and its subsidiaries at Closing who do not become employees
of FBOH or its subsidiaries after the Effective Time, and persons who are
hired by FBOH but whose employment is terminated during the 150-day period
thereafter (except if such termination is for cause). The separation monies
will be calculated as follows: (i) all such employees shall receive a minimum
of four weeks salary (net of required taxes), (ii) employees with more than two
years of service will receive two weeks of salary (net of required taxes) for
each full year of service up to a maximum severance benefit equal to 26 weeks
of salary, provided however, that the total cost and expense to FBOH for the
severance benefits provided hereunder shall not exceed $650,000. Such
employees shall also be entitled to any other benefits, if any, required by
law. All persons employed by FBOH will remain "at will" employees meaning that
their employment can be terminated for any or no reason.
(c) Following the Effective Time, the employee benefit programs to be
available and applicable to the persons who were employees of GNFC and its
subsidiaries and who become employees of FBOH and/or its subsidiaries, are as
follows:
(i) Defined Benefit Retirement and Pension Plans. At such time on
or after the Effective Time as FBOH shall deem appropriate, FBOH will either
(a) merge the GNFC pension plan into the FBOH defined benefit plan, in which
case the GNFC employees will be credited with their service with GNFC and its
Subsidiaries for the purpose of calculating the amount of their accrued benefit
under the FBOH defined benefit plan and their vested accrued benefit under the
FBOH defined benefit plan shall not be less than the vested accrued benefit
under the GNFC pension plan on the date of the merger of the GNFC pension plan
into the FBOH pension plan; or (b) terminate the GNFC pension plan and permit
the GNFC employees who meet the eligibility requirements to become participants
in the FBOH defined benefit plan as of the effective date of the termination of
the GNFC pension plan, in which case the GNFC employees will not be credited
with their service with GNFC and its Subsidiaries for the purpose of
calculating the amount of their accrued benefit under the FBOH defined benefit
plan and the GNFC employees will receive a paid-up annuity with respect to the
benefit accrued under the GNFC pension plan as of the date of its termination.
In either event an GNFC employee will be credited with his service with GNFC
and its Subsidiaries for purposes of determining his eligibility to participate
in the FBOH defined benefit plan and the vested portion of his accrued benefit
under such plan.
A-22
(ii) Savings Plans. At such time on or after the Effective Time as
FBOH shall deem appropriate, FBOH will either (a) merge the GNFC and
Subsidiaries GNFC 401K Plan under the First Bancorporation of Ohio and
Subsidiaries Employees' Salary Savings Retirement Plan ("FBOH 401K Plan") or
(b) terminate the GNFC 401K Plan. At the Effective Time, FBOH will credit
employees of GNFC or any of its Subsidiaries under the FBOH 401K Plan with all
service with GNFC or any of its Subsidiaries for purposes of determining their
eligibility to participate in such Plan and their vested interest in benefits
accruing under such Plan.
(iii) Health Care Plans. At such time on or after the Effective
Time as FBOH shall deem appropriate, FBOH and its subsidiaries will provide
such coverage as they then provide their employees, with all service with GNFC
or any of its Subsidiaries credited for purposes of eligibility to participate
in such plan. No benefits currently provided GNFC or the Subsidiaries
employees which exceed those provided by FBOH and its subsidiaries will be
grandfathered or provided, except if required by law.
(iv) Other Benefit Plans. At such time on or after the Effective
Time as FBOH shall deem appropriate, FBOH and its subsidiaries will provide
such coverage as they then provide their employees with all service with GNFC
or any of its Subsidiaries credited for purposes of eligibility to participate
in such plan. No benefits currently provided GNFC or the Subsidiaries
employees which exceed those provided by FBOH and its subsidiaries will be
grandfathered or provided, except if required by law.
5.5. ACCESS, INFORMATION AND CONFIDENTIALITY. Upon reasonable notice,
GNFC and each of GNFC Subsidiaries shall afford to FBOH and its representatives
(including, without limitation, directors, officers and employees of FBOH, its
counsel, accountants and other professionals retained by FBOH) full access
during normal business hours throughout the period prior to the Effective Time
to the books, contracts, records (including, without limitation, tax returns
and work papers of independent auditors), properties, personnel and such other
information and documents of GNFC and each of GNFC Subsidiaries. GNFC shall
not be required to provide access to any such information if the providing of
such access (i) would be reasonably likely to result in the loss or impairment
of any privilege with respect to such information, or (ii) would be precluded
by any law, ordinance, regulation, judgment, order, decree, license or permit
of any Governmental Entity.
All information furnished by one party to another party in connection
with this Agreement and the transactions contemplated hereby which is regarded
by such furnishing party as confidential will be kept confidential by such
other party and its representatives (including, without limitation, directors,
officers and employees, its counsel, accountants and other professionals
retained by such party) and will be used only in connection with this Agreement
and the transactions contemplated hereby, and not in such party's business or
by its directors, officers and employees, its counsel, accountants and other
professionals retained by such party if the Merger is not consummated. Nothing
contained in this confidentiality provision shall restrict or prohibit GNFC or
FBOH from disclosing information in any document filed with the Commission,
FRB, OCC, OTS, the Division and other governmental authorities and bodies, and
so long as this Agreement has not been terminated pursuant to Article 7 hereof,
FBOH may, notwithstanding this confidentiality provision, disclose such
information as it deems necessary or advisable in connection with explaining or
providing background information to security analysts and others concerning the
transactions contemplated by this Agreement, except that any such information
dealing with the areas of individual employees, their future employment,
reserves established for specific loans, matters related to litigation and
GNFC's business strategies, may only be disclosed with the prior approval of
GNFC, which approval shall not be unreasonably withheld. It is the parties'
intent to provide such analysts with accurate information regarding the
transaction in a light favorable to completion of the transactions contemplated
by this Agreement.
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5.6. CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. FBOH and GNFC shall
(a) promptly file all reports and applications required to be filed with the
Commission, the FRB and such other regulatory authorities as may have
jurisdiction for such approvals as may be required to be obtained from such
regulatory authorities in order to carry out the transactions contemplated by
this Agreement as soon as practicable between the date of this Agreement and
the Effective Time and each FBOH Subsidiary or Company Subsidiary that is a
bank shall also file all reports required to be filed with the FRB, the OCC,
the OTS and the Division with respect to the Merger and the other transactions
contemplated by this Agreement, (b) cooperate with one another (i) in promptly
determining whether any other filings are required to be made or consents,
approvals, permits or authorizations are required to be obtained under any
other federal, state or foreign law or regulation, and (ii) in promptly making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such consents, approvals, permits or
authorizations, and (c) deliver to the other parties to this Agreement copies
of all such applications and reports promptly after they are filed.
In no event, however, shall either party hereto be liable for any untrue
statement of a material fact or omission to state a material fact in any filing
made with any Governmental Entity pursuant to this Section 5.6 made in reliance
upon, and in conformity with, written information concerning the other party
hereto furnished by such other party specifically for use in such filing. Each
party hereto shall advise the other party hereto promptly of the occurrence of
any event which makes untrue any statement of a material fact contained in any
such filing or any amendment or supplement thereto or that requires the making
of a change in any such filing or any amendment or supplement thereto in order
to make any material statement therein not misleading.
5.7. STATE TAKEOVER STATUTES. GNFC shall take all necessary steps to
(i) exempt GNFC and the Merger from the requirements of any state takeover law
(including without limitation statutes relating to business combinations,
control share acquisitions and merger moratoriums), by action of GNFC's Board
of Directors or otherwise, and (ii) assist in any challenge by FBOH to the
applicability to the Merger of any state takeover law.
5.8. INDEMNIFICATION. FBOH hereby agrees to assume and honor the terms
of the Indemnification Agreements by and between GNFC and its directors and
officers, true and complete copies of each as currently in effect have been
delivered to FBOH as attachments to the GNFC Disclosure Letter.
In addition, and not by way of limitation, for a period of three years
after the Effective Time, FBOH will, to the fullest extent permitted by Ohio
law, indemnify, defend and hold harmless each person who is now, or has been at
any time prior to the date of this Agreement or who becomes prior to the
Effective Time, a director, officer (whether elected or appointed), trustee,
employee or agent of GNFC or any Company Subsidiary or was serving at the
request of GNFC as a director, officer (whether elected or appointed), trustee,
employee or agent of any other domestic or foreign corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, whether for
profit or not (collectively, the "Indemnitees") against any and all claims,
damages, liabilities, losses, costs, expenses (including, without limitation,
reasonable, costs of investigation and fees and disbursements of legal
counsel), judgments, fines, penalties and amounts paid in settlement, asserted
against, incurred by or imposed upon any Indemnitee by reason of the fact that
the Indemnitee is or was a director, officer, employee or agent of GNFC or any
Company Subsidiary (collectively, "Losses"), arising out of, or relating to any
threatened, pending or completed claim, action, suit or proceeding (whether
civil, criminal, administrative or investigative), including, without
limitation, any and all claims, actions, suits, proceedings or investigations
by or on behalf of or in the right of or against GNFC or any subsidiary of GNFC
or their affiliates, or by any present or former stockholder of GNFC
(collectively, "Claims"), for any Claim
A-24
which is based upon, arises out of or relates to the Merger, the Proxy
Statement, this Agreement, any of the transactions contemplated by this
Agreement (including, without limitation, any schedule or exhibit hereto or
GNFC Disclosure Letter), the events leading up to the execution of this
Agreement, any statement, recommendation or solicitation made in connection
therewith or related thereto and any breach of any duty in connection with any
of the foregoing. In enforcing their rights under this Section 5.8 each of the
Indemnitees will be entitled to the procedures and have the benefits available
pursuant to Article 6 of FBOH's Amended and Restated Articles of Incorporation
or Ohio law.
In the event that both the provisions of the Indemnification Agreements
and the provisions under the paragraph immediately preceding this paragraph
provide indemnification to any or all of the directors and officers, each such
person benefitting therefrom shall have a right to elect, within a reasonable
period, the form of indemnification to be applied. GNFC shall notify FBOH prior
to purchasing or continuing any insurance to cover the matters contained
herein, provided however it is the intent of FBOH that tail coverage will be
purchased if such is available at a reasonable cost. To the extent insurance
is available under any of the provisions in this Section 5.8 to cover such
claims and costs, such insurance shall be the primary source of funding this
obligation.
5.9. ADDITIONAL AGREEMENTS. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its diligent efforts to take
promptly, or cause to be taken, all actions necessary, proper or advisable
under applicable laws to consummate the transactions contemplated by this
Agreement. In addition, without limitation, each party shall from time to time
execute such certificates as to factual matters necessary, proper or advisable
in order to receive the opinions contemplated by Article 6 of this Agreement.
If, at any time after the Effective Time, the Surviving Corporation
considers or is advised that any further deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record its right, title or interest in and to any of the
rights, properties or assets of GNFC acquired or to be acquired by the
Surviving Corporation, GNFC and its officers and directors shall be deemed to
have granted to the Surviving Corporation an irrevocable power of attorney to
execute and deliver all such deeds, bills of sale, assignments and assurances
and to take and do all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in
and to such rights, properties or assets in the Surviving Corporation.
5.10. COMPLIANCE WITH ANTITRUST AND SAVINGS ASSOCIATION LAWS. Each
of FBOH and GNFC shall use its diligent efforts to resolve such objections, if
any, which may be asserted with respect to the Merger by the FRB, the
Department of Justice, or any other Governmental Entity (including, without
limitation, objections under any antitrust laws and any applicable laws or
regulations ). In the event a suit is threatened or instituted challenging the
Merger as violative of the antitrust laws, each of FBOH and GNFC shall use its
diligent efforts to avoid the filing of, resist or resolve such suit. FBOH and
GNFC shall use their diligent efforts to take such action as may be required:
(a) by the FRB, the Department of Justice, or any other Governmental Entity in
order to resolve such objections as any of them may have to the Merger, or (b)
by any federal or state court of the United States, in any suit brought by a
private party or Governmental Entity challenging the Merger as violative of any
antitrust laws, in order to avoid the entry of, or to effect the dissolution
of, any injunction, temporary restraining order or other order which has the
effect of preventing the consummation of the Merger.
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5.11. PUBLICITY. The initial press release announcing this
Agreement shall be a joint press release in a form mutually agreed upon by the
parties and thereafter GNFC and FBOH shall consult with each other and provide
a written copy to each other prior to issuing any press releases, or otherwise
making public statements, with respect to the transactions contemplated hereby
and in making any filings with any Governmental Entity.
5.12. REGISTRATION STATEMENT.
(a) FBOH shall as soon as is reasonably practicable prepare and file
with the Commission the Registration Statement, including the related Proxy
Statement, and any required amendments thereto or supplements to the prospectus
contained therein, and shall use all reasonable efforts to have the
Registration Statement declared effective by the Commission as promptly as
practicable and to maintain the effectiveness of such Registration Statement.
FBOH shall also take any action required to be taken under any applicable state
blue sky or securities laws in connection with the issuance of the FBOH Common
Stock pursuant to the Merger. GNFC shall promptly furnish FBOH all information
concerning GNFC, GNFC Subsidiaries, and the holders of its capital stock and
shall promptly take any action as FBOH may reasonably request in connection
with any such action.
(b) Each of FBOH and GNFC will cause its respective independent
auditors to issue a letter to FBOH and GNFC stating, among other things, the
following: (i) such accountants are independent public accountants within the
meaning of the Securities Act and the rules and regulations promulgated
thereunder; (ii) in the opinion of such accountants, the financial statements
included in the Registration Statement and reported on therein by such
accountants comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Rules and Regulations
promulgated thereunder; (iii) on the basis of specified limited procedures
(which procedures do not constitute an examination in accordance with generally
accepted auditing standards), including a reading of the latest available
unaudited financial statements, inquiries of officials responsible for
financial and accounting matters, nothing came to their attention which caused
them to believe that, during the period subsequent to December 31, 1992, to a
specified date not more than three (3) business days prior to the effective
date of the Registration Statement and to a specified date not more than three
(3) business days prior to Closing, there was any change in the shares of its
capital stock or long-term debt, if any, (other than changes due to payments in
accordance with the terms of such debt, or in the event of any such change in
long-term debt, the amount thereof) or any decrease (increase) in the total or
per share amount of its net income (net loss) as compared with the
corresponding period in the preceding year, except in all instances for changes
or decreases (increases) which the Registration Statement discloses have
occurred or may occur; (iv) such accountants have read the other data included
in the Registration Statement with respect to the financial condition and
operations of their respective clients and they find such data to be correctly
computed and in agreement with their respective books and records of their
clients.
(c) FBOH will assume and pay all expenses incident to the obtaining of
the requisite regulatory consents and approvals. Without limiting the
generality of the foregoing, the expenses to be assumed and paid by FBOH shall
include (i) all expenses for its own legal counsel and other expenses and taxes
incurred by FBOH incident to the consummation of the Merger contemplated by
this Agreement; (ii) all expenses for its own legal counsel and other expenses
incurred by FBOH incident to the preparation and filing of applications in its
behalf and in behalf of GNFC and other requests for regulatory consents and
approvals with the appropriate regulatory agencies as set forth in or
contemplated by this Agreement; (iii) all expenses for its own legal counsel
and all other expenses incurred in connection with the registration of the
Common Stock under the federal and state securities laws. The expenses to be
assumed and paid by FBOH shall not include any legal, accounting or other
expenses incurred by GNFC, its directors and
A-26
officers, employees and agents, in the preparation, examination and review of
documents for its own benefit, in connection with its own corporate proceedings
or other expenses of GNFC incident to the consummation of the Merger.
5.13. AFFILIATES COMPLIANCE WITH THE SECURITIES ACT.
(a) Within 30 days after the date of this Agreement, each of GNFC and
FBOH shall identify to the other party all persons whom it reasonably believes
are its "affiliates" as that term is used in paragraphs (c) and (d) of Rule 145
under the Securities Act and/or Accounting Series, Releases 130 and 135, as
amended, of the Commission (the "Affiliates"). Thereafter and until the
Effective Time, each of GNFC and FBOH shall identify to the other party each
additional person whom it reasonably believes to have thereafter become its
Affiliate.
(b) Each of GNFC and FBOH shall use its diligent efforts to cause each
person who is identified as an Affiliate pursuant to clause (a) above to
deliver to FBOH not later than the date on which the Merger is approved, a
written agreement, substantially in the form of Exhibit 5.13(b)-1 (in the case
of Affiliates of GNFC) and Exhibit 5.13(b)-2 (in the case of Affiliates of
FBOH). Because the Merger is intended to qualify for pooling of interests
accounting treatment, the shares of FBOH Common Stock received by such
Affiliates in the Merger shall not be transferable until such time as financial
results covering at least 30 days of post-Merger operations have been published
within the meaning of Section 201.01 of the Commission's Codification of
Financial Reporting Policies, regardless of whether each such Affiliate has
provided the written agreement referred to in this Section 5.13, and the
certificates representing such shares will bear an appropriate restrictive
legend.
5.14. STOCKHOLDERS MEETING.
GNFC shall take all action necessary, in accordance with applicable law
and its Corporate Governance Documents to convene a special meeting of the
holders of Common Stock (the "Company Meeting") as promptly as practicable for
the purpose of considering and taking action upon this Agreement and the
transactions contemplated herein. The Board of Directors of GNFC shall
recommend that the holders of the Common Stock vote in favor of and approve the
Merger and to adopt this Agreement at the GNFC Meeting.
5.15. POOLING AND TAX-FREE REORGANIZATION TREATMENT. Neither FBOH
nor GNFC shall intentionally take or cause to be taken any action, whether
before or after the Effective Time, which would disqualify the Merger as a
"pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code.
5.16. MERGERS OF SUBSIDIARIES. GNFC shall cause such of GNFC
Subsidiaries, as FBOH may request, to enter into definitive merger or
consolidation agreements, with FBOH Subsidiaries, providing for the merger or
consolidation of the GNFC Subsidiaries with or into any such FBOH Subsidiaries;
provided, however, that, in all cases, the obligation of GNFC to cause such
merger or consolidation shall be subject to the condition that the Merger be
simultaneously consummated; and provided further, notwithstanding anything to
the contrary in this Agreement, (i) the representations and warranties of GNFC
in this Agreement shall not be deemed to be untrue or breached, (ii) GNFC shall
not be deemed to have failed to perform any covenant or obligation contained in
this Agreement, and (iii) no condition to FBOH's obligation to effect the
Merger shall be deemed not to have been satisfied by or as a result
A-27
of any merger or consolidation consummated pursuant to this Section 5.16. GNFC
shall cause GNFC Subsidiaries to fully cooperate with FBOH in consummating
these mergers or consolidations, including cooperating in the filing of any
necessary regulatory applications.
5.17. CURRENT INFORMATION. During the period from the date of this
Agreement to the Effective Time, each of GNFC and FBOH will promptly notify the
other of (i) any material change in the normal course of its business, (ii) any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or receipt of any memorandum or
understanding or cease and desist order from a regulatory authority, or (iii)
the institution or the threat of material litigation involving such party and
will keep the other party fully informed of such events. GNFC shall provide
FBOH with monthly unaudited financial statements. FBOH shall promptly provide
GNFC with a copy all Reports filed by it after the date of this Agreement
through the Effective Time.
5.18. INTEGRATION OF OPERATIONS. During the period from the date of
this Agreement to the Effective Time, the parties will consult and cooperate
fully with each other to do all things advisable to prepare for and facilitate
the integration of GNFC's operations into and with FBOH's operations as rapidly
and effectively as possible as of the Effective Time, including, without
limitation, integration of such branch operations (including, without
limitation, the necessary installation of all of FNBO's hardware and software
systems), management information systems, financial and accounting operations,
employee compensation and benefit matters and similar matters, and employee
training, requested by FBOH. It is the intent of the parties that as of the
Effective Time such of the GNFC and subsidiaries' branch operations which FBOH
determines to integrate or consolidate will be fully operational as FNBO branch
operations.
5.19. NASD LISTING. FBOH will file a Form 10-C with the Commission
and the National Association of Securities Dealers, Inc. (the "NASD") at the
time prescribed by applicable rules and regulations. In addition, FBOH will
use its best efforts to maintain its listing on the NASD Automated
Quotation-National Market System.
6. CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Closing of the following
conditions:
(a) The Merger and this Agreement shall have been approved and adopted
by the requisite vote of the holders of GNFC's Common Stock as provided in
GNFC's Corporate Governance Documents and applicable law.
(b) All authorizations, consents, orders or approvals, lack of any
injunctive actions by the Department of Justice or any state anti- trust
agency, of the FRB, OTS, Division and any other Governmental Entity
(collectively, "Consents") which are necessary for the consummation of the
Merger (other than immaterial Consents, the failure to obtain which would not
involve criminal liability, any material civil penalties or fines, or would not
have or reasonably be expected to have a Material Adverse Effect on the
combined businesses, financial condition, or results of operations of FBOH,
GNFC, the FBOH Subsidiaries and GNFC Subsidiaries taken as a whole), shall have
been obtained or shall have occurred and shall be in full force and effect, and
all applicable waiting periods shall have expired, at the Effective Time.
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A material Consent shall not be deemed to have been obtained if the
Consent shall include any conditions or requirements which, in the reasonable
opinion of the Board of Directors of FBOH, would have a Material Adverse Effect
on the anticipated economic and business benefits to FBOH of the transactions
contemplated by this Agreement, taken as a whole.
(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and shall not be subject
to a stop order suspending the effectiveness of the Registration Statement.
(d) FBOH shall have received a letter, dated the date of the Closing,
from Coopers & Lybrand to the effect that, for financial reporting purposes,
the Merger qualifies for pooling-of-interests accounting treatment under
generally accepted accounting principles, if consummated in accordance with
this Agreement.
(e) No temporary restraining order, preliminary or permanent
injunction or other order by any federal or state court or agency in the United
States which enjoins or prohibits the consummation of the Merger shall have
been issued and remain in effect.
(f) FBOH shall have obtained an opinion of its counsel, reasonably
satisfactory in form and substance to FBOH, to the effect that (i) the Merger
will constitute a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Code, (ii) no gain or loss will be recognized by FBOH as a
consequence of the transaction contemplated herein, and (iii) no gain or loss
will be recognized by the stockholders of GNFC upon the conversion of their
shares of Common Stock into shares of FBOH Common Stock pursuant to the terms
of the Merger (except for the effect of any cash received in lieu of fractional
shares).
6.2. CONDITIONS TO OBLIGATION OF GNFC TO EFFECT THE MERGER. The
obligation of GNFC to effect the Merger shall be subject to the fulfillment or
waiver at or prior to the Closing of the additional following conditions:
(a) FBOH shall have performed in all material respects all of its
obligations contained in this Agreement required to be performed at or prior to
the Closing.
(b) The representations and warranties of FBOH contained in this
Agreement shall be true and correct both: (i) on the date of this Agreement,
and (ii) as of the Effective Time as if made at and as of such time, (x)
except, both on the date of this Agreement and at the Effective Time, as
expressly contemplated or permitted by this Agreement, (y) except, as of the
Effective Time, for representations and warranties relating to a time or times
other than the Effective Time, and (z) except, both on the date of this
Agreement and at the Effective Time, to the extent that the untruthfulness or
inaccuracy of the representations or warranties of FBOH, individually or in the
aggregate, shall not have a Material Adverse Effect on FBOH.
(c) FBOH shall have furnished GNFC a Certificate dated the date of the
Closing, signed on behalf of FBOH by the Chief Executive Officer or President,
and the Chief Financial Officer of FBOH, that to the best of their knowledge
and belief, the conditions set forth in Sections 6.2(a) and (b) have been
satisfied.
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(d) GNFC shall have received the opinion of legal counsel for FBOH,
dated as of the Effective Time, substantially to the effect set forth in
Exhibit 6.2(d) hereto, and such certificates from the appropriate persons
and/or authorities regarding FBOH's board resolutions, form of corporate
governance documents and good standing.
(e) Since the date of this Agreement, there shall have not been any
change in the financial condition, results of operations or business of FBOH
and the subsidiaries of FBOH that either individually or in the aggregate would
have a Material Adverse Effect on FBOH.
(f) The Board of GNFC shall have received on the date of the
Prospectus and Proxy contained in the Registration Statement, an opinion from
Trident Financial Corporation dated on such date that the Merger Consideration
is fair to the stockholders of GNFC from a financial point of view.
6.3. CONDITIONS TO OBLIGATION OF FBOH TO EFFECT THE MERGER. The
obligation of FBOH to effect the Merger shall be subject to the fulfillment or
waiver at or prior to the Closing of the additional following conditions:
(a) GNFC shall have performed in all material respects all of its
obligations contained in this Agreement required to be performed at or prior to
the Closing.
(b) The representations and warranties of GNFC contained in this
Agreement shall be true and correct both: (i) on the date of this Agreement,
and (ii) as of the Effective Time as if made on and as of such time, (x)
except, both on the date of this Agreement and at the Effective Time, as
expressly contemplated or permitted by this Agreement, (y) except, as of the
Effective Time, for representations and warranties relating to a time or times
other than the Effective Time, and (z) except, both on the date of this
Agreement and at the Effective Time, to the extent that the untruthfulness or
inaccuracy of the representations or warranties of GNFC, individually or in the
aggregate, shall not have a Material Adverse Effect on GNFC.
(c) Since the date of this Agreement (i) there shall not have been any
change in the financial condition, results of operations or business of GNFC
and the subsidiaries of GNFC that either individually or in the aggregate would
have a Material Adverse Effect on GNFC, other than change as a result of action
taken under Section 5.2.6, and responses thereto by GNFC and the impact thereof
on the operating performance of GNFC, and (ii) the consolidated net worth of
GNFC at the close of business on December 31, 1993 shall not be less than
$27,400,000 and as of the Closing shall not be less than that amount plus an
additional amount of $450,000 for each quarter in 1994 (or a pro rata amount
thereof if less than a full quarter), unless the failure to meet such net worth
requirements is as a result of action taken under Section 5.2.6, responses
thereto by GNFC, or the impact thereof on the operating performance of GNFC.
For the purposes of this Section 6.3(c), "net income" and "net worth" shall be
calculated in accordance with generally accepted accounting principals.
Notwithstanding anything to the contrary contained in this Section 6.3(c), the
legal and accounting costs of GNFC will be deemed as expenses in calculating
the net worth requirements under this Section, but the fees payable to Trident,
and the proceeds received from the exercise of the Company Stock Options, will
not be used in calculating the net worth requirement.
(d) GNFC shall have furnished FBOH a certificate dated the date of the
Closing signed on behalf of GNFC by the Chief Executive Officer or President,
and Chief Financial Officer of GNFC, that to the best of their knowledge and
belief, the conditions set forth in Sections 6.3(a), (b) and (c) have been
satisfied. In addition, GNFC shall have furnished FBOH certificates, one dated
the effective date of the
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Registration Statement and Proxy, and one as of the Closing, signed on behalf
of GNFC by the Chief Executive Officer or President, and Chief Financial
Officer of GNFC, that to the best of their knowledge and belief, that GNFC
participated in the preparation of the Registration Statement and the Proxy,
including review and discussion of the contents thereof, and nothing came to
the attention of GNFC that caused it to believe that the Registration Statement
or the Proxy at the time such documents became effective, and as of the date of
Closing, contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
(e) The aggregate of (i) the fractional shares of FBOH Common Stock to
be paid in cash pursuant to Section 2.2.5, and (ii) the shares of FBOH Common
Stock to which holders of GNFC Common Stock would have been entitled as of the
Effective Time but who, as of the Effective Time, have taken steps to perfect
their rights as dissenting shareholders pursuant to the provisions of
applicable law, shall not be more than 10% of the maximum aggregate number of
shares of FBOH Common Stock which could be issued as a result of the Merger.
(f) FBOH shall have received the opinion of legal counsel for GNFC
dated as of the Effective Time, substantially to the effect set forth in
Exhibit 6.3(f) hereto, and such certificates from the appropriate persons
and/or authorities regarding GNFC's and its subsidiaries' board resolutions,
forms of corporate governance documents and good standing.
7. MISCELLANEOUS
7.1. TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of this Agreement by the stockholders of
GNFC:
(a) by the vote of a majority of the Board of Directors of each of
FBOH and GNFC;
(b) by the vote of a majority of the Board of Directors of either FBOH
or GNFC if the Merger shall not have been consummated on or before the first
anniversary of this Agreement;
(c) by the vote of a majority of the Board of Directors of GNFC if any
of the conditions specified in Sections 6.1 and 6.2 have not been met or waived
by GNFC at such time as such condition can no longer be satisfied;
(d) by the vote of a majority of the Board of Directors of FBOH if any
of the conditions specified in Sections 6.1 and 6.3 have not been met or waived
by FBOH at such time as such condition can no longer be satisfied,
(e) by the vote of a majority of the Board of Directors of either FBOH
or GNFC if any regulatory agency has denied approval of the Merger and neither
FBOH nor GNFC has timely filed a request for reconsideration or a petition
seeking review of such order (regardless of whether GNFC is deemed to be a
"party" to an application with respect to the Merger); or
(f) by GNFC, on the day before the Effective Time, if the FBOH Average
Price is less than $20.00.
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If FBOH declares a stock dividend, stock split or effects a
reclassification, recapitalization, split-up, combination, exchange of shares
or similar transaction between the date of this Agreement and the Effective
Time, the prices for the Common Stock shall be appropriately adjusted for the
purposes of the definitions above so as to be comparable to the price on the
date of this Agreement.
(g) by the vote of a majority of the Board of Directors of either FBOH
or GNFC in the event of a material breach by the other party of any
representation, warranty, covenant or agreement, which breach is not cured as
soon as reasonably practicable after written notice thereof is given to the
party committing such breach.
7.2. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES; EFFECT OF
TERMINATION. The representations and warranties or covenants in this Agreement
will terminate at the Effective Time or the earlier termination of this
Agreement pursuant to Section 7.1, as the case may be: provided however, that
if the Merger is consummated, Sections 2.1 through 2.5, 5.4, 5.5, 5.8, 5.9,
5.10, 5.12(c), 5.15, 5.16, and 7.2 will survive the Effective Time to the
extent contemplated by such Sections; provided, further in the event of the
termination of this Agreement, this Agreement shall become void and of no
effect except that the second to last sentence of Section 5.5, and all of
Sections 5.12(c) and 7.11, will in all events survive any termination of this
Agreement.
7.3. WAIVER. Either party hereto may, by written notice to the other
party hereto, (a) extend the time for the performance of any of the obligations
or other actions of such other party under this Agreement, (b) waive any
inaccuracies in the representations or warranties of such other party contained
in this Agreement or in any document delivered pursuant to this Agreement, (c)
waive compliance with any of the conditions or covenants of such other party
contained in this Agreement, or (d) waive or modify performance of any of the
obligations of such other party under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance
with any of the representations, warranties, covenants, conditions, or
agreements contained in this Agreement. The waiver by either party hereto of a
breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach.
7.4. AMENDMENT. This Agreement may be amended or supplemented by the
parties hereto, by action taken by or on behalf of their respective Boards of
Directors, at any time before or after approval of this Agreement by the
stockholders of GNFC and FBOH, provided however, that any such amendment or
supplement to this Agreement made subsequent to the adoption of this Agreement
by the stockholders of GNFC shall not (a) alter the amount or change the form
of the consideration contemplated by this Agreement, (b) alter or change any
term of the Amended Articles of Incorporation of the Surviving Corporation to
be affected by the Merger, or (c) alter or change any of the terms of this
Agreement if such alteration or change would adversely affect the holders of
the Shares or the FBOH Common Stock.
7.5. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among FBOH and GNFC with respect to the Merger and the other transactions
contemplated hereby and thereby, and supersede all prior agreements among the
parties with respect to such matters.
7.6. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of Ohio, without giving effect to the
principles of conflicts of law thereof.
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7.7. CERTAIN DEFINITIONS.
(a) For purposes of this Agreement, the term:
(i) "affiliate" and "associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date hereof;
(ii) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of
the management or policies of a person, whether through the ownership of
stock, as trustee or executor, by contract or credit arrangement or
otherwise;
(iii) "person" means an individual, corporation, partnership,
association, trust or unincorporated organization; and
(iv) "Material Adverse Effect" on GNFC or FBOH means a material
adverse effect (other than as a result of changes (x) in banking laws or
regulations of general applicability or interpretations thereof by court
or governmental entities, (y) in generally accepted accounting
principles, or (z) that should, under the circumstances, reasonably have
been anticipated in light of disclosures made in FBOH Reports, as the
case may be, filed prior to the date of the Agreement, in GNFC
Disclosure Letter or FBOH Disclosure Letter, or in other writings
delivered by one party to the other prior to the date of this Agreement)
on the respective financial condition, results of operations, or
business of GNFC and its subsidiaries or FBOH and its subsidiaries, as
the case may be, taken as a whole, or on the ability of GNFC or FBOH, as
the case may be, to consummate the transactions contemplated hereby.
The effect of any action taken by GNFC, at the written request of FBOH,
pursuant to Section 5.2.6 shall not be taken into consideration in
determining whether any Material Adverse Effect has occurred.
7.8. NOTICES. All notices and other communications hereunder will be
in writing and will be deemed to have been duly given or delivered if delivered
personally, mailed by registered or certified mail return receipt requested, or
delivered by a recognized commercial courier to the parties at the following
addresses:
[Enlarge/Download Table]
TO GNFC: TO FBOH:
Emil A. Voelz, Jr., President and Howard L. Flood, President and
Chief Executive Officer Chief Executive Officer
524 Park Avenue, W. First Bancorporation of Ohio
Barberton, Ohio 44203 106 South Main Street
Akron, Ohio 44308
WITH A COPY TO: WITH COPIES TO:
John C. Vorys, Esq. Terry E. Patton, Senior Vice President and Secretary
Vorys, Sater, Seymour and Pease First Bancorporation of Ohio
Suite 2100, 221 E. Fourth Street 106 South Main Street
Cincinnati, Ohio 45201 Akron, Ohio 44308
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[Download Table]
Philip A. Lloyd II, Esq.
Brouse & McDowell
500 First National Tower
Akron, Ohio 44308
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section 7.8.
7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement.
7.10. PARTIES IN INTEREST. Except for Sections 5.4(a) and 5.8
(which is intended to be for the benefit of the individuals so listed to the
extent contemplated thereby), this Agreement is not intended to nor will it
confer upon any other person any rights or remedies.
7.11. EXPENSES. If this Agreement is terminated by GNFC or FBOH
pursuant to Section 7.1(g) because of the breach by the other party of any
representation, warranty, covenant, undertaking or restriction contained in
this Agreement, if the terminating party is not in material breach of any
representation, warranty, covenant, undertaking or restriction contained in
this Agreement, then the breaching party shall pay all costs and expenses of
the terminating party; provided, however, that if this Agreement is terminated
under circumstances other than those described in this Section 7.11, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and
expenses, except the parties shall share the costs as delineated in Section
5.12(c).
7.12. ENFORCEMENT OF THE AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties hereto will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
7.13. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other terms and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party hereto. Upon any such determination that any term or other
provision is invalid, illegal or incapable of being enforced and does not
adversely affect the substance of these transactions in a material way, the
parties hereto will negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated by this
Agreement are consummated to the extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
[Download Table]
FIRST BANCORPORATION OF OHIO
Attest:
Terry E. Patton By: Howard L. Flood
-------------------------------- ----------------------------------------
Terry E. Patton, Secretary Howard L. Flood, President and
Chief Executive Officer
GREAT NORTHERN FINANCIAL
CORPORATION
Attest:
Jim A. Hall By: Emil A. Voelz, Jr.
-------------------------------- ----------------------------------------
Jim A. Hall, Secretary Emil A. Voelz, Jr., President and
Chief Executive Officer
[KCO:30188]
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ACKNOWLEDGEMENT
STATE OF OHIO )
) SS:
COUNTY OF SUMMIT )
BE IT REMEMBERED that on this 28th day of September, 1993, personally
came before me, a Notary Public in and for the State and County aforesaid,
Howard L. Flood, Chairman and Chief Executive Officer, and Terry E. Patton,
Senior Vice President and Secretary of First Bancorporation of Ohio, an Ohio
corporation, and they duly executed the Agreement of Affiliation and Plan of
Merger before me and acknowledged it to be their act and deed and the act and
deed of said Corporation, that the facts stated therein are true, and that the
seal affixed to said Agreement of Affiliation and Plan of Merger and attested
to by the Secretary of said corporation is the common or corporate seal of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th
day of September, 1993.
[Download Table]
Kevin C. O'Neil
-----------------------------------------
Notary Public
ACKNOWLEDGEMENT
STATE OF OHIO )
) SS:
COUNTY OF SUMMIT )
BE IT REMEMBERED that on this 28th day of September, 1993, personally
came before me, a Notary Public in and for the State and County aforesaid, Emil
A. Voelz, Jr., Chairman and Chief Executive Officer, and Jim A. Hall, Secretary
of Great Northern Financial Corporation, an Ohio corporation, and they duly
executed the Agreement of Affiliation and Plan of Merger before me and
acknowledged it to be their act and deed and the act and deed of said
Corporation, that the facts stated therein are true, and that the seal affixed
to said Agreement of Affiliation and Plan of Merger and attested to by the
Secretary of said corporation is the common or corporate seal of said
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th
day of September, 1993.
[Download Table]
Kevin C. O'Neil
-----------------------------------------
Notary Public
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EXHIBITS TO
AGREEMENT OF AFFILIATION AND PLAN OF MERGER
FIRST BANCORPORATION OF OHIO AND
GREAT NORTHERN FINANCIAL CORPORATION
[Download Table]
FBOH Disclosure Letter Exhibit 3.3
GNFC Disclosure Letter Exhibit 4.3
Form of Affiliates Agreement for GNFC Exhibit 5.13(b)-1
Form of Affiliates Agreement for GNFC Exhibit 5.13(b)-2
Contractual Obligations Exhibit 5.2.2.
Legal Opinion to GNFC from Legal Counsel for FBOH Exhibit 6.2(d)
Legal Opinion to FBOH from Legal Counsel for GNFC Exhibit 6.3(f)
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APPENDIX B
FAIRNESS OPINION OF
TRIDENT FINANCIAL CORPORATION
TRIDENT FINANCIAL CORPORATION
Investment Bankers and Financial Advisors
Telecopier: 4601 Six Forks Road
(919) 787-1670 Raleigh, North Carolina 27609
(919) 781-8900
January 14, 1994
Board of Directors
Great Northern Financial Corporation
524 West Park Avenue
Barberton, OH 44203
Gentlemen:
You have requested our preliminary opinion as to the fairness, from a
financial point of view, to the holders of shares of common stock, no par value
(the "GNFC Common Stock"), of Great Northern Financial Corporation ("GNFC") of
the consideration to be received by such stockholders in the proposed merger
(the "Proposed Merger") of GNFC with First Bancorporation of Ohio ("FBOH"),
pursuant to the proposed Agreement and Plan of Affiliation (the "Agreement")
dated September 28, 1993.
As more specifically set forth in the Agreement, and subject to a
number of conditions in the Proposed Merger, each share of GNFC Common Stock
that is issued and outstanding immediately prior to the time the Proposed
Merger becomes effective, will, by virtue of the Proposed Merger, be converted
into a right to receive 3.746 common shares of FBOH (the "Consideration").
Trident Financial Corporation ("Trident") is a financial consulting
and investment banking firm experienced in the valuation of business
enterprises with considerable experience in the valuation of thrift
institutions. Since 1975, Trident has valued in excess of 300 thrift
institutions in connection with mutual-to-stock conversions, mergers and
acquisitions, as well as other transactions. Trident is not affiliated with
GNFC or FBOH.
In connection with rendering our preliminary opinion, we have reviewed
and analyzed, among other things, the following (i) the Proxy Statement and
Prospectus; (ii) the Agreement; (iii) certain publicly available information
concerning GNFC, including the audited financial statements of GNFC for each of
the years in the five year period ended December 31, 1992 and GNFC's unaudited
financial statements for the nine month periods ended September 30, 1992 and
1993; (iv) certain publicly available information concerning FBOH, including
the audited financial statements of FBOH for each of the years in the three
year period ended December 31, 1992 and FBOH's unaudited financial statements
for the nine month periods ended September 30, 1992 and 1993; (iv) certain
other internal information, primarily financial in nature,
B-1
Board of Directors
Great Northern Financial Corporation
January 14, 1994
Page 2
concerning the business and operations of GNFC and FBOH furnished to us by GNFC
and FBOH for purposes of our analysis; (v) certain information supplied by GNFC
concerning the limited trading of, and the limited trading market for, GNFC
Common Stock; (vi) information with respect to the trading market for FBOH
Common Stock; (vii) certain publicly available information with respect to
other companies that we believe to be comparable to GNFC and the trading
markets for such other companies' securities; and (viii) certain publicly
available information concerning the nature and terms of other transactions
that we consider relevant to our inquiry. We have also met with certain
officers and employees of GNFC and FBOH to discuss the foregoing as well as
other matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our preliminary opinion,
we have assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to us by FBOH and GNFC, or that is
publicly available, and have not attempted independently to verify any such
information. We have not conducted a physical inspection of the properties or
facilities of GNFC or FBOH, nor have we made or obtained any independent
evaluations or appraisals of any of such properties or facilities. We did not
specifically evaluate FBOH's loan portfolio or the adequacy of FBOH's reserve
for possible loan losses. We were not given access to all information that we
requested from FBOH, including regulatory examinations and corporate minutes.
In conducting our analysis and arriving at our preliminary opinion as
expressed herein, we have considered such financial and other factors as we
have deemed appropriate under the circumstances including, among others, the
following: (i) the historical and current financial condition and results of
operations of GNFC and FBOH, including interest income, interest expense, net
interest income, net interest margin, interest sensitivity, non-interest income
and expense, earnings, dividends, book value, return on assets, return on
equity, capitalization, the amount and type of non-performing assets and the
reserve for possible loan losses; (ii) the business prospects of GNFC and FBOH;
(iii) the economy in GNFC's and FBOH's market areas; (iv) the historical and
current market for GNFC Common Stock and FBOH common stock and for the equity
securities of certain other companies that we believe to be comparable to GNFC
and FBOH; and (v) the nature and terms of certain other acquisition
transactions that we believe to be relevant. In addition, we considered the
nature and extent of the bidding process employed by GNFC. We have also taken
into account our assessment of general economic, market, financial and
regulatory conditions and trends, as well as our knowledge of the thrift
industry, our experience in connection with similar transactions, and our
knowledge of securities valuation generally. Our preliminary opinion
necessarily is based upon conditions as they exist and can be evaluated on the
date set hereof. Our preliminary opinion is, in any event, limited
B-2
Board of Directors
Great Northern Financial Corporation
January 14, 1994
Page 3
to the fairness, from a financial point of view, of the Consideration to be
received by the holders of GNFC Common Stock in the Proposed Merger and does
not address GNFC's underlying business decision to effect the Proposed Merger.
Based upon and subject to the foregoing, we are of the preliminary
opinion that the Consideration to be received by the holders of GNFC Common
Stock in the Proposed Merger is fair, as of the date hereof, from a financial
point of view, to such holders.
This opinion is being delivered to the Board of Directors
of GNFC for its exclusive use and is not to be reproduced, disseminated or
delivered to any third party without the express written consent of Trident
Financial Corporation, except as required by law.
Very truly yours,
TRIDENT FINANCIAL CORPORATION
/s/ Trident Financial Corporation
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APPENDIX C
FORM OF VOTING AGREEMENT
SHAREHOLDER'S VOTING AGREEMENT
SHAREHOLDER'S VOTING AGREEMENT, entered into this ___ day of
September, 1993, between ___________ ("Shareholder") and First Bancorporation
of Ohio ("FBOH").
R E C I T A L S:
A. Shareholder currently owns certain shares of the capital stock
("Stock") of Great Northern Financial Corporation ("Company"), and options to
acquire additional shares of Stock.
B. FBOH and the Company contemporaneously hereto are entering into an
Agreement of Affiliation and Plan of Merger ("Affiliation Agreement"), pursuant
to which the Company shall merge with and into FBOH, subject to certain terms
and conditions ("Merger").
C. As an inducement for FBOH to enter into the Affiliation Agreement,
Shareholder has agreed to vote his shares of Stock in favor of the Merger
pursuant to this Agreement.
IN CONSIDERATION OF THE FOREGOING, the execution of the Affiliation
Agreement, and other good and valuable consideration, the receipt of which is
hereby acknowledged by each of the parties hereto, the parties hereby agree as
follows:
1. Shareholder agrees that, at any meeting of the shareholders of
the Company hereafter duly held, he will vote all shares of Stock then owned,
held or controlled by him in favor of the Affiliation Agreement, the Merger and
any other matters related thereto necessary or desirable to approve the
transactions contemplated by the Affiliation Agreement.
2. This Agreement shall terminate upon the earlier to occur of
(i) consummation of the Merger, or (ii) termination of the Affiliation
Agreement pursuant to Section 7.1 thereof.
3. This Agreement shall be binding upon and inure to the benefit
of Shareholder and FBOH and their respective successors, heirs or
representatives. The parties shall not assign their respective rights or
obligations under this Agreement without the express written consent of the
other party.
4. This Agreement constitutes the full and complete understanding
and agreement of the parties relative to its subject matter and supersedes all
other agreements except as specifically incorporated by reference herein. The
parties may amend, change or modify this Agreement only by their mutual written
consent.
5. This Agreement shall be construed under and governed by the
laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto, individually or by their
authorized representative, have executed this Agreement as of the day and year
first written above.
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FIRST BANCORPORATION OF OHIO SHAREHOLDER
By:
----------------------------------- -------------------------------------
Howard L. Flood, President
C-1
APPENDIX D
RELIEF TO DISSENTING SHAREHOLDER
OF DOMESTIC CORPORATION
OHIO REVISED CODE 1701.85
(A) (1) A shareholder of a domestic corporation is entitled to relief
as a dissenting shareholder in respect of the proposals in sections 1701.71,
1701.74, 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 such proposal was taken at the meeting of the
shareholders, the 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, stating 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 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 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) The case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the
new corporation, whether 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, he, within fifteen days from the date
of the sending of such request, shall deliver to the corporation the
certificates requested, in order 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 shareholder. Failure on the part of the shareholder to
deliver such certificates terminates his rights as a dissenting shareholder, at
the option of the corporation, exercised by written notice sent to him within
twenty days after the lapse of the fifteen-day period, unless a court for good
cause shown otherwise directs. If shares represented by a certificate on which
such a legend has been endorsed are transferred, each new certificate issued
for them shall bear a similar legend, together with the name of the original
dissenting holder of such shares. Upon receiving a demand for payment from a
dissenting shareholder who is the record holder of uncertificated securities,
the corporation shall make an appropriate notation of the demand for payment in
its shareholder records. If uncertificated shares for which payment has been
demanded are to be transferred, any new certificate issued for the shares shall
bear the legend required for certificated securities as provided in this
paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
Such request by the corporation is not an admission by the corporation that the
shareholder is entitled to relief under this section.
D-1
(B) Unless the corporation and the dissenting shareholder shall have
come to an agreement on the fair cash value per share of the shares as to which
he seeks relief, the shareholder or the corporation, which in case of a merger
or consolidation may be the surviving or the new corporation, within three
months after the service of the demand by the shareholder, may file a complaint
in the court of common pleas of the county in which the principal office of the
corporation which issued such shares is located, or was located at the time
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 the period of three
months, 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 complaint is required. Upon the filing of the 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 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 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
as agreed upon by the parties or as 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 such 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 that 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, 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, but in no event shall the fair cash value
of it 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) 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:
(1) Such shareholder has not complied with this section, unless
the corporation by its directors waives such failure;
D-2
(2) The corporation abandons, or is finally enjoined or prevented
from carrying out, or the shareholders rescind their adoption,
of the action involved ;
(3) The shareholder withdraws his demand, with the consent of the
corporation by its directors;
(4) The corporation and the dissenting shareholder shall not have
come to an agreement as to the fair cash value per share, and
neither the shareholder nor the corporation shall have filed
or joined in a complaint under division (B) of this section
within the period provided.
(E) From the time of giving 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 otherwise 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.
D-3
APPENDIX E
GREAT NORTHERN FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 1993 AND 1992,
AND FOR THE YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
INDEPENDENT AUDITORS' REPORT
The Board of Directors, Great Northern Financial Corporation:
We have audited the accompanying consolidated balance sheets of Great
Northern Financial Corporation and subsidiaries as of December 31, 1992 and
1991, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1992. These consolidated financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Great
Northern Financial Corporation and subsidiaries as of December 31, 1992 and
1991, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1992, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick
Akron, Ohio
February 10, 1993
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GREAT NORTHERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
ASSETS 1993 1992 1991
---------------- ------------- --------------
(UNAUDITED)
First mortgage loans, net . . . . . . . . . . . . . . . . . . $220,346,203 198,465,017 215,924,257
Mortgage-backed securities, at carrying value, with market
values of $136,105,600, $155,755,184 and $95,948,740,
respectively . . . . . . . . . . . . . . . . . . . . . . . . 134,164,563 155,728,824 94,133,590
Other loans, net . . . . . . . . . . . . . . . . . . . . . . . 10,974,561 10,293,448 12,251,344
Investment securities, at amortized cost, with market values
of $5,366,250, $7,369,052 and $8,841,748, respectively . . . 5,303,764 7,284,062 8,786,124
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . 600,000 900,000 3,800,000
Federal Home Loan Bank stock, at cost . . . . . . . . . . . . 2,359,400 3,091,500 2,956,400
Cash on hand and in banks . . . . . . . . . . . . . . . . . . 3,532,176 3,636,679 2,243,176
Real estate owned, less allowance for possible losses
of $462,234, $436,679 and $1,241,466, respectively . . . . . 3,116,088 3,033,049 5,477,669
Premises and equipment, net . . . . . . . . . . . . . . . . . 1,525,324 1,669,855 1,865,094
Prepaid expenses and other assets . . . . . . . . . . . . . . 3,306,702 3,286,071 3,363,329
------------- ------------ ------------
$385,228,781 387,388,505 350,800,983
============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $312,270,909 317,810,337 287,900,604
Notes payable to the Federal Home Loan Bank . . . . . . . . . 40,244,910 39,643,530 34,470,732
Advance payments by borrowers for taxes and insurance . . . . 1,112,804 1,729,173 1,837,533
Accrued expenses and other liabilities . . . . . . . . . . . . 4,240,008 2,594,565 2,792,853
------------- ------------ -----------
Total liabilities . . . . . . . . . . . . . . . . . . . 357,868,631 361,777,605 327,001,722
------------- ----------- -----------
Shareholders' equity:
Common stock, without par value, 5,000,000 shares
authorized: 420,000 shares issued . . . . . . . . . . . . 700,000 700,000 700,000
Retained earnings-substantially restricted . . . . . . . . . 26,693,672 24,944,422 23,132,783
------------- ------------ ------------
27,393,672 25,644,422 23,832,783
---------- ------------ -----------
Common stock in treasury, 1480 shares at cost . . . . . . . (33,522) (33,522) (33,522)
--------------- -------------- --------------
Total shareholders' equity . . . . . . . . . . . . . . 27,360,150 25,610,900 23,799,261
------------- ----------- ------------
$385,228,781 387,388,505 350,800,983
============ =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
E-2
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GREAT NORTHERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1993 1992 1992 1991 1990
------------- ------------ ------------ ------------ -----------
(UNAUDITED)
Interest income:
First mortgage loans . . . . . . . . . . . . $12,945,925 14,637,030 19,033,725 22,914,106 24,562,869
Mortgage-backed securities . . . . . . . . . 5,860,518 5,637,589 7,630,854 6,454,588 3,889,733
Other loans . . . . . . . . . . . . . . . . . 815,045 936,671 1,218,764 1,267,109 1,114,225
Investment securities . . . . . . . . . . . . 251,615 550,132 694,169 994,988 1,573,183
Federal Home Loan Bank stock dividends . . . 83,333 100,697 135,100 184,400 206,063
------------ ---------- ----------- ------------ ------------
Total interest income . . . . . . . . . . . 19,956,436 21,862,119 28,712,612 31,815,191 31,346,073
----------- ---------- ----------- ----------- -----------
Interest expense:
Interest on deposits . . . . . . . . . . . . 10,352,029 12,276,042 16,050,912 19,481,942 20,190,131
Interest on other borrowings . . . . . . . . 2,206,292 2,365,196 3,155,015 3,099,512 2,521,348
----------- ---------- ----------- ----------- ----------
Total interest expense . . . . . . . . . . 12,558,321 14,641,238 19,205,927 22,581,454 22,711,479
----------- ---------- ----------- ----------- -----------
Net interest income . . . . . . . . . . . . 7,398,115 7,220,881 9,506,685 9,233,737 8,634,594
Provision for losses on loans . . . . . . . . . 102,600 262,224 294,230 453,983 320,412
----------- ---------- ----------- ----------- -----------
Net interest income after provision
for losses on loans . . . . . . . . . . . 7,295,515 6,958,657 9,212,455 8,779,754 8,314,182
---------- ---------- ---------- ---------- ----------
Loan fees and service charges . . . . . . . . . 520,589 377,855 524,830 435,512 382,215
Commissions on annuity sales . . . . . . . . . . 295,739 433,182 521,619 516,304 84,418
Gains on sales of mortgage-backed securities, net - - - 95,755 -
Gains on sales of real estate owned, net . . . . 40,105 32,298 31,139 2,916 37,993
Other operating income . . . . . . . . . . . . . 33,197 10,940 58,013 30,892 66,197
Other non-operating income . . . . . . . . . . . 25,677 107,264 23,873 39,907 77,091
------------ ---------- ------------ ------------ ------------
915,307 961,539 1,159,474 1,121,286 647,914
------- ---------- ----------- ----------- -----------
8,210,822 7,920,196 10,371,929 9,901,040 8,962,096
--------- ---------- ----------- ----------- ----------
Operating and other expenses:
Compensation and related expenses . . . . . . 2,769,610 2,528,269 3,247,811 2,969,148 2,756,524
Office occupancy . . . . . . . . . . . . . . 575,810 613,330 804,580 862,737 835,808
Ohio franchise tax . . . . . . . . . . . . . 267,840 249,148 332,240 299,913 276,070
Federal insurance premium . . . . . . . . . . 461,010 487,139 658,783 623,391 530,369
Provision for losses on real estate owned . . 38,520 74,574 63,164 40,000 162,372
Other . . . . . . . . . . . . . . . . . . . . 1,054,072 894,634 1,369,007 1,197,688 1,125,127
------------ ----------- ----------- ----------- -----------
5,166,862 4,847,094 6,475,585 5,992,877 5,686,270
--------- ---------- ----------- ----------- ----------
Income before federal income taxes and cumulative
effect of a change in accounting principle . . 3,043,960 3,073,102 3,896,344 3,908,163 3,275,826
Federal income tax expense (benefit):
Current . . . . . . . . . . . . . . . . . . . 848,000 1,063,000 1,364,000 1,274,000 914,000
Deferred . . . . . . . . . . . . . . . . . . 37,000 (29,000) (41,000) 66,000 258,000
------------- ----------- ------------ ------------ -----------
885,000 1,034,000 1,323,000 1,340,000 1,172,000
------- ---------- ---------- ----------- ----------
Income before cumulative effect of a change
in accounting principle . . . . . . . . . . . 2,158,960 2,039,102 2,573,344 2,568,163 2,103,826
Cumulative effect of a change
in accounting principle . . . . . . . . . . . 192,960 - - - -
----------- ------------- ------------- -------------- --------------
Net income . . . . . . . . . . . . . . . . . . . $ 2,351,920 2,039,102 2,573,344 2,568,163 2,103,826
=========== ========== ========== =========== ===========
Net Income per share before cumulative effect of
a change in accounting principle . . . . . . $ 4.67 4.56 5.74 5.88 5.02
Cumulative effect of a change
in accounting principle . . . . . . . . . . . .42 - - - -
------------- -------------- ------------- -------------- --------------
Net income per share (Note l.k.) . . . . . . . . $ 5.09 4.56 5.74 5.88 5.02
============= ========== ============= ============= ==============
<FN>
See accompanying notes to consolidated financial statements.
E-3
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GREAT NORTHERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31 1992, 1991 AND 1990 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1993
-------------------------------------------------------------
TOTAL
COMMON RETAINED TREASURY SHAREHOLDERS'
STOCK EARNINGS STOCK EQUITY
--------- --------- ---------- --------------
Balance at December 31, 1989 . . . . $700,000 19,583,101 (13,532) 20,269,569
Net income . . . . . . . . . . . . . - 2,103,826 - 2,103,826
Treasury stock acquired,
820 shares at cost . . . . . . . - - (19,990) (19,990)
Cash dividends ($1.16 per share) . . - (486,156) - (486,156)
----------- ----------- ---------- -----------
Balance at December 31, 1990 . . . . 700,000 21,200,771 (33,522) 21,867,249
Net income . . . . . . . . . . . . . - 2,568,163 - 2,568,163
Cash dividends ($1.52 per share) . . - (636,151) - (636,151)
----------- ----------- --------- -----------
Balance at December 31, 1991 . . . . 700,000 23,132,783 (33,522) 23,799,261
Net income . . . . . . . . . . . . . - 2,573,344 - 2,573,344
Cash dividends ($1.82 per share) . . - (761,705) - (761,705)
----------- ------------ --------- ----------
Balance at December 31, 1992 . . . . 700,000 24,944,422 (33,522) 25,610,900
Net income . . . . . . . . . . . . . - 2,351,920 - 2,351,920
Cash dividends ($1.44 per share) . . - (602,670) - (602,670)
----------- ------------ --------- -----------
Balance at September 30, 1993
(unaudited) . . . . . . . . . . . $700,000 26,693,672 (33,522) 27,360,150
======== ========== ======= ==========
<FN>
See accompanying notes to consolidated financial statements.
E-4
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GREAT NORTHERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1993 1992 1992 1991 1990
------------- ------------ ------------ ------------ -----------
(UNAUDITED)
Operating Activities:
Net income . . . . . . . . . . . . . . . . . $ 2,351,920 2,039,102 2,573,344 2,568,163 2,103,826
Adjustments required to reconcile net income to
net cash provided by operating activities:
Decrease (increase) in accrued interest
income, net . . . . . . . . . . . . . . . (109,149) (320,271) 197,428 49,072 (211,386)
Provision for losses on loans . . . . . . . 102,600 262,224 294,230 435,983 304,412
Provision for losses on real estate owned . 38,520 74,574 63,164 40,000 162,372
Depreciation and amortization . . . . . . . 186,112 209,430 279,240 356,567 363,208
Amortization/accretion of premiums/discounts 819,226 319,859 426,479 140,473 38,344
Gains on sales of mortgage-backed securities, net - - - 95,755 -
Gains on sales of real estate owned, net . 23,828 32,298 31,053 2,916 37,993
Federal Home Loan Bank stock dividends . . (83,100) (100,600) (135,100) (184,400) (206,063)
Increase (decrease) in accrued interest payable 2,009,232 1,883,795 445,071 (134,700) (195,338)
Amortization of deferred loan fees . . . . (141,818) (232,955) (310,606) (331,937) (306,619)
Increase (decrease) in federal income taxes (327,960) 140,250 187,000 440,000 246,634
Increase (decrease) in other liabilities . (35,831) (245,791) (327,722) (461,302) 415,623
Other, net . . . . . . . . . . . . . . . . (5,406) (1,295,090) 136,207 (55,173) 34,590
----------- ---------- ---------- ---------- ----------
Net cash provided by operating activities 4,828,174 2,766,825 3,859,788 2,961,417 2,787,596
--------- ---------- ---------- ---------- ---------
Investing activities:
Principal collected on mortgage loans and
mortgage-backed securities . . . . . . . . . 114,391,208 71,330,000 119,276,377 66,902,152 48,853,453
Principal collected on other loans . . . . . 2,845,500 3,351,000 4,458,709 3,414,086 3,639,453
Sales of mortgage loans and mortgage-backed
securities . . . . . . . . . . . . . . . . . - 3,070,520 3,070,520 15,645,302 1,144,990
Proceeds from maturities of investment securities 2,060,000 3,602,535 3,602,535 2,956,152 4,120,325
Purchases of investment securities . . . . . - (2,000,000) (2,000,000) (2,000,000) (7,520,170)
Purchase (sale) of Federal Home Loan Bank stock 815,200 - - - (26,000)
Net increases in Federal funds sold . . . . . 300,000 800,000 2,900,000 4,300,000 100,000
Originations and purchases of mortgage loans and
mortgage-backed securities . . . . . . . . (116,240,737) (100,445,000) (166,805,821) (104,973,582) (61,687,796)
Other loan originations . . . . . . . . . . . (3,644,472) (2,146,000) (2,705,997) (5,815,631) (4,640,969)
Sales of real estate owned . . . . . . . . . 737,417 1,204,821 1,606,428 60,701 421,163
Premises and equipment additions, net . . . . (39,706) (61,126) (81,501) (184,858) (120,685)
----------- ------------- -------------- ------------- -------------
Net cash provided(used) by investing activities 1,224,410 (21,293,250) (36,678,750) (19,695,678) (15,716,236)
---------- ------------ ------------ ------------- -------------
Financing activities:
Net increase in customer transaction accounts 187,604 20,822,615 38,337,579 10,486,161 2,314,398
Proceeds from issuance of certificates of deposit 10,083,254 10,640,405 14,187,207 18,437,646
28,102,444
Payments for maturing certificates of deposit (15,810,286) (17,290,470) (22,615,053) (19,182,663) (17,329,717)
Borrowings from the Federal Home Loan Bank . 2,000,000 11,057,000 11,057,000 17,000,000 4,000,000
Repayments to the Federal Home Loan Bank . . (1,398,620) (5,614,458) (5,884,202) (9,529,268) (4,000,000)
Increase (decrease) in advance payments by
borrowers for taxes and insurance . . . . . (616,369) (896,577) (108,361) (186,957) 50,881
Cash dividends . . . . . . . . . . . . . . . (602,670) (560,817) (761,705) (636,151) (486,156)
Treasury stock acquired . . . . . . . . . . . - - - - (19,990)
-------------- ------------- -------------- -------------- ------------
Net cash provided(used) by financing activities (6,157,087) 18,157,698 34,212,465 16,388,768 12,631,860
---------- ---------- ----------- ----------- -----------
Net increase (decrease) in cash . . . . . . . . . (104,503) (368,727) 1,393,503 (345,493) (296,780)
Cash at beginning of period . . . . . . . . . . 3,636,679 2,243,176 2,243,176 2,588,669 2,885,449
------------ ---------- ----------- ----------- -----------
Cash at end of period . . . . . . . . . . . . . $ 3,532,176 1,874,449 3,636,679 2,243,176 2,588,669
============ ========== =========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
E-5
GREAT NORTHERN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Great Northern Financial
Corporation and its subsidiaries (Corporation) conform to general practice
within the savings and loan industry. The following is a description of the
more significant of those policies which the Corporation follows in preparing
and presenting its consolidated financial statements.
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Corporation and its wholly owned subsidiaries, Great Northern
Savings Co. and GN Financial Services Agency, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(b) LOAN FEES
Direct loan origination costs are deferred, as are fees on loans. Net
deferred costs and fees on loans are amortized to interest income using the
interest method over the contractual lives of the loans.
(c) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are carried at cost and the related premium
or discount is amortized using a method which approximates the interest
method over the estimated remaining lives of the underlying loans. These
mortgage-backed securities are not carried at the lower of cost or market
because of management's intention and the Corporation's ability to hold such
securities to maturity. Gains and losses on the sale of mortgage-backed
securities are recognized upon realization and are determined by specific
identification.
(d) INVESTMENT SECURITIES
Investment securities are carried at cost, adjusted for amortization
of premium and accretion of discount over the term of the security. These
investments are not carried at the lower of cost or market because of
management's intention and the Corporation's ability to hold such securities
to maturity. Gains and losses on the sale of investment securities are
recognized upon realization and are determined by specific identification.
(e) DEPRECIATION AND AMORTIZATION
Depreciation and amortization of premises and equipment are calculated
on a straight-line basis over the estimated useful lives of the related
assets. Estimated lives are: land improvements, 20 years; office buildings,
30-40 years; and furniture, fixtures and equipment, 3 to 10 years. Leasehold
improvements are amortized over the shorter of the life of the asset or the
term of the lease.
(f) REAL ESTATE OWNED
Real estate owned represents real estate acquired through foreclosure
and loans foreclosed in substance and is initially recorded at the lower of
cost or fair market value and subsequently recorded at the lower of cost or
net realizable value. Costs relating to development and improvement are
capitalized up to net realizable value.
E-6
(g) FEDERAL INCOME TAXES
Deferred income taxes have been provided for income and expense items
which are reported for tax purposes in different years than for financial
statement purposes.
In 1993 the Corporation adopted the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Statement 109 requires the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
(h) PROVISION FOR LOSSES
Provisions for losses on loans are charged to income when it is
determined that the investment in such assets is greater than estimated
net realizable value. Additionally, accrual of interest on potential
problem loans is excluded from income (by an offsetting increase in a
specific allowance for loss) when, in the opinion of management, such
suspension is warranted. In addition to providing for allowances on
specific assets, the Corporation records general allowances for losses
based upon portfolio composition and general market conditions. While
management uses the best available information to make these evaluations,
future adjustments to the allowances may be necessary if economic
circumstances differ substantially from the information and assumptions
used.
(i) PENSION PLAN
The Corporation's policy is to fund the pension plan in an amount
which is at least the minimum required amount under the Employee
Retirement Income Security Act of 1974, but not more than the maximum
amount deductible for federal income tax purposes.
(j) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, balances on deposit in
correspondent banks and checks in the process of collection.
(k) NET INCOME PER SHARE
Net income per share is based upon the weighted average number of
shares of common stock and common stock equivalents outstanding during
each year. For purposes of this computation, stock options are considered
to be common stock equivalents from their respective dates of grant. The
weighted average number of common stock and common stock equivalents
outstanding during 1992, 1991 and 1990 was 447,937, 436,423 and 419,017,
respectively.
(l) RECLASSIFICATIONS
Certain reclassifications have been made in the 1991 and 1990
consolidated financial statements to conform to the 1992 presentation.
E-7
[Enlarge/Download Table]
(2) FIRST MORTGAGE LOANS
A summary of first mortgage loans follows:
DECEMBER 31,
-----------------------
1992 1991
---- -----
Conventional loans:
Single-family . . . . . . . . . . . . . . . . . . . . . . . . $103,284,781 104,534,340
Multi-family - 2 to 4 units . . . . . . . . . . . . . . . . . 5,522,010 6,580,624
Multi-family - over 4 units . . . . . . . . . . . . . . . . . 11,867,417 12,414,028
Other improved real estate . . . . . . . . . . . . . . . . . 18,641,112 16,218,579
Land acquisition and development . . . . . . . . . . . . . . 3,816,996 2,617,126
------------- -------------
Total conventional loans . . . . . . . . . . . . . . . . 143,132,316 142,364,697
Purchased and participation loans . . . . . . . . . . . . . . 63,846,768 78,907,426
------------ -----------
206,979,084 221,272,123
Unearned discount, net . . . . . . . . . . . . . . . . . . . (279,087) (613,556)
Undisbursed loans in process . . . . . . . . . . . . . . . . (6,993,172) (3,705,731)
Allowance for possible loan losses . . . . . . . . . . . . . (452,000) (382,623)
Deferred loan fees, net . . . . . . . . . . . . . . . . . . . (789,808) (645,956)
-------- -------
$198,465,017 215,924,257
============ ===========
Activity in the allowance for possible loan losses is summarized as
follows:
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31,
----------------------------
1992 1991
---- ----
Balance at beginning of year . . . . . . . . . . . . . . . . . . $382,623 699,864
Provision for losses on loans . . . . . . . . . . . . . . . . . 294,230 435,983
Losses charged off, net . . . . . . . . . . . . . . . . . . . . (224,853) (753,224)
--------- ---------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . $452,000 382,623
======== =======
At December 31, 1992, the Corporation had commitments to originate fixed
rate and adjustable rate mortgage loans totaling approximately $2,906,000 and
$1,593,000, respectively. In management's opinion, these commitments will be
funded through normal operations.
At December 31, 1992 and 1991, the Corporation was servicing loans for
others aggregating approximately $6,228,000 and $10,786,000, respectively
The Corporation grants loans principally to customers located within the
state of Ohio.
E-8
[Enlarge/Download Table]
(3) MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of mortgage-backed securities are as follows:
DECEMBER 31, 1992
-----------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
FNMA participation
certificates . . . . . $ 11,975,373 98,274 21,939 12,051,708
FHLMC participation
certificates . . . . . 38,350,101 456,173 17,381 38,788,893
FNMA collateralized mortgage
obligations . . . . . . 44,938,438 87,809 265,415 44,760,832
FHLMC collateralized mortgage
obligations . . . . . . 42,754,876 270,015 361,201 42,663,690
Other collateralized mortgage
obligations . . . . . . 17,710 036 8,609 228,584 17,490,061
------------- -------- ------- -----------
$155,728,824 920,880 894,520 155,755,184
============ ======= ========= ===========
DECEMBER 31, 1991
--------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
FNMA participation
certificates . . . . . $18,959,361 489,134 0 19,448,495
FHLMC participation
certificates . . . . . 34,298,461 967,070 385 35,265,146
Other participation
certificates . . . . . 2,827,690 3,044 0 2,830,734
FNMA collateralized mortgage
obligations . . . . . . 9,234,105 99,894 10,908 9,323,091
FHLMC collateralized mortgage
obligations . . . . . . 18,431,470 196,227 389 18,627,308
Other collateralized mortgage
obligations . . . . . . 10,382,503 71,463 0 10,453,966
------------ ---------- ---------- -----------
$ 94,133,590 1,826,832 11,682 95,948,740
============ ========= ========== ===========
The amortized cost and estimated market value of mortgage-backed
securities, at December 31, 1992, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
[Download Table]
MATURITY DURING ESTIMATED
THE YEAR ENDING AMORTIZED MARKET
DECEMBER 31, COST VALUE
--------------- --------- ---------
1993 . . . . . . . . . . . . $ 4,005,535 4,010,000
1994-1997 . . . . . . . . . . 10,491,806 10,491,806
1998-2002 . . . . . . . . . . 2,529,900 2,530,666
Subsequent to 2002 . . . . . 138,701,583 138,722,712
------------ -----------
$155,728,824 155,755,184
============ ===========
E-9
There were no sales of mortgage-backed securities during 1992. Proceeds
from sales during 1991 were $11,052,162. Gross gains and losses of $126,758
and $31,003, respectively, were realized on those sales.
[Enlarge/Download Table]
(4) OTHER LOANS
A summary of other loans follows:
DECEMBER 31,
---------------------------------
1992 1991
---- ----
Automobile loans . . . . . . . . . . . . . . . . . . . . . . . . $ 293,780 434,395
Other consumer loans . . . . . . . . . . . . . . . . . . . . . . 9,025,502 10,093,887
Property improvement loans . . . . . . . . . . . . . . . . . . . 652,061 1,156,562
Loans on savings deposits . . . . . . . . . . . . . . . . . . . 372,105 616,500
------- --------
10,343,448 12,301,344
Less allowance for loan losses . . . . . . . . . . . . . . . . . (50,000) (50,000)
------------- ------------
$10,293,448 12,251,344
=========== ============
[Enlarge/Download Table]
(5) INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities are as follows:
DECEMBER 31, 1992
--------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
United States government
and agency obligations . $7,224,062 84,990 - 7,309,052
Municipal bond . . . . . . . 60,000 - - 60,000
---------- -------- ---------- ----------
$7,284,062 84,990 - 7,369,052
========== ====== ========== ==========
DECEMBER 31, 1991
--------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
United States government
and agency obligations . $5,125,214 98,286 - 5,223,500
Variable rate corporate
notes . . . . . . . . . . 2,998,375 - 50,875 2,947,500
Automobile receivable
obligation notes . . . . 547,535 8,213 - 555,748
Municipal bonds . . . . . . . 115,000 - - 115,000
----------- ---------- ---------- ----------
$8,786,124 106,499 50,875 8,841,748
========== ======= ========== ==========
The amortized cost and estimated market value of investment securities, at
December 31, 1992, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
[Download Table]
MATURITY DURING ESTIMATED
THE YEAR ENDING CARRYING MARKET
DECEMBER 31, VALUE VALUE
--------------- -------- ---------
1993 . . . . . . . . . . . . $2,060,000 2,060,000
1994-1997 . . . . . . . . . 5,224,062 5,309,052
---------- ---------
$7,284,062 7,369,052
========== =========
E-10
[Enlarge/Download Table]
(6) REAL ESTATE OWNED
Transactions in the allowance for losses on real estate owned acquired through foreclosure and loans foreclosed in
substance are summarized as follows:
YEAR ENDED
DECEMBER 31,
------------------------------------------------------
1992 1991 1990
---- ---- ----
Balance at beginning of year . . . . . . . . . . . . . $1,241,466 1,211,666 1,092,294
Provisions for losses . . . . . . . . . . . . . . . . 63,164 40,000 162,372
Losses charged off, net . . . . . . . . . . . . . . . (867,951) (10,200) (43,000)
----------- ----------- -----------
Balance at end of year . . . . . . . . . . . . . . . . $ 436,679 1,241,466 1,211,666
========== ========= =========
[Enlarge/Download Table]
(7) PREMISES AND EQUIPMENT
A summary of premises and equipment less accumulated depreciation and amortization follows:
DECEMBER 31,
-------------------------------
1992 1991
------------ ----------
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 386,850 398,978
Office buildings and
improvements . . . . . . . . . . . . . . . . . . . . . . . 2,385,960 2,381,850
Furniture, fixtures and
equipment . . . . . . . . . . . . . . . . . . . . . . . . . 2,404,394 2,743,269
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 93,385 93,385
----------- ---------
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . 5,270,589 5,617,482
Accumulated depreciation
and amortization . . . . . . . . . . . . . . . . . . . . . . (3,600,734) (3,752,388)
----------- -----------
$1,669,855 1,865,094
========== ==========
[Enlarge/Download Table]
(8) DEPOSITS
Deposit account balances at December 31, are summarized as follows:
1992
-------------------------------------------------------------
AVERAGE
COMPOUNDED
INTEREST
DEPOSIT TYPE RATE AMOUNT %
------------ ------------------ --------------- -------
Negotiable order of withdrawal . . . . . . . . . 4.02% $ 4,854,435 1.5%
Regular and money market savings . . . . . . . . 3.69 83,474,202 26.3
Money market demand accounts . . . . . . . . . . 2.93 33,260,170 10.5
Certificates of deposit . . . . . . . . . . . . 5.66 196,221,530 61.7
------------ -----
$317,810,337 100.0%
============ =====
[Enlarge/Download Table]
1991
-------------------------------------------------------------
AVERAGE
COMPOUNDED
INTEREST
DEPOSIT TYPE RATE AMOUNT %
------------ ------------------ --------------- -------
Negotiable order of withdrawal . . . . . . . . . 4.54% $ 2,262,694 0.8%
Regular and money market savings . . . . . . . . 4.99 55,128,342 19.1
Money market demand accounts . . . . . . . . . . 4.58 25,860,192 9.0
Certificates of deposit . . . . . . . . . . . . 7.07 204,649,376 71.1
------------- -----
$287,900,604 100.0%
============ =====
E-11
The weighted average interest rates on deposits were 4.82 percent and
6.42 percent at December 31, 1992 and 1991, respectively. The remaining
maturity periods of certificates of deposit at December 31, 1992 were as
follows:
[Enlarge/Download Table]
AMOUNT %
------------- -------
Certificates of deposit
maturity periods:
12 months or less . . . . . . . . . . . . . . . . . . . . . . . $130,290,635 66.4%
12 to 24 months . . . . . . . . . . . . . . . . . . . . . . . . 33,931,579 17.3
25 to 36 months . . . . . . . . . . . . . . . . . . . . . . . . 18,294,057 9.3
37 to 48 months . . . . . . . . . . . . . . . . . . . . . . . . 3,964,480 2.0
49 to 60 months . . . . . . . . . . . . . . . . . . . . . . . . 2,738,275 1.4
Over 60 months . . . . . . . . . . . . . . . . . . . . . . . . 7,002,504 3.6
------------- -----
$196,221,530 100.0%
============ =====
The components of interest expense on deposits are summarized as follows:
[Enlarge/Download Table]
YEARS ENDED
DECEMBER 31,
--------------------------------------------
1992 1991 1990
---- ---- ----
NOW's and money market
demand accounts . . . . . . . . . . . . . . . . . . $ 1,152,378 1,241,406 1,238,041
Regular and money market savings . . . . . . . . . . . . 2,776,077 2,718,774 2,579,586
Certificates of deposit . . . . . . . . . . . . . . . . 12,122,457 15,521,762 16,372,504
----------- ---------- ----------
$16,050,912 19,481,942 20,190,131
=========== ========== ==========
The Corporation paid approximately $16,521,000, $19,640,000 and
$20,381,000 in interest, including interest credited during 1992, 1991 and
1990, respectively.
Mortgage-backed securities and investment securities aggregating
approximately $12,075,000 were pledged as collateral for local government,
public, and private savings deposits at December 31, 1992.
(9) NOTES PAYABLE TO THE FEDERAL HOME LOAN BANK
The notes payable to the Federal Home Loan Bank of Cincinnati are payable
at various dates through 2007, with interest rates ranging from 4.75 percent to
10.20 percent (weighted average-7.90 percent) and 5.45 percent to 10.20 percent
(weighted average-8.60 percent) at December 31, 1992 and 1991, respectively.
Certain mortgage loans with principal balances approximating $59,465,000 at
December 31, 1992 are pledged to secure these notes.
Principal maturities for notes payable outstanding at December 31, 1992
are as follows:
[Download Table]
1993 $ 7,500,000
1994 7,500,000
1995 7,000,000
1996 3,000,000
1997-2007 14,643,530
-----------
$39,643,530
===========
The Corporation paid approximately $3,133,000, $3,068,000 and $2,525,000
in interest on notes payable to the Federal Home Loan Bank of Cincinnati during
1992, 1991 and 1990, respectively.
E-12
(10) FEDERAL INCOME TAXES
The Corporation qualified under provisions of the Internal Revenue Code
which permit it to deduct from taxable income an allowance for bad debts based
on experience or 8 percent of taxable income before such deductions.
If the amounts which qualify as deductions for federal income tax purposes
are later used for purposes other than to absorb loan losses, including
distributions in liquidation, they will be subject to federal income tax at the
then-current corporate rate. Retained earnings at December 31, 1992 and 1991
include approximately $9,440,000 for which no provision for federal income
taxes has been made.
Total tax expense differs from the expected amounts computed by applying
the applicable statutory federal income tax rate to income before
taxes on income. The reasons for this difference are as follows:
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31, 1992
------------------------------------
% OF
PRETAX
AMOUNT INCOME
------ ------
Computed "expected" tax expense . . . . . . . . . . . . . . . . $1,324,757 34.0%
Increase (decrease) in expense resulting from:
Losses on real estate owned and loans, net . . . . . . . . 111,540 2.9
Bad debt deduction . . . . . . . . . . . . . . . . . . . . (110,726) (2.8)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . (2,571) (.1)
------------ ------
$1,323,000 34.0%
========== ======
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31, 1991
-----------------------------------
% OF
PRETAX
AMOUNT INCOME
------ ------
Computed "expected" tax expense . . . . . . . . . . . . . . . . $1,328,775 34.0%
Increase (decrease) in expense resulting from:
Losses on real estate owned and loans, net . . . . . . . . 168,311 4.3
Bad debt deduction . . . . . . . . . . . . . . . . . . . . (189,219) (4.8)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 32,133 .8
----------- -----
$1,340,000 34.3%
========== ======
[Enlarge/Download Table]
YEAR ENDED
DECEMBER 31, 1990
-----------------------------------
% OF
PRETAX
AMOUNT INCOME
------ ------
Computed "expected" tax expense . . . . . . . . . . . . . . . . $1,113,781 34.0%
Increase (decrease) in expense resulting from:
Losses on real estate owned and loans, net . . . . . . . . 304,954 9.3
Bad debt deduction . . . . . . . . . . . . . . . . . . . . (263,083) (8.0)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 16,348 .5
----------- -----
$1,172,000 35.8%
========== ======
E-13
Deferred tax expense (benefit) results from timing differences in the
recognition of income and expense for tax and financial statement purposes.
The sources of these differences and the tax effect of each are as follows:
[Enlarge/Download Table]
YEARS ENDED
DECEMBER 31,
------------------------------------------------------
1992 1991 1990
---- ---- ----
Deferred premium on sales of loans
and mortgage-backed securities . . . . . . . . . . $ 6,049 (5,184) 4,572
Accelerated depreciation for tax purposes . . . . . . (8,441) (10,518) (23,870)
Federal Home Loan Bank stock dividends . . . . . . . . 45,934 62,746 73,771
Deferred loan fees, net . . . . . . . . . . . . . . . (83,549) (5,881) 57,163
Provision for losses . . . . . . . . . . . . . . . . . - - 133,593
Other, net . . . . . . . . . . . . . . . . . . . . . . (993) 24,837 12,771
----------- ------- --------
$ 41,000 66,000 258,000
========== ======= =======
The Corporation paid approximately $1,510,000, $900,000 and $950,000 in
federal income taxes during 1992, 1991 and 1990, respectively.
As discussed in Note 1 to the consolidated financial statements, in 1993
the Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 109. The cumulative effect of the change in prior years of
$193,000 (unaudited) is reported separately in the Consolidated Statement of
Operations for the period ended September 30, 1993.
Total tax expense for the period ended September 30, 1993 differs from the
expected amounts computed by applying the applicable statutory federal income
tax rate to income before taxes on income. The reasons for this difference are
as follows:
[Enlarge/Download Table]
(UNAUDITED)
-----------------------------------
% OF
PRETAX
AMOUNT INCOME
------ ------
Computed "expected" tax expense . . . . . . . . . . . . . . . . $1,034,946 34.0%
Increase (decrease) in expense resulting from:
Losses on real estate owned and loans, net . . . . . . . . 7,611 .3
Bad debt deduction . . . . . . . . . . . . . . . . . . . . (82,785) (2.7)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . (74,772) (2.5)
---------- -----
$ 885,000 29.1%
========== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
September 30, 1993 are presented below:
[Download Table]
(UNAUDITED)
-------------
Deferred tax assets:
Bad debt reserves . . . . . . . . . . . . . . . . . . . . . . $ 89,711
--------
Deferred tax liabilities:
Deferred premium on sales of loans and mortgage-
backed securities . . . . . . . . . . . . . . . . . . . . . . 9,022
Deferred loan fees, net . . . . . . . . . . . . . . . . . . . . 23,863
Pension expense . . . . . . . . . . . . . . . . . . . . . . . . 34,905
Accelerated depreciation for tax purposes . . . . . . . . . . 62,339
Federal Home Loan Bank stock dividends . . . . . . . . . . . . 432,906
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 24,001
---------
587,036
--------
Net deferred tax liability . . . . . . . . . . . . . . . $497,325
========
E-14
(11) EMPLOYEE BENEFIT PLANS
The Corporation has a defined benefit pension plan covering substantially
all of its employees. The benefits under the plan are based on years of
service and salary levels. Contributions are intended to provide not only for
benefits attributed to service date but also for those expected to be earned in
the future.
The following table sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated financial statements at:
[Enlarge/Download Table]
YEARS ENDED
DECEMBER 31,
------------------------------------
1992 1991
---------------- -------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $1,136,000 and $744,000
respectively . . . . . . . . . . . . . . . . . . . . $1,158,552 794,529
=========== ========
Projected benefit obligation . . . . . . . . . . . . . . $1,831,015 1,196,010
Plan assets at fair value, primarily
certificates of deposit . . . . . . . . . . . . . . . . 1,258,715 1,032,448
----------- ---------
Projected benefit obligation in excess of
plan assets . . . . . . . . . . . . . . . . . . . . . . (572,300) (163,562)
Unrecognized net loss . . . . . . . . . . . . . . . . . . 686,583 293,742
Unrecognized prior service cost . . . . . . . . . . . . . (89,976) (106,817)
Unrecognized net obligation being recognized over
employees' average remaining service life . . . . . . . 59,042 64,409
---------- ---------
Prepaid pension expense . . . . . . . . . . . . . . $ 83,349 87,772
========== =========
The components of net pension expense are as follows:
[Enlarge/Download Table]
YEARS ENDED
DECEMBER 31,
------------------------------------------------------
1992 1991 1990
---- ---- ----
Service cost . . . . . . . . . . . . . . . . . . . . . $ 154,315 111,845 116,495
Interest cost on projected benefit obligation . . . . 101,660 69,909 58,705
Actual return on plan assets . . . . . . . . . . . . . (68,188) (66,851) (54,117)
Net total of other components . . . . . . . . . . . . 5,363 (6,407) (7,600)
---------- --------- ---------
Net pension expense . . . . . . . . . . . . . . . . . $ 193,150 108,496 113,483
========= ======= =======
Assumptions used in the actuarial computations are as follows:
[Download Table]
1992 1991 1990
---- ---- ----
Weighted average discount rate . . . . . . . . . . . . 6.50% 7.25% 8.00%
Rate of increase in future compensation . . . . . . . 6.50 6.50 6.50
Expected long-term rate of return on assets . . . . . 7.75 7.75 7.75
The Corporation maintains a 401(k) savings plan in which full-time
employees of the Corporation and subsidiaries may participate upon attainment
of age 21 and completion of one year of full-time employment. The annual
contribution is 50 percent of the participant's voluntary contribution, not to
exceed 3 percent of the participant's annual compensation. Expenses were
approximately $45,000, $39,000 and $33,000 in 1992, 1991, and 1990,
respectively. Participants may also make additional contributions, subject to
certain restrictions.
E-15
(12) STOCK OPTION PLANS
The Corporation has Stock Option Plans with 84,000 shares reserved and
available, at the discretion of the board of directors, for the granting of
options to full-time employees of the Corporation and subsidiaries. The option
price is the fair market value of the common shares at the time of the granting
of an option.
At December 31, 1992 and 1991, stock options for 84,000 shares, having
exercise prices of $18.80 and $22.99, were outstanding. These stock options
are exercisable from 1993 to 2001.
(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
LONG-TERM INVESTMENTS. The fair values of long-term investments are
estimated based on quoted market prices for those or similar investments.
CASH ON HAND AND FEDERAL FUNDS SOLD. The carrying amount approximates
fair value because of the short maturity of those instruments.
DEPOSITS AND NOTES PAYABLE TO THE FEDERAL HOME LOAN BANK. The fair value
of the Corporation's deposits and notes payable to the Federal Home Loan Bank
are estimated based on the current rates offered for instruments of the same
remaining maturities.
[Enlarge/Download Table]
The estimated fair values of the Corporation's financial instruments at December 31, 1992 are as follows:
CARRYING FAIR
AMOUNT VALUE
--------- ---------
First mortgage loans . . . . $198,465,017 $200,946,890
Mortgage-backed securities . 155,728,824 155,755,184
Other loans . . . . . . . . 10,293,448 10,557,480
Investment securities . . . 7,284,062 7,369,052
Federal funds sold . . . . . 900,000 900,000
Cash on hand and in banks . 3,636,679 3,636,679
Deposits . . . . . . . . . . 317,810,337 323,505,683
Notes payable to the Federal
Home Loan Bank . . . . . 39,643,530 42,412,450
E-16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article Sixth of the Amended and Restated
Articles of Incorporation of Bancorporation, directors, officers,
employees or agents of Bancorporation, or persons serving at its
request as directors, trustees, officers, employees or agents of
any other entity or enterprise, are entitled to indemnification
for all liabilities and expenses reasonably incurred in
connection with any claim, action, suit or proceeding, civil,
criminal, administrative or investigative, to which any person
shall be made a party by reason of his being or having been a
director, officer, employee or agent of Bancorporation, or his
acting or having acted as a director, trustee, officer, employee
or agent of any other entity or enterprise upon Bancorporation's
request; provided, however, that such person acted in good faith
and in a manner he reasonably believed to be in the best
interests of Bancorporation or not opposed to the best interest
of Bancorporation or such other entity or enterprise and, with
respect to a criminal proceeding, where such person had no
reasonable cause to believe his conduct was unlawful.
Indemnification does not extend to any actions or proceedings in
which a person is adjudged liable for negligence or misconduct in
the performance of his duties to Bancorporation or such other
entity, except for amounts which a court, upon application and
despite an adjudication of liability, may deem proper in view of
all of the circumstances of the case.
Article Sixth further provides that the termination of any
claim, action, suit or proceeding, civil or criminal, by
settlement, judgment, conviction or plea of nolo contendere shall
not create a presumption that the person failed to meet any
standard of conduct set forth in Article Sixth. Any person who
has been wholly successful in the opinion of counsel shall be
entitled to indemnification as a matter of right. Except as
provided in the preceding sentence, indemnification shall be made
by Bancorporation if (1): a quorum of disinterested members, or
members who have been wholly successful with respect to such
claim, action, suit or proceeding of the Board of Directors of
Bancorporation determine that such person has met the standards
of conduct set forth in Article Sixth, (2) independent legal
counsel set forth an opinion that such person has met the
standards of conduct set forth in Article Sixth, (3)
indemnification is approved by the affirmative vote of the
majority of shareholders of Bancorporation entitled to vote on
such proposal, or (4) indemnification is approved by the court
where any such suit, action or proceeding is brought.
Bancorporation may advance, prior to final disposition, expenses
incurred with respect to any claim, action, suit or proceeding
upon receipt of an undertaking by or on behalf of the recipient
to pay such amount unless it is ultimately determined that he is
entitled to indemnification. These rights of indemnification
inure to the benefit of the heirs of any person entitled thereto.
The rights provided in Article Sixth are in addition to any
rights provided by contract or as a matter of law. Ohio Revised
Code Section 1701.13(E) includes indemnification provisions
similar to Article Sixth. Section 1701.13(E) further authorizes
a corporation to purchase and maintain insurance on behalf of any
director, trustee, officer, employee or agent for any liability
asserted against him or arising out of his status as such.
Bancorporation presently maintains insurance for the benefit of
persons entitled to indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See the Exhibit Index located at page II-5.
(b) Financial Statement Schedules
All financial statement schedules have been ommitted
because they are not applicable or the required
information is shown in the financial statements or
related notes thereto incorporated by reference in the
Prospectus and Proxy Statement.
II-1
(c) Information Provided Pursuant to Item 4(b) of Form S-4
Furnished as Appendix B of the Prospectus and
Proxy Statement
ITEM 22. UNDERTAKINGS
(1) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, when applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchnage Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(2) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part
of the registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the
other items of the applicable form.
(3) The registrant undertakes that every prospectus: (i)
that is filed pursuant to paragraph (2) immediately preceding, or
(ii) that purports to meet the requirements of Section 10(a)(3)
of the Act and is used in connection with an offering of
securities subject to Rule 415 will be filed as part of an
amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(4) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to items 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the
registration statement through the date of responding to the
request.
(5) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Akron, State of Ohio, on the 12th day
of January, 1994.
[Download Table]
FIRST BANCORPORATION OF OHIO
By: Howard L. Flood
------------------------------
Howard L. Flood, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1933, this registration statement has been signed on the 12th day
of January, 1994 by the following persons (including a majority
of the Board of Directors of the registrant) in the capacities
indicated.
[Download Table]
SIGNATURE TITLE
Howard L. Flood President and Chief Executive Officer
--------------------------------- (Principal Executive Officer) and Director
Howard L. Flood
Gary J. Elek Senior Vice President and Treasurer
--------------------------------- (Principal Financial Officer and Principal
Gary J. Elek Accounting Officer)
John C. Blickle* Director
---------------------------------
John C. Blickle
C. Donald Bramley* Director
---------------------------------
C. Donald Bramley
Robert M. Carter* Director
---------------------------------
Robert M. Carter
Richard A. Chenoweth* Director
---------------------------------
Richard A. Chenoweth
Elizabeth A. Dalton* Director
----------------------------------
Elizabeth A. Dalton
Harold Graves, Jr.* Director
-----------------------------------
Harold Graves, Jr.
Terry L. Haines* Director
-----------------------------------
Terry L. Haines
(signatures continued on next page)
II-3
(signatures continued from previous page)
[Download Table]
SIGNATURE TITLE
Richard L. Hardgrove* Director
-----------------------------------------
Richard L. Hardgrove
Clifford J. Isroff* Director
----------------------------------------------
Clifford J. Isroff
David B. Jones* Director
--------------------------------------------
David B. Jones
Donald M. Lambert* Director
-----------------------------------------
Donald M. Lambert
Philip A. Lloyd, II* Director
--------------------------------------------
Philip A. Lloyd, II
Robert G. Merzweiler* Director
-----------------------------------------
Robert G. Merzweiler
Stephen E. Myers* Director
-------------------------------------------
Stephen E. Myers
Gilbert H. Neal* Director
---------------------------------------------
Gilbert H. Neal
Roger T. Read* Director
--------------------------------------------
Roger T. Read
Justin T. Rogers, Jr* Director
--------------------------------------------
Justin T. Rogers, Jr.
Director
---------------------------------------------------
Dale W. Smucker
Director
---------------------------------------------------
Del Spitzer
*The undersigned, by signing his name hereto, does sign and
execute this registration statement on behalf of each of the
indicated officers and directors of First Bancorporation of Ohio
pursuant to a Power of Attorney executed by each such officer and
director and filed with this registration statement.
[Download Table]
Dated: January 12, 1994 Kevin C. O'Neil
---------------------
Kevin C. O'Neil
Attorney-in-Fact
II-4
[Download Table]
EXHIBIT INDEX
EXHIBIT NUMBER
(2)1 Agreement to Affiliate and Plan of Merger by and
between First Bancorporation of Ohio and Great Northern Financial
Corporation dated September 28, 1993
(3)(a)2 Amended and Restated Articles of Incorporation of
First Bancorporation of Ohio
(3)(b)3 Code of Regulations, as amended, of First
Bancorporation of Ohio
(3)(c)4 Shareholders Rights Agreement dated October 21,
1993 between First Bancorporation of Ohio and
First National Bnak of Ohio
(5) Opinion of Brouse & McDowell Regarding Legality
(8) Form of Opinion of Brouse & McDowell Regarding Certain
Tax Matters
(10)(a) 5 1982 Incentive Stock Option Plan of First
Bancorporation of Ohio
(10)(b) 6 Incentive Stock Option Agreement relating to 1982
Incentive Stock Option Plan of First
Bancorporation of Ohio
(10)(c) 7 1992 Stock Option Program of First Bancorporation
of Ohio
(10)(d) 8 Incentive Stock Option Agreement relating to 1992
Stock Option program of First Bancorporation of
Ohio
<FN>
--------------------
1 Incorporated herein by reference to Appendix A to the
Prospectus and Proxy Statement included in this Registration
Statement.
2 Incorporated herein by reference to Exhibit 3 to First
Bancorporation of Ohio's ("Bancorporation") Form 8-K filed with the
Commission on November 4, 1993.
3 Incorporated herein by reference to Exhibit 3(a) to
Bancorporation's Registration Statement on Form S-4 (No.
33-24925) filed with the Commission on October 17, 1988.
4 Incorporated herein by reference to Exhibit 4 to
Bancorporation's Registration Statement on Form 8-A filed
with the Commission on November 4, 1993.
5 Incorporated by reference from Exhibit 4.2 of
Bancorporation's Registration Statement on Form S-8 (No. 33-
7266), filed with the Commission on July 15, 1986.
6 Incorporated by reference from Exhibit 4.3 of
Bancorporation's Registration Statement on Form S-8 (No. 33-
7266), filed with the Commission on July 15, 1986.
7 Incorporated by reference from Exhibit (10)(c) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
8 Incorporated by reference from Exhibit (10)(d) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
II-5
[Download Table]
EXHIBIT NUMBER
(10)(e) 9 Non-Qualified Stock Option Agreement relating to
the 1992 Stock Option Program of First
Bancorporation of Ohio
(10)(f) 10 Employee Stock Purchase Plan of First
Bancorporation of Ohio
(10)(g) 11 1992 Directors Stock Option Program
(10)(h) 12 Directors Stock Option Agreement relating to the
1992 Directors Stock Option Program of First
Bancorporation of Ohio
(10)(i) 13 First Bancorporation of Ohio Executive
Supplemental Retirement Plan
(10)(j) 14 Form of First Bancorporation of Ohio Unfunded
Supplemental Benefit Plan
(10)(k) 15 First Bancorporation of Ohio Directors' Deferral
Fee Plan
(10)(l) 16 Termination Agreement of Howard L. Flood
(10)(m) 17 Form of Termination Agreement with the chief
executive officers of the Subsidiaries of First
Bancorporation of Ohio
<FN>
--------------------
9 Incorporated by reference from Exhibit (10)(e) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
10 Incorporated by reference from Exhibit (10)(f) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
11 Incorporated by reference from Exhibit (10)(g) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
12 Incorporated by reference from Exhibit (10)(h) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
13 Incorporated by reference from Exhibit (10)(i) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
14 Incorporated by reference from Exhibit (10)(j) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
15 Incorporated by reference from Exhibit (10)(e) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1989, filed with the Commission on March 13, 1990.
16 Incorporated by reference from Exhibit (10)(l) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
17 Incorporated by reference from Exhibit (10)(m) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1992, filed with the Commission on March 15, 1993.
II-6
[Download Table]
EXHIBIT NUMBER
(10)(n) 18 Membership Agreement of Howard L. Flood with
respect to the First Bancorporation of Ohio
Executive Supplemental Retirement Plan
(10)(o) 19 Membership Agreement of Scott A. Lyons, Jr. with
respect to the First Bancorporation of Ohio
Executive Supplemental Retirement Plan
(10)(p) 20 Supplemental Pension Agreement of John R. Macso
(10)(q) 21 First Bancorporation of Ohio Executive Post-
Retirement Death Benefit Plan
(10)(r) 22 Form of Voting Agreement
(13)(a) 23 First Bancorporation of Ohio's 1992 Annual Report
to Shareholders
(13)(b) 24 First Bancorporation of Ohio's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993
(22) Subsidiaries of Bancorporation
(24)(a) Consents of KPMG Peat Marwick
(24)(b) Consent of Coopers & Lybrand
(24)(c) Consent of Brouse & McDowell (included in Exhibit 5)
(24)(d) Consent of Trident Financial Corporation
(25) 25 Power of Attorney
(28) 26 Form of Proxy
<FN>
--------------------
18 Incorporated by reference from Exhibit (10)(o) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
19 Incorporated by reference from Exhibit (10)(q) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
20 Incorporated by reference from Exhibit (10)(r) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1991, filed with the Commission on March 16, 1992.
21 Incorporated by reference from Exhibit (10)(q) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1992, filed with the Commission on March 15, 1993.
22 Incorporated herein by reference to Appendix C to the
Prospectus and Proxy Statement included in this Registration
Statement.
23 Incorporated by reference from Exhibit (13)(a) of
Bancorporation's Form 10-K for the fiscal year ended December 31,
1992, filed with the Commission on March 15, 1993.
24 Filed with the Commission on November 10, 1993.
25 Incorporated by reference from Exhibit 25 of Bancorporation's
Registration Statement on Form S-4 (No. 33-51401) filed with the
Commission on December 10, 1993.
26 Incorporated by reference from Exhibit 28 of Bancorporation's
Registration Statement on Form S-4 (No. 33-51401) filed with the
Commission on December 10, 1993.
II-7
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM S-4 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST BANCORPORATION OF OHIO
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
_____________________
EXHIBITS
_____________________
Dates Referenced Herein and Documents Incorporated by Reference
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