SECOND AMENDED AND RESTATED OFFER OF MERGER
October 6, 1997
Board of Directors
CSB Bancorp
Petersburg, Indiana
Gentlemen:
Our Board of Directors has authorized me to present this Second Amended and
Restated Offer of Merger for the affiliation of CSB Bancorp (CSB) and its
subsidiary, The Citizens State Bank (Bank), with German American Bancorp
(Company) and its four affiliated community banks pursuant to a merger of CSB
with the Company (or a subsidiary of the Company) or similar transaction
(Merger). Concurrently with the Merger, CSB and the Company would cause the
Bank to acquire Community Trust Bank (CTB) by merging CTB with the Bank (the CTB
Acquisition).
Pursuant to the Merger, the Company would issue to the shareholders of CSB
such number of shares of Company common stock as would have an aggregate
"Closing Market Value" of at least $22,750,000. For this purpose, the Closing
Market Value of the Company Common Stock will be determined by averaging the bid
and ask prices as reported by NASDAQ at the close of each trading day within the
period of thirty calendar days that ends on the second business day prior to
such closing. The number of shares of Company common stock to be issued in the
Merger will be equal to, except as provided otherwise in this paragraph, the
quotient that results from dividing $22,750,000 by the Closing Market Value, but
would in no event be greater than 568,750 shares (even if the Closing Market
EXHIBIT 2.1
Value is less than $40.00) nor would it be fewer than 464,286 shares (even if
the Closing Market Value is more than $49.00).
If the Closing Market Value is less than $40.00, however, CSB would be entitled
to terminate the Merger.
The maximum and minimum number of shares issuable by the Company is
generally subject to appropriate adjustment on account of stock dividends,
splits, and the like and will be adjusted to give effect to the 2-for-1 stock
split that the Company announced October 2, 1997. However, because the effect
of the Company's annual five percent stock dividend (which will be declared and
paid in late 1997 prior to the time that CSB shareholders become Company
shareholders) has already been considered by the Company in determining the
number of shares to be issued under this Offer, no adjustment will be made for
such five percent dividend.
BANKING AND COMMUNITY FACTORS:
As previously noted, concurrently with the holding company Merger, we
contemplate Citizens State Bank would acquire our existing Pike County
affiliate, Community Trust Bank. The Citizens State Bank, operating under its
existing banking charter and name and separate corporate identity, would then be
positioned to lead the Company's Pike County operations under the direction of
its present management and Board of Directors. To achieve an exactly
proportionate representation on the merged bank's Board of Directors between the
Community Trust Bank and the Citizens State Bank based on banking assets would
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require that some CTB's Directors resign their seats. We are reluctant to make
such a request of them. We hope that you will consider that the present CTB
Director group will be reduced through expected retirements in the near future
in any event and that the members of the CTB Board include individuals whose
primary business activities are in Petersburg or Pike County. Further, as we
have previously advised you, none of the officers of Community Trust Bank who
are presently on its Board of Directors will become a member of the Board of
Directors of the merged bank. However, to assure you that the members of the
present Citizens State Bank Board of Directors, as a group that is most in touch
with the Petersburg community's interests, will have a prominent position on the
merged bank's Board for at least a transitional three-year period following the
Merger, German American will not cause the Board of the merged bank to be larger
than sixteen (initially constituted by the eight present Citizens State Bank
Directors, six representatives of Community Trust Bank, and two representatives
of the Company). Further, the Company will agree that nominations to fill any
vacancy that might arise during such three-year period in the Board seat
occupied by any of the eight Citizens' Directors serving at the time of closing
will be the exclusive right of the remaining Citizens' Directors serving at the
time of the closing who are then on the Board, subject of course to the
Company's right to refuse to vote to elect a nominee that the Company for
whatever reason finds objectionable. Further, between the time of acceptance of
the Offer and the time of consummation of the Merger (or, if earlier, the time
of termination of the transaction contemplated by the Offer without breach by
CSB of its obligations thereunder), the Board of Directors will not fill any
vacancy that might be created on its Board of Directors if the Company objects
to the person who is proposed to be appointed to fill the vacancy.
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In contrast to the staffing reductions that are often associated with bank
mergers and the negative impact these job losses have on the people involved and
the community as a whole, our Offer offers continuity of local employment. As
part of our no-merger-related-layoff policy, we offer employment opportunities
to all employees of all our affiliate banks. The employees of all of our
affiliate banks are welcomed into our organization on an equal basis. Your
employees will be eligible to participate (in accordance with the terms of our
plans) as soon as practicable after the closing of the Merger, and will receive
full vesting and eligibility credit for their seniority and years of service at
The Citizens State Bank under our benefit plans and other payroll practices,
such as our 401(k) plan, health insurance and disability plans, vacation
policies, etc.
An organizational chart showing our present intent is enclosed. Please
understand that we do not have an in-depth knowledge of your operations and
personnel. Because of our lack of knowledge regarding these matters, we have
included dual reportability to the Bank's Chief Executive Officer, Jerry Church,
who we intend to keep as the Bank's CEO indefinitely, and at least for the
three-year transitional period. Normal operating procedures would entail your
CEO making recommendations to the Board as to the proper alignment of personnel
regarding job function and lines of reportability. Future discussions at the
Board level will be necessary to determine if this proposed organizational chart
adequately addresses your Board's determination of the future needs of Citizens
State Bank.
As a means of providing enhanced administrative support to the staffs of
our affiliate banks we provide, at the holding company level, a number of
significant positions within the non-customer contact support functions. These
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support functions include audit, regulatory/tax reporting, financial accounting,
asset/liability management, human resource administration, technology support,
and marketing. Given the growth our Company is experiencing, your employees,
who currently may have to handle multiple facets of these various operating
functions along with their direct customer service responsibilities, can expect
to have enhanced career opportunities through specialization in these critical
support functions.
In connection with our expressed intent to continue the Bank's current
banking operation, we do not intend to discontinue any products or services
offered by the Bank to its customers. On the contrary, it is our intent to
enhance the Bank's ability to deliver the highest quality in customer service
and to broaden the range of product offerings through the introduction of
services such as trust/investment services and 24 hour automated banking
services (including ATMs and Voice Response Units). Utilizing leading edge
technology and marketing support, we are confident in our ability to assist The
Citizens State Bank staff in the marketing of both traditional and
nontraditional bank products and services while maintaining the community
banking philosophy which the customers of Citizens State Bank have enjoyed
throughout the Bank's history. In this way, The Citizens State Bank will be
positioned, in the future, to meet individual customer preferences; whether that
be through Home Banking, Internet Banking or Traditional Banking all of which
can still be delivered with the personal touch only available through a
hometown, community bank.
The Company's policy is to provide substantial operational autonomy for
each of its bank subsidiaries. It is important to assure that The Citizens
State Bank will continue to be in the best possible position to exercise that
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autonomy to the benefit of the Company's shareholders and its customers in Pike
County and the surrounding area. To that end, we agree that all Directors of
the Bank in office at the time of closing would continue to serve after the
closing of the Merger indefinitely, and for at least the three-year transitional
period following the Merger, subject of course to standard practices protecting
the Bank as it relates to bonding and regulatory issues. We take pride in the
fact that in the history of the Company, no eligible Director has declined to
continue his or her service following a merger. Further, in recognition of the
importance of the role that The Citizens State Bank will have in the Company's
organization, we will invite a representative of CSB, who is mutually acceptable
to the CSB Board and the Company Board, to join the Company's Board promptly
following the closing of the Merger, and thereafter will cause that
representative to be included among the Board of Directors' nominees to be re-
elected in future years, subject to the retirement age and other policies of the
Company's Board of Directors in effect from time to time.
None of our affiliate banks provide their Board members with health and
life insurance benefits; however, in order to offer a cash amount in lieu of
such benefit, the Company would have no objection to the Bank's payment of an
annual cash retainer to the existing Directors of Citizens State Bank of $3,000
per year paid in advance during their tenure for each of the first three years
following closing, in addition to their normal Director fees.
Recognizing the importance of demonstrating Citizens State Bank's and
German American Bancorp's commitment to the community, time is of the essence in
the construction of a new modern banking facility. Immediately following the
mutual execution of a definitive agreement, we will initiate detailed design
work and commence construction of a modern banking facility incorporating the
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existing one square block former Moose property located between 3rd and 4th on
Main Street in Petersburg. The scope of the construction work and the completed
facility will be within the range that we have previously discussed.
Preliminary architectural estimates for a 15,000 to 18,000 square feet building,
including space to be utilized for future expansion, indicate a building budget
requirement of $1.5 to $2.0 million. Disposition and interim or permanent
utilization of the existing main office facility, and of CTB's existing
Petersburg branch facility, would be determined by the Board of the Bank, with a
view to the best interests of the Petersburg community and the Bank.
We encourage our local affiliates to give generously to support charitable,
fraternal, social, educational, recreational and other needs of the communities
that are served by that affiliate. The exact level of giving is a matter within
the Board's discretion and will often depend on the profitability of the
affiliate bank, the level of current community need, and other factors that are
difficult to project. In response to your request, German American agrees to
establish a minimum level of annual giving for the communities served by the
merged bank of two percent of the prior year's net income for a period of three
years following the transaction. Future years' community giving will be based
on the Board's annual independent determination of the level of giving required
to meet the needs of worthy projects within the communities served by the
combined institution after taking into account all relevant factors at the time.
Our Offer further contemplates that CSB may, in its discretion, form a non-
profit charitable foundation, managed by CSB's Board of Directors, for the
benefit of the communities served by the Bank. Annual funding for the
Foundation would be credited against the Bank's community-giving budget for each
year, including the minimum commitment expressed in the preceding paragraph. In
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this way, the Merger will result in a tangible benefit to the community in
addition to the intangible benefits that flow from the preservation of the
identity and local management of the Bank. Through this Foundation, local Board
members can be assured that continued community support, which we believe is
critical to a community bank's identity, will remain as a cornerstone in The
Citizens State Bank's history of enriching the local community through its
charitable giving. There will also be continuation of local control over the
award of scholarships by the Trust Department of the Bank.
Your collective observation that the Bank should look to expand toward
Oakland City/Gibson County and Knox County in the immediate future is very
astute and in line with our strategic direction. As your own experience
indicates, timing of a merger is outside of the control of the expanding company
and is very difficult to project but certainly expansion in areas adjacent to
our existing markets is a high priority in our strategic planning.
OTHER TERMS AND CONDITIONS:
As required by the terms of the page headed Sealed Bidding Process
incorporated into CSB's Confidential Memorandum (Bidding Instructions), the
Company hereby confirms its acceptance of the terms and conditions specified by
the Bidding Instructions, including, without limitation, its agreements (a) to
cause the Merger by which its common stock will be issued to the CSB
shareholders to be fully registered under the Securities Act of 1933, as
amended, (b) to assume all assets and liabilities (including contingent
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liabilities) of CSB, and (c) to agree to offer employment to all present CSB
officers for a period of at least six months (at least three years for Jerry
Church) after consummation of the Merger contemplated by the Offer under the
same terms and conditions as offered by CSB prior to the making of our Offer
unless any such officer is discharged for willful misconduct. The following
additional terms and conditions are applicable to this Offer, and will be
contained substantially as follows in the Merger agreement along with other
mutually agreeable terms and conditions:
1.The Board of Directors of each of the parties shall have approved a
Merger agreement and the parties thereafter shall have executed and
delivered the Merger agreement and shall have obtained all the necessary
or appropriate regulatory and shareholder approvals for consummation of
the Merger and the CTB Acquisition and issuance of the common stock
under applicable law and stock market requirements. The Merger agreement
will contain such representations, warranties, conditions, and other
terms and conditions as are mutually agreeable and customary in
community bank merger transactions. We are prepared to proceed to
submit a draft of a definitive agreement with respect to the Merger to
your counsel (which will be based upon the definitive agreement that we
negotiated with the Board of Directors of Peoples Bancorp of Washington,
which your present law firm also represented) within two business days
of notification from CSB of its acceptance of this Offer, with the
expectation of signing the definitive agreement promptly following the
mutually satisfactory conclusion of the due diligence reviews by each
party of the other party contemplated by item 10 below. Closing will
thereafter occur as soon as practicable following receipt of all
required regulatory and shareholder approvals.
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2.The consolidated results of operations and financial condition of CSB
and its subsidiaries, as described by the December 31, 1996 and all
quarterly and interim 1997 financial statements filed by CSB or the Bank
with supervisory regulatory authorities or made available to
shareholders, shall have been fairly presented in accordance with
generally accepted accounting principles and practices applicable to
banks, consistently applied, including the full and fair disclosures of,
or adequate reserves against, all liabilities, absolute or contingent,
to which CSB and its subsidiaries are subject.
The operation and condition of the business, properties, prospects and
affairs, financial and otherwise, of CSB from the date of its December
31, 1996 financial statements through the effective date of the Merger,
shall have been continued without changes, except changes in the
ordinary course of business, which individually or in the aggregate
shall not have been materially adverse, and except changes reflected by
the quarterly or other interim 1997 financial statements of the Bank.
3.There shall have been no material change since December 31, 1996, in the
nature of the business, capital structure, compensation arrangements or
dividend policies of CSB, and no additional stock or other securities of
CSB (or warrants, options, convertible securities, or other rights to
acquire such stock or other securities) shall have been issued. The
amount of CSB's dividend at year end 1997 may be as large as is
consistent with your historical dividend practices for your December
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dividend in relation to earnings and other relevant factors but in any
event is not to be larger than the dividend declared in December 1996.
The Merger agreement shall include provisions that harmonize CSB's semi-
annual dividend payment schedule with the Company's quarterly payment
schedule, so that, for any period of time, a shareholder of CSB shall be
entitled to receive either CSB's semi-annual dividend, or the Company's
quarterly dividend, but not both.
4.All currently outstanding common stock of CSB shall have been duly
authorized, validly issued, fully paid and nonassessable.
5.There shall be no pending or threatened litigation or administrative
proceedings to restrain or invalidate the Merger or otherwise relating
to or affecting the Merger, or affecting or relating to CSB or the Bank
or their business or properties.
6.The affiliation shall be tax-free to the shareholders of CSB and shall
qualify as a pooling of interests for financial reporting purposes.
7.The Board of Directors of CSB (a) shall have approved this Offer and the
definitive agreement by favorable vote of at least the number of members
of the whole Board of Directors required under applicable law and the
governing corporate documents of CSB, (b) shall cause the Merger to be
submitted for a vote of the shareholders of CSB at the earliest possible
date, and (c) in connection which such shareholder vote, the Directors
who have approved this Offer shall (unless in the written opinion of
counsel for CSB the fiduciary duties of the Board of Directors prohibit
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such a recommendation, in which event the individual members of the
Board shall nevertheless personally support the Merger and vote for it
at any shareholder meeting at which it is considered) recommend the
Merger to the shareholders of CSB and shall vote their personal shares
in favor of such Merger. From and after the time of acceptance of this
Offer by CSB and until such time as the Merger has been completed or the
Merger transaction shall have been terminated or abandoned without
breach by CSB of its obligations under this Offer or the definitive
agreement, neither CSB nor the Bank shall (a) directly or indirectly
solicit, encourage or facilitate (nor shall they permit any of their
respective officers, Directors, employees or agents directly or
indirectly to solicit, encourage or facilitate), including by way of
furnishing information other than the fact of the acceptance of the
Offer by CSB, any inquiries or proposals from third parties for a
merger, consolidation, share exchange or similar transaction involving
CSB or the Bank or for the acquisition of the stock or substantially all
of the assets or business of CSB or the Bank, or (b) subject to the
fiduciary duties of the Directors of CSB as advised by counsel in a
written opinion, discuss with or enter into conversations with any
person concerning any such merger, consolidation, share exchange,
acquisition or other transaction. CSB shall promptly during the time
period identified in the preceding sentence notify the Company orally
(to be confirmed in writing as soon as practicable thereafter) of all of
the relevant details concerning any inquiries or proposals that it may
receive relating to any such matters, including actions it intends to
take with respect to such matters.
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8.The Company would not extend this Offer and thereby incur the
significant expenses associated with the Merger and the CTB Acquisition
and forego on a long-term basis the opportunity to pursue other
acquisition opportunities without assurance that its costs and expenses
would be fairly compensated if CSB were to willfully fail to perform for
reasons not contemplated by this Offer. Accordingly, as an integral
part of this Offer, in the event that the transactions contemplated by
this Offer terminate because CSB willfully fails to perform its
obligations for reasons not contemplated by this Offer (including but
not limited to termination by the Board of Directors following receipt
of a proposal for a merger, consolidation, asset sale, or other business
combination with any other party, or the failure of the CSB shareholders
to approve the Merger at a shareholders meeting held following receipt
of such a proposal if CSB should announce within a period of twelve
months from the date of that meeting that CSB has accepted an
acquisition proposal from any third party), then (as an alternative to
specific performance and in addition to whatever other legal rights or
remedies to which the Company may be entitled against other parties), at
the Company's option CSB shall (a) pay to the Company a termination fee
of $455,000 and (b) reimburse the Company for all of its out-of-pocket
costs and expenses in connection with the Merger incurred from and after
the date of acceptance of the Offer, including its legal, accounting,
environmental and other consulting fees and expenses, but in any event
not more than $100,000 of such costs and expenses. The parties agree
that the actual damages that would be caused to the Company by reason of
any such willful failure to perform cannot be determined with certainty
due to the Company's opportunity cost in proceeding with this Offer
compared to proceeding with other opportunities that are available to
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the Company and other factors. The parties further agree that the
amounts payable pursuant to this item 8 represent a reasonable estimate
of the Company's opportunity cost and other damages that may be awarded
as either a termination fee or as liquidated damages to the Company if
it chooses not to seek specific performance of this Offer, and that such
amounts represent the sole damages from CSB and the Bank to which the
Company is entitled.
9.We understand that CSB presently has the opportunity to accept proposals
from other bidders that do not have banking offices in the applicable
geographic banking market as presently defined by the Federal Reserve
Bank of St. Louis, and that, although both CSB and the Company agree
that the Merger and the CTB acquisition will not result in any
significant adverse effect on competition, CSB is reluctant to accept
the Company's Offer without financial assurance from the Company that
closing of the Merger and the CTB Acquisition will not be prevented by
governmental authorities on antitrust grounds. Therefore, the Company
agrees that if a final order denying any necessary banking approval is
entered by any bank regulatory agency with jurisdiction in the matter,
or if the Department of Justice should obtain an order of any court of
appropriate jurisdiction enjoining consummation of the Merger and the
CTB Acquisition, then the Company shall (a) pay CSB a termination fee,
which is agreed to represent a reasonable estimate of CSB's opportunity
cost, of $455,000, and (b) reimburse CSB for all of its out-of-pocket
costs and expenses in connection with the Merger incurred from the date
of acceptance of this Offer, including its legal, accounting,
environmental, and other consulting fees and expenses, but in any event
not more than $100,000 of such costs and expenses. CSB agrees to
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cooperate in obtaining all such approvals, including (a) promptly
withdrawing the Bank's membership in the Federal Reserve System upon the
execution of the definitive agreement for the Merger in order to make
the Bank an FRS non-member like all other state bank subsidiaries of the
Company, and (b) consenting to the dual employment of its counsel, Krieg
DeVault Alexander & Capehart, by the Company and CSB in connection with
preparing the necessary economic brief addressing the potential anti-
competitive consequences of the Merger, provided that the Company agrees
to be responsible for all such firm's fees and expenses in connection
with such economic briefing.
10. Our management and advisors will undertake a customary confidential
due diligence review of the financial condition, results of
operations, business and properties of CSB and the Bank and their
subsidiaries or affiliates if this Offer is accepted, commencing
Monday, October 6, 1997, and continuing through at least Tuesday,
October 7, 1997. It is a condition of our Offer that the results of
our due diligence review will be satisfactory to us. The Company and
CSB shall use their best efforts to keep the existence of this Offer
confidential until the conclusion of our "due diligence" review (and
that of CSB contemplated by Item 12 below), at which time the parties
shall promptly issue a mutually acceptable press release. Assuming
that all due diligence reviews are completed on or before Monday,
October 13, 1997, we contemplate an announcement as early as the close
of business on Tuesday, October 14, 1997.
11. Except as specified by items 8 and 9 in the Other Terms and Conditions
outlined above, each party will bear all of the expenses it incurs in
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connection with this Offer and the transactions contemplated hereby.
The Company will bear all legal and other costs and expenses in
connection with obtaining the necessary regulatory approvals.
12. The provisions of items 2 (fair presentation of recent financial
statements and lack of subsequent material adverse financial change),
4 (due authorization and valid issuance of outstanding stock), 5 (lack
of pending or threatened administrative proceedings) and 10
(opportunity for management and advisors to conduct a due diligence
review) of this Offer, as they apply to CSB and the Bank, shall also
reciprocally apply to the Company and its subsidiaries on a
consolidated basis. In other words, CSB and its advisors shall have
the opportunity to conduct a due diligence review of the Company if it
accepts this Offer, the results of which must be satisfactory to CSB,
provided that such review commences Friday, October 10, and concludes
Monday, October 13, as planned, in order to facilitate the making of
the public announcement at the earliest possible time. Further, the
Merger agreement will include usual and customary provisions, among
others, (a) that protect CSB against any unfair presentation of the
Company's financial condition and results of operations in its most
recent financial statements and reports, and against subsequent
material adverse change; (b) that assure CSB of the legality of the
Company's outstanding common stock; and (c) that protect CSB against
pending or threatened litigation or proceedings that may be instituted
against the Merger or the CTB Acquisition or against the Company or
its business or properties.
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13. This Offer, when accepted by CSB, shall constitute a legally binding
agreement enforceable against CSB and the Company in accordance with
its terms. If a definitive agreement with respect to the Merger is
not executed by December 1, 1997, or if the due diligence review of
the Company or CSB of the other is not satisfactory to the reviewing
party, then the agreement created by your acceptance of this Offer
will terminate and thereafter be of no force or effect upon written
notice of termination hereof delivered by the Company or CSB to the
other.
If you desire to accept our Offer, please sign and return the enclosed copy
to our President not later than 10:00 a.m., October 6, 1997.
Very truly yours,
GERMAN AMERICAN BANCORP
By:/s/ Mark S. Schroeder
------------------------
President
CSB Bancorp, intending to be legally bound, hereby accepts the above Second
Amended and Restated Offer of Merger at 9:00 a.m. on this 6th day of October,
1997.
CSB BANCORP
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By:/s/ Marion R. Klipsch
------------------------
President
0014\02\AMENDED.OFF