As Filed with the Securities and Exchange Commission on June 3, 1998
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-------------------
CNB BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
INDIANA 6022 35-1568731
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
20 N.W. Third Street
Evansville, Indiana 47739
812-456-3400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------
JOHN R. SPRUILL
Executive Vice President and Chief Financial Officer
CNB Bancshares, Inc.
20 N.W. Third Street
Evansville, Indiana 47739
812-456-3400
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-------------------
Copies to:
Thomas C. Erb, Esq. John W. Tanselle, Esq.
Lewis, Rice & Fingersh, L.C. Krieg, DeVault, Alexander and Capehart
500 N. Broadway, Suite 2000 One Indiana Square, Suite 2800
St. Louis, Missouri 63102 Indianapolis, Indiana 46204
314-444-7600 317-636-4341
-------------------
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after the effective date of this Registration Statement
and the effective time of the merger described in the enclosed Proxy
Statement/Prospectus.
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. [_]
-------------------
CALCULATION OF REGISTRATION FEE
======================================================================================================
Title of each class Amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price aggregate offering registration fee
registered per Unit price
- ------------------------------------------------------------------------------------------------------
Common Stock, stated value 1,118,528 $16.2973(2) $18,229,000(2) $5,377.56
$1.00 per share
======================================================================================================
(1) This Registration Statement covers the maximum number of shares of common
stock of the Registrant issuable to holders of common stock of National
Bancorp, an Indiana corporation, in the proposed merger of National Bancorp
with and into the Registrant.
(2) The registration fee was computed pursuant to Rule 457(f)(2) under the
Securities Act of 1933, as amended, based upon the book value of the common
stock of National Bancorp as of March 31, 1998.
-------------------
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.
================================================================================
[On letterhead of National Bancorp]
________ __, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of
Shareholders (the "Meeting") of National Bancorp, to be held at ____________, at
____ _.m., local time, on ________ __, 1998.
At the Meeting, shareholders of National Bancorp will be asked to consider
and vote upon a proposal to approve and adopt (i) the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of February 13, 1998, by and between
National Bancorp and CNB Bancshares, Inc., an Indiana corporation ("CNB"), and
(ii) all of the transactions contemplated by the Merger Agreement, including the
merger of National Bancorp with and into CNB (the "Merger").
If the Merger is approved and consummated, each issued and outstanding
share of common stock of National Bancorp, no par value per share, stated value
$2.50 per share (the "National Bancorp Common"), other than shares of National
Bancorp Common held in the treasury of National Bancorp or by any direct or
indirect subsidiary of National Bancorp, will be converted into the right to
receive 3.45 shares (the "Conversion Ratio") of common stock of CNB, stated
value $1.00 per share (the "CNB Common"). The Conversion Ratio is subject to
adjustment under certain circumstances described in the accompanying Proxy
Statement/Prospectus.
The Board of Directors of National Bancorp (the "National Bancorp Board")
submits the proposed Merger to you after careful review and consideration. We
believe that the proposed Merger will provide significant value to all
shareholders.
THE NATIONAL BANCORP BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS THAT YOU VOTE FOR THE MERGER PROPOSAL AT THE MEETING.
The accompanying Notice and Proxy Statement/Prospectus set forth the voting
rights of holders of National Bancorp Common with respect to these matters and
describe the matters to be acted upon at the Meeting. Shareholders are urged to
review carefully the attached Proxy Statement/Prospectus, which contains a
description of the Merger Agreement and its terms and conditions and the
transactions contemplated by the Merger Agreement.
Your continuing interest in the business of National Bancorp is
appreciated. Because of the significance of the Merger to National Bancorp, your
participation in the Meeting, in person or by proxy, is especially important.
Accordingly, whether or not you plan to attend the Meeting, please sign, date
and mail the enclosed Proxy promptly in the postage-paid envelope that has been
provided to you for your convenience. If you wish to vote in accordance with the
recommendations of the National Bancorp Board, it is not necessary to specify
your choices; you may merely sign, date and return the enclosed Proxy.
Sincerely,
Thomas R. McCart
President
NATIONAL BANCORP
an Indiana corporation
---------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on ________ __, 1998
---------------
TO THE SHAREHOLDERS OF NATIONAL BANCORP:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of National Bancorp, an Indiana corporation, will be held on ________
__, 1998, at _____ _.m., local time, at _______________________________________,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt (i) the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of
February 13, 1998, by and between National Bancorp and CNB Bancshares,
Inc., an Indiana corporation ("CNB"), and (ii) all of the transactions
contemplated by the Merger Agreement. Such transactions include the
merger of National Bancorp with and into CNB (the "Merger"), with CNB
being the surviving corporation. Upon consummation of the Merger, each
issued and outstanding share of common stock of National Bancorp, no
par value per share, stated value $2.50 per share (the "National
Bancorp Common"), other than shares of National Bancorp Common held in
the treasury of National Bancorp or by any direct or indirect
subsidiary of National Bancorp, will be converted into the right to
receive 3.45 shares (the "Conversion Ratio") of common stock of CNB,
stated value $1.00 per share (the "CNB Common"), and cash in lieu of
fractional shares. The Conversion Ratio is subject to adjustment under
certain circumstances described in the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
Meeting, or any adjournments or postponements thereof. The Board of
Directors of National Bancorp is not aware of any other business to
come before the Meeting.
A copy of the Merger Agreement is attached as Appendix A to the
accompanying Proxy Statement/Prospectus.
The Board of Directors of National Bancorp has fixed the close of business
on _______ __, 1998, as the record date for determination of shareholders
entitled to notice of and to vote at the Meeting and at any adjournments or
postponements thereof.
Only shareholders of record at the close of business on such date are
entitled to notice of and to vote at the Meeting and any adjournments or
postponements thereof.
Your vote is important regardless of the number of shares you own. Each
shareholder is requested to sign, date and return the enclosed Proxy without
delay in the enclosed postage-paid envelope. You may revoke your Proxy at any
time prior to its exercise. Any shareholder of record present at the Meeting or
any adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the Meeting.
____________________________________
Secretary
Tell City, Indiana
________ __, 1998
PROXY STATEMENT for NATIONAL BANCORP
PROSPECTUS
of
CNB BANCSHARES, INC.
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of National Bancorp, an Indiana corporation, with and into CNB
Bancshares, Inc., an Indiana corporation ("CNB"), pursuant to the terms of the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of February 13,
1998, by and between CNB and National Bancorp. The Merger Agreement is attached
hereto as Appendix A and is incorporated by reference herein.
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of National Bancorp (the
"National Bancorp Board") to be used at the Special Meeting of Shareholders of
National Bancorp to be held on ________ __, 1998, including any adjournments or
postponements thereof (the "Meeting"). At the Meeting, holders of the common
stock of National Bancorp, no par value per share, stated value $2.50 per share
(the "National Bancorp Common"), will be asked to consider and vote upon
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, including the Merger. Any proxy given pursuant to this solicitation by
a holder of National Bancorp Common may be revoked by the grantor at any time
prior to the voting of such proxy at the Meeting. See "MEETING."
Pursuant to the Merger Agreement and in connection with the Merger, each
issued and outstanding share of National Bancorp Common, other than shares held
in the treasury of National Bancorp or by any direct or indirect subsidiary of
National Bancorp, will be converted into the right to receive 3.45 shares (the
"Conversion Ratio") and cash in lieu of fractional shares (together, the "Merger
Consideration"). See "MERGER -- Merger Consideration," "-- Fractional Shares"
and "DESCRIPTION OF CNB COMMON STOCK." The Conversion Ratio is subject to
adjustment under certain circumstances described herein. See "MERGER --
Termination of Merger Agreement -- Conversion Ratio Adjustment." Shares of CNB
Common issued and outstanding immediately prior to the Merger will be unaffected
by the Merger and will remain issued and outstanding immediately after the
Merger. Shareholders of CNB are not being asked to vote upon or otherwise
approve the Merger.
(continued on next page)
THE SHARES OF CNB COMMON OFFERED HEREBY 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
___________________________________
THE SHARES OF CNB COMMON OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
___________________________________
The date of this Proxy Statement/Prospectus is ________ __, 1998.
(continued from previous page)
This Proxy Statement/Prospectus also constitutes the Prospectus of CNB, filed
as part of the Registration Statement (as such term is hereafter defined under
"AVAILABLE INFORMATION"), covering a maximum of 1,118,528 shares of CNB Common
issuable to holders of National Bancorp Common pursuant to the Merger (based
upon the Conversion Ratio of 3.45).
The issued and outstanding shares of CNB Common are, and the shares of CNB
Common to be issued in connection with the Merger will be, included for
quotation on the New York Stock Exchange (the "N.Y.S.E.") under the symbol
"BNK". The issued and outstanding shares of National Bancorp Common are not
traded on a public market. On __________ __, 1998, the closing sale price of
CNB Common was $_____ per share.
This Proxy Statement/Prospectus and the accompanying form of proxy for use in
connection with the Meeting are first being mailed to shareholders of National
Bancorp on or about ________ __, 1998.
This Proxy Statement/Prospectus does not cover any resales of the CNB Common
offered hereby to be received by the shareholders of National Bancorp deemed to
be "affiliates" of CNB or National Bancorp upon consummation of the Merger. No
person is authorized to make use of this Proxy Statement/Prospectus in
connection with such resales, although such securities may be traded without the
use of this Proxy Statement/Prospectus by those shareholders of National Bancorp
not deemed to be "affiliates" of CNB or National Bancorp. See "MERGER -- Resale
of National Bancorp Common."
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION.......................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................ 1
FORWARD-LOOKING STATEMENTS..................................................... 3
SUMMARY INFORMATION............................................................ 4
Introduction.................................................................. 4
Parties to Merger............................................................. 4
Special Meeting............................................................... 5
Merger........................................................................ 6
Comparison of Shareholder Rights..............................................11
Comparative Stock Prices......................................................13
SELECTED COMPARATIVE PER SHARE DATA............................................14
SUMMARY CONSOLIDATED FINANCIAL DATA............................................15
PARTIES TO MERGER..............................................................18
CNB...........................................................................18
National Bancorp..............................................................24
MEETING........................................................................24
Date, Time and Place of Meeting...............................................24
Matters to be Considered......................................................24
Record Date...................................................................25
Vote Required.................................................................25
Security Ownership of Management..............................................25
Voting and Revocation of Proxies..............................................25
Solicitation of Proxies.......................................................26
MERGER.........................................................................27
General.......................................................................27
Background of Merger..........................................................27
Reasons for Merger; Recommendation of National Bancorp Board..................28
Fairness Opinions of Financial Advisors.......................................29
Form of Merger................................................................33
Merger Consideration..........................................................33
Fractional Shares.............................................................33
Exchange of Stock Certificates................................................33
Effective Time................................................................34
Share Adjustments.............................................................35
Dividends.....................................................................35
Conditions to Consummation of Merger..........................................35
Regulatory Approvals..........................................................36
Representations and Warranties................................................37
Certain Other Agreements......................................................38
Effect of Merger on Employee Benefit and Employee Stock Option Plans..........41
Management and Operations After Merger........................................42
Interests of Certain Persons in Merger........................................42
Accounting Treatment..........................................................43
Federal Income Tax Consequences...............................................44
Termination of Merger Agreement...............................................45
Termination Fee...............................................................46
Appraisal Rights of Dissenting Shareholders...................................47
i
No Solicitation.................................................................... 48
Waiver and Amendment............................................................... 48
Expenses and Fees.................................................................. 48
Resale of CNB Common............................................................... 48
PRO FORMA FINANCIAL DATA............................................................. 50
DESCRIPTION OF CNB COMMON STOCK...................................................... 58
COMPARISON OF SHAREHOLDER RIGHTS..................................................... 58
Shareholder Vote Required for Certain Transactions................................. 59
Special Meeting of Shareholders; Shareholder Action by Written Consent............. 59
Dissenters' Rights................................................................. 62
Takeover Statutes.................................................................. 62
Indemnification.................................................................... 63
Limitation of Liability of Directors............................................... 63
Consideration of Non-Shareholder Interests......................................... 64
INFORMATION ABOUT NATIONAL BANCORP................................................... 65
Business of National Bancorp....................................................... 65
Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 65
Security Ownership of Certain Beneficial Owners and Management....................... 77
LEGAL OPINION........................................................................ 77
EXPERTS.............................................................................. 78
Independent Auditors for CNB....................................................... 78
Independent Auditors of National Bancorp........................................... 78
SHAREHOLDER PROPOSALS................................................................ 78
FINANCIAL STATEMENTS OF NATIONAL BANCORP.............................................F-1
APPENDICES
Appendix A Agreement and Plan of Merger...........................................A-1
Appendix B Opinion of Professional Bank Services..................................B-1
Appendix C Excerpts from Indiana Corporate Law (Dissenters' Rights)...............C-1
ii
No person has been authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus in connection
with the offering described herein, and any such information or representation,
if given or made, must not be relied upon as having been authorized by CNB or
National Bancorp. This Proxy Statement/Prospectus does not constitute a
solicitation or an offering of any securities other than the registered
securities to which it relates or in any jurisdiction to any person to whom it
would be unlawful to make such offer or solicitation in such jurisdiction. The
delivery of this Proxy Statement/Prospectus at any time does not imply that any
information herein is correct as of any time subsequent to its date.
AVAILABLE INFORMATIONAVAILABLE INFORMATION
CNB 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 "S.E.C."). The reports, proxy statements and other information
can be inspected and copied at the public reference facilities of the S.E.C.,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the S.E.C. located at Suite 1300, Seven World Trade
Center, New York, New York 10048, and Suite 1400, Citicorp Center, 500 West
Madison Street, Chicago, Illinois 60661, and copies of such materials can be
obtained from the public reference section of the S.E.C. at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The S.E.C.
maintains a Web site (http://www.sec.gov) that contains reports, proxy
statements and other information regarding CNB. Reports, proxy statements and
other information concerning CNB also may be inspected at the offices of the
N.Y.S.E., 20 Broad Street, New York, New York 10005.
CNB has filed with the S.E.C. under the Securities Act of 1933, as amended
(the "Securities Act"), a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") with respect to the CNB Common
to be issued pursuant to the Merger Agreement. Pursuant to S.E.C. Regulations,
this Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto. Such additional
information may be obtained from the S.E.C.'s principal office in Washington,
D.C. Statements contained in this Proxy Statement/Prospectus or in any document
incorporated in this Proxy Statement/Prospectus by reference as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance where reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement is qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the S.E.C. by CNB (File No. 0-11510)
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus: (i) CNB's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997; (ii) CNB's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (as amended by CNB's Quarterly Report on Form 10-
Q/A filed with the Commission on May 28, 1998); (iii) the description of CNB's
Common Stock contained in CNB's Registration Statement on Form 8-A, dated April
1, 1996, filed pursuant to Section 12 of the Exchange Act, including any
amendments or reports filed for the purpose of updating such description; and
(iv) CNB's Current Reports on Form 8-K as filed with the Commission on May 1,
1998 (as amended by CNB's Current Report on Form 8-K/A filed with the Commission
on June 3, 1998), and June 3, 1998.
1
On April 17, 1998, CNB acquired Pinnacle Financial Services, Inc., a
Michigan corporation ("Pinnacle")(File No. 0-17937). Pinnacle's Annual Report
on Form 10-K for the year ended December 31, 1997 is incorporated herein by
reference.
All documents and reports filed by CNB pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of effectiveness of the Registration
Statement of which this Proxy Statement/Prospectus forms a part and prior to the
date of the Meeting shall be deemed to be incorporated by reference in this
Proxy Statement/Prospectus and to be a part hereof from the dates of filing of
such documents or reports. Any statement contained in this Proxy
Statement/Prospectus 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 Proxy Statement/Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference documents relating
to CNB which are not presented herein or delivered herewith. These documents
(excluding unincorporated exhibits) are available, without charge, to any
person, including any beneficial owner, to whom this Proxy Statement/Prospectus
is delivered, upon written or oral request to the following: CNB Bancshares,
Inc., 20 N.W. Third Street, Evansville, Indiana 47739, 812-456-3400, Attn:
David L. Knapp, Executive Vice President and Secretary. In order to ensure
timely delivery of the documents, any request should be made by ________ __,
1998.
2
FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND THE BUSINESS
OF CNB AND NATIONAL BANCORP ON A STAND-ALONE AND PRO FORMA COMBINED BASIS
FOLLOWING THE CONSUMMATION OF THE MERGER. SEE "SUMMARY INFORMATION," "PARTIES
TO MERGER -- CNB," "MERGER -- REASONS FOR MERGER; RECOMMENDATION OF NATIONAL
BANCORP BOARD," "-- OPINION OF FINANCIAL ADVISOR" AND "PRO FORMA FINANCIAL
DATA." THESE STATEMENTS CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD
LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES AND ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THE PROJECTIONS. FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) THE RESULTS
OF CNB'S EFFORTS TO IMPLEMENT ITS BUSINESS STRATEGY, (2) EXPECTED COST SAVINGS
THAT MAY BE ASSOCIATED WITH FUTURE ACQUISITIONS AND FROM THE MERGER AND/OR THE
RECENTLY COMPLETED MERGER BETWEEN CNB AND PINNACLE CANNOT BE FULLY REALIZED
AND/OR REVENUES FOLLOWING SUCH TRANSACTIONS ARE LOWER THAN EXPECTED AND/OR
EXPENSES FOLLOWING SUCH TRANSACTIONS ARE HIGHER THAN EXPECTED; (3) GREATER THAN
EXPECTED DEPOSIT ATTRITION OR CUSTOMER LOSS FOLLOWING THE MERGER AND/OR THE
PINNACLE MERGER; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF CNB AND NATIONAL BANCORP AND/OR PINNACLE ARE GREATER THAN
EXPECTED; (5) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; (6)
LEGISLATION OR REGULATORY REQUIREMENTS OR CHANGES ADVERSELY AFFECTING THE
BUSINESSES IN WHICH THE COMBINED COMPANY WOULD BE ENGAGED; (7) ADVERSE CHANGES
IN BUSINESS CONDITIONS AND INFLATION; (8) GENERAL ECONOMIC CONDITIONS, EITHER
NATIONALLY OR REGIONALLY, WHICH ARE LESS FAVORABLE THAN EXPECTED AND THAT RESULT
IN, AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY; (9) COMPETITIVE
PRESSURES AMONG FINANCIAL INSTITUTIONS INCREASING SIGNIFICANTLY; (10) CHANGES IN
THE SECURITIES MARKETS; (11) ACTIONS OF CNB'S COMPETITORS AND CNB'S ABILITY TO
RESPOND TO SUCH ACTIONS; (12) THE COST OF CNB'S CAPITAL, WHICH MAY DEPEND IN
PART ON CNB'S PORTFOLIO QUALITY, RATINGS, PROSPECTS AND OUTLOOK; (13) CHANGES IN
GOVERNMENTAL REGULATION, TAX RATES AND SIMILAR MATTERS; (14) "YEAR 2000"
COMPUTER AND DATA PROCESSING ISSUES, AND (15) OTHER RISKS DETAILED IN CNB'S
OTHER FILINGS WITH THE COMMISSION.
3
SUMMARY INFORMATION
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. Although the following summary
addresses all material information regarding the Merger, it is not intended to
be complete and is qualified in all respects by the information appearing
elsewhere herein or incorporated by reference into this Proxy
Statement/Prospectus, the Appendices hereto and the documents referred to
herein. All information contained in this Proxy Statement/Prospectus relating
to CNB and its subsidiaries has been supplied by CNB, and all information
relating to National Bancorp and its subsidiaries has been supplied by National
Bancorp. Shareholders of National Bancorp are urged to read this Proxy
Statement/Prospectus and the Appendices hereto in their entirety. Unless
otherwise indicated, all financial information in this Proxy
Statement/Prospectus has been restated to give retroactive effect to CNB's
acquisition of Pinnacle Financial Services, Inc., a Michigan corporation
("Pinnacle"), on April 17, 1998 (the "Pinnacle Acquisition").
Introduction
This Proxy Statement/Prospectus relates to the Merger Agreement
entered into by and between CNB and National Bancorp which provides for, among
other things, the merger of National Bancorp with and into CNB. Upon
consummation of the Merger, CNB will be the surviving corporation, and National
Bancorp will cease to exist as a separate entity. The full text of the Merger
Agreement is attached hereto as Appendix A and is incorporated by reference
herein.
Parties to Merger
CNB
CNB, headquartered in Evansville, Indiana, is the largest bank holding
company based in Indiana. CNB operates with a super community bank philosophy
decentralizing day-to-day customer services such as pricing and lending
decisions, while centralizing data processing systems, product development and
back office support functions. Through its 139 banking offices, 29 consumer
finance offices, and 190 ATMs, CNB provides a wide range of commercial banking,
retail banking, trust, insurance and investment services to customers in
Indiana, Illinois, Michigan, Kentucky and Tennessee. At March 31, 1998 (on a
pro forma basis giving effect to the Pinnacle Acquisition), CNB had assets of
$6.6 billion, deposits of $4.7 billion, loans of $3.9 billion and shareholders'
equity of $525 million.
CNB has grown significantly through 32 acquisitions of banks and non-
banks since 1986. CNB consummated its largest acquisition to date on April 17,
1998, when it acquired Pinnacle, a $2.1 billion asset bank holding company
headquartered in St. Joseph, Michigan. Pinnacle operated 14 offices in
southwestern Michigan and 30 offices in northwestern Indiana. CNB's principal
executive offices are located at 20 N.W. Third Street, Evansville, Indiana
47739, and its telephone number is 812-456-3400.
For additional information regarding CNB, see "PARTIES TO MERGER --
CNB" and the documents listed under "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
National Bancorp
National Bancorp is a bank holding company headquartered in Tell City,
Indiana, with its principal office located at 601 Main Street, Tell City,
Indiana 47586 (telephone number 812-547-2323). TCB Bank (formerly known as Tell
City National Bank), a wholly owned subsidiary of National Bancorp, is a state
chartered financial institution and has five banking offices. TCB Bank operates
two insurance subsidiaries and one investment subsidiary. At March 31, 1998,
National Bancorp had consolidated assets of $189 million, deposits of $154
million, loans of $142 million and shareholders' equity of $18 million.
4
For additional information regarding National Bancorp, see "PARTIES TO
MERGER -- National Bancorp," "INFORMATION ABOUT NATIONAL BANCORP" and "FINANCIAL
STATEMENTS OF NATIONAL BANCORP."
Special Meeting
Date, Time and Place of Special Meeting
The Meeting will be held at _________________________, commencing at
____ __.m., local time, on _______________ ____, 1998. See "MEETING -- Date,
Time and Place."
Matters to be Considered
At the Meeting, the holders of National Bancorp Common will be asked
to consider and vote upon a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Merger. See "MEETING --
Matters to be Considered."
Record Date
The record date for the Meeting is _______ __, 1998 (the "Record
Date"). Only the holders of record of outstanding shares of National Bancorp
Common on the Record Date will be entitled to notice of and to vote at the
Meeting. See "MEETING -- Record Date."
Vote Required
The presence, in person or by proxy, of a majority of the issued and
outstanding shares of National Bancorp Common entitled to vote as of the Record
Date is necessary to constitute a quorum at the Meeting. Pursuant to National
Bancorp's By-Laws, the affirmative vote of the holders of two-thirds of all of
the issued and outstanding shares of National Bancorp Common is required to
approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger. Approval of the Merger Agreement by the
requisite vote of the holders of National Bancorp Common is a condition to, and
required for, consummation of the Merger. See "MEETING -- Vote Required" and
"MERGER -- Conditions to Consummation of Merger."
Security Ownership of Management
As of the Record Date, ________ shares of National Bancorp Common were
issued, outstanding and entitled to vote, of which approximately ________
shares, or approximately ____%, were beneficially owned by directors and
executive officers of National Bancorp and their affiliates. It is currently
expected that each such director and executive officer of National Bancorp will
vote the shares of National Bancorp Common beneficially owned by him or her for
approval of the Merger Agreement and the consummation of the transactions
contemplated thereby, including the Merger. As of the Record Date, TCB Bank, in
various fiduciary capacities, held approximately ________ shares, or
approximately ____%, of National Bancorp Common under trust agreements and other
instruments and agreements. It is the practice of TCB Bank when holding shares
as sole trustee or sole executor, to vote such shares but, where shares are held
as co-executor or co-trustee, approval is obtained from the co-fiduciary before
voting. As of the Record Date, directors and executive officers of CNB and
their affiliates did not beneficially own any shares of National Bancorp Common.
As of the Record Date, subsidiaries of CNB held approximately __________, or
less than __%, of National Bancorp Common in various fiduciary capacities and,
by virtue of sole or shared voting or investment power in respect of such
shares, were deemed to own them beneficially. See "MEETING -- Security
Ownership of Management."
5
Voting and Revocation of Proxies
A proxy to vote at the Meeting accompanies this Proxy
Statement/Prospectus. Any proxy given pursuant to this solicitation may be
revoked by the grantor thereof at any time prior to the voting of such proxy at
the Meeting, by filing a written revocation or a duly executed proxy bearing a
later date with the Secretary of National Bancorp. See "MEETING -- Voting and
Revocation of Proxies."
A holder of National Bancorp Common may withdraw his or her proxy at
the Meeting at any time before it is exercised by electing to vote in person. A
holder of National Bancorp Common does not, however, revoke his or her proxy
simply by attending the Meeting. See "MEETING -- Voting and Revocation of
Proxies."
Merger
Effects of Merger
At the time that the Merger is consummated (the "Effective Time") (see
"MERGER -- Effective Time"), National Bancorp will merge directly with and into
CNB. CNB will be the surviving corporation in the Merger, and the separate
corporate existence of National Bancorp will terminate.
As a result of the Merger, (i) each share of National Bancorp Common
issued and outstanding immediately prior to the Effective Time, other than
shares held in the treasury of National Bancorp or by any direct or indirect
subsidiary of National Bancorp, will be converted into the right to receive 3.45
shares of CNB Common (the "Conversion Ratio"), and (ii) each issued and
outstanding share of CNB Common will remain outstanding, unaffected by the
Merger. See "MERGER -- Merger Consideration" and "DESCRIPTION OF CNB COMMON
STOCK." The Conversion Ratio is subject to adjustment under certain
circumstances. See "MERGER -- Termination of Merger Agreement -- Conversion
Ratio Adjustment."
No fractional shares of CNB Common will be issued as a result of the
Merger. In lieu thereof, National Bancorp shareholders who would otherwise be
entitled to a fractional share interest in CNB Common (after taking into account
all shares of National Bancorp Common held by such shareholder) will be paid an
amount in cash equal to the product of such fractional share interest and the
closing sale price of a share of CNB Common as reported in The Wall Street
Journal (Midwest Edition) on the trading day immediately preceding the date on
which the Effective Time occurs. See "MERGER -- Fractional Shares."
The maximum number of shares of CNB Common to be issued to the
shareholders of National Bancorp in the Merger (on a fully-diluted basis
assuming the exercise prior to the Effective Time of all National Bancorp
Employee Stock Options (as such term is hereafter defined under "-- Effect of
Merger on Employee Benefit and Employee Stock Option Plans -- Employee Stock
Option Plans")) is 1,118,528. Immediately following the Merger, shareholders of
CNB and National Bancorp will own approximately 96.8% and 3.2%, respectively, of
the then outstanding shares of CNB Common.
For information on how National Bancorp shareholders will be able to
exchange certificates representing shares of National Bancorp Common for
certificates representing shares of CNB Common after the Effective Time, see
"MERGER -- Exchange of Stock Certificates."
Value of Merger
As of ________ __, 1998, based on the Conversion Ratio of 3.45 and the
closing sale price of CNB Common as reported in The Wall Street Journal for that
date, the Merger had a per share value of $_____ to
6
holders of National Bancorp Common, and the approximate total value of the
Merger Consideration to the shareholders of National Bancorp was $____________
million. The total value of the Merger Consideration as stated above may
increase or decrease depending on the market price of CNB Common.
Reasons for Merger and Recommendation of Boards of Directors
The Board of Directors of CNB (the "CNB Board") and the National
Bancorp Board believe that the terms of the Merger Agreement are fair to and in
the best interests of CNB and its shareholders and National Bancorp and its
shareholders, respectively. The terms of the Merger Agreement were reached on
the basis of arm's-length negotiations between CNB and National Bancorp. In the
course of reaching its decision to approve the Merger Agreement, the National
Bancorp Board consulted with its financial advisor, Professional Bank Services
("PBS"), regarding the financial terms of the Merger Agreement, and the fairness
of the Conversion Ratio to the holders of National Bancorp Common from a
financial point of view. See "MERGER -- Fairness Opinion of Financial Advisor."
THE CNB BOARD AND THE NATIONAL BANCORP BOARD HAVE EACH UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE MERGER, AND THE NATIONAL BANCORP BOARD UNANIMOUSLY RECOMMENDS
ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER.
For a discussion of the background of the Merger and the factors
considered by the National Bancorp Board in reaching its decision to approve the
Merger Agreement, see "MERGER -- Background of Merger," and "-- Reasons for
Merger; Recommendation of National Bancorp Board."
Fairness Opinion of Financial Advisor
PBS, National Bancorp's advisor with respect to the financial aspects
of the Merger, has rendered its written opinion to the National Bancorp Board
that, as of February 13, 1998, and as of the date of this Proxy
Statement/Prospectus, based upon the matters set forth in such opinions, the
Conversion Ratio is fair to the holders of National Bancorp Common from a
financial perspective.
The opinion of PBS, dated as of the date of this Proxy
Statement/Prospectus, is attached hereto as Appendix B and should be read in its
entirety with respect to the assumptions made, matters considered and limits of
the reviews undertaken by PBS in rendering its opinion. The opinion of PBS is
directed to the National Bancorp Board and does not constitute a recommendation
to shareholders of National Bancorp as to how they should vote at the Meeting.
National Bancorp has agreed to pay certain fees to PBS for the opinions that it
has rendered in conjunction with the Merger. See "MERGER -- Background of
Merger" and " -- Fairness Opinion of Financial Advisor" for a further
description of the opinion of PBS and of the fees payable by National Bancorp to
PBS.
Management and Operations After Merger
As a consequence of the Merger, National Bancorp will cease to exist
as a separate entity and its subsidiaries, including TCB Bank, will become
subsidiaries of CNB. CNB intends to combine the operations of certain CNB and
National Bancorp subsidiaries which provide similar services and, to this end,
CNB has filed regulatory applications for prior approval of the merger of TCB
Bank with and into Citizens Bank of Jasper, a wholly-owned subsidiary of CNB
(the "Subsidiary Bank Merger"). The Merger is not conditional upon the prior or
simultaneous consummation of the Subsidiary Bank Merger.
7
It is not anticipated that the management of CNB or the CNB Board will
be affected as a result of the Merger. See "MERGER -- Management and Operations
After Merger."
Conditions to Consummation of Merger
Consummation of the Merger is subject to certain conditions including,
among other things, (i) approval of the Merger Agreement by the requisite
holders of National Bancorp Common (see "MEETING -- Vote Required"); (ii)
receipt of certain regulatory approvals (see "MERGER -- Regulatory Approvals");
(iii) receipt of a legal opinion on certain tax aspects of the Merger (see
"MERGER -- Federal Income Tax Consequences"); (iv) the qualifications of the
Merger for "pooling of interests" accounting treatment (see "MERGER --
Accounting Treatment"); and (v) certain other customary closing conditions (see
"MERGER -- Conditions to Consummation of Merger"). The conditions described in
clauses (i) and (ii) above (the receipt of shareholder and regulatory approvals)
may not be waived by either party. Although the remaining conditions to the
Merger may be waived by the party entitled to the benefit thereof, neither CNB
nor National Bancorp intends to waive any such condition except in those
circumstances where the CNB Board or the National Bancorp Board, as the case may
be, deems such waiver to be in the best interests of CNB and National Bancorp,
as the case may be, and its respective shareholders. There can be no assurances
as to when and if such conditions will be satisfied (or, where permissible,
waived) or that the Merger will be consummated. If the condition described in
clause (iii) above is not satisfied (the tax-free reorganization status of the
Merger), the Merger will not be consummated unless this Proxy
Statement/Prospectus is amended to reflect such revised tax treatment and the
approval of the Merger by the shareholders of National Bancorp is resolicited.
See "MERGER -- Conditions to Consummation of Merger."
Regulatory Approvals
The Merger is subject to approval by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") pursuant to Section 3 of
the Bank Holding Company Act of 1956, as amended (the "B.H.C.A.") and the
Indiana Department of Financial Institutions ("D.F.I."). The Merger was
approved by the Federal Reserve Board on April 29, 1998. CNB expects to file an
application with the D.F.I. in the near future. The Merger will not proceed
until all regulatory approvals required to consummate the Merger have been
obtained, such approvals are in full force and effect and all statutory waiting
periods in respect thereof have expired. There can be no assurance that the
Merger will receive all requisite regulatory approvals. See "MERGER --
Regulatory Approvals."
Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization so that no gain
or loss will be recognized by CNB or National Bancorp, and no gain or loss will
be recognized by shareholders of National Bancorp, except in respect of cash
received for fractional shares. Consummation of the Merger is conditioned upon
the receipt by CNB and National Bancorp of an opinion of Lewis, Rice & Fingersh,
L.C. that if the Merger is consummated in accordance with the terms set forth in
the Merger Agreement: (i) the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"); (ii) no gain or loss will be recognized by the holders of shares
of National Bancorp Common upon receipt of Merger Consideration (except for cash
received in lieu of fractional shares); (iii) the basis of shares of CNB Common
(including any fractional share interest to which such shareholder would be
entitled) received by the shareholders of National Bancorp will be the same as
the basis of National Bancorp Common exchanged therefor; and (iv) the holding
period of the shares of CNB Common received by the shareholders of National
Bancorp will include the holding period of the shares of National Bancorp Common
exchanged therefor, provided such shares were held as capital assets as of the
Effective Time. See "MERGER -- Federal Income Tax Consequences."
8
THE FOREGOING IS A GENERAL SUMMARY OF ALL OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF NATIONAL BANCORP
WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S
TAX SITUATION AND STATUS. EACH SHAREHOLDER OF NATIONAL BANCORP SHOULD CONSULT
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN LAWS AND THE POSSIBLE EFFECT OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
Accounting Treatment
The Merger is expected to be accounted for as a "pooling of interests"
under generally accepted accounting principles and the qualification of its
Merger for "pooling of interests" accounting is a condition to CNB's obligation
to consummate the Merger. See "MERGER -- Conditions to Consummation of Merger."
If such condition is not met, the Merger will not be consummated unless such
condition is waived by CNB (which CNB has indicated that it does not intend to
do should such an event arise), and the approval of the Merger by the
shareholders of National Bancorp entitled to vote on the Merger is resolicited,
if such failure to qualify for pooling of interests is deemed to be material to
the financial condition and results of operations of CNB on a pro forma basis
assuming the completion of the Merger.
As of the date of this Proxy Statement/Prospectus, the management of
CNB and National Bancorp are not aware of any existing facts or circumstances
which would preclude accounting for the transaction as a "pooling of interests."
See "MERGER -- Accounting Treatment."
Business of National Bancorp in Ordinary Course
Pursuant to the Merger Agreement, National Bancorp has agreed to, and
has agreed to cause each of its subsidiaries to, carry on its respective
business and to discharge or incur obligations and liabilities only in the
usual, regular and ordinary course of business, subject to obtaining CNB's prior
approval before undertaking certain specified actions. See "MERGER -- Certain
Other Agreements -- National Bancorp -- Business of National Bancorp in Ordinary
Course."
Dividends
The Merger Agreement provides that National Bancorp may declare and
pay its regular quarterly dividend on the National Bancorp Common in an amount
not to exceed $0.51 per share, at approximately the same times during each
quarter during such period which it has historically declared and paid such
dividends. CNB and National Bancorp will, pursuant to the Merger Agreement,
cooperate with each other to coordinate the record and payment dates of their
respective dividends for the quarter in which the Effective Time occurs such
that the National Bancorp shareholders will receive a quarterly dividend from
either National Bancorp or CNB but not from both during or with respect to such
quarter. See "MERGER -- Dividends."
Interests of Certain Persons in Merger
Certain members of the National Bancorp Board and certain members of
management of National Bancorp and/or its subsidiaries have interests in the
Merger that are in addition to and separate from the interests of shareholders
of National Bancorp generally. These include, among others, provisions in the
Merger Agreement relating to director and officer indemnification and insurance,
employment and employee benefits after the Merger, and the conversion of
employee stock options. The National Bancorp Board was aware of these interests
and considered them, among other matters, in approving the Merger Agreement and
the transactions contemplated thereby. See "MERGER -- Interests of Certain
Persons in Merger."
9
Termination of Merger Agreement; Conversion Ratio Adjustment
The Merger Agreement may be terminated at any time prior to the date
on which the Merger is consummated (the "Closing Date"): (i) by mutual written
agreement of CNB and National Bancorp; (ii) by either party in the event of a
material, uncured breach by the other party of any of such other party's
representations and warranties or agreements under the Merger Agreement; (iii)
by CNB, following written notice to National Bancorp, if certain reports of
environmental inspection on the real properties of National Bancorp to be
obtained pursuant to the Merger Agreement disclose any matters requiring
remedial or corrective measures the cost of which exceeds $150,000 (as
determined in accordance with the Merger Agreement and described under "MERGER
- -- Certain Other Agreements -- National Bancorp -- Environmental Inspections");
(iv) by either party in the event that any of the conditions to its obligations
are not satisfied or waived (and not cured within any applicable cure period)
(see "MERGER -- Conditions to Consummation of Merger"); (v) if any regulatory
application is finally denied or disapproved by the respective regulatory
authority (see "MERGER -- Regulatory Approvals"); (vi) by either party if the
Merger Agreement and the transactions contemplated thereby, including the
Merger, are not approved by the shareholders of National Bancorp (see "MEETING
- -- Vote Required") or if the National Bancorp Board withdraws or modifies its
recommendation and approval of the Merger Agreement; (vii) by CNB in the event
that National Bancorp or any of its subsidiaries becomes a party or subject to
any new or amended written agreement, memorandum of understanding, cease and
desist order, imposition of civil money penalties or other regulatory
enforcement action or proceeding with any Regulatory Agency (as such term is
hereafter defined under "MERGER -- Representations and Warranties") after the
date of the Merger Agreement which would have a Material Adverse Effect (as such
term is hereafter defined under "MERGER -- Representations and Warranties") on
National Bancorp; and (viii) by either party following written notice if the
Merger is not consummated on or prior to December 31, 1998. See "MERGER --
Termination of Merger Agreement -- Termination."
The National Bancorp Board may terminate the Merger Agreement if the
CNB Average Price (as such term is hereafter defined under "MERGER --
Termination of Merger Agreement -- Conversion Ratio Adjustment") is less than
$35.50 (a " National Bancorp Price Termination Event"). If a National Bancorp
Price Termination Event occurs and National Bancorp notifies CNB of its
intention to terminate the Merger Agreement, CNB may, within a specified period
of time, increase the Conversion Ratio as more fully described herein, in which
event the Merger Agreement will continue in effect as so adjusted. See "MERGER
- -- Termination of Merger Agreement -- Conversion Ratio Adjustment."
In addition, the CNB Board may terminate the Merger Agreement if the
CNB Average Price is greater than $48.50 (a "CNB Price Termination Event"). If
a CNB Price Termination Event occurs and CNB notifies National Bancorp of its
intention to terminate the Merger Agreement, National Bancorp may, within a
specified period of time, decrease the Conversion Ratio as more fully described
herein, in which event the Merger Agreement will continue in effect as so
adjusted. See "MERGER -- Termination of Merger Agreement -- Conversion Ratio
Adjustment."
Termination Fee
The Merger Agreement provides that upon the occurrence of one or more
Triggering Events (as defined below), National Bancorp will pay to CNB the sum
of $1,500,000.
The term "Triggering Event" means any of the following events (a) upon
termination of the Merger Agreement by CNB upon a breach thereof by National
Bancorp (including, without limitation, the entering into of an agreement
between National Bancorp and any third party which is inconsistent with the
transactions contemplated by the Merger Agreement), provided that within 18
months of the date of such termination, either an event described in clause (b)
below shall have occurred or, National Bancorp enters into an
10
agreement with any third party whereby such third party will acquire, merge or
consolidate with National Bancorp or TCB Bank, purchase all or substantially all
of National Bancorp's or TCB Bank's assets or acquire 50% or more of the
outstanding shares of National Bancorp Common; (b) any person or group of
persons (other than CNB) acquires, or has the right to acquire, 33% or more of
the National Bancorp Common, exclusive of shares of National Bancorp Common sold
directly or indirectly to such person or group of persons by CNB; or (x) upon
the entry by National Bancorp into an agreement or other understanding with a
person or group of persons (other than CNB and/or its affiliates) for such
person or group of persons to acquire, merge or consolidate with National
Bancorp or to purchase all or substantially all of National Bancorp's assets.
See "MERGER --Termination Fee."
Appraisal Rights of Dissenting Shareholders
The rights of shareholders of National Bancorp who determine to
dissent from the Merger are governed by the Indiana Business Corporation Law
(the "Indiana Corporate Law") which provides that a shareholder shall be
entitled to receive the fair value of his or her shares of National Bancorp
Common held immediately before the Merger is consummated if such shareholder:
(i) delivers to National Bancorp, before the Meeting, written notice of his or
her intent to demand payment for his or her shares of National Bancorp Common;
(ii) does not vote in favor of the Merger; and (iii) makes written demand for
payment of the fair value of his or her shares within a date to be determined by
National Bancorp, which date must be between 30 and 60 days after National
Bancorp delivers a written dissenters' notice to such shareholder. If the
holders of more than approximately 10% of the shares of National Bancorp Common
should exercise their dissenters' rights, the Merger would not qualify as a
"pooling of interests" for accounting and financial reporting purposes and
therefore CNB would not be obligated to consummate the Merger. See "MERGER --
Appraisal Rights of Dissenting Shareholders."
Waiver and Amendment
Prior to the Effective Time, CNB and National Bancorp, by action taken
or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations or other acts required of the other party contained in the Merger
Agreement; (ii) waive any inaccuracies in the representations and warranties of
the other party contained in the Merger Agreement or in any document delivered
pursuant to the Merger Agreement; or (iii) waive compliance by the other party
of any of its agreements or conditions contained in the Merger Agreement.
Subject to compliance with applicable law, the Merger Agreement may be
amended by CNB and National Bancorp by action taken or authorized by their
respective Boards of Directors at any time, except that after approval by the
shareholders of National Bancorp, no amendment may change the amount or form of
the Merger Consideration to be delivered to the holders of National Bancorp
Common other than as contemplated by the Merger Agreement. See "MERGER --
Waiver and Amendment."
Comparison of Shareholder Rights
The rights of the shareholders of National Bancorp Common and CNB
Common differ in certain respects. Holders of National Bancorp Common should be
aware that a result of becoming a shareholder of CNB Common through the Merger
will be that their shareholder's rights, which are now governed by the Articles
of Incorporation, Bylaws and other corporate documents of National Bancorp and
the Indiana Corporate Law, will, upon consummation of the Merger, be governed by
the Restated Articles of Incorporation, Bylaws and other corporate documents of
CNB and continue to be governed by the Indiana Corporate Law. While, as general
business corporations incorporated under the laws of the State of Indiana, many
of the primary shareholder rights of holders of CNB Common and National Bancorp
Common are identical or substantially similar, the governing documents of CNB
differ from those of National Bancorp in
11
several respects. The material differences are hereafter described under
"COMPARISON OF SHAREHOLDER RIGHTS" and include the shareholder votes required
for certain business combinations, removal of directors, amendments to the
articles of incorporation, and the ability of shareholders to call special
shareholder meetings See "DESCRIPTION OF CNB COMMON STOCK" and "COMPARISON OF
SHAREHOLDER RIGHTS."
Certain provisions of CNB's Restated Articles of Incorporation and
Bylaws reduce CNB's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by the CNB Board.
The CNB Board believes that it is in the best interests of CNB and its
shareholders to encourage potential acquirors to negotiate directly with the CNB
Board and that these provisions will encourage such negotiations and discourage
nonnegotiated takeover attempts. It is also the view of the CNB Board that
these provisions should not discourage persons from proposing a merger or other
transaction at prices reflective of the true value of CNB and which is in the
best interests of all shareholders. These provisions may, however, also have
the effect of discouraging a future takeover attempt which would not be approved
by the CNB Board, but pursuant to which shareholders may receive a premium for
their shares over the then current market prices. As a result, shareholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the CNB Board and
management more difficult.
12
Comparative Stock PricesComparative Stock Prices
Shares of CNB Common are publicly traded on the N.Y.S.E. under the symbol
BNK. Prior to April 1996, shares of CNB Common were included for quotation on
The Nasdaq Stock Market's National Market ("Nasdaq") under the symbol CNBE. The
following table sets forth, for the periods indicated, the high and low sale
prices of CNB Common.
There is no established public trading market for the shares of National
Bancorp. Management of National Bancorp does not have knowledge of the prices
paid in all transactions involving its shares and has not necessarily verified
the prices indicated in the table with both parties to the relevant transaction.
Because of the lack of an established public market for shares of National
Bancorp Common, the prices indicated may not reflect the prices which would be
paid for such shares on an active market.
CNB Common National Bancorp Common
--------------------------------------- ---------------------------------------
Cash Cash
Dividend Dividend
High Low Declared High Low Declared
---- --- -------- ---- --- --------
Year Ended December 31, 1996
First Quarter.......... $26.76 $25.17 $.19 $ (1) $ (1) $.44
Second Quarter......... 26.30 25.40 .19 55.00 (2) .45
Third Quarter.......... 28.09 24.72 .19 (1) (1) .46
Fourth Quarter......... 39.77 27.98 .21 60.00 (2) .46
Year Ended December 31, 1997
First Quarter.......... $38.21 $34.76 $.21 $70.00 $ (2) $.46
Second Quarter......... 42.74 37.62 .21 70.00 (2) .50
Third Quarter.......... 43.19 38.33 .21 70.00 (2) .51
Fourth Quarter......... 48.63 39.69 .23 70.00 (2) .51
Year Ending December 31, 1998
First Quarter.......... $49.38 $41.38 $.23 $85.00 $ (2) $.51
Second Quarter
(through _____, 1998).. $.23 (1) (1)
________________
(1) Management is aware of no transactions during this period.
(2) Only one transaction is known to management.
The following table sets forth the closing sale price of CNB Common as
reported on the N.Y.S.E. on February 12, 1998, the last trading day before the
announcement of the Merger Agreement, and on __________ __, 1998. Management of
National Bancorp is not aware of any transactions in the National Bancorp Common
as of such dates. The most recent transaction in the National Bancorp Common
known to management occurred on January 29, 1998 at a price of $85.00. The
National Bancorp Common Equivalent represents the closing sale price of CNB
Common on such date multiplied by the Conversion Ratio of 3.45.
CNB National Bancorp
Common Common Equivalent
------ -----------------
February 12, 1998..................... $45.47 $156.87
______ __, 1998...................... $ $ ____
Shareholders are advised to obtain current market quotations for CNB
Common.
13
SELECTED COMPARATIVE PER SHARE DATA
The following summary presents, for the periods indicated, selected
comparative historical, pro forma and pro forma equivalent per share data for
CNB and National Bancorp. The amounts designated "Historical" represent the
historical financial results of CNB and National Bancorp. CNB's historical
financial data has been restated for the periods presented to reflect the
Pinnacle Acquisition, which was consummated on April 17, 1998, and was accounted
for under the pooling of interests method of accounting. The amounts designated
"Pro Forma Combined Per CNB Share" represent the pro forma results of the
Merger. The pro forma amounts assume that the Merger had been effective during
the periods presented and had been accounted for under the pooling of interests
method of accounting. For a description of the pooling of interests method of
accounting with respect to the Merger, see "MERGER -- Accounting Treatment." The
amounts designated "Equivalent Pro Forma Per National Bancorp Share" are
computed by multiplying the Pro Forma Combined Per Share amounts by the
Conversion Ratio of 3.45 shares of CNB Common for each share of National Bancorp
Common. See "MERGER -- Merger Consideration." The Conversion Ratio is subject to
adjustment under certain circumstances. See "MERGER -- Termination of Merger
Agreement -- Conversion Ratio Adjustment."
The data presented is not necessarily indicative of the results of the
future operation of the combined organization or the actual results that would
have occurred if the Merger had been consummated prior to the periods indicated.
The data presented below for, and as of, the three month periods ended March 31,
1998 and 1997 reflect, in the opinion of management of CNB and National
Bancorp, as the case may be, all adjustments considered necessary for fair
presentation. Interim results for the three months ended March 31, 1998 are not
necessarily indicative of results which may be expected for future periods,
including the year ended December 31, 1998, and should be read in conjunction
with the more detailed information and historical financial statements and the
notes thereto incorporated by reference in this Proxy Statement/Prospectus and
set forth herein and with the unaudited pro forma financial statements included
elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "PARTIES TO MERGER -- CNB," "INFORMATION ABOUT NATIONAL
BANCORP," "PRO FORMA FINANCIAL DATA" and "FINANCIAL STATEMENTS OF NATIONAL
BANCORP."
Three Months Ended
March 31, Year Ended December 31,
--------------------- -------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Basic net income per share:
Historical:
CNB................................................. $ 0.58 $ 0.53 $ 1.80 $ 1.61 $ 1.70
National Bancorp.................................... 1.66 1.43 7.00 5.97 5.57
Pro forma combined per CNB share...................... 0.58 0.52 1.81 1.62 1.70
Equivalent pro forma per National Bancorp share....... 2.00 1.79 6.24 5.59 5.87
Diluted net income per share:
Historical:
CNB................................................. $ 0.58 $ 0.52 $ 1.78 $ 1.59 $ 1.67
National Bancorp.................................... 1.62 1.41 6.84 5.89 5.54
Pro forma combined per CNB share...................... 0.57 0.51 1.78 1.59 1.67
Equivalent pro forma per National Bancorp share....... 1.97 1.76 6.14 5.49 5.76
Dividends per share:(1)
Historical:
CNB(2).............................................. $ 0.23 $ 0.21 $ 0.86 $ 0.78 $ 0.53
National Bancorp.................................... 0.51 0.46 1.93 1.79 1.63
Pro forma combined per CNB share...................... 0.23 0.21 0.86 0.78 0.53
Equivalent pro forma per National Bancorp share....... 0.79 0.72 2.97 2.69 1.83
Book value per share:
Historical:
CNB................................................. $15.64(3) $14.55 $15.39 $15.26 $15.32
National Bancorp.................................... 57.85 52.67 56.65 51.91 48.00
Pro forma combined per CNB share...................... 15.68(3) 14.59 15.43 15.27 15.27
Equivalent pro forma per National Bancorp share....... 54.10(3) 50.34 53.23 52.68 52.68
___________________________
(1) CNB's pro forma and National Bancorp's pro forma equivalent dividends per
share represent historical dividends per share declared by CNB multiplied by
the Conversion Ratio of 3.45.
(2) In the past years, CNB declared a dividend in one quarter and paid it in the
next quarter. During 1995, CNB changed this policy and began declaring and
paying dividends in the same quarter. The fourth quarter dividend for 1995
was declared and paid in January 1996.
(3) Results for 1998 do not reflect the one-time charges of $41.3 million ($30.0
million after taxes) which will be recorded by CNB during the second quarter
of 1998 in connection with the Pinnacle Acquisition consummated on April 17,
1998. Including the effect of the charges, the CNB historical book value
per share would have been $14.75, the Pro forma combined per CNB share would
have been $14.81 and the Equivalent pro forma per National Bancorp share
would have been $51.09.
14
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below set forth selected
data for CNB and National Bancorp and pro forma combined amounts reflecting the
Merger. The pro forma amounts assume that the Merger had been effective during
the periods presented. The data presented has been prepared in accordance with
generally accepted accounting principles. In the case of CNB, the data has been
restated to reflect the Pinnacle Acquisition which was accounted for under the
pooling of interests method of accounting, and should be read in conjunction
with CNB's Current Report on Form 8-K filed with the Commission on June 3, 1998.
Generally accepted accounting principles prescribe giving effect to a
consummated business combination, such as the Pinnacle Acquisition, accounted
for by the pooling of interests method in financial statements that do not
include the date of consummation. This summary supplemental consolidated
financial data does not extend through the date of consummation of the Pinnacle
Acquisition; however, it will become the historical summary consolidated
financial data of the Company after the consolidated financial statements
covering the date of consummation of the business combination are issued. In the
case of National Bancorp, the data should be read in conjunction with the
consolidated financial statements of National Bancorp included herein. The data
presented below for, and as of, the three-month periods ended March 31, 1998 and
1997 reflect, in the opinion of management of CNB and National Bancorp, as the
case may be, all adjustments considered necessary for fair presentation. Interim
results for the three months ended March 31, 1998 are not necessarily indicative
of results which may be expected for future periods, including the year ended
December 31, 1998. The pro forma amounts may not be indicative of the results
that actually would have occurred if the Merger had been in effect on the dates
indicated and should be read in conjunction with the unaudited pro forma
financial statements included elsewhere herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "PARTIES TO MERGER -- CNB," "INFORMATION ABOUT NATIONAL
BANCORP," "PRO FORMA FINANCIAL DATA," and "FINANCIAL STATEMENTS OF NATIONAL
BANCORP."
CNB
Three Months Ended
March 31, Year Ended December 31,
-------------------------- -----------------------------------------------------------
1998 1997 1997(5) 1996(6) 1995 1994 1993
---------- ---------- ---------- ---------- ----------- ---------- ----------
(dollars in thousands, except per share amounts)
Income statement data:
Interest income...................... $ 123,157 $ 120,147 $ 500,694 $ 451,728 $ 387,880 $ 314,414 $ 305,748
Interest expense..................... 65,792 63,562 267,112 234,496 198,448 146,342 147,194
Net interest income.................. 57,365 56,585 233,582 217,232 189,432 168,072 158,554
Provision for loan losses............ 3,316 3,563 24,886 13,283 8,349 7,538 5,679
Non-interest income.................. 22,155 17,126 79,091 68,686 56,437 56,126 53,251
Non-interest expense................. 47,619 43,745 198,224 191,940 157,108 146,942 135,854
Net income........................... 19,582 17,548 59,874 53,682 52,847 45,954 47,043
Per share data:
Basic net income.................... $ 0.58 $ 0.53 $ 1.80 $ 1.61 $ 1.70 $ 1.48 $ 1.54
Diluted net income.................. 0.58 0.52 1.78 1.59 1.67 1.45 1.51
Dividends declared(1) 0.23 0.21 0.86 0.78 0.53 0.68 0.64
Book Value........................... 15.64(4) 14.55 15.39 15.26 15.32 14.26 13.14
Balance sheet data at period end:
Loans................................ $3,941,716 $3,731,399 $3,988,016 $3,690,944 $ 3,227,232 $3,081,314 $2,674,577
Earning assets....................... 6,101,945 5,992,409 6,144,991 5,928,180 5,177,427 4,479,696 4,034,543
Assets............................... 6,568,285(4) 6,395,754 6,595,718 6,351,785 5,576,314 4,806,175 4,413,795
Deposits............................. 4,660,897 4,552,296 4,614,555 4,593,441 4,255,135 3,631,957 3,560,483
FHLB advances and long-term debt..... 654,000 597,090 722,393 545,968 202,939 252,384 236,119
Shareholders' equity................. 524,635(4) 484,860 515,463 495,673 475,789 401,630 396,091
Financial ratios:
Return on average assets(2).......... 1.20% 1.13% 0.93% 0.91% 1.05% 1.02% 1.09%
Return on average equity(2).......... 15.32 14.41 12.02 11.16 12.31 11.37 12.68
Net interest margin(2).............. 3.89 3.95 3.94 4.03 4.09 4.07 4.04
Equity to assets..................... 7.99(4) 7.58 7.82 7.80 8.53 8.36 8.97
Tier 1 risk-based capital............ 11.78(4) 11.93 11.49 11.92 11.93 11.87 12.63
Net charge-offs to average loans(2).. 0.34 0.37 0.42 0.36 0.27 0.15 0.20
Allowance for loan losses to loans... 1.40 1.25 1.38 1.25 1.34 1.33 1.32
Non-performing loans to loans........ 0.76 0.84 0.70 0.91 1.00 0.65 0.80
Allowance for loan losses to non-
performing loans.................... 184 149 197 137 134 205 164
Risk assets to loan-related assets(3) 1.12 1.23 1.10 1.36 1.38 1.11 1.35
_________________________________
(1) Not restated for pooling transactions. In the years prior to 1995, CNB
declared a dividend in one quarter and paid it in the next quarter. During
1995, CNB changed this policy and began declaring and paying dividends in
the same quarter. The fourth quarter dividend for 1995 was declared and
paid in January 1996.
(2) Annualized in the case of interim financial data.
(3) Risk assets include non-performing loans, loans past due 90 days and still
accruing interest and foreclosed properties. Loan-related assets include
loans and foreclosed properties.
(4) Results for 1998 do not reflect the one-time charges of $41.3 million
($30.0 million after taxes) which will be recorded by CNB during the second
quarter of 1998 in connection with the Pinnacle Acquisition consummated on
April 17, 1998. Including the effect of the charges, book value per share
would have been $14.75, assets would have been $6,550,585, shareholders'
equity would have been $494,635, equity to assets ratio would have been
7.55% and Tier 1 risk-based capital ratio would have been 11.07%.
(5) Net income for 1997 was negatively impacted by restructuring charges of
$8.4 million, net of taxes, and conforming loan loss methodology charges
of $6.0 million, net of taxes, in connection with Pinnacle's August 1997
acquisitions of Indiana Federal Corporation and CB Bancorp reducing basic
and diluted income per share by $.43.
(6) Net income for 1996 included a one-time assessment, required of all
financial institutions with deposits insured by the Savings Association
Insurance Fund ("SAIF"), which reduced net income by $6.6 million and basic
and diluted earnings per share by $.20.
15
NATIONAL BANCORP
Three Months Ended
March 31, Year Ended December 31
------------------ ---------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Income statement data:
Interest income..................................... $ 3,749 $ 3,627 $ 15,061 $ 14,178 $ 12,939 $ 9,428 $ 8,645
Interest expense.................................... 1,824 1,830 7,391 7,063 6,218 4,163 4,087
Net interest income................................. 1,925 1,797 7,670 7,115 6,721 5,265 4,558
Provision for loan losses........................... 90 90 413 310 220 237 138
Non-interest income................................. 398 367 1,588 1,074 892 730 762
Non-interest expense................................ 1,423 1,339 5,342 4,898 4,735 3,580 3,288
Net income(1)....................................... 523 468 2,229 1,920 1,741 1,528 1,368
Per share data:
Basic net income(1)................................. $ 1.66 $ 1.43 $ 7.00 $ 5.97 $ 5.57 $ 4.90 $ 4.38
Diluted net income(1)............................... 1.62 1.41 6.84 5.89 5.54 4.90 4.38
Dividends declared.................................. 0.51 0.46 1.93 1.79 1.63 1.57 1.27
Book value.......................................... 57.85 52.67 56.65 51.91 48.00 43.05 40.36
Balance sheet data at period end:
Loans............................................... $142,149 $134,766 $138,674 $129,927 $109,702 $ 95,025 $ 83,168
Earning assets...................................... 176,606 179,311 179,447 173,154 154,992 129,245 116,502
Assets.............................................. 188,549 187,760 191,287 184,992 167,034 137,283 122,627
Deposits............................................ 154,259 155,159 155,342 152,412 141,274 115,522 100,846
FHLB advances and long term-debt.................... 9,455 7,773 7,707 9,273 6,839 4,905 3,459
Shareholders' equity................................ 18,228 17,279 17,850 16,997 15,013 13,438 12,593
Financial ratios:
Return on average assets(2)......................... 1.19% 1.04% 1.20% 1.10% 1.10% 1.20% 1.17%
Return on average equity(2)......................... 11.59 10.94 13.10 12.00 12.20 11.70 11.20
Net interest margin(2).............................. 4.51 4.31 4.56 4.50 4.75 4.71 4.54
Equity to assets.................................... 9.67 9.20 9.33 9.19 8.99 9.79 10.27
Tier 1 risk-based capital........................... 12.13 11.68 11.90 11.60 11.54 10.20 10.10
Net charge-offs to average loans(2)................. 0.03 0.26 0.22 0.15 0.01 0.07 0.06
Allowance for loan losses to loa................... 1.44 1.37 1.42 1.42 1.57 1.32 1.29
Non-performing loans to loans....................... 0.19 0.72 0.21 0.66 0.00 0.03 0.01
Allowance for loans losses to non-performing loans.. 755 190 688 215 N/A 4167 15371
Risk assets to loan-related assets.................. 0.33 0.88 0.32 0.87 0.14 0.12 0.29
___________________________
(1) Net income excludes the cumulative effect of the change in accounting for
income taxes in 1993.
(2) Annualized in the case of interim financial information.
(3) Risk assets include non-performing loans, loans past due 90 days and still
accruing interest, and foreclosed properties. Loan-related assets include
loans and foreclosed properties.
16
CNB AND NATIONAL BANCORP
PRO FORMA COMBINED SELECTED FINANCIAL DATA
Three Months Ended
March 31, Year Ended December 31,
------------------------------ -------------------------------------------
1998 1997 1997(5) 1996(6) 1995
---------- ---------- --------- ---------- ----------
(Dollars in thousands, except per share amounts)
Income statement data:
Interest income................................... $ 126,906 $ 123,774 $ 515,755 $ 465,906 $ 400,819
Interest expense.................................. 67,616 65,392 274,503 241,559 204,666
Net interest income............................... 59,290 58,382 241,252 224,347 196,153
Provision for loan losses......................... 3,406 3,653 25,299 13,593 8,569
Non-interest income............................... 22,553 17,493 80,679 69,760 57,329
Non-interest expense.............................. 49,042 45,084 203,566 196,838 161,843
Net income........................................ 20,105 18,016 62,103 55,602 54,588
Per share data:
Basic net income.................................. $ 0.58 $ 0.52 $ 1.81 $ 1.62 $ 1.70
Diluted net income................................ 0.57 0.51 1.78 1.59 1.67
Dividends declared(1)............................. 0.23 0.21 0.86 0.78 0.53
Book value........................................ 15.68(4) 14.59 15.43 15.27 15.27
Balance sheet data at period end:
Loans............................................. $4,083,865 $3,866,165 $4,126,690 $3,820,871 $3,336,934
Earning assets.................................... 6,278,551 6,171,720 6,324,438 6,101,334 5,332,419
Assets............................................ 6,756,834(4) 6,583,514 6,787,005 6,536,777 5,743,348
Deposits.......................................... 4,815,156 4,707,455 4,769,897 4,745,853 4,396,409
FHLB advances and long-term debt.................. 663,455 604,863 730,100 537,241 209,778
Shareholders' equity.............................. 542,863(4) 502,139 533,313 512,670 490,802
Financial ratios:
Return on average assets(2)....................... 1.20% 1.13% 0.93% 0.92% 1.05%
Return on average equity(2)....................... 15.19 14.29 12.06 11.19 12.31
Net interest margin(2)............................ 3.91 3.96 3.96 4.04 4.11
Equity to assets.................................. 8.03(4) 7.63 7.86 7.84 8.55
Tier 1 risk-based capital......................... 11.78(4) 11.92 11.50 11.91 11.91
Net charge-offs to average loans(2)............... 0.33 0.37 0.42 0.35 0.26
Allowance for loan losses to loans................ 1.40 1.25 1.39 1.26 1.35
Non-performing loans to loans..................... 0.74 0.83 0.68 0.90 0.97
Allowance for loan losses to non-performing loans. 189 151 202 139 140
Risk assets to loan-related assets(3)............. 0.66 0.72 0.42 0.53 0.56
___________________________
_________________________________
(1) Not restated for pooling transactions. In the years prior to 1995, CNB
declared a dividend in one quarter and paid it in the next quarter. During 1995,
CNB changed this policy and began declaring and paying dividends in the same
quarter. The fourth quarter dividend for 1995 was declared and paid in January
1996.
(2) Annualized in the case of interim financial data.
(3) Risk assets include non-performing loans, loans past due 90 days and still
accruing interest and foreclosed properties. Loan-related assets include loans
and foreclosed properties.
(4) Results for 1998 do not reflect the one-time charges of $41.3 million
($30.0 million after taxes) which will be recorded by CNB during the second
quarter of 1998 in connection with the Pinnacle Acquisition consummated on April
17, 1998. Including the effect of the charges, book value per share would have
been $14.81, assets would have been $6,739,134, shareholders' equity would have
been $512,863, equity to assets ratio would have been 7.61% and Tier 1 risk-
based capital ratio would have been 11.06%.
(5) Net income for 1997 was negatively impacted by restructuring charges of $8.4
million, net of taxes, and conforming loan loss methodology charges of $6.0
million, net of taxes, in connection with Pinnacle's August 1997 acquisitions of
Indiana Federal Corporation and CB Bancorp reducing basic and diluted income per
share by $.43.
(6) Net income for 1996 included a one-time assessment, required of all
financial institutions with deposits insured by the Savings Association
Insurance Fund ("SAIF"), which reduced net income by $6.6 million and basic and
diluted earnings per share by $.20.
17
PARTIES TO MERGER
CNB
General
CNB, headquartered in Evansville, Indiana, is the largest bank holding
company based in Indiana. Through its 139 banking offices, 29 consumer finance
offices, and 190 ATMs, CNB provides a wide range of commercial banking, retail
banking, trust, insurance and investment services to customers in Indiana,
Illinois, Michigan, Kentucky and Tennessee. At March 31, 1998 (on a pro forma
basis giving effect to the Pinnacle Acquisition), CNB had assets of $6.6
billion, deposits of $4.7 billion, loans of $3.9 billion and shareholders'
equity of $525 million.
CNB has grown significantly through 32 acquisitions of banks and non-banks
since 1986. CNB consummated its largest acquisition to date on April 17, 1998,
when it acquired Pinnacle, a $2.1 billion asset bank holding company
headquartered in St. Joseph, Michigan. Pinnacle operated 14 offices in
southwestern Michigan and 30 offices in northwestern Indiana.
CNB operates with a super community bank philosophy decentralizing day-to-
day customer services such as pricing and lending decisions, while centralizing
data processing systems, product development and back office support functions.
CNB's operations in each market are managed by a president under the guidance of
a regional board of directors. By keeping the decision-making process close to
the customer, CNB believes it has a competitive advantage over super regional
companies, while providing the necessary scale to manage expenses. CNB's size
gives it a considerable advantage over community banks through a much more
diverse product offering and greater access to resources, especially technology.
CNB has operations in six of the ten largest Indiana counties. Based upon the
most recently available FDIC deposit data, 78% of its deposits come from markets
where CNB ranks first, second or third in deposit market share.
CNB's principal goal is consistent growth of core earnings. To achieve its
goal, CNB focuses on revenue growth and expense management.
Revenue growth is driven by (i) developing quality loans with small
businesses and consumers, (ii) selectively acquiring banks and fee-based
businesses, (iii) selling internally developed or third-party fee-based
products, and (iv) motivating associates with incentive compensation.
. CNB focuses on loan growth in the small business and consumer markets.
Management believes that strong community-oriented relationships
provide a competitive advantage over super regional banks. Without
giving effect to the Pinnacle Acquisition, commercial, commercial real
estate and consumer loans have experienced double-digit growth on an
annualized basis each quarter since January 1, 1996.
. CNB has pursued a strategy of actively acquiring banks and thrifts
which are principally responsible for assets increasing from $1.9
billion at December 31, 1992 to $6.6 billion at March 31, 1998. To
complement its bank and thrift acquisition, CNB has completed non-
banking acquisitions such as Wedgewood Partners, Inc. ("Wedgewood"), a
full service broker-dealer and asset management firm, Citizens
Insurance of Evansville, the largest independent insurance agency in
Evansville, and Small, Parker & Blossom, a third party employee
benefit plan administrator.
18
. In order to grow its fee based businesses, CNB focuses on investment
products sales, insurance sales and employee benefit plan
administration. Products are developed both in-house and selected
from third-party providers.
. In 1997 all associates of CNB were granted stock options to reward
their contributions to CNB and align their interests with the
interests of the shareholders. Associates also are rewarded with cash
bonuses for increasing earnings per share. In addition, an extensive
retail incentive program rewards associates for successful referrals
of new customers and cross-selling of CNB's products.
Expense management is driven by (i) back office operating efficiencies,
(ii) utilizing outsourcing where appropriate, and (iii) realizing cost savings
from acquisitions.
. CNB has three regional check processing and deposit operation
functions in Indiana and Illinois. Otherwise, essentially all other
back office support groups are located in Evansville. This approach to
back office operations facilitates efficiencies. At the same time,
CNB's banking units remain focused on customer service, selling and
credit quality.
. Outsourcing non-core activities has played a key role in expense
control by allowing experts to focus on operational issues of CNB. CNB
has entered into a facilities management arrangement with an
experienced third-party provider of data processing services and, in
1997, entered into a revenue sharing arrangement with a major credit
card servicer to which the Company sold its credit card portfolio.
. CNB has actively acquired banks, thrifts and non-bank businesses to
facilitate growth. Cost savings are generally realized from
acquisitions when they are converted to CNB's data processing, back
office, marketing, and product development systems. There can be,
however, no assurance that CNB will achieve cost savings in an
acquisition as they are subject to known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements to differ materially from those originally
contemplated by CNB.
CNB filed a registration statement with the Commission on June 3, 1998 to
facilitate an underwritten public offering of Convertible Trust Preferred
Securities (the "Capital Securities") to raise gross proceeds of up to $150.0
million ($172.5 million if the underwriters' over-allotment option is exercised)
(the "Proposed Offering"). The Capital Securities will be issued by CNB Capital
Trust I (the "Issuer"), a newly-created special purpose subsidiary of CNB
organized solely to facilitate the Proposed Offering. The distribution rate on
the Capital Securities will be determined by CNB and the managing underwriters
if and when such securities are actually issued and sold. The Capital
Securities will be convertible into shares of CNB Common at the option of the
holders thereof at an initial conversion ratio which also will be determined by
CNB and the managing underwriters if and when such Capital Securities are
actually issued and sold. It is currently expected that, in the aggregate, the
Capital Securities will be convertible into between 2.5 million and 2.7 million
shares of CNB Common (assuming that the underwriters' over-allotment option is
not exercised).
The Issuer will use the gross proceeds from the sale of the Capital
Securities to purchase a like
19
amount of Convertible Subordinated Debentures from CNB. CNB intends to use the
net proceeds from the sale of the Convertible Subordinated Debentures for
general corporate purposes including, without limitation, the repayment of debt,
the funding of investments in or extensions of credit to its subsidiaries, the
financing of acquisitions and the repurchase of CNB Common. It is currently
expected that the Proposed Offering would be closed during the second quarter of
1998, although there can be no assurance as to if or when the Proposed Offering
actually will be consummated. The Proposed Offering will be made only by means
of a prospectus, and will be subject to the registration statement becoming
effective, compliance with applicable state securities laws and favorable market
conditions. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy any shares of Capital Securities. The
financial information included herein does not give pro forma effect to the
Proposed Offering.
Recent Developments
The following is an overview of CNB's results of operations for the first
quarter of 1998 and the year ended December 31, 1997 on a pro forma basis after
giving effect to the Pinnacle Acquisition which was consummated on April 17,
1998, and accounted for as a pooling of interests.
Overview
First quarter 1998 diluted net income per share of $.58 was 12% higher than
the first quarter of 1997. Net income for the quarter was $19.6 million
compared to $18.6 million and $17.5 million for the fourth and first quarters
of 1997, respectively. Annualized returns on average assets and average
shareholders' equity for the quarter ended March 31, 1998, were 1.20% and
15.32%, respectively, compared with 1.13% and 14.41% for the same period of
1997.
Diluted net income per share for the year ended December 31, 1997, was
$1.78, an increase of 12% over the $1.59 earned in 1996. Net income for 1997
was negatively impacted by restructuring charges and conforming loan loss
methodologies from Pinnacle's August 1997 acquisitions of Indiana Federal
Corporation ("IFC") and CB Bancorp ("CB"). The restructuring charges and
conforming loan loss methodologies reduced net income by $8.4 million and $6.0
million, respectively, and diluted net income per share by $.25 and $.18,
respectively. Net income for 1996 included a one-time assessment, required of
all financial institutions with deposits insured by the Savings Association
Insurance Fund (SAIF), which reduced net income and diluted net income per share
by $6.6 million and $.20, respectively. Excluding these nonrecurring items,
diluted net income per share for 1997 of $2.21 increased 23% from $1.79 in 1996.
CNB's earnings in 1997 resulted in returns on average assets and
shareholders' equity of .93% and 12.02%, respectively, compared with a return on
average assets of .91% and return on average shareholders' equity of 11.16% in
1996. Exclusive of the restructuring charges, conforming adjustments, and SAIF
assessment, returns on average assets and shareholders' equity were 1.15% and
14.94%, respectively, in 1997 compared to 1.03% and 12.55% in 1996,
respectively.
Loans and Net Interest Income
Average loans, excluding residential mortgages, of $2.7 billion grew 13.2%
in the first quarter of 1998 from the same period in 1997. Including
residential mortgages, average loans increased 5.2% from the first quarter of
1997 and declined slightly from the fourth quarter of 1997. CNB intends to
continue growing its commercial and consumer loan sectors of its portfolio,
while selling its residential mortgage production. This strategy, combined with
normal prepayments, resulted in residential mortgages declining $87.3 million
between December 31, 1997 and March 31, 1998.
20
Net interest income for the first quarter of 1998 was $780 thousand greater
than the first quarter of 1997 due to increased earning assets offset by a lower
net interest margin. The margin was 3.89% for the first quarter of 1998
compared to 3.95% for the first quarter of 1997. The flat yield curve, combined
with increased competition and pre-payments, resulted in yields on loans and
securities falling and reducing the yield on interest earning assets and the net
interest margin.
Average loans for 1997 grew $406 million from 1996 principally from
increased commercial and commercial real estate lending and mortgage loans
purchased under agreements to resell. The net interest margin was 3.94% for
1997 versus 4.03% for the previous year. The strong loan growth came at
marginally lower rates causing average loan yields to fall. The net interest
margin also declined in 1997 due to the sale of CNB's credit card portfolio and
additional investment in corporate-owned life insurance, the income on which is
recorded as non-interest.
Asset Quality and Provision for Loan Losses
The allowance for loan losses at March 31, 1998, was $55.2 million, or
1.40% of loans, compared to $55.2 million and 1.38% at year-end 1997. Non-
performing loans consist of loans classified as troubled debt restructurings and
loans on non-accrual status. CNB's non-performing loans as of March 31, 1998
totaled $29.9 million, an increase of $1.9 million from December 31, 1997. The
allowance for loan losses represented 1.84 times non-performing loans on March
31, 1998. Risk assets, which include non-performing loans, foreclosed
properties and loans past due 90 days or more and accruing, were $44.3 million
at March 31, 1998 or 1.12% of loan-related assets. The provision for loan losses
was $3.3 million for the first quarter of 1998 representing .34% of average
loans on an annualized basis. Net charge-offs were .34% of average loans for the
quarter, slightly better than the .37% for the first quarter of 1997.
The allowance for loan losses at December 31, 1997, was $55.2 million or
1.38% of loans compared to $46.2 million and 1.25% the prior year-end. Non-
performing loans at December 31, 1997, totaled $28.0 million, a decrease of $5.6
million from December 31, 1996. The allowance for loan losses was 1.97 times
non-performing loans at December 31, 1997, compared to 1.37 times at year-end
1996. Risk assets declined $6.3 million to $44.1 million at year-end. The
provision for loan losses totaled $24.9 million in 1997, an increase of $11.6
million over the prior year, principally as a result of additional provisions to
conform the loan loss methodologies of IFC and CB to that of Pinnacle. Net
charge-offs for 1997 increased to .42% of average loans from .36% in 1996, also
as a result of conforming loan loss methodologies.
Non-Interest Income
Non-interest income in the first quarter of 1998 was $22.2 million,
increasing $5.0 million or 29% from the same period in 1997, of which $459
thousand related to the January 1, 1998 acquisition of Wedgewood, a full service
broker/dealer and asset manager. Service charges on deposits increased 22%
compared to the first quarter of 1997 as a result of an increased number of
deposit accounts and chargeable services, higher activity fees and new fee
sources, combined with improved efforts to collect a greater percentage of
assessable fees. Mortgage banking revenue increased due to strong demand for
new and refinanced residential mortgages and increased loan sales. Other income
increased $1.2 million as compared to the first quarter of 1997, principally due
to CNB's increased investment in a corporate-owned life insurance program.
Non-interest income represented 24.8% of net fully tax equivalent revenues
in 1997 as compared to 23.6% in 1996. Service charges on deposit accounts
increased 16% in 1997 compared to 1996 as a result of an increased number of
deposit accounts and chargeable services, higher activity fees and new fee
sources combined with improved efforts to collect a greater percentage of
assessable fees.
21
Trust and plan administration fees increased $2.1 million to $9.8 million
in 1997. The May 31, 1996, acquisition of Small Parker & Blossom, a third party
administrator of employee benefit plans, accounted for $1.3 million of this
increase. Trust fee income, which is based primarily on the market value of
assets under management or custody, also increased over 1996.
Mortgage banking revenue decreased $1.3 million in 1997 due primarily to
gains recorded in 1996 from the securitization of large pools of residential
mortgage loans offset by increased mortgage origination activities. Other
income increased $6.5 million in 1997 compared to 1996. CNB recorded a gain of
$646 thousand from the sale of its credit card portfolio. The remaining
increase was principally due to increased revenues of $1.8 million from a
corporate-owned life insurance program, $481 thousand from the expiration of
interest rate option contracts, $412 thousand from net securities trading
account gains and $472 thousand from non-customer ATM access fees.
Non-Interest Expense
Non-interest expenses increased 9%, or $3.9 million, in the first quarter
1998 and as compared to the first quarter 1997, generally due to increased
business activity and the Wedgewood acquisition. The Wedgewood acquisition
accounted for $545 thousand of the expense increase. Salaries and employee
benefits increased $1.1 million to $24.1 million in the first quarter from the
same period in 1997.
Non-interest expense increased $6.3 million, or 3.3%, in 1997 compared
with 1996. This increase principally due to increased compensation of $10.2
million, data processing of $2.1 million, professional fees of $2.8 million, and
other expenses of $3.0 million which were offset by a reduction in the FDIC
premiums of $2.4 million and one-time SAIF assessment in 1996 of $11.0 million.
Included with 1997 expenses were $11.5 million of restructuring charges recorded
by Pinnacle in connection with its mergers with IFC and CB, which increased
compensation by $4.6 million, data processing by $2.2 million, professional fees
by $2.0 million and other expenses by $2.7 million. Exclusive of the
restructuring charges in 1997 and the SAIF assessment in 1996, non-interest
expense increased 3.2% in 1997 compared with 1996. Incentive compensation
accounted for a significant portion of the remaining increase in compensation
expense as CNB continues to emphasize performance-based awards tied to net
income per share and product sales. Occupancy expense and equipment related
expenses increased $1.6 million due to expanded business activities and
equipment upgrades required to facilitate growth from acquisitions.
Merger Related Charges
In connection with the Pinnacle Acquisition, CNB will record during the
second quarter of 1998, one-time merger related charges of $41.3 million. The
charges include $8.3 million in technology-related costs (including contract
termination, software and equipment write-offs), $9.7 million in severance pay
and other personnel related expenses, $6.7 million for professional fees, $11.2
million in conforming accounting policies of Pinnacle to those of CNB, and $5.4
million in other costs. The after-tax effect of these charges is $30.0 million
or $.89 per share. These charges are greater than CNB originally anticipated,
principally due to greater adjustments to conform the accounting policies
followed by Pinnacle to CNB's more conservative policies for revenue and expense
recognition under generally accepted accounting principles, greater severance
pay under employment contracts and a higher level of attrition, and other costs,
including write-downs of equity investments.
Other Considerations
Pinnacle Acquisition
CNB acquired Pinnacle on April 17, 1998 increasing CNB's total assets by
approximately 50%.
22
During the two year period prior to its agreement to merge with CNB, Pinnacle
had increased its assets from approximately $449 million to $2.1 billion as a
result of three significant acquisitions. On August 1, 1997, Pinnacle completed
its most recent mergers with IFC, headquartered in Valparaiso, Indiana, and CB,
headquartered in Michigan City, Indiana. In connection with these two mergers,
which increased its assets by approximately 95%, Pinnacle experienced
significant problems with the conversion of the data processing systems and
related reconcilement issues, the integration of operations, and the departure
of certain employees. These problems created numerous customer service issues,
including the misposting of customer transactions, and resulted in lower than
expected revenues and greater than expected expenses since the conversion in the
fourth quarter of 1997. CNB continues to work on clearing the reconciling items,
it does not expect the resolution of such items to have a material impact on
CNB's future financial results.
CNB expects to achieve cost savings through the Pinnacle Acquisition,
principally from the consolidation of data processing and back office operations
and a reduction of corporate overhead and also expects to improve net interest
income through a restructuring of the investment portfolio and borrowed funds
position and to increase non-interest income through the sale of expanded
product lines and increased sales efforts. There can, however, be no assurance
that such cost savings and improvements will be achieved in the amounts or
within the time frames currently expected especially in light of the conversion,
systems and reconcilement problems discussed above. The failure to achieve such
cost savings and improvements could adversely affect the market price for the
CNB Common.
Growth Through Acquisitions
CNB has grown significantly through 32 acquisitions of banks and non-banks
since 1986. The future growth of CNB will be dependent in part upon the ability
of CNB to acquire businesses at favorable prices, terms and conditions, and to
properly manage and integrate their operations. CNB's ability to expand
successfully through acquisitions depends upon many factors, including the
successful identification and acquisition of financial institutions and other
related businesses and management's ability to effectively integrate the
acquired businesses. Future acquisitions by CNB may involve the issuance of CNB
Common which would have the effect of diluting the ownership interests of the
existing shareholders of CNB.
Acquisitions entail risks that business judgments will prove inaccurate
with respect to anticipated market growth, projected revenue enhancements, and
expected operating expense savings. Acquisitions also entail the risks of the
diversion of management's attention and the conversion of the operations and the
assimilation of personnel of the acquired companies, each of which could
adversely affect CNB's operating results. In addition, the success of any
acquisition will depend in part upon CNB's ability to effectively integrate the
acquired company into CNB's operations and implement its business style and
philosophy.
There can be no assurance that future acquisition opportunities, if any,
can be consummated on favorable terms, that CNB will be successful in acquiring
or integrating any businesses, or that any such acquisitions, including
Pinnacle, will enhance the earnings of CNB as described herein.
Year 2000 Issues
Most computer programs were originally designed to recognize calendar years
by only their last two digits. Consequently, these programs cannot
differentiate the year 2000 and beyond from the year 1900. This programming
issue will affect many data processing systems including those used by CNB and
its commercial customers. Management has formed a committee which meets weekly
to analyze the business and operational issues associated with the year 2000 and
to plan for and monitor the status of corrective measures. CNB has outsourced
most data processing activities and those vendors are responsible for modifying
their programs to
23
be compliant with year 2000 processing. The committee has found that where
outside vendors are not responsible, most programs and equipment are fully
depreciated and no write-off costs will be necessary. Certifications from
remaining vendors as to their year 2000 compliance are expected by mid-1998 and
all systems are expected to be upgraded by December 31, 1998. Based on the
foregoing, CNB does not expect to spend any significant amounts with outside
contractors related to the year 2000. Commercial customers have been contacted
and efforts made to ensure their readiness for year 2000 also. At this time,
management does not anticipate any material impact to CNB's operations, cash
flows or financial condition as a result of these year 2000 issues.
For additional information concerning CNB, see "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
National Bancorp
National Bancorp was organized in 1983 as a bank holding company for TCB
Bank. National Bancorp is headquartered in Tell City, Indiana, where TCB Bank
conducts its principal operations. As of March 31, 1998, National Bancorp had
consolidated assets of $189 million, deposits of $154 million, loans of $142
million and shareholders' equity of $18 million.
The business of National Bancorp consists primarily of the ownership,
supervision and control of its subsidiaries. National Bancorp provides
commercial and retail banking and related financial services to customers in
Perry County and Spencer County, Indiana. National Bancorp's direct and
indirect subsidiaries include: TCB Bank, which is a banking corporation
chartered under the laws of the State of Indiana, Chris Zoercher Insurance
Agency, Inc., which sells property, casualty, life and health insurance and
annuities as an independent insurance agent, and the Investment Center, which
provides investment services.
For additional information concerning National Bancorp, see "INFORMATION
ABOUT NATIONAL BANCORP" and "FINANCIAL STATEMENTS OF NATIONAL BANCORP."
MEETING
Date, Time and Place of MeetingDate, Time and Place of Meeting
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the National Bancorp Board for use at the Meeting.
The Meeting will be held at ____________________________________ on ________ __,
1998, commencing at _____ _.m. local time.
Matters to be Considered
At the Meeting, holders of National Bancorp Common will be asked to consider
and vote upon the approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger, and such other matters
as may properly be brought before the Meeting.
Management of National Bancorp knows of no matters to be brought before the
Meeting other than those referred to herein. If any other business should
properly come before the Meeting, the persons named in the proxy will vote on
such matters in accordance with their best judgment.
THE NATIONAL BANCORP BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
24
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING THE MERGER.
Record Date
The National Bancorp Board has fixed the close of business on ________ __,
1998 as the Record Date. Only holders of record of National Bancorp Common on
the Record Date will be entitled to notice of and will be entitled to vote at
the Meeting. On the Record Date, ____ shares of National Bancorp Common were
issued and outstanding and were held by approximately _____ holders of record.
Vote Required
Holders of record of National Bancorp Common on the Record Date are entitled
to one vote per share on each matter to be considered at the Meeting. The
approval and adoption of the Merger Agreement, and the transactions contemplated
thereby, including the Merger, requires the affirmative vote of the holders of
record of two-thirds of the shares of National Bancorp Common issued and
outstanding on the Record Date. The approval of the Merger Agreement by the
holders of National Bancorp Common is a condition to consummation of the Merger.
See "MERGER -- Conditions to Consummation of Merger."
Security Ownership of Management
As of the Record Date, __________ shares of National Bancorp Common were
issued, outstanding, and entitled to vote at the Meeting, of which approximately
__________ shares, or approximately ____%, were beneficially owned by directors
and executive officers of National Bancorp and their affiliates. It is
currently expected that each such director and executive officer of National
Bancorp will vote the shares of National Bancorp Common beneficially owned by
him or her for approval of the Merger Agreement and the consummation of the
transactions contemplated thereby, including the Merger.
As of the Record Date, TCB Bank, in various fiduciary capacities, held
approximately __________ shares of National Bancorp Common, or approximately
____%, under trust agreements and other instruments and agreements. It is the
practice of TCB Bank when holding shares as sole trustee or sole executor to
vote said shares but, where shares are held as co-executor or co-trustee,
approval is obtained from the co-fiduciary before voting. As of the Record
Date, directors and executive officers of CNB and their affiliates did not
beneficially own any shares of National Bancorp Common. As of the Record Date,
subsidiaries of CNB held approximately __________, or less than __%, of National
Bancorp Common in various fiduciary capacities and, by virtue of sole or shared
voting or investment power in respect of such shares, were deemed to own them
beneficially.
Information with respect to beneficial ownership of National Bancorp Common
by persons and entities owning more than 5% of such stock and more detailed
information with respect to beneficial ownership of National Bancorp Common by
National Bancorp directors and executive officers is set forth herein under
"INFORMATION ABOUT NATIONAL BANCORP --. Beneficial Ownership of National Bancorp
Common."
Voting and Revocation of Proxies
A proxy for use at the Meeting accompanies this Proxy Statement/Prospectus.
A shareholder may use his or her proxy if he or she is unable to attend the
Meeting in person or wishes to have his or her shares voted by proxy even if he
or she attends the Meeting. A majority of the shares of National Bancorp Common
25
outstanding on the Record Date must be represented in person or by proxy at the
Meeting in order for a quorum to be present for purposes of voting on approval
of the Merger Agreement.
Shares of National Bancorp Common represented by a proxy properly signed and
returned to National Bancorp at or prior to the Meeting, unless subsequently
revoked, will be voted at the Meeting in accordance with instructions thereon.
If a proxy is properly signed and returned but the manner of voting is not
indicated on the proxy, any shares of National Bancorp Common represented by
such proxy will be voted FOR approval and adoption of the Merger Agreement and
the transactions contemplated thereby, including the Merger, and FOR any
proposal regarding any adjournment or postponement of the Meeting.
Any proxy given pursuant to this solicitation may be revoked by the grantor
at any time prior to the voting thereof on the matters to be considered at the
Meeting by filing with the Secretary of National Bancorp a written revocation or
a duly executed proxy bearing a later date. All written notices of revocation
and other communications with respect to revocation of National Bancorp proxies
should be addressed to National Bancorp, 601 Main Street, Tell City, Indiana
47568, Attention: Corporate Secretary. A holder of National Bancorp Common who
previously signed and returned a proxy but who elects to attend the Meeting and
vote in person may withdraw his or her proxy at any time before it is exercised
by giving notice of such revocation to the Corporate Secretary of National
Bancorp at the Meeting and voting in person by ballot at the Meeting; however,
attendance at the Meeting will not in and of itself constitute a revocation of
the proxy.
For purposes of determining the presence or absence of a quorum for the
transaction of business at the Meeting, National Bancorp intends to count as
present at the Meeting shares of National Bancorp Common present in person at
the Meeting but not voting and shares of National Bancorp Common present by
proxy at the Meeting but which have abstained from voting. Because, however,
the affirmative vote of the holders of two-thirds of the outstanding shares of
National Bancorp Common entitled to vote at the Meeting is required to approve
and adopt the Merger Agreement and the transactions contemplated thereby,
including the Merger, such non-voting shares and abstentions will have the
effect of a vote against approval of the Merger Agreement. In addition, brokers
who hold shares in street name for customers who are the beneficial owners of
such shares are prohibited from giving a proxy to vote shares held for such
customers with respect to the matters to be considered and voted upon at the
Meeting without specific instructions from such customers. The failure of such
customers to provide specific instructions with respect to their shares of
National Bancorp Common to their broker will have the effect of a vote against
approval of the Merger Agreement.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments or postponements of the Meeting to permit further
solicitation of proxies in favor of such proposal; provided, however, that no
proxy which is voted against the proposal to approve and adopt the Merger
Agreement will be voted in favor of any such adjournment or postponement.
Solicitation of Proxies
In addition to solicitation of proxies from shareholders of National Bancorp
Common by use of the mail, proxies also may be solicited by personal interview,
telephone or other electronic means by directors, officers and employees of
National Bancorp, who will not be specifically compensated for such services,
and it is expected that banks, brokerage houses and other institutions, nominees
or fiduciaries will be requested to forward the soliciting materials to their
principals and obtain authorization for the execution of proxies. All costs of
soliciting proxies, assembling and mailing this Proxy Statement/Prospectus and
all papers which now accompany or hereafter may supplement the same, as well as
reasonable out-of-pocket expenses incurred by the above-mentioned banks,
brokerage houses and other institutions, nominees or fiduciaries for forwarding
proxy materials to and obtaining proxies from their principals will be borne by
National Bancorp.
26
MERGER
General
The CNB Board and the National Bancorp Board have each unanimously approved
the Merger Agreement which provides for, among other things, the merger of
National Bancorp with and into CNB at the Effective Time. With certain limited
exceptions discussed below, each share of National Bancorp Common issued and
outstanding at the Effective Time will be converted into the right to receive
3.45 shares of CNB Common and cash in lieu of fractional shares. See "-- Merger
Consideration." Shares of CNB Common issued and outstanding immediately prior
to the Effective Time will remain issued and outstanding after the Effective
Time, unaffected by the Merger.
The CNB Board and the National Bancorp Board each believe that the terms of
the Merger and the Merger Agreement are fair to and in the best interest of CNB
and National Bancorp and their respective shareholders. The National Bancorp
Board unanimously recommends that its shareholders vote to approve and adopt the
Merger Agreement and the transactions contemplated thereby, including the
Merger. See "-- Reasons for Merger; Recommendation of National Bancorp Board."
Shareholders of CNB are not being asked to vote upon or otherwise approve the
Merger.
The following portion of this Proxy Statement/Prospectus describes certain
aspects of the Merger, including the principal provisions of the Merger
Agreement. The following information relating to the Merger is qualified in its
entirety by reference to the other information contained elsewhere in this Proxy
Statement/Prospectus, including the Appendices hereto and the documents
incorporated herein by reference. A copy of the Merger Agreement (excluding the
Exhibits thereto) is attached hereto as Appendix A, and is incorporated by
reference herein and reference is made thereto for a complete description of the
terms of the Merger. All shareholders of CNB and National Bancorp are urged to
read the Merger Agreement in its entirety.
Background of Merger
Because of various changes to state and federal banking laws, acquisition
activity among financial institutions in Indiana and in other states has
increased during the last several years. This acquisition activity has resulted
in regional and super-regional financial institutions entering Indiana and other
markets in the midwestern United States. Additionally, deregulation and other
industry developments in the financial services industry generally have resulted
in increased competition for bank services. Further, recent increases in bank
regulatory burdens have resulted in increased costs to most financial
institutions. These increased costs and other competitive factors have created
an environment in which it is increasingly difficult for community banks, such
as TCB Bank, to compete effectively with other larger financial institutions and
financial services providers.
In light of the competitive and regulatory factors described above and
other financial, legal and market considerations, the National Bancorp Board
discussed from time to time whether to remain independent or whether to pursue
an affiliation with another financial institution. In October 1997, the National
Bancorp Board determined to pursue an affiliation with another financial
institution. The National Bancorp Board authorized the president of National
Bancorp to contact PBS to assist National Bancorp with evaluating strategic
alternatives and to assist it with locating potential affiliation partners. In
November 1997, PBS requested and evaluated proposals from other financial
institutions to acquire National Bancorp. PBS received and analyzed acquisition
proposals from six financial institutions (including CNB), performed other
analyses and determined a range of values for a sale of National Bancorp. A
special Board meeting was held on December 31, 1997 to review the proposals with
PBS. At such meeting, the National Bancorp Board
27
authorized National Bancorp's management to pursue further negotiations with CNB
and another financial institution. The National Bancorp Board did not pursue the
other four proposals based upon pricing considerations. Additionally, the
National Bancorp Board had concerns about the liquidity of the stock that would
have been received from two of the institutions.
From December 31, 1997 through January 15, 1998, management of National
Bancorp engaged in further negotiations with the two financial institutions. On
January 15, 1998, the National Bancorp Board held a special meeting at which the
Board authorized management to continue negotiations exclusively with CNB.
Between January 15, 1998 and February 13, 1998, CNB, National Bancorp and their
respective advisors negotiated the terms of a definitive agreement relating to
the business combination. During this period of time, CNB and National Bancorp
each conducted investigations into the other party's operations. On February
12, 1998, the National Bancorp Board reviewed the proposed terms of the Merger
Agreement and discussed the terms of the proposed business combination. The
National Bancorp Board appointed a Transaction Committee to negotiate any
outstanding issues relating to the Merger Agreement other than issues relating
to the value of the business combination. The National Bancorp Board voted to
authorize the execution of a definitive agreement on substantially the same
terms and conditions as were reviewed at the special meeting and recommended
that National Bancorp shareholders approve the Merger and the Merger Agreement.
The Merger Agreement was executed by CNB and National Bancorp on February 13,
1998.
In determining to pursue the Merger, the National Bancorp Board considered
financial, managerial and other information regarding CNB and its subsidiaries.
In particular, the Board evaluated National Bancorp's and CNB's respective
businesses, financial condition, reputation and future prospects. In addition,
the earnings history and stock performance of CNB were carefully reviewed and
discussed with PBS with a view toward the investment potential for shareholders
of National Bancorp.
Reasons for Merger; Recommendation of National Bancorp Board
Among other items considered by the National Bancorp Board in evaluating
whether to remain independent or whether to pursue a merger with CNB were: (1)
the prospects of National Bancorp, as a separate institution and as combined
with CNB; (2) the compatibility of CNB's subsidiary banks' markets to that of
TCB Bank's market; (3) the anticipated tax-free nature of the Merger to
shareholders of National Bancorp receiving solely shares of CNB Common in
exchange for their shares of National Bancorp Common; (4) the possibility of
increased liquidity through ownership of CNB Common as compared to National
Bancorp Common because shares of CNB Common are listed on the N.Y.S.E.; (5) the
timeliness of a merger given the state of the economy and the stock markets as
well as anticipated trends in both; (6) regulatory requirements; (7) relevant
price information involving recent comparable bank acquisitions which occurred
in the midwest United States; and (8) an analysis of alternatives to National
Bancorp merging with CNB, including other potential acquirors. In addition, the
National Bancorp Board considered the opinion of PBS indicating that the
consideration to be received by National Bancorp's shareholders under the Merger
Agreement is fair from a financial perspective.
The National Bancorp Board also considered the impact of the Merger on
National Bancorp's and TCB Bank's customers and employees and the communities
served by TCB Bank. CNB's historical practice of retaining employees of
acquired institutions with competitive salary and benefit programs was
considered, as was the opportunity for training, education, growth and
advancement of TCB Bank's employees within CNB or one of its subsidiaries. The
National Bancorp Board examined CNB's continuing commitment to the communities
served by the institutions previously acquired by CNB. Further, from the
standpoint of TCB Bank's customers, it is anticipated that more products and
services will become available because of CNB's greater resources.
28
The foregoing discussion of the information and factors considered by the
National Bancorp Board is not intended to be exhaustive, but it is believed to
encompass all material factors considered by the National Bancorp Board in
reaching its determination to approve the Merger and recommend that National
Bancorp's shareholders vote in favor of the Merger at the Meeting. In reaching
its determination, the National Bancorp Board did not assign any relative or
specific weights to the factors considered, and individual directors may have
given different weights to different factors.
FOR THE REASONS DESCRIBED ABOVE, THE NATIONAL BANCORP BOARD UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND BELIEVES THAT THE MERGER IS FAIR TO, AND IS IN
THE BEST INTERESTS OF ITS SHAREHOLDERS. ACCORDINGLY, THE NATIONAL BANCORP BOARD
UNANIMOUSLY RECOMMENDS THAT NATIONAL BANCORP SHAREHOLDERS VOTE "FOR" ADOPTION OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER.
Fairness Opinion of Financial Advisor
PBS was engaged by National Bancorp to advise the National Bancorp Board as
to the fairness of the consideration, from a financial perspective, to be paid
by CNB to National Bancorp shareholders as set forth in the Merger Agreement.
PBS is a bank consulting firm with offices in Louisville, Atlanta, Chicago,
Nashville and Washington, D.C. As part of its investment banking business, PBS
is regularly engaged in reviewing the fairness of financial institution
acquisition transactions from a financial perspective and in the valuation of
financial institutions and other businesses and their securities in connection
with mergers, acquisitions, estate settlements, employee benefit plans and other
transactions. Neither PBS nor any of its affiliates has a material financial
interest in National Bancorp or CNB. PBS was selected to advise the National
Bancorp Board based upon their familiarity with Indiana financial institutions
and knowledge of the banking industry as a whole.
PBS performed certain analyses described herein and presented the range of
values for National Bancorp resulting from such analyses to the National Bancorp
Board in connection with its advice as to the fairness of the consideration to
be paid by CNB.
A fairness opinion of PBS was delivered to the National Bancorp Board on
February 12, 1998, at a regular meeting of the National Bancorp Board and has
been updated as of the date of this Prospectus/Proxy Statement. A copy of the
updated fairness opinion (the "Fairness Opinion"), which includes a summary of
the assumptions made and information analyzed in deriving the Fairness Opinion,
is attached as Appendix B to this Proxy Statement-Prospectus and should be read
in its entirety.
In arriving at its Fairness Opinion, PBS reviewed certain publicly available
business and financial information relating to National Bancorp and CNB. PBS
considered certain financial and stock market data of National Bancorp and CNB,
compared that data with similar data for certain other publicly-held bank
holding companies and considered the financial terms of certain other comparable
bank transactions in the State of Indiana that had recently been effected. In
addition, PBS considered the pending acquisition of Pinnacle. PBS also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant. In connection with its review, PBS did not independently verify the
foregoing information and relied on such information as being complete and
accurate in all material respects. Financial forecasts prepared by PBS were
based on assumptions believed by PBS to be reasonable and to reflect currently
available information. PBS did not make an independent evaluation or appraisal
of the assets of National Bancorp or CNB. PBS took into consideration the
results of National Bancorp's solicitation of indications of interest from other
29
financial institutions concerning their interest in a possible affiliation with
National Bancorp. PBS reviewed the correspondence and information received from
interested financial institutions which were contacted. PBS reviewed all offers
received by National Bancorp.
As part of preparing the Fairness Opinion, PBS performed a due diligence
review of CNB. As part of the due diligence, PBS reviewed the following items:
minutes of the CNB Board during 1997 for its wholly-owned subsidiary and lead
bank, The Citizens National Bank of Evansville, Evansville, Indiana ("Citizens
Bank"); reports filed with the S.E.C. by CNB on Forms 8-K, 10-K and 10-Q for the
periods ending December 31, 1996, September 30, 1997; December 31, 1997 and
year-to-date 1998, the Notice of Annual Meeting and Proxy Statement dated April
22, 1997; reports of independent auditors and management letter and response
thereto, for the year ending December 31, 1996; regulatory reports of
examinations for CNB and various subsidiaries issued during 1996 and 1997; CNB
Funds Management and Interest Rate Sensitivity Reports and Policies as of
December 31, 1997; the most recent analysis and calculation of allowance for
loan and lease losses and consolidated assets quality reports for CNB at
December 31, 1997; Uniform Holding Company and Bank Performance Reports for CNB
and Citizens as of September 30, 1997; the December 31, 1997 Report of Condition
and Income for Citizens Bank; and the third quarter 1997 litigation status
report. In addition, interviews of senior management were conducted.
PBS reviewed and analyzed the historical performance of National Bancorp
and its wholly-owned subsidiary, TCB Bank, contained in: audited Annual Reports
and financial statements dated December 1994, 1995 and 1996 of National Bancorp;
December 31, 1997 Consolidated Reports of Condition and Income filed by TCB Bank
with the Federal Deposit Insurance Corporation (the "F.D.I.C.") June 30, 1997;
FR Y-9 Parent Company Only financial statements filed by National Bancorp with
the Federal Reserve Bank Board; September 30, 1997 Uniform Bank Performance
Report of TCB Bank; historical common stock trading activity of National
Bancorp; and the premises and other fixed assets. PBS reviewed and tabulated
statistical data regarding the loan portfolio, securities portfolio and other
performance ratios and statistics. Financial projections were prepared and
analyzed as well as other financial studies, analyses and investigations as
deemed relevant for the purposes of the Fairness Opinion. In review of the
aforementioned information, PBS took into account its assessment of general
market and financial conditions, its experience in other similar transactions,
and its knowledge of the banking industry generally.
In connection with rendering the Fairness Opinion and preparing its written
and oral presentation to the National Bancorp Board, PBS performed a variety of
financial analyses, including those summarized herein. The summary does not
purport to be a complete description of the analyses performed by PBS in this
regard. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Accordingly,
notwithstanding the separate factors summarized below, PBS believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create an incomplete view of the evaluation process
underlying its opinion. In performing its analyses, PBS made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond National Bancorp's or
CNB's control. The analyses performed by PBS are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to the
values of businesses do not purport to be appraisals or to reflect the process
by which businesses actually may be sold.
Acquisition Comparison Analysis. In performing this analysis, PBS reviewed
all bank and/or bank holding company acquisition transactions in the State of
Indiana, since 1990 through January 31, 1998 ("Indiana Bank Acquisition
Transactions"). There were 57 Indiana Bank Acquisition Transactions announced
30
since 1990 for which detailed financial information was available. The purpose
of the analysis was to obtain an evaluation range based on these Indiana Bank
Acquisition Transactions. Median and upper 75th percentile multiples of
earnings and book value implied by the comparable transactions were utilized in
obtaining a range for the acquisition value of National Bancorp. In addition to
reviewing recent Indiana Bank Acquisition Transactions, PBS performed separate
comparable analyses for (i) Indiana Bank Acquisition Transactions which, like
National Bancorp, were located in southwest Indiana, had an equity-to-asset
ratio between 8.00% and 10.00%, had total deposits between $100.0 - $350.0
million, had a return on average equity ("ROAE") between 11.0% and 13.50%, and
(ii) Indiana Bank Acquisition Transactions effected in the State of Indiana
since January 1, 1996.
The median values for the 57 Indiana Bank Acquisition Transactions
expressed as multiples of both book value and earnings were 1.69 and 17.29,
respectively. The median multiples of book value and earnings for Indiana Bank
Acquisition Transactions which, like National Bancorp, had an equity-to-asset
ratio between 8.00% and 10.00% were 1.70 and 16.40, respectively. For Indiana
Bank Acquisition Transactions with deposits between $100.0 - $350.0 million the
median multiples were 1.88 and 17.62. For Indiana Bank Acquisition Transactions
with a ROAE between 11.0% and 13.50%, the median multiples were 1.83 and 16.19,
respectively. The median multiples of book value and earnings for Indiana Bank
Acquisition Transactions located in southwest Indiana were 1.74 and 18.82,
respectively. For Indiana Bank Acquisition Transactions since January 1, 1996,
the median multiples of book value and earnings were 1.64 and 21.15.
In addition, the 75th percentile median values for the 57 Indiana Bank
Acquisition Transactions expressed as multiples of both book value and earnings
were 1.88 and 21.30, respectively. The 75th percentile median multiples of book
value and earnings for Indiana Bank Acquisition Transactions which, like
National Bancorp, had an equity-to-asset ratio between 8.00% and 10.00% were
2.14 and 19.11, respectively. For Indiana Bank Acquisition Transactions with
deposits between $100.0 - $350.0 million the 75th percentile median multiples
were 1.99 and 23.82, respectively. For Indiana Bank Acquisition Transactions
with a ROAE between 11.0% and 13.50%, the 75th percentile median multiples were
2.09 and 16.08, respectively. The 75th percentile median multiples of book value
and earnings for Indiana Bank Acquisition Transactions located in southwest
Indiana were 2.14 and 22.92, respectively. For Indiana Bank Acquisition
Transactions since January 1, 1996, the 75th percentile median multiples of book
value and earnings were 1.93 and 26.03.
In the proposed transaction, National Bancorp shareholders will receive
3.45 shares of CNB Common for each share of the National Bancorp Common,
subject to possible adjustment as described herein. Utilizing a stock price of
$45.00 per share of CNB Common, which was within CNB's range of trading on
February 5 and 6, 1998, the transaction value would equal $155.25 per share of
National Bancorp Common. This represents a multiple of book value and multiple
of 1997 earnings of 2.74 and 22.95, respectively. In addition, each outstanding
option to purchase shares of National Bancorp Common, pursuant to the National
Bancorp Stock Option Plan, will be converted into the option to acquire shares
of CNB Common on the same terms and conditions as were applicable under the
National Bancorp Stock Option Plan.
Adjusted Net Asset Value Analysis. PBS reviewed National Bancorp's balance
sheet data to determine the amount of material adjustments required to the
shareholders' equity of National Bancorp based on differences between the market
value of National Bancorp's assets and their value reflected on National
Bancorp's financial statements. PBS determined that two adjustments were
warranted. Equity was increased $98,000 to reflect the after tax appreciation
in National Bancorp's held to maturity securities portfolio. Equity was reduced
by $2,076,000, to reflect total intangible assets on National Bancorp's balance
sheet. PBS also reflected a value of the non-interest bearing demand deposits
of approximately $3,917,000. The aggregate adjusted net asset value of National
Bancorp was determined to be $19,462,000 or $60.89 per share of National Bancorp
Common.
31
Discounted Earnings Analysis. A dividend discount analysis was performed by
PBS pursuant to which a range of stand-alone values of National Bancorp was
determined by adding (i) the present value of estimated future dividend streams
that National Bancorp could generate over a five-year period, and (ii) the
present value of the "terminal value" of National Bancorp's earnings at the end
of the fifth year. The "terminal value" of National Bancorp's earnings at the
end of the five-year period was determined by applying a multiple of 17.29 and
21.30 times the projected terminal year's earnings. The 17.29 and 21.30
multiples represents the median and upper 75th percentile price paid as a
multiple of earnings for all Indiana Bank Acquisition Transactions.
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of National Bancorp Common. The
aggregate value of National Bancorp, determined by adding the present value of
the total cash flows, was $37,198,000 or $114.80 per share and $45,130,000 or
$139.28 per share, utilizing the median and 75th percentile earnings multiples,
respectively. In addition, using the five-year projection as a base, a twenty-
year projection was prepared assuming that an annual growth rate of 7.0% and a
return on assets increasing from 1.10% in year one to 1.50% during year nine
that would remain in effect for the remaining period. Dividends were assumed to
remain constant at 30% of net income throughout the projected period. This
long-term projection resulted in a aggregate value of $30,028,000 or $92.67 per
share and $34,642,000 or $106.91 per share of National Bancorp Common utilizing
the median and 75th percentile earnings multiples, respectively.
Pro Forma Merger Analysis. PBS compared the historical performance of
National Bancorp to that of CNB and other regional holding companies. This
analysis included, among other things, a comparison of profitability, asset
quality and capital measures. In addition, the contribution of National Bancorp
and CNB to the income statement and balance sheet of the pro forma combined
company was analyzed.
The effect of the affiliation on the historical and pro forma financial
data of National Bancorp was prepared and analyzed. National Bancorp's
historical financial data was compared to the pro forma combined historical and
projected earnings, book value and dividends per share.
The Fairness Opinion is directed only to the question of whether the
consideration to be received by National Bancorp's shareholders under the Merger
Agreement is fair and equitable from a financial perspective and does not
constitute a recommendation to any National Bancorp shareholder to vote in favor
of the Merger. No limitations were imposed on PBS regarding the scope of its
investigation or otherwise by National Bancorp.
Based on the results of the various analyses described above, PBS concluded
that the consideration to be received by National Bancorp's shareholders under
the Merger Agreement is fair and equitable from a financial point of view to the
shareholders of National Bancorp.
Pursuant to the terms of its engagement with PBS, National Bancorp has paid
or expects to pay the following fees to PBS: (i) $10,000 upon the engagement of
PBS; (ii) $25,000 upon the execution of the Merger Agreement; (iii) 0.375% of
the total Merger consideration; and (iv) $25,000 in the event the Merger
consideration exceeds $40.0 million. Based on a CNB stock price of $45.00 per
share, for example, PBS would receive fees in the amount of approximately
$247,000 for all services performed in connection with the sale of National
Bancorp and the rendering of the Fairness Opinion. In addition, National
Bancorp has agreed to indemnify PBS and its directors, officers and employees,
from liability in connection with the transaction, and to hold PBS harmless from
any losses, actions, claims, damages, expenses or liabilities related to any of
PBS' acts or decisions made in good faith and in the best interest of National
Bancorp.
32
Form of Merger
Subject to the satisfaction or waiver (where permissible) of the conditions
set forth in the Merger Agreement (see "-- Conditions to Consummation of
Merger") and in accordance with the Indiana Corporate Law, at the Effective
Time, National Bancorp will merge with and into CNB. CNB will be the surviving
corporation in the Merger and will continue its existence under the Indiana
Corporate Law. The separate corporate existence of National Bancorp will
terminate.
Immediately following the Merger, shareholders of CNB and National Bancorp
will own approximately 96.8% and 3.2%, respectively, of the then outstanding
shares of CNB Common.
Merger Consideration
At the Effective Time, each share of National Bancorp Common issued and
outstanding immediately prior to the Effective Time, other than shares held in
the treasury of National Bancorp or by any direct or indirect subsidiary of
National Bancorp (except shares held in trust accounts for the benefit of others
or in other fiduciary, nominee or similar capacities and shares held by National
Bancorp or any of its subsidiaries in respect to a debt previously contracted),
will be converted into the right to receive a number of shares of CNB Common
equal to the Conversion Ratio, without any action on the part of CNB, National
Bancorp or their respective shareholders. The Conversion Ratio is equal to 3.45
shares of CNB Common for each share of National Bancorp Common, although it is
subject to adjustment under certain circumstances. See " -- Termination of
Merger Agreement -- Conversion Ratio Adjustment."
Shares of CNB Common issued and outstanding immediately prior to the
Effective Time will remain issued and outstanding after the Effective Time,
unaffected by the Merger.
For a discussion of the differences between the rights of holders of CNB
Common and National Bancorp Common, see "COMPARISON OF SHAREHOLDER RIGHTS." For
a description of CNB Common, see "DESCRIPTION OF CNB COMMON STOCK."
Fractional Shares
No fractional shares of CNB Common will be issued to any holder of National
Bancorp Common upon consummation of the Merger. In lieu thereof, holders of
National Bancorp Common who would otherwise be entitled to a fractional share
interest in CNB Common (after taking into account all shares of National Bancorp
Common held by such holder) will be paid an amount in cash equal to the product
of such fractional share interest and the closing price of a share of CNB Common
as reported in The Wall Street Journal (Midwest Edition) on the N.Y.S.E. trading
day immediately preceding the date on which the Effective Time occurs.
Exchange of Stock Certificates
As soon as reasonably practicable after the Effective Time, but in no event
later than ten business days after the Closing Date, Citizens Bank (the
"Exchange Agent") will mail a letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to any certificate or
certificates which immediately prior to the Effective Time represent outstanding
shares of National Bancorp Common (the "National Bancorp Certificates") will
pass, only upon proper delivery of the National Bancorp Certificates to the
Exchange Agent and will be in such form and have such other provisions as CNB
may reasonably specify) (each such letter, a "Merger Letter of Transmittal") and
instructions for use in effecting the surrender of the National Bancorp
Certificates in exchange for the Merger Consideration to each record holder of
any National
33
Bancorp Certificate or Certificates whose shares were converted into the right
to receive the Merger Consideration pursuant to the Merger. Upon surrender to
the Exchange Agent of a National Bancorp Certificate, together with a Merger
Letter of Transmittal duly executed and any other required documents, the holder
of such National Bancorp Certificate will be entitled to receive the Merger
Consideration, plus dividends paid with respect to the Merger Consideration
having a record date after the Effective Time. No interest on the Merger
Consideration issuable upon the surrender of the National Bancorp Certificates
will be paid or accrued for the benefit of holders of National Bancorp
Certificates.
If the Merger Consideration is to be issued to a person other than a person
in whose name a surrendered National Bancorp Certificate is registered, it will
be a condition of issuance that the surrendered National Bancorp Certificate be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such issuance pay to the Exchange Agent any required transfer
taxes or other taxes or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable. If a National Bancorp Certificate
has been lost, stolen or destroyed, the Exchange Agent will issue the Merger
Consideration properly payable in accordance with the Merger Agreement upon
receipt of an affidavit as to such loss, theft or destruction and, if required
by CNB, the posting of a bond in an amount determined by CNB.
The Merger Agreement provides that no dividends which are otherwise payable
on shares of CNB Common constituting the Merger Consideration will be paid to
persons entitled to receive such shares of CNB Common until such persons
surrender their National Bancorp Certificates. Upon such surrender, there will
be paid to the person in whose name the shares of CNB Common will be issued any
dividends which shall have become payable with respect to such shares of CNB
Common (without interest and less the amount of taxes, if any, which may have
been imposed thereon) between the Effective Time and the time of such surrender.
Holders of National Bancorp Common are requested not to surrender their
National Bancorp Certificates for exchange until such Letter of Transmittal and
instructions are received.
The Merger Agreement provides that, notwithstanding the foregoing, no Merger
Consideration will be delivered to a person who is an "affiliate" of National
Bancorp (as is hereafter defined under "-- Resale of CNB Common") unless such
affiliate has previously executed and delivered to CNB the certain agreement
relating to affiliates referred to in the Merger Agreement. See "-- Resale of
CNB Common."
At or after the Effective Time, no transfers of any shares of National
Bancorp Common will be made on the stock transfer books of National Bancorp. If
National Bancorp Certificates are presented for transfer after the Effective
Time, they will be canceled and exchanged for the Merger Consideration.
For a description of the differences between the rights of the holders of
CNB Common and National Bancorp Common, see "COMPARISON OF SHAREHOLDER RIGHTS."
For a description of the CNB Common, see "DESCRIPTION OF CNB COMMON STOCK."
Effective Time
The Merger Agreement provides that the Effective Time will be upon the
filing of Articles of Merger with the Secretary of the State of Indiana. The
Merger Agreement provides that both CNB and National Bancorp will use their best
efforts to cause the Effective Time to occur on the Closing Date. The Closing
Date will occur, at the option of CNB, on (i) the last business day of; or (ii)
the first business day of the month following; or (iii) the last business day of
the earliest month which is the second month of a calendar quarter following, in
each case, the month during which all necessary regulatory approvals, consents,
authorizations and other approvals, including the requisite approval of the
Merger Agreement by the shareholders of National
34
Bancorp has been obtained or waived (where permissible) and all waiting periods
required by law have expired. See "-- Conditions to Consummation of Merger" and
"-- Regulatory Approvals."
Assuming that the Merger is approved by the requisite vote of the
shareholders of National Bancorp and the other conditions to the Merger are
satisfied or waived (where permissible), it is presently anticipated that the
Merger will be consummated during the third quarter of 1998, but no assurance
can be given that such timetable will be met. If the Merger is not effected on
or before December 31, 1998, the Merger Agreement may be terminated by either
CNB or National Bancorp. See "-- Termination of Merger Agreement --
Termination."
Share Adjustments
If, prior to the Effective Time, a share of CNB Common is changed into a
different number of shares of CNB Common or a different class of shares (a
"Share Adjustment") by reason of reclassification, recapitalization, split-up,
exchange of shares or readjustment, or if a stock dividend is declared on the
CNB Common with a record date prior to the Effective Time, then the Conversion
Ratio will be appropriately and proportionately adjusted so that each
shareholder of National Bancorp will be entitled to receive such number of
shares of CNB Common as such shareholder would have received pursuant to such
Share Adjustment had the record date of the Share Adjustment been immediately
following the Effective Time of the Merger.
In addition, in the event that, as of the Effective Time, the sum of (a) the
number of shares of National Bancorp Common presented for exchange pursuant to
the Merger Agreement or otherwise issued and outstanding at the Effective Time,
and (b) the number of shares of National Bancorp Common issuable upon the
exercise of options or warrants, whether pursuant to National Bancorp Employee
Stock Options or otherwise, as of the Effective Time is greater than the sum of
(x) the number of shares of National Bancorp Common represented in the Merger
Agreement as being outstanding as of the date of the Merger Agreement, and (y)
the number of shares of National Bancorp Common issuable upon the exercise of
National Bancorp Employee Stock Options represented in the Merger Agreement as
being outstanding as of the date of Merger Agreement, then the Conversion Ratio
will be appropriately and proportionately decreased to take into account such
issued and outstanding, and issuable, shares of National Bancorp Common.
Dividends
The Merger Agreement provides that National Bancorp may declare and pay its
regular quarterly dividend on the National Bancorp Common in an amount not to
exceed $0.51 per share, at approximately the same times during each quarter
during such period which it has historically declared and paid such dividends
and National Bancorp and CNB will, pursuant to the Merger Agreement, cooperate
with each other to coordinate the record and payment dates of their respective
dividends for the quarter in which the Effective Time occurs such that the
National Bancorp shareholders will receive a quarterly dividend from either
National Bancorp or CNB, but not from both during or with respect to such
quarter.
Conditions to Consummation of Merger
The obligations of each party to effect the Merger are subject to each
party's fulfillment or waiver (where permissible) of the following conditions at
or prior to the Closing Date: (i) the representations and warranties of each
party set forth in the Merger Agreement (see "-- Representations and Warranties
of Parties") will be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made or given
on and as of the Closing Date (except for any such representations and
warranties made as of a specified date which will be true and correct as of such
date; and subject to the Material Adverse Effect standard described below under
"-- Representations and Warranties of
35
Parties"); (ii) each party will have performed and complied in all material
respects with all of its obligations and agreements required to be performed
under the Merger Agreement on or prior to the Closing Date; (iii) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger will be in effect, nor will any
proceedings by any bank regulatory authority or other governmental agency
seeking any of the foregoing be pending; and there will not have been any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which would make consummation of the Merger
illegal; (iv) all necessary regulatory approvals, consents and authorizations
and other approvals required by law to consummate the Merger, including the
requisite approval of the shareholders of National Bancorp, will have been
obtained and all waiting periods required by law will have expired, and no
regulatory approval will have imposed any condition, requirement or restriction
which the CNB Board reasonably determines in good faith would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement to CNB and its shareholders as to render
the consummation of the Merger inadvisable; (v) each party will have received
all required documents from the other party on or prior to the Closing Date, in
form and substance reasonably satisfactory to such party; (vi) the Registration
Statement will have become effective under the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement will be in effect nor
will proceedings for that purpose be pending before or threatened by the S.E.C.;
and (vii) CNB will have received an opinion of its counsel, Lewis, Rice &
Fingersh, L.C., and National Bancorp will have received a copy of such opinion,
to the effect that if the Merger is consummated in accordance with the terms set
forth in the Merger Agreement, (a) the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code, (b) no gain or loss will be
recognized by the holders of National Bancorp Common upon receipt of the Merger
Consideration (except for cash received in lieu of fractional shares), (c) the
basis of shares of CNB Common received by the shareholders of National Bancorp
will be the same as the basis of shares of National Bancorp Common exchanged
therefor, and (d) the holding period of the shares of CNB Common received by the
shareholders of National Bancorp will include the holding period of the shares
of National Bancorp Common exchanged therefor, provided that such shares were
held as capital assets as of the Effective Time (see "-- Federal Income Tax
Consequences"). The obligation of CNB to effect the Merger is further subject to
the condition that the Merger will have qualified for "pooling of interests"
accounting treatment under Accounting Principles Board Opinion No. 16 (see "--
Accounting Treatment").
The conditions described in clause (iii) above (issuance of court order
preventing consummation of the Merger) and in clause (iv) above (receipt of
shareholder and regulatory approval) may not be waived by either party.
Although the remaining conditions to effect the Merger may be waived by the
party entitled to the benefit thereof, neither CNB nor National Bancorp intend
to waive any such conditions except in those circumstances where the CNB Board
or the National Bancorp Board, as the case may be, deems such waiver to be in
the best interests of CNB and National Bancorp, as the case may be, and its
respective shareholders. If the condition described in clause (vii) above is
not satisfied (the tax-free reorganization status of the Merger), the Merger
will not be consummated unless this Proxy Statement/Prospectus is amended to
reflect such revised tax treatment and the approval of the Merger by the
shareholders of National Bancorp is resolicited. There can be no assurances as
to when and if such conditions will be satisfied (or, where permissible, waived)
or that the Merger will be consummated.
Regulatory Approvals
CNB has agreed, in the Merger Agreement, to promptly file all regulatory
applications to obtain the requisite regulatory approvals to consummate the
Merger. The Merger cannot proceed in the absence of such regulatory approvals.
There can be no assurance that such regulatory approvals will be obtained and,
if obtained, there can be no assurance as to the date of any such approvals or
the absence of any litigation challenging such approvals. Likewise, there can
be no assurance that the United States Department of Justice
36
or any state attorney general will not attempt to challenge the Merger on
antitrust grounds or, if such a challenge is made, as to the result thereof.
The Merger is subject to approval by the Federal Reserve Board pursuant to
Section 3 of the B.H.C.A. and is subject to approval by the D.F.I. The Federal
Reserve Board approved the Merger on April 29, 1998. CNB expects to file an
application with the D.F.I. in the near future.
CNB and National Bancorp are not aware of any other governmental approvals
or actions that are required prior to the parties' consummation of the Merger
other than those described herein. It is presently contemplated that if any
such additional governmental approvals or actions are required, such approvals
or actions will be sought. There can be no assurance, however, that any such
additional approvals or actions will be obtained.
Representations and Warranties
The Merger Agreement contains various representations and warranties of CNB
and National Bancorp. The Merger Agreement provides that no representation or
warranty will be deemed untrue or incorrect, and neither party will be deemed to
have breached a representation or warranty, as a consequence of the existence of
any fact, event or circumstance unless such fact, circumstance or event,
individually or taken together with all other facts, events or circumstances
inconsistent with any representation or warranty contained in the Merger
Agreement, has had or is reasonably likely to have a Material Adverse Effect on
the party and its subsidiaries taken as a whole making such representation or
warranty.
Except as otherwise disclosed to CNB, the representations and warranties
made by National Bancorp, include, among other things, those as to: (i) the due
organization and good standing of National Bancorp; (ii) the capitalization of
National Bancorp; (iii) the due authorization and execution of the Merger
Agreement; (iv) the due organization, good standing and ownership of
subsidiaries of National Bancorp; (v) the presentation in accordance with
generally accepted accounting principles on a consistent basis and the fair
presentation in all material respects of the consolidated financial statements
of National Bancorp and filings by National Bancorp with the Federal Reserve
Board and by TCB Bank with the F.D.I.C.; (vi) the absence of any changes in the
financial condition, results of operations or business of National Bancorp since
December 31, 1996, which would have a Material Adverse Effect on National
Bancorp; (vii) the absence of any cease-and-desist order, agreement, consent
agreement, memorandum of understanding, or other regulatory enforcement action,
proceeding or order (a "Regulatory Agreement") between National Bancorp and its
subsidiaries and any federal or state agency charged with the supervision or
regulation of banks or bank holding companies or engaged in the insurance of
bank deposits, or any court, administrative agency or commission or other
governmental agency, authority or instrumentality (a "Regulatory Agency") having
supervisory or regulatory authority with respect to National Bancorp or any of
its subsidiaries; (viii) the filing of tax returns and reports and payment of
taxes by National Bancorp and its subsidiaries; (ix) the absence of material
pending or threatened litigation or other such actions which would have a
Material Adverse Effect on National Bancorp; (x) the existence of agreements
with employees of National Bancorp and its subsidiaries, including certain
employment agreements; (xi) the filing and material compliance of certain
reports required to be filed by National Bancorp and its subsidiaries with
various Regulatory Agencies, including the Federal Reserve Board and the
F.D.I.C.; (xii) certain matters relating to the loan portfolio, the investment
portfolio and interest rate risk management instruments of National Bancorp;
(xiii) certain employee matters and matters under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"); (xiv) the title to the properties of
National Bancorp and its subsidiaries, the absence of liens (except as
specified) and insurance matters; (xv) certain environmental matters with
respect to real properties owned, leased or operated by National Bancorp and its
subsidiaries; (xvi) the compliance by National Bancorp and its subsidiaries with
applicable laws and regulations; (xvii) the absence of brokerage commissions or
similar finder's fees (except
37
as specified) in connection with the Merger payable by National Bancorp or its
subsidiaries; (xviii) the non-banking activities of National Bancorp and its
subsidiaries; (xix) the trust administration of National Bancorp and its
subsidiaries; (xx) certain pooling of interests and tax-free reorganization
matters; (xxi) the existence of certain material contracts to which National
Bancorp and its subsidiaries are a party; (xxii) the absence of undisclosed
liabilities of National Bancorp and its subsidiaries; (xxiii) the accuracy of
information supplied or to be supplied by National Bancorp or its subsidiaries
for inclusion in any documents filed or to be filed with the S.E.C., the
N.Y.S.E. or any other Regulatory Agency in connection with the transactions
contemplated by the Merger Agreement; (xxiv) the inapplicability of certain
state take over laws; (xxv) certain matters relating to fair lending and the
Community Reinvestment Act of 1977, as amended, of National Bancorp and its
subsidiaries; and (xxvi) the ownership of all assets necessary to conduct the
business of National Bancorp.
The representations and warranties of CNB include, among other things, those
as to: (i) the due organization and valid existence of CNB; (ii) the
capitalization of CNB; (iii) the due authorization and execution of the Merger
Agreement, and the absence of the need (except as specified) for governmental or
third party consents to the Merger; (iv) the significant subsidiaries of CNB;
(v) the presentation in accordance with generally accepted accounting principles
on a consistent basis and the fair presentation in all material respects of the
consolidated financial statements and filings by CNB with the S.E.C.; (vi) the
absence of any changes in the financial condition, results of operations or
business of CNB which would have a Material Adverse Effect on CNB since December
31, 1996 (except as reported by CNB in its reports with the S.E.C.); (vii) the
absence of material pending or threatened litigation or other such actions which
would have a Material Adverse Effect on CNB; (viii) the filing and material
compliance of certain reports required to be filed by CNB and its significant
subsidiaries with various Regulatory Agencies, including the S.E.C., the Federal
Reserve Board, the Office of the Comptroller of the Currency (the "O.C.C."), the
F.D.I.C. and the N.Y.S.E.; (ix) the compliance by CNB and its significant
subsidiaries with applicable laws and regulations; (x) certain pooling of
interests and tax-free reorganization matters; and (xi) the accuracy of
information supplied by CNB in connection with the Registration Statement, this
Proxy Statement/Prospectus and any other documents to be filed with the S.E.C.,
N.Y.S.E. or any Regulatory Agency in connection with the transactions
contemplated by the Merger Agreement.
As used in the Merger Agreement, the term "Material Adverse Effect," means,
with respect to National Bancorp or CNB, any effect that (i) is, or is
reasonably expected to be, material and adverse to the financial position,
results of operations or business of National Bancorp and its subsidiaries taken
as a whole, or CNB and its subsidiaries taken as a whole, respectively, or (ii)
would materially impair the ability of either National Bancorp or CNB to perform
its obligations under the Merger Agreement or otherwise materially threaten or
materially impede the consummation of the Merger and the other transactions
contemplated by the Merger Agreement. The Merger Agreement provides, however,
that a Material Adverse Effect will not be deemed to include the impact of (a)
changes in banking and similar laws of general applicability or interpretations
thereof by courts or governmental authorities, (b) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to banks
and their holding companies generally, and (c) any modifications or changes to
valuation policies and practices in connection with the Merger or restructuring
charges taken in connection with the Merger, in each case in accordance with
generally accepted accounting principles.
Certain Other Agreements
CNB
Pursuant to the Merger Agreement, CNB has agreed, among other things, to:
(i) file all regulatory applications required in order to consummate the Merger
and to make copies of all such applications available to National Bancorp; (ii)
file the Registration Statement with the S.E.C. and use its best efforts to
cause the Registration Statement to become effective; (iii) promptly file all
documents required to list the shares of CNB
38
Common to be issued pursuant to the Merger on the N.Y.S.E. and to timely file
all documents required to obtain all necessary Blue Sky permits and approvals;
(iv) prepare and file any application required and any filings required under
the Exchange Act relating to the Merger and the transactions contemplated by the
Merger Agreement; (v) give National Bancorp prompt written notice of the
occurrence of any matter or event known to and directly involving CNB, which
would not include any changes in conditions that affect the banking industry
generally, that would have, either individually or in the aggregate, a Material
Adverse Effect on CNB; (vi) give National Bancorp prompt written notice of the
occurrence, or impending or threatened occurrence, of any event or condition
that it has knowledge of which would constitute a breach of any of the
representations or agreements of CNB in the Merger Agreement and use its best
efforts to prevent or promptly remedy the same; (vii) use its best efforts to
perform and fulfill all conditions and obligations on its part to be performed
or fulfilled under the Merger Agreement and to effectuate the Merger in
accordance with the terms and conditions of the Merger Agreement; and (viii)
permit National Bancorp reasonable access to its properties and disclose and
make available to National Bancorp all books, documents, papers and records
relating to assets, stock ownership, properties, operations, obligations and
liabilities in which National Bancorp may have a reasonable and legitimate
interest in furtherance of the transactions contemplated in the Merger
Agreement.
National Bancorp
Business of National Bancorp in Ordinary Course
Pursuant to the Merger Agreement, National Bancorp has agreed, among other
things, that it will, and that it will cause each of its subsidiaries to,
continue to carry on its respective business and the discharge or incurrence of
obligations and liabilities only in the usual, regular and ordinary course of
business and that it will use its reasonable best efforts to maintain and
preserve intact its respective business organization, employees and advantageous
business relationships and retain the services of its officers and key
employees.
National Bancorp also has agreed that neither it nor its subsidiaries will,
without the prior written consent of CNB (which CNB has agreed to not
unreasonably withhold): (i) issue any National Bancorp Common or other capital
stock, options, warrants or other rights to subscribe for or purchase National
Bancorp Common or any other capital stock or any other securities convertible
into or exchangeable for any capital stock of National Bancorp or any of its
subsidiaries (except for the issuance of National Bancorp Common pursuant to the
exercise of previously outstanding National Bancorp Employee Stock Options);
(ii) directly or indirectly redeem, purchase or otherwise acquire any National
Bancorp Common or any other capital stock of National Bancorp or its
subsidiaries; (iii) effect a reclassification, recapitalization, split-up,
exchange of shares, readjustment or other similar change in any capital stock of
National Bancorp or its subsidiaries; (iv) change its Articles of Incorporation
or Bylaws; (v) grant any increase (other than ordinary and normal increases
consistent with past practices) in the compensation payable or to become payable
to officers or salaried employees, grant any stock options or, except as
required by law or as required by existing contractual obligations, adopt or
change any bonus, insurance, pension, or other employee plan, agreement, payment
or arrangement made to, for or with any such officers or employees; (vi) borrow
or agree to borrow any amount of funds or directly or indirectly guarantee any
obligations of others; (vii) make or commit to make any new loan or letter of
credit or any new or additional discretionary advance under any existing line of
credit in principal amounts in excess of $500,000 or that would increase the
aggregate credit outstanding to any one borrower (or group of affiliated
borrowers) to more than $500,000 (excluding for this purpose any accrued
interest or overdrafts) without the prior written consent of CNB; (viii)
purchase or otherwise acquire any investment security for its own account,
except as provided in the Merger Agreement; (ix) materially increase or decrease
the rate of interest paid on time deposits, or on certificates of deposit,
except in a manner and pursuant to policies consistent with past practices; (x)
enter into any agreement, contract or commitment of a material nature out of the
ordinary course of business as provided in the Merger Agreement; (xi) place
39
any mortgage, pledge, lien, charge, or other encumbrance of a material nature on
any of its material assets or properties, except in the ordinary course of
business; (xii) cancel or accelerate any material indebtedness owing to National
Bancorp or its subsidiaries or any claims which National Bancorp or its
subsidiaries may possess or waive any material rights with respect thereto,
except in the ordinary course of business; (xiii) sell or otherwise dispose of
any real property or any material amount of any tangible or intangible personal
property other than properties acquired in foreclosure or otherwise in the
ordinary collection of indebtedness to National Bancorp and its subsidiaries;
(xiv) foreclose upon or otherwise take title to or possession or control of any
real property without first obtaining a phase one environmental report thereon
which indicates that the property is free of pollutants, contaminants or
hazardous or toxic waste materials (except that National Bancorp and its
subsidiaries will not be required to obtain such a report with respect to single
family, non-agricultural residential property of one acre or less to be
foreclosed upon unless it has reason to believe that such property might contain
any such waste materials or otherwise might be contaminated); (xv) commit any
act or fail to do any act which would cause a breach of any agreement, contract
or commitment and which would have a Material Adverse Effect on National
Bancorp; (xvi) purchase any real or personal property or make any other capital
expenditure where the amount paid or committed therefor is in excess of $25,000
individually or $50,000 in the aggregate; (xvii) affirmatively take, or cause to
be taken, any action, whether before or after the Effective Time, which, in the
good faith determination of National Bancorp after consultation with its
advisors and/or CNB, 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; (xviii) take any action which would adversely effect or
delay the ability of either CNB or National Bancorp to obtain any necessary
approvals of any Regulatory Agency or other governmental authority required for
the transactions contemplated by the Merger Agreement or to perform its
covenants and agreements under the Merger Agreement; or (xix) engage in any
transaction or take any action that would render untrue in any material respect
any of the representations and warranties made by National Bancorp in the Merger
Agreement, if such representations or warranties were given as of the date of
such transaction or action.
Environmental Inspections
National Bancorp has agreed to provide to CNB a report of a phase one
environmental investigation on all real property owned, leased or operated by
National Bancorp or its subsidiaries as of the date of the Merger Agreement and,
with certain exceptions, acquired or leased by National Bancorp after the date
of the Merger Agreement. In addition, National Bancorp has agreed to provide a
report of a phase two investigation on any of such properties requiring such
additional study, if, in CNB's reasonable opinion, such report is required by
the phase one investigation. If the cost of taking all remedial or other
corrective actions and measures required by applicable law or reasonably likely
to be required by applicable law, in the aggregate, exceeds the sum of $150,000,
as reasonably estimated by an environmental expert retained for such purpose by
CNB and reasonably acceptable to National Bancorp, or if the cost of such
actions and measures cannot be so reasonably estimated by such expert with any
reasonable degree of certainty to be $150,000 or less, then CNB will have the
right, for a period of fifteen business days following receipt of such estimate,
to terminate the Merger Agreement, which will be CNB's sole remedy in such
event. Environmental investigations are intended to identify and quantify
potential environmental risks of ownership, such as contamination, which could
lead to liability for clean-up costs under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and other
applicable laws. A "phase one" investigation is an initial environmental
inquiry intended to identify areas of concern which might require more in-depth
assessment. The scope of a phase one investigation varies depending on the
environmental consultant utilized and the property assessed, but will typically
include (i) visual inspection of the property; (ii) review of governmental
records to ascertain the presence of such things as "Superfund" sites,
underground storage tanks or landfills, etc. on or near the site; (iii) review
of all relevant site records such as air or water discharge permits and
hazardous waste manifests; and (iv) research regarding previous owners and uses
of the property as well as those of surrounding properties. CNB has reviewed
the environmental reports provided by National Bancorp
40
and, based upon the contents of such reports, has determined to waive its right
to terminate the Merger Agreement on account thereof.
Other Agreements
Pursuant to the Merger Agreement, National Bancorp has agreed to: (i) give
CNB prompt written notice of the occurrence, or impending or threatened
occurrence, of any event or condition that it has knowledge of which would cause
or constitute a breach of any of the representations or agreements of National
Bancorp in the Merger Agreement (and use its best efforts to prevent or promptly
remedy the same); (ii) use its best efforts to obtain all necessary consents
with respect to all interests of National Bancorp and its subsidiaries in any
material leases, licenses, contracts, instruments and rights which require the
consent of another person for their transfer or assumption pursuant to the
Merger; (iii) use its best efforts to perform and fulfill all conditions and
obligations to be performed or fulfilled under the Merger Agreement and to
effect the Merger promptly in accordance with the terms of the Merger Agreement;
(iv) at the request of CNB, cause TCB Bank to enter into a merger agreement with
Citizens Bank of Jasper, a wholly-owned banking subsidiary of CNB, and to take
all other actions and cooperate with CNB in causing such merger to be effected
(provided that the Merger will not be conditioned upon the consummation of any
such subsidiary bank merger); (v) permit CNB reasonable access to its properties
and disclose and make available to CNB all books, documents, papers and records
and computer systems documentation and files relating to its assets, stock
ownership, properties, operations, obligations and liabilities in which CNB may
have a reasonable and legitimate interest in furtherance of the transactions
contemplated by the Merger Agreement; (vi) cause to be duly called and held a
special meeting of its shareholders for submission of the Merger Agreement for
approval as required by the Indiana Corporate Law; (vii) deliver to CNB, at
least five days prior to the mailing of this Proxy Statement/Prospectus to the
holders of National Bancorp Common, a list of each person who may reasonably be
deemed an "affiliate" of National Bancorp within the meaning of such term as
used in Rule 145 of Securities Act and cause each such person to deliver an
agreement regarding compliance with Rule 145 of the Securities Act and the
pooling of interest rules; (viii) at CNB's request, enter into a separate plan
of merger or articles of merger or certificate of merger reflecting the terms of
the Merger Agreement for purposes of any filing requirement of the Indiana
Corporate Law; (ix) deliver to CNB, on or before March 31, 1998, an unqualified
audit opinion on the consolidated balance sheet of National Bancorp as of
December 31, 1997, and the related consolidated statement of condition, changes
in stockholders' equity and cash flows of National Bancorp for the year ended
December 31, 1997 (which National Bancorp has done); and (x) promptly notify CNB
in writing of the occurrence of any matter or event known to and directly
involving National Bancorp, other than changes in conditions that affect the
banking industry generally, that would have, either individually or in the
aggregate, a Material Adverse Effect on National Bancorp.
Effect of Merger on Employee Benefit and Employee Stock Option Plans
Employee Benefit Plans
The Merger Agreement provides that, at the Effective Time, each employee of
National Bancorp or any of its subsidiaries who continues as an employee of CNB
or its subsidiaries will be entitled to participate in such employee benefit
plans (as defined under ERISA) or any non-qualified employee benefit plans or
deferred compensation, stock option, bonus or incentive plans or other employee
benefit or fringe benefit programs that may be in effect generally for employees
of all of CNB's subsidiaries, on the same basis as similarly situated employees
of CNB subsidiaries, if and as such employee is eligible and, if required,
selected for participation therein under the terms thereof, provided that such
employee is not participating in a similar plan administered by National Bancorp
after the Effective Time, subject to the right of CNB to amend, modify or
terminate, in its sole discretion, any such plans or programs. National Bancorp
employees will be eligible to participate on the same basis as similarly
situated employees of other CNB subsidiaries. CNB may
41
terminate or modify all National Bancorp employee plans except insofar as
benefits thereunder have vested at the Effective Time and cannot be modified.
CNB will, for purposes of vesting and any age or period of service requirements
for commencement of participation with respect to any CNB employee plans in
which former employees of National Bancorp may participate (but not for benefit
accruals under any defined benefit plan), credit each such employee with his or
her term of service with National Bancorp and its subsidiaries and its and their
predecessors.
Employee Stock Option Plans
At the Effective Time, each outstanding option to purchase shares of
National Bancorp Common (a "National Bancorp Employee Stock Option") issued
pursuant to the National Bancorp Stock Option Plan, whether or not exercisable
or vested, will cease to represent a right to acquire shares of National Bancorp
Common and instead will be converted automatically into an option to acquire,
from and after the Effective Time, the number of full shares of CNB Common as
the holder of such National Bancorp Employee Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time (determined by multiplying the
aggregate number of shares of National Bancorp Common covered by such National
Bancorp Employee Stock Option by the Conversion Ratio), on the same terms and
conditions as were applicable under such National Bancorp Employee Stock Option,
at a price per share equal to (a) the aggregate amount of the exercise prices
for National Bancorp Common otherwise purchasable pursuant to such National
Bancorp Employee Stock Option divided by (b) the number of full shares of CNB
Common which may be purchased pursuant to such National Bancorp Employee Stock
Option. In no event, however, will CNB be required to issue fractional shares
of CNB Common.
Management and Operations After Merger
As a consequence of the Merger, National Bancorp will cease to exist as a
separate entity and its subsidiaries will become subsidiaries of CNB. CNB
intends to merge TCB Bank with and into one of its subsidiary banks, Citizens
Bank of Jasper, and to, ultimately, combine the operations of certain CNB and
National Bancorp subsidiaries which provide similar services.
Interests of Certain Persons in Merger
Shareholders should be aware that certain members of the National Bancorp
Board and the management of National Bancorp may have interests in the Merger
that are in addition to and/or separate from the interests of shareholders of
National Bancorp generally. The National Bancorp Board was aware of these
interests, and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby, including the Merger.
Adoption and approval of the Merger Agreement by the shareholders of National
Bancorp will also constitute approval of the following benefits to be received
by directors, executive officers and employees of National Bancorp.
Indemnification and Insurance
CNB has agreed, for three years after the Effective Time, to indemnify,
defend and hold harmless the present and former officers, directors, employees
and agents of National Bancorp and its subsidiaries against all losses,
expenses, claims, damages or liabilities arising out of actions or omissions
occurring prior to the Effective Time (including, without limitation, the
transactions contemplated by the Merger Agreement) to the fullest extent
permitted by the Articles of Incorporation of National Bancorp as in effect on
the date of the Merger Agreement and by the Indiana Corporate Law.
42
For a period of three years after the Effective Time, CNB will use its
reasonable best efforts to maintain in effect the current policies of directors'
and officers' liability insurance maintained by National Bancorp (provided that
CNB may substitute therefor policies of comparable coverage with respect to
claims arising from facts or events which occurred before the Effective Time) to
the extent that such coverage is obtainable for an aggregate premium not to
exceed 150% of the amount of the annual premium paid by National Bancorp for
such insurance (the "Maximum Amount") as of the date of the Merger Agreement.
If the premiums necessary to maintain or procure such insurance coverage would
exceed the Maximum Amount, CNB will use all reasonable efforts to maintain the
most advantageous policies of directors' and officers' insurance obtainable for
an annual premium equal to the Maximum Amount. CNB may, prior to the Effective
Time and in lieu of the foregoing, request National Bancorp to purchase
insurance coverage on such terms and conditions as are acceptable to CNB,
extending for a period of three years National Bancorp's directors' and
officers' liability insurance coverage in effect as of the date of the Merger
Agreement.
Employee Benefits
The Merger Agreement also contains certain provisions regarding employee
benefits which are described under "MERGER -- Effect of Merger on Employee
Benefit and Employee Stock Option Plans -- Employee Benefit Plans."
Employee Stock Option Plans
The Merger Agreement contains certain provisions regarding the assumption by
CNB of outstanding National Bancorp Employee Stock Options to acquire shares of
National Bancorp Common which are described under "MERGER -- Effect of Merger on
Employee Benefit and Employee Stock Option Plans -- Employee Stock Option
Plans."
Interests of CNB Board and Management
No member of the CNB Board or the management of CNB has an interest in the
Merger, other than as a shareholder of CNB generally.
Accounting Treatment
The Merger is expected to qualify as a "pooling of interests" for accounting
and financial reporting purposes. Under this method of accounting, the assets
and liabilities of CNB and National Bancorp will be carried forward after the
Effective Time into the consolidated financial statements of CNB at their
recorded amounts; the consolidated income of CNB will include income of CNB and
National Bancorp for the entire fiscal year in which the Merger occurs; the
separately reported income of CNB and National Bancorp for prior periods will be
combined and restated as consolidated income of CNB; and no goodwill will be
created. The Merger Agreement provides that a condition to the obligations of
CNB to consummate the Merger is that the Merger will qualify for "pooling of
interests" accounting treatment under Accounting Principles Board Opinion No. 16
if consummated in accordance with the Merger Agreement. In the event that such
condition is not met, the Merger would not be consummated unless the condition
was waived by CNB (which CNB has indicated that it does not intend to do) and
the approval of National Bancorp shareholders entitled to vote on the Merger was
resolicited if such change in accounting treatment were deemed material, in the
opinion of CNB and National Bancorp, to the financial condition and results of
operations of CNB on a pro forma basis assuming consummation of the Merger.
43
As of the date of this Proxy Statement/Prospectus, the managements of CNB
and National Bancorp are not aware of any existing facts or circumstances which
would preclude accounting for the transaction as a pooling of interests.
The unaudited pro forma financial information contained in this Proxy
Statement/Prospectus has been prepared using the pooling of interests accounting
method to account for the Merger. See "SUMMARY -- Selected Comparative Per
Share Data," "-- Summary Consolidated Financial Data" and "PRO FORMA FINANCIAL
DATA."
Federal Income Tax Consequences
The following discussion is a summary of the material federal income tax
consequences of the Merger to holders of National Bancorp Common who or which
hold their shares as capital assets. This summary deals only with holders who
or which are (i) citizens or residents of the United States; (ii) domestic
corporations; or (iii) otherwise subject to United States federal income tax on
a net income basis in respect of shares of National Bancorp Common ("U.S.
Holders"). This summary may not be applicable to certain classes of taxpayers,
including, without limitation, insurance companies, tax-exempt organizations,
financial institutions, dealers in securities, foreign persons, persons who
acquired National Bancorp Common pursuant to an exercise of employee stock
options or rights or otherwise as compensation and persons who hold shares of
National Bancorp Common in a hedging transaction or as part of a straddle or
conversion transaction. The discussion also does not address state, local or
foreign tax consequences of the Merger. Consequently, each holder should
consult such holder's own tax advisor as to the specific tax consequences of the
Merger to such holder.
This summary is based on current laws, regulations, rulings, practice and
judicial decisions in effect on the date of this Proxy Statement/Prospectus and
the opinion of Lewis, Rice & Fingersh, L.C. Legislative, judicial or
administrative changes or interpretations may, however, be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any such
changes may or may not be retroactive and could affect the tax consequences to
U.S. Holders described herein. The opinion of Lewis, Rice & Fingersh, L.C. set
forth in this summary is based, among other things, on representations relating
to certain facts and circumstances of, and the intentions of the parties to, the
Merger.
The obligations of National Bancorp and CNB to consummate the Merger are
subject to the receipt of the opinion of Lewis, Rice & Fingersh, L.C. outlined
below. The opinion of Lewis, Rice & Fingersh, L.C. summarized below will not,
however, be binding upon the Internal Revenue Service. Neither National Bancorp
nor CNB has requested or will request a ruling from the Internal Revenue Service
as to the tax consequences of the Merger.
In the opinion of Lewis, Rice & Fingersh, L.C., the following will be the
material federal income tax consequences of the Merger if the Merger is
consummated in accordance with the terms set forth in the Merger Agreement:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code;
(ii) no gain or loss will be recognized by CNB or National Bancorp as
a result of the consummation of the Merger;
44
(iii) no gain or loss will be recognized by a U.S. Holder, except as
described below with respect to a U.S. Holder of National Bancorp Common who
receives cash in lieu of a fractional share interest of CNB Common;
(iv) the aggregate adjusted tax basis of shares of CNB Common
(including a fractional share interest of CNB Common deemed received and
redeemed as described below) received by a U.S. Holder will be the same as
the aggregate adjusted tax basis of the shares of National Bancorp Common
exchanged therefor;
(v) the holding period of the shares of CNB Common (including the
holding period of a fractional share interest of CNB Common) received by a
U.S. Holder will include the holding period of the National Bancorp Common
exchanged therefor; and
(vi) a U.S. Holder of National Bancorp Common who receives cash in the
Merger in lieu of a fractional share interest of CNB Common will be treated
as having received such fractional share interest and then as having
received such cash in redemption of such fractional share interest. Under
Section 302 of the Code, provided that such deemed distribution is
"substantially disproportionate" with respect to such U.S. Holder or is "not
essentially equivalent to a dividend" after giving effect to the
constructive ownership rules of the Code, the U.S. Holder will generally
recognize capital gain or loss equal to the difference between the amount of
cash received and the U.S. Holder's adjusted tax basis in the fractional
share interest in CNB Common. Such capital gain or loss will be long-term
capital gain or loss if the U.S. Holder's holding period in the fractional
shares is more than one year. Long-term capital gain of an individual U.S.
Holder is subject to a maximum rate of 28% in respect of property held for
more than one year. The maximum rate is reduced to 20% for property held
for more than eighteen months.
Termination of Merger AgreementTermination of Merger Agreement
Termination
The Merger may be terminated at any time prior to the Closing Date: (i) by
mutual written agreement of CNB and National Bancorp (regardless of whether
shareholder approval of the Merger Agreement by the shareholders of National
Bancorp had previously been obtained); (ii) by either party in the event of a
material breach by the other party of any of its representations and warranties
or agreements under the Merger Agreement provided that such breach is not cured
within 30 days after the non-breaching party provides written notice to the
breaching party to cure such breach (see "-- Representations and Warranties");
(iii) by CNB if certain reports of environmental inspection on the real
properties of National Bancorp to be obtained pursuant to the Merger Agreement
should disclose any matters requiring remedial or corrective measures the cost
of which exceeds $150,000 (as determined in accordance with the Merger Agreement
and described under "-- Certain Other Agreements -- National Bancorp --
Environmental Inspections"); (iv) by either party in the event that any of the
conditions to its obligations are not satisfied or waived (and not cured within
any applicable cure period) (see "-- Conditions to Consummation of Merger"); (v)
if any regulatory application is finally denied or disapproved by the respective
regulatory authority (see "-- Regulatory Approvals"); (vi) by CNB if the CNB
Board reasonably and in good faith determines that any requisite regulatory
approval imposes a "Burdensome Condition" (defined in the Merger Agreement as
any condition, requirement or restriction that the CNB Board reasonably
determines in good faith would so materially adversely impact the economic or
business benefits of the transactions contemplated by the Merger Agreement to
CNB and its shareholders as to render consummation of the Merger inadvisable);
(vii) by either party if the Merger Agreement and the transactions contemplated
thereby, including the Merger, are not approved by the shareholders of National
Bancorp (see "NATIONAL BANCORP MEETING -- Vote Required"); (viii) by
45
CNB in the event that the National Bancorp Board withdraws or modifies its
approval or recommendation of the Merger Agreement in any manner adverse to CNB
or resolves or publicly announces an intention to do either of the foregoing;
(ix) by CNB in the event that National Bancorp or any of its subsidiaries
becomes a party or subject to any new or amended written agreement, memorandum
of understanding, cease and desist order, imposition of civil money penalties or
other regulatory enforcement action or proceeding with any Regulatory Agency
after the date of the Merger Agreement which would have a Material Adverse
Effect on National Bancorp; and (x) by either party if the Merger is not
consummated on or prior to December 31, 1998, unless the failure of the Closing
Date to occur prior to or on such date is due to the failure of the party
seeking to terminate the Merger Agreement to perform or observe the covenants
and agreements of such party set forth in the Merger Agreement.
Conversion Ratio Adjustment
The Merger Agreement provides that National Bancorp may terminate the Merger
Agreement if the CNB Average Price (as defined below) is less than $35.50 (a
"National Bancorp Price Termination Event"). The Merger Agreement also provides
that CNB may terminate the Merger Agreement if the CNB Average Price is greater
than $48.50 (a "CNB Price Termination Event").
If a National Bancorp Price Termination Event occurs and National Bancorp
exercises its right as a result thereof to terminate the Merger Agreement, it
must give written notice to CNB of its election to terminate the Merger
Agreement within twenty-four hours of the Determination Date (as defined below).
Within two business days after the receipt of such notice, CNB will have the
option of increasing the Conversion Ratio to equal a number equal to a quotient,
the numerator of which is the product of $35.50 and the Conversion Ratio (as
then in effect) and the denominator of which is the CNB Average Price. If CNB
elects to make such an adjustment to the Conversion Ratio, the Merger Agreement
will remain in effect in accordance with its terms (except for the adjustment to
the Conversion Ratio).
If a CNB Price Termination Event occurs and CNB exercises its right as a
result thereof to terminate the Merger Agreement, it must give written notice to
National Bancorp of its election to terminate the Merger Agreement within
twenty-four hours of the Determination Date. Within two business days after the
receipt of such notice, National Bancorp will have the option of decreasing the
Conversion Ratio to equal a number equal to a quotient, the numerator of which
is the product of $48.50 and the Conversion Ratio (as then in effect) and the
denominator of which is the CNB Average Price. If National Bancorp elects to
make such a adjustment to the Conversion Ratio, the Merger Agreement will remain
in effect in accordance with its terms (except for the adjustment to the
Conversion Ratio).
"CNB Average Price" means the average of the daily closing prices of CNB
Common as reported in The Wall Street Journal (Midwest Edition) for the ten
N.Y.S.E. trading days preceding the Determination Date. "Determination Date"
means the fifth calendar day prior to the Closing Date.
Termination Fee
The Merger Agreement provides that upon the occurrence of one or more
Triggering Events (as defined below), National Bancorp will pay to CNB the sum
of $1,500,000.
The term "Triggering Event" means any of the following events (a) upon
termination of the Merger Agreement by CNB upon a breach thereof by National
Bancorp (including, without limitation, the entering into of an agreement
between National Bancorp and any third party which is inconsistent with the
transactions contemplated by the Merger Agreement), provided that within 18
months of the date of such termination, either an event described in clause (b)
below shall have occurred or National Bancorp enters into an agreement
46
with any third party whereby such third party will acquire, merge or consolidate
with National Bancorp or TCB Bank, purchase all or substantially all of National
Bancorp's or TCB Bank's assets or acquire 50% or more of the outstanding shares
of National Bancorp Common; (b) any person or group of persons (other than CNB)
acquires, or has the right to acquire, 33% or more of the National Bancorp
Common, exclusive of shares of National Bancorp Common sold directly or
indirectly to such person or group of persons by CNB; or (c) upon the entry by
National Bancorp into an agreement or other understanding with a person or group
of persons (other than CNB and/or its affiliates) for such person or group of
persons to acquire, merge or consolidate with National Bancorp or to purchase
all or substantially all of National Bancorp's assets.
Appraisal Rights of Dissenting Shareholders
Chapter 23-1-44 of the Indiana Corporate Law provides that a shareholder of
National Bancorp has the right to demand payment in cash for the fair value of
his or her shares of National Bancorp Common immediately before the Effective
Time, excluding any appreciation or depreciation in value in anticipation of the
Merger unless a court determines that such exclusion would be inequitable. To
claim this right the shareholder must: (a) before the vote is taken, deliver to
National Bancorp written notice of his or her intent to demand payment for his
or her shares if the Merger is effectuated; and (b) not vote in favor of the
Merger in person or by proxy at the Meeting.
If the Merger is approved by the shareholders, National Bancorp will send a
notice of dissenters' rights to those shareholders satisfying the above
conditions within ten days after the shareholder approval. National Bancorp's
notice will state the procedures the dissenting shareholder thereafter must
follow to exercise his or her dissenters' rights in accordance with Chapter 23-
1-44 of the Indiana Corporate Law.
A SHAREHOLDER WHO DOES NOT DELIVER WRITTEN NOTICE OF INTENT TO DEMAND
PAYMENT AND EITHER VOTE AGAINST THE MERGER OR REFRAIN FROM VOTING WILL NOT BE
ENTITLED TO RIGHTS UNDER CHAPTER 23-1-44 OF THE INDIANA CORPORATE LAW.
Shareholders who execute and return the enclosed proxy but do not specify a
choice on the Merger Agreement proposal will be deemed to have voted in favor of
approving the Merger Agreement and accordingly to have waived their dissenters'
rights, unless they revoke the proxy prior to its being voted.
Upon consummation of the Merger, National Bancorp will pay each dissenting
shareholder who has complied with all requirements of Chapter 23-1-44 of the
Indiana Corporate Law and of National Bancorp's notice, National Bancorp's
estimate of the fair value of the shares as of the time immediately prior to the
Merger, excluding any appreciation in value in anticipation of the Merger unless
such exclusion would be inequitable in National Bancorp's opinion.
Dissenters can object to the fair value established by National Bancorp by
stating their estimate of the fair value and demanding payment of the additional
amount claimed as fair value within 30 days after National Bancorp makes or
offers payment for the dissenting shareholder's shares. National Bancorp can
elect to agree to the dissenting shareholder's fair value demand or can commence
an action in the Circuit or Superior Court of Perry County, Indiana, within 60
days after receiving the demand for payment for a judicial determination of the
fair value. The Court can appoint appraisers to determine the fair value. The
costs of the proceeding, including compensation and expenses of appraisers,
counsel for the parties, and experts, will be assessed against all parties to
the action in such amounts as the Court finds equitable. Each dissenter made a
party to the action will be entitled to receive the amount, if any, by which the
Court finds the fair value of the dissenting shareholder's shares, plus
interest, exceeds the amount paid by National Bancorp.
If the holders of more than approximately 10% of the shares of National
Bancorp Common should exercise their dissenters' rights described above, the
Merger would not qualify as a "pooling of interests" for
47
accounting and financial reporting purposes and therefore CNB would not be
obligated to consummate the Merger. See "-- Accounting Treatment."
THE FOREGOING SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE
PROVISIONS OF THE INDIANA CORPORATE LAW RELATING TO THE RIGHTS OF DISSENTING
SHAREHOLDERS OF NATIONAL BANCORP, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE EXCERPTS FROM THE INDIANA CORPORATE LAW INCLUDED HEREIN AS APPENDIX C.
No Solicitation
The Merger Agreement provides that, unless and until the Merger Agreement
has been terminated, National Bancorp and its subsidiaries will not, and will
not authorize or permit any of their respective officers, directors, employees
or agents to directly or indirectly solicit, initiate, encourage or, subject to
the fiduciary duties of the directors of National Bancorp as advised by counsel,
hold discussions or negotiations with or provide information to, any person in
connection with any proposal from any person relating to the acquisition of all
or a substantial portion of the business, assets or shares of National Bancorp
Common or any of its subsidiaries. National Bancorp is required to advise CNB
of its receipt of any such proposal or inquiry within 24 hours.
Waiver and Amendment
Prior to or at the Effective Time, any provision of the Merger Agreement,
including, without limitation, the conditions to consummation of the Merger, may
be (i) waived, to the extent permitted under law, in writing by the party which
is entitled to the benefits thereof; or (ii) amended at any time by written
agreement of the parties, whether before or after the receipt of the approval of
shareholders of National Bancorp, except that the provisions relating to the
Merger Consideration will not be amended after the receipt of the approval of
National Bancorp shareholders unless the approval of such shareholders is
resolicited. It is anticipated that a condition to the obligations of CNB and
National Bancorp to consummate the Merger would be waived only in those
circumstances where the CNB Board or the National Bancorp Board, as the case may
be, deems such waiver to be in the best interests of such company and its
shareholders.
Expenses and Fees
The Merger Agreement provides that in the event the Merger Agreement is
terminated or the Merger is abandoned, no party will have any liability to the
other party for costs, expenses, damages or otherwise, except that in the event
the Merger Agreement is terminated on account of a willful breach of any of the
representations and warranties set forth in the Merger Agreement or on account
of any willful breach of any of the agreements set forth in the Merger
Agreement, the non-breaching party will be entitled to recover appropriate
damages from the breaching party including, without limitation, reimbursement to
the non-breaching party of its costs, fees and expenses incident to the
negotiation, preparation, execution and performance of the Merger Agreement.
Resale of CNB Common
The shares of CNB Common issued pursuant to the Merger will be freely
transferable under the Securities Act except for those shares issued to any
National Bancorp shareholder who may be deemed to be an "affiliate" of CNB for
purposes of Rule 144 promulgated under the Securities Act or an "affiliate" of
National Bancorp for purposes of Rule 145 promulgated under the Securities Act.
Persons who may be
48
deemed to be affiliates of National Bancorp or CNB generally include individuals
who, or entities which, control, are controlled by or are under common control
with National Bancorp or CNB and will include directors and certain officers of
National Bancorp and CNB and may include principal shareholders of National
Bancorp and CNB.
Rules 144 and 145 will restrict the sale of CNB Common received by
affiliates in the Merger. Generally, during the one year following the
Effective Time, those persons who are affiliates of National Bancorp at the time
of the Merger, provided they are not affiliates of CNB at or following the
Effective Time, may publicly resell any CNB Common received by them in the
Merger, subject to certain limitations as to, among other things, the amount of
CNB Common sold by them in any three-month period and as to the manner of sale.
After the one-year period, such affiliates may resell their shares without such
restrictions so long as there is adequate current public information with
respect to CNB as required by Rule 144.
The ability of affiliates to resell shares of CNB Common received in the
Merger under Rule 144 or 145 under the Securities Act as summarized herein
generally will be subject to CNB having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. Affiliates also
would be permitted to resell shares of CNB Common received in the Merger
pursuant to an effective registration statement under the Securities Act or
another available exemption from the Securities Act registration requirements.
S.E.C. guidelines regarding qualifying for the "pooling of interests" method
of accounting also limit sales of shares of the acquiring and acquired company
by affiliates of either company in a business combination. S.E.C. guidelines
indicate further that the "pooling of interests" method of accounting will
generally not be challenged on the basis of sales by affiliates of the acquiring
or acquired company if they do not dispose of any of the shares of the
corporation they own or shares of a corporation they receive in connection with
a merger during the period beginning 30 days before the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published.
The Merger Agreement provides that National Bancorp will use its best
efforts to obtain and deliver to CNB an agreement from each of its affiliates
providing that such affiliate will not transfer any shares of CNB Common
received in the Merger (or otherwise owned by such affiliates) except in
compliance with the Securities Act and the requirements of Accounting Principles
Board Opinion No. 16 regarding the non-disposition of any shares of National
Bancorp Common or CNB Common (or any interest therein) during the period
commencing 30 days prior to the Closing Date through the date on which financial
results covering at least 30 days of combined operations of CNB and National
Bancorp after the Merger have been published.
This Proxy Statement/Prospectus does not cover resales of shares of CNB
Common received by any person who may be deemed to be an affiliate of National
Bancorp or CNB.
49
PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined condensed balance sheet as of
March 31, 1998, and the pro forma combined condensed statements of income for
the three months ended March 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1997, give effect to the Merger based on
the historical consolidated financial statements of CNB and its subsidiaries,
which have been restated to reflect the Pinnacle Merger, and the historical
financial statements of National Bancorp and its subsidiaries under the
assumptions and adjustments set forth in the accompanying notes to the pro forma
financial statements.
The pro forma financial statements have been prepared by the managements of
CNB and National Bancorp based upon their respective financial statements.
These pro forma statements, which include results of operations as if the Merger
had been effected on the first day of the periods presented and had been
accounted for under the pooling of interests method of accounting, may not be
indicative of the results that actually would have occurred if the Merger had
been in effect on the dates indicated or which may be obtained in the future.
The pro forma financial statements should be read in conjunction with the
historical supplemental consolidated financial statements and notes thereto of
CNB included in CNB's Current Report on Form 8-K filed with the Commission on
June 1, 1998 and incorporated by reference herein and the historical financial
statements of National Bancorp contained elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"FINANCIAL STATEMENTS OF NATIONAL BANCORP."
In connection with the Pinnacle Acquisition, CNB will record during the
second quarter of 1998, pre-tax merger related expenses of $41.3 million ($30.0
million after taxes). These one-time charges are not included in the unaudited
pro forma balance sheet, although the effect of such charges is included in the
footnotes thereto. These one-time charges are also not reflected in the pro
forma combined condensed statements of income because they are not expected to
have a continuing impact on the combined organization.
CNB filed a registration statement with the Commission on June 3, 1998 to
facilitate an underwritten public offering of Capital Securities to raise gross
proceeds of up to $150.0 million ($172.5 million if the underwriters' over-
allotment option is exercised). The Capital Securities will be issued by the
Issuer, a newly-created special purpose subsidiary of CNB organized solely to
facilitate the Proposed Offering. The distribution rate on the Capital
Securities will be determined by CNB and the managing underwriters if and when
such securities are actually issued and sold. The Capital Securities will be
convertible into shares of CNB Common at the option of the holders thereof at an
initial conversion ratio which also will be determined by CNB and the managing
underwriters if and when such Capital Securities are actually issued and sold.
It is currently expected that, in the aggregate, the Capital Securities will be
convertible into between 2.5 million and 2.7 million shares of CNB Common
(assuming that the underwriters' over-allotment option is not exercised).
The Issuer will use the gross proceeds from the sale of the Capital
Securities to purchase a like amount of Convertible Subordinated Debentures from
CNB. CNB intends to use the net proceeds from the sale of the Convertible
Subordinated Debentures for general corporate purposes including, without
limitation, the repayment of debt, the funding of investments in or extensions
of credit to its subsidiaries, the financing of acquisitions and the repurchase
of CNB Common. It is currently expected that the Proposed Offering would be
closed during the second quarter of 1998, although there can be no assurance as
to if or when the Proposed Offering actually will be consummated. The Proposed
Offering will be made only by means of a prospectus, and will be subject to the
registration statement becoming effective, compliance with applicable state
securities laws and favorable market conditions. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy any shares of Capital Securities. The financial information
included herein does not give pro forma effect to the Proposed Offering.
50
CNB BANCSHARES, INC. / NATIONAL BANCORP
Unaudited Pro Forma Combined Condensed Balance Sheet
March 31, 1998
(In thousands)
CNB / National
National Pro Forma Bancorp
CNB Bancorp Adjustments Pro Forma
---------- ---------- ----------- ---------------
Increase
(Decrease)
Assets:
Cash and due from banks.................... $ 167,992 $ 4,979 $ 172,971
Short-term money market investments........ 20,772 0 20,772
Investment securities available for sale... 1,866,531 18,408 1,884,939
Investment securities...................... 220,967 18,096 239,063
Loans held for sale........................ 51,959 0 51,959
Loans...................................... 3,941,716 142,149 4,083,865
Allowance for loan losses............... (55,208) (2,047) (57,255)
---------- ---------- ----------- --------------
Net loans.................................. 3,886,508 140,102 4,026,610
Premises and equipment..................... 105,022(2) 2,333 107,355(4)
Foreclosed properties...................... 8,461 0 8,461
Intangible assets.......................... 50,663 1,953 52,616
Interest receivable and other assets....... 189,410(2) 2,678 192,088(4)
---------- ---------- ----------- --------------
Total assets...................... $6,568,285(2) $ 188,549 $ 0 $ 6,756,834(4)
========== ========== =========== ==============
Liabilities:
Deposits................................... 4,660,897 154,259 4,815,156
Repurchase agreements...................... 537,547 3,869 541,416
Federal funds purchased and other
short-term borrowings.................... 128,596 525 129,121
FHLB advances and other long-term debt..... 654,000 9,455 663,455
Other liabilities.......................... 62,610(2) 2,213 64,823(4)
---------- ---------- ----------- --------------
Total liabilities................. 6,043,650 170,321 0 6,213,971
Shareholders' equity:
Common stock............................... 33,540 944 143(1)(3) 34,627
Capital surplus............................ 363,204 4,376 (1,929)(1)(3) 365,651
Retained earnings.......................... 122,244(2) 14,551 136,795(4)
Accumulated other comprehensive income..... 5,647 143 5,790
Treasury stock............................. 0 (1,786) 1,786 (3) 0
---------- ---------- ----------- --------------
Total shareholders' equity................. 524,635(2) 18,228 0 542,863(4)
---------- ---------- ----------- --------------
Total liabilities and equity. $6,568,285(2) $ 188,549 $ 0 $ 6,756,834(4)
========== ========== =========== ==============
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
51
CNB BANCSHARES, INC./NATIONAL BANCORP
Unaudited Pro Forma Combined Condensed Statement of Income
Three Months Ended March 31, 1998
(In thousands, except per share data)
CNB/National
National Pro Forma Bancorp
CNB Bancorp Adjustments Pro Forma
-------- -------- ----------- ------------
Increase
(Decrease)
Interest income.................... $123,157 $3,749 $ $126,906
Interest expense................... 65,792 1,824 67,616
-------- ------ ------- --------
Net interest income............. 57,365 1,925 -- 59,290
Provision for loan losses.......... 3,316 90 3,406
-------- ------ ------- --------
Net interest income after
provision for losses............ 54,049 1,835 -- 55,884
Non-interest income................ 22,155 398 22,553
Non-interest expense............... 47,619 1,423 49,042
-------- ------ ------- --------
Income before income taxes......... 28,585 810 -- 29,395
Income taxes....................... 9,003 287 9,290
-------- ------ ------- --------
Net income......................... $ 19,582 $ 523 $ -- $ 20,105
======== ====== ======= ========
Net income per share
Basic..................... $ 0.58 $ 0.58
Diluted................... 0.58 0.57
Average shares outstanding
Basic..................... 33,553 34,638
Diluted................... 33,937 35,048
See notes to unaudited pro forma combined condensed financial statements.
52
CNB BANCSHARES, INC./NATIONAL BANCORP
Unaudited Pro Forma Combined Condensed Statement of Income
Three Months Ended March 31, 1997
(In thousands, except per share data)
CNB/National
National Pro Forma Bancorp
CNB Bancorp Adjustments Pro Forma
-------- -------- ----------- ------------
Increase
(Decrease)
Interest income.................... $120,147 $3,627 $ $123,774
Interest expense................... 63,562 1,830 65,392
-------- ------ --------- --------
Net interest income............. 56,585 1,797 -- 58,382
Provision for loan losses.......... 3,563 90 3,653
-------- ------ --------- --------
Net interest income after
provision for losses............ 53,022 1,707 -- 54,729
Non-interest income................ 17,126 367 17,493
Non-interest expense............... 43,745 1,339 45,084
-------- ------ --------- --------
Income before income taxes......... 26,403 735 -- 27,138
Income taxes....................... 8,855 267 9,122
-------- ------ --------- --------
Net income......................... $ 17,548 $ 468 $ -- $ 18,016
======== ====== ========= ========
Net income per share
Basic..................... $ 0.53 $ 0.52
Diluted................... 0.52 0.51
Average shares outstanding
Basic..................... 33,407 34,536
Diluted................... 34,031 35,176
See notes to unaudited pro forma combined condensed financial statements.
53
CNB BANCSHARES, INC./NATIONAL BANCORP
Unaudited Pro Forma Combined Condensed Statement of Income
Year Ended December 31, 1997
(In thousands, except per share data)
CNB/National
National Pro Forma Bancorp
CNB Bancorp Adjustments Pro Forma
-------- -------- ----------- ------------
Increase
(Decrease)
Interest income.................... $500,694 $15,061 $ $515,755
Interest expense................... 267,112 7,391 274,503
-------- ------- -------- --------
Net interest income............. 233,582 7,670 -- 241,252
Provision for loan losses.......... 24,886 413 25,299
-------- ------- -------- --------
Net interest income after
provision for losses............ 208,696 7,257 -- 215,953
Non-interest income................ 79,091 1,588 80,679
Non-interest expense............... 198,224 5,342 203,566
-------- ------- -------- --------
Income before income taxes......... 89,563 3,503 -- 93,066
Income taxes....................... 29,689 1,274 30,963
-------- ------- -------- --------
Net income......................... $ 59,874 $ 2,229 $ -- $ 62,103
======== ======= ======== ========
Net income per share
Basic..................... $1.80 $ 1.81
Diluted................... 1.78 1.78
Average shares outstanding
Basic..................... 33,258 34,356
Diluted................... 33,801 34,926
See notes to unaudited pro forma combined condensed financial statements.
54
CNB BANCSHARES, INC./NATIONAL BANCORP
Unaudited Pro Forma Combined Condensed Statement of Income
Year Ended December 31, 1996
(In thousands, except per share data)
CNB/National
National Pro Forma Bancorp
CNB Bancorp Adjustments Pro Forma
-------- -------- ----------- ------------
Increase
(Decrease)
Interest income.................... $451,728 $14,178 $ $465,906
Interest expense................... 234,496 7,063 241,559
-------- ------- -------- --------
Net interest income............. 217,232 7,115 -- 224,347
Provision for loan losses.......... 13,283 310 13,593
-------- ------- -------- --------
Net interest income after
provision for losses............ 203,949 6,805 -- 210,754
Non-interest income................ 68,686 1,074 69,760
Non-interest expense............... 191,940 4,898 196,838
-------- ------- -------- --------
Income before income taxes......... 80,695 2,981 -- 83,676
Income taxes....................... 27,013 1,061 28,074
-------- ------- -------- --------
Net income......................... $ 53,682 $ 1,920 $ -- $ 55,602
======== ======= ======== ========
Net income per share
Basic..................... $1.61 $1.62
Diluted................... 1.59 1.59
Average shares outstanding
Basic..................... 33,280 34,390
Diluted................... 33,925 35,050
See notes to unaudited pro forma combined condensed financial statements.
55
CNB BANCSHARES, INC./NATIONAL BANCORP
Unaudited Pro Forma Combined Condensed Statement of Income
Year Ended December 31, 1995
(In thousands, except per share data)
CNB/National
National Pro Forma Bancorp
CNB Bancorp Adjustments Pro Forma
------------- ------------- ---------------- -----------------
Increase
(Decrease)
Interest income.................... $387,880 $12,939 $ $400,819
Interest expense................... 198,448 6,218 204,666
-------- ------- ----------- --------
Net interest income............. 189,432 6,721 -- 196,153
Provision for loan losses.......... 8,349 220 8,569
-------- ------- ----------- --------
Net interest income after
provision for losses............ 181,083 6,501 -- 187,584
Non-interest income................ 56,437 892 57,329
Non-interest expense............... 157,108 4,735 161,843
-------- ------- ----------- --------
Income before income taxes......... 80,412 2,658 -- 83,070
Income taxes....................... 27,565 917 28,482
-------- ------- ----------- --------
Net income......................... $ 52,847 $ 1,741 $ -- $ 54,588
======== ======= =========== ========
Net income per share
Basic..................... $ 1.70 $ 1.70
Diluted................... 1.67 1.67
Average shares outstanding
Basic..................... 31,034 32,113
Diluted................... 31,841 32,925
See notes to unaudited pro forma combined condensed financial statements.
56
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) The Merger will be accounted for under the pooling of interests method of
accounting whereby the historical basis of the assets and liabilities of
both CNB and National Bancorp will be retained. See "MERGER -- Accounting
Treatment." In connection with the Merger, CNB will exchange 3.45 shares of
CNB Common for each share of National Bancorp Common (subject to possible
adjustment as provided elsewhere in this Proxy Statement/Prospectus). A
total of 1,087,029 shares of CNB Common will be issued, resulting in a
transfer from capital surplus to common stock of $143,000 to reflect the
increase in aggregate par value of CNB Common relative to the aggregate
stated value of the currently outstanding shares of National Bancorp Common.
(2) Does not reflect the one-time charges of $41.3 million ($30.0 million after
taxes) which will be recorded by CNB during the second quarter of 1998 in
connection with the Pinnacle Acquisition. Including the effect of the
charges, premises and equipment would have been $99,022, interest receivable
and other assets would have been $177,710, total assets would have been
$6,550,585, other liabilities would have been $74,910 retained earnings
would have been $92,244, total shareholders' equity would have been $494,635
and total liabilities and equity would have been $6,550,585.
(3) 62,595 shares of treasury stock will be canceled, decreasing common stock
for the stated value of the shares and decreasing capital surplus for the
remainder of the value.
(4) Does not reflect the one-time charges of $41.3 million ($30.0 million after
taxes) which will be recorded by CNB during the second quarter of 1998 in
connection with the Pinnacle Acquisition. Including the effect of the
charges, premises and equipment would have been $101,355, interest
receivable and other assets would have been $168,688, total assets would
have been $6,739,134, other liabilities would have been $77,123 retained
earnings would have been $106,795, total shareholders' equity would have
been $512,863 and total liabilities and equity would have been $6,739,134.
57
DESCRIPTION OF CNB COMMON STOCK
General
CNB's Restated Articles of Incorporation presently authorize the issuance of
100,000,000 shares of CNB Common and 2,000,000 shares of preferred stock,
without par value. As of March 31, 1998 (after giving effect to the Pinnacle
Merger consummated on April 17, 1998), 33,540,415 shares of CNB Common were
issued and outstanding and no shares of preferred stock were issued and
outstanding. The CNB Board is authorized to cause the preferred stock to be
issued from time to time, in series, by resolution adopted prior to the issue of
shares of a particular series, and to fix and determine in the resolution the
designation, relative rights, preferences and limitations of the shares of each
series, including voting, dividend and liquidation rights and all other matters
with respect to such shares as are permitted to be fixed and determined by the
CNB Board under the Indiana Corporate Law.
Dividend Rights
Holders of CNB Common are entitled to receive dividends when as and if
declared by the CNB Board out of funds legally available therefor, subject to
any preferential dividend rights which may attach to preferred stock which may
be issued by CNB in the future. The timing and amount of future dividends will
depend, among other things, upon the earnings and financial condition of CNB and
its subsidiaries. In addition, the ability of the subsidiary banks of CNB to
pay cash dividends, which are expected to continue to be CNB's principal source
of income, is restricted by applicable banking laws.
Voting Rights
Holders of shares of CNB Common are entitled to one vote per share in the
election of directors and in all other matters to be voted upon by the
shareholders generally. Shareholders of CNB do not have cumulative voting
rights in the election of directors. Therefore, holders of a majority of the
shares of CNB Common outstanding can elect the entire CNB Board.
Liquidation Rights
In the event of liquidation, dissolution or winding up of CNB, whether
voluntary or involuntary, the holders of CNB Common would be entitled to share
ratably in any of its assets or funds that are available for distribution to its
shareholders after the satisfaction of its liabilities (or after adequate
provision is made therefor) and after preferences on any outstanding preferred
stock.
No Preemptive Rights
Holders of shares of CNB Common do not have the preemptive right to
subscribe on a pro-rata basis for any presently or subsequently authorized
shares of CNB Common.
Assessment and Redemption
The shares of CNB Common presently outstanding are, and the shares of CNB
Common to be issued by CNB pursuant to the Merger will be, when issued and
delivered pursuant to the Merger Agreement and as described herein, duly
authorized, validly issued, fully paid and non-assessable. There are no
redemption or sinking fund provisions applicable to the shares of CNB Common.
58
Transfer Agent
Citizens Bank is the transfer agent for shares of CNB Common.
COMPARISON OF SHAREHOLDER RIGHTS
The rights of holders of shares of CNB Common are governed by the Indiana
Corporate Law and by CNB's Restated Articles of Incorporation, Bylaws and other
corporate documents. The rights of holders of shares of National Bancorp Common
are governed by the Indiana Corporate Law and by National Bancorp's Articles of
Incorporation, Bylaws and other corporate documents. The rights of holders of
shares of National Bancorp differ in certain respects from the rights which they
would have as shareholders of CNB. A summary of the material differences
between the respective rights of the common shareholders of CNB and National
Bancorp is set forth below.
Shareholder Vote Required for Certain Transactions
Business Combinations
CNB
CNB's Restated Articles of Incorporation include a so-called "fair price"
provision. This provision generally provides that mergers, other business
combinations and similar transactions and the sale, lease, mortgage or other
disposition of more than 10% of total assets involving CNB or any of its
subsidiaries and any person or entity beneficially owning directly or indirectly
more than 10% of the outstanding voting stock of CNB, or affiliates or
associates of such an entity (a "CNB 10% shareholder"), may not be consummated
without the approval of holders of at least 80% of the voting stock of CNB,
unless either: (i) the transaction is approved by a majority of the members of
the CNB Board who are not affiliated with the CNB 10% shareholder; or (ii) the
transaction meets certain minimum ("fair price") price requirements (in either
of which cases, the shareholder and director approval requirements of the "fair
price" provision would no longer apply and only the normal shareholder and
director approval requirements of the Indiana Corporate Law would govern the
transaction).
The primary purpose of CNB's "fair price" provision is to provide additional
safeguards for the remaining shareholders in the event that an individual or
entity becomes a major shareholder of CNB. If CNB comes under the control of a
single person or entity, substantial inequities could befall the minority
shareholders. A bid for control of a target company is often followed, in time,
by a complete business combination that eliminates minority interests in the
target company on terms often unfavorable to the minority -- a so-called "two-
tier" structured takeover. Minority shareholders in these circumstances may be
forced out by the controlling shareholder in a business combination transaction
at a time and for a price (cash or other types of consideration, often including
debt instruments) not to their liking. The price per share in such transactions
often is lower than the price per share previously paid by the controlling
shareholder for its controlling block of stock in the first tier of the
takeover. The minority shareholders, in such event, may have no alternative to
accepting such price unless they choose to follow the statutory procedures for
appraisal rights as a dissenting shareholder or to bringing legal action against
the controlling shareholder for breach of fiduciary duty, either of which
procedures may be costly and time-consuming.
CNB's higher shareholder vote requirements make it more difficult for a
single shareholder to obtain ultimate "control" over CNB in the sense of being
able unilaterally to effect a completed business combination on the controlling
shareholder's own terms. A disadvantage of these higher shareholder vote
requirements, however, is that outside parties contemplating an attempt to
acquire control over CNB by acquiring less than all of its outstanding stock may
be discouraged from making such an attempt, because ultimate "control" will
require obtaining a higher percentage of the outstanding shares of CNB Common
than if normal shareholder vote
59
requirements were in effect. As a result, premium offers for CNB Common from
outside parties interested in acquiring control may be somewhat less likely from
such parties than premium offers for other similar companies without such high
voting requirements. In addition, because outside parties may be somewhat less
likely to attempt to acquire control over CNB due to its higher shareholder vote
requirements, the management of CNB may be somewhat less vulnerable to removal
in the future than would be the case if such provisions were not in effect.
National Bancorp
Neither National Bancorp's Articles of Incorporation nor its Bylaws contain
a "fair price" or other similar provision. National Bancorp's Bylaws do provide
that a vote of at least 67% of the outstanding stock of the corporation having
voting power shall be required to approve any merger or consolidation, a
transfer of 80% or more of the corporation's assets, or a recapitalization.
Removal of Directors
CNB
The Indiana Corporate Law provides that directors may be removed in any
manner provided in the articles of incorporation. In addition, the shareholders
or directors may remove one or more directors with or without cause unless the
articles of incorporation provide otherwise. If a director is elected by a
voting group of shareholders, only the shareholders of that voting group may
participate in the vote to remove that director. A director may be removed by
the shareholders, if they are otherwise authorized to do so, only at a meeting
called for the purpose of removing the director and the meeting notice must
state that the purpose, or one of the purposes, of the meeting is removal of the
director.
CNB's Restated Articles of Incorporation provide that at a meeting called
expressly for that purpose, a director or the entire Board of Directors may be
removed without cause only upon the affirmative vote of the holders of not less
than 80% of the shares entitled to vote generally in an election of directors.
At a meeting called expressly for that purpose, a director may be removed by the
shareholders for cause by the affirmative vote of the holders of a majority of
the shares entitled to vote upon his election. The Restated Articles of
Incorporation provide that, except as may be otherwise provided by law, cause
for removal will be construed to exist only if the director whose removal is
proposed: (i) has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal; or (ii)
has been adjudged by a court of competent jurisdiction to be liable for
negligence or misconduct in the performance of his duty to CNB in a manner of
substantial importance to CNB, and such adjudication is no longer subject to
direct appeal.
CNB's 80% shareholder vote requirement for removal of directors without
cause precludes a majority shareholder from circumventing the classified Board
by decreasing the size of the Board until its nominees have a numerical majority
or by removing directors not up for election, filling the resulting vacancy with
its nominees, and thereby gaining control of the Board. The removal provisions
would make it more difficult for shareholders of CNB to change the composition
of the Board of Directors even if the shareholders believe that such a change
would be desirable.
National Bancorp
Neither National Bancorp's Articles of Incorporation nor its Bylaws contain
any provisions regarding removal of directors.
60
Amendments to Articles of Incorporation
CNB
The Indiana Corporate Law provides that, unless a greater vote is required
under a specific provision of the Indiana Corporate Law or by a corporation's
articles of incorporation or its board of directors, a corporation may amend its
articles of incorporation upon the affirmative vote of the holders of a greater
number of shares cast in favor of the amendment than the holders of shares cast
against the amendment, unless the amendment creates dissenters' rights in which
case a favorable vote of the holders of a majority of the outstanding shares is
required. Under the Indiana Corporate Law, a corporation's board of directors
may condition its submission of a proposed amendment to the shareholders of the
corporation on any basis, including the requirement of the affirmative vote of
holders of a greater percentage of the voting shares of the corporation than
otherwise would be required under the Indiana Corporate Law.
CNB's Restated Articles of Incorporation provide that, notwithstanding any
other provision of the Restated Articles of Incorporation or any provision of
law or any preferred stock designation, the provisions of Article VII (relating
to the classification, number, terms, removal of directors and newly created
directorships and vacancies), Article IX (relating to special meetings of
shareholders) and Article X (relating to the "fair price" provisions discussed
under "-- Business Combinations"), may be altered, amended or repealed only with
the affirmative vote of the holders of at least 80% of CNB Common then entitled
to vote in an election of directors.
National Bancorp
Neither National Bancorp's Articles of Incorporation nor its Bylaws contain
any provisions regarding amending the Articles of Incorporation. Accordingly,
pursuant to the provisions of the Indiana Corporate Law described above,
National Bancorp's Articles of Incorporation may be amended upon the affirmative
vote of a majority of the shareholders entitled to vote thereon.
Voting Rights
CNB
Holders of shares of CNB Common are entitled to one vote per share in the
election of directors and in all other matters to be voted upon by the
shareholders generally. Directors of CNB are elected by the majority vote of
the shareholders and shareholders of CNB are not entitled to cumulative voting
in the election of directors. Therefore, holders of a majority of the shares of
CNB Common can elect the entire CNB Board.
The number of directors to constitute the CNB Board may not be more than
twenty nor less than six. The CNB Board currently consists of twelve members,
and the directors are divided into three classes with the term of office of one
of such classes expiring in each year. At each annual meeting of CNB
shareholders, the successors to the directors of the class whose term is
expiring at that time are elected to hold office for a term of three years.
National Bancorp
Holders of shares of National Bancorp Common are entitled to one vote per
share in the election of directors and in all other matters to be voted upon by
the shareholders generally. Directors of National Bancorp are elected by the
majority vote of the shareholders and shareholders of National Bancorp are not
entitled to cumulative voting in the election of directors. Therefore, holders
of a majority of the shares of National Bancorp Common can elect the entire
National Bancorp Board.
61
The number of directors to constitute the National Bancorp Board, in the
absence of a Bylaw fixing the number of directors, shall be eight. The National
Bancorp Bylaws provide that the National Bancorp Board shall consist of nine
members, eight of whom are divided into three classes with the term of office of
one of such classes expiring in each year, and one of whom always serves a term
of one year.
Special Meeting of Shareholders; Shareholder Action by Written Consent
CNB
CNB's Restated Articles of Incorporation require that shareholders must hold
at least 80% of the outstanding voting shares of CNB in order to call a special
meeting of shareholders. This provision is intended to discourage attempts by
the holders of less than 80% of the outstanding voting stock of CNB from
disrupting the business of the corporation between annual shareholders meetings
by calling special meetings. Possible disadvantages of this provision is that
it makes it more difficult for a shareholder or shareholder group to take action
where such action is opposed by a majority of the CNB Board and management of
CNB and it may delay the removal of directors, even if cause exists for such
removal.
The Indiana Corporate Law provides that any action required or permitted to
be taken at a meeting of shareholders may be taken without a meeting if a
consent, in writing, setting forth the action taken is signed by the holders of
all of the shares entitled to vote on the subject matter.
National Bancorp
National Bancorp's Bylaws provide that the board of directors, president and
shareholders holding not less than 67% of all of the shares outstanding and
entitled by the Articles of Incorporation to vote on the business for which the
meeting is being called may call a special meeting of the shareholders. Proper
notice must be given to the shareholders in accordance with National Bancorp's
Bylaws, unless it is waived.
National Bancorp's Articles of Incorporation provide that any action
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting if, prior to such action, a consent in writing, setting forth
the action so taken, shall be signed by all of the shareholders entitled to vote
with respect to the subject matter thereof, and such consent is filed with the
minutes of the proceedings of the shareholders.
Dissenters' Rights
CNB
Under the Indiana Corporate Law, a shareholder of a corporation is entitled
(subject to certain exceptions) to receive payment for the fair value of his
shares if, among other things, such shareholder dissents from a plan of share
exchange, sale or exchange of all or substantially all of the property of the
corporation, or a merger or control share acquisition to which such corporation
is a party. Because shares of CNB Common are traded on the N.Y.S.E., holders of
CNB Common are not entitled to dissenter's rights in connection with the Merger.
National Bancorp
Neither National Bancorp's Articles of Incorporation nor its Bylaws contain
provisions relating to dissenters' rights. National Bancorp's shareholders
will, however, be entitled to assert such rights with respect to the Merger
under the applicable provisions of the Indiana Corporate Law. See "MERGER --
Appraisal Rights of Dissenting Shareholders."
62
Takeover Statutes
CNB
The Indiana Corporate Law prohibits, in general, any business combination,
such as a merger or consolidation, between an Indiana corporation with shares of
its stock registered under the federal securities laws or that makes an election
under the Indiana Corporate Law, and an "interested shareholder" (defined as any
owner of 10% or more of the corporation's stock) for five years after the date
on which such shareholder became an interested shareholder, unless the stock
acquisition which caused the person to become an interested shareholder was
approved in advance by the corporation's board of directors. This so-called
"five-year freeze" provision of the Indiana Corporate Law is effective even if
all parties should subsequently decide that they wish to engage in the business
combination.
The Indiana Corporate Law also contains a "control share acquisition"
provision which effectively denies voting rights to shares of an "issuing public
corporation" acquired in control share acquisitions unless the grant of such
voting right is approved by a majority vote of disinterested shareholders. An
issuing public corporation is a corporation that: (i) has 100 or more
shareholders; (ii) has its principal place of business, its principal office or
substantial assets within Indiana; and (iii) either (a) more than 10% of its
shareholders are Indiana residents; (b) more than 10% of its shares are owned by
Indiana residents; or (c) 10,000 or more of its shareholders are residents of
Indiana. CNB is an "issuing public corporation." A control share acquisition
is one by which a purchasing shareholder acquires more than one-fifth, one-
third, or one-half of the voting power of the stock of an "issuing public
corporation." In addition, if any person proposing to make or who has made
"control share acquisitions" does not file an "acquiring person statement" with
the issuing corporation or if the control shares are not accorded full voting
rights by other shareholders, and if the articles of incorporation or bylaws of
the corporation whose shares are acquired authorize such redemption (CNB's
Bylaws do), the acquired shares are subject to redemption by the corporation.
Finally, if a control share acquisition should be made of a majority of the
corporation's voting stock, and those shares are granted full voting rights,
shareholders are granted dissenters' rights.
National Bancorp
Because National Bancorp's securities are not registered under the federal
securities laws, the "five year freeze" provisions of the Indiana Corporate Law
expressly do not apply to National Bancorp. Neither National Bancorp's Articles
of Incorporation nor its Bylaws contain any similar provisions with respect to a
business combination with an interested shareholder.
National Bancorp is an "issuing public corporation" that is subject to the
"control share acquisition" provisions of the Indiana Corporate Law. Neither
National Bancorp's Articles of Incorporation nor its Bylaws contain any
provisions authorizing the redemption of acquired shares when the person
proposing to make or who has made "control share acquisitions" does not file an
"acquiring person statement" or if the control shares are not accorded full
voting rights by other shareholders.
Indemnification
CNB
Pursuant to the Indiana Corporate Law and the Restated Articles of
Incorporation and Bylaws of CNB, CNB is obligated to indemnify certain officers
and directors in connection with liabilities arising from legal proceedings
resulting from such person's service to CNB in certain circumstances. CNB may
also voluntarily undertake to indemnify certain persons acting on CNB's behalf
in certain circumstances.
63
The Indiana Corporate Law provides for mandatory indemnification of
directors and officers of Indiana corporations and permissive indemnification of
directors, officers, employees and agents of corporations who are made parties
to proceedings as a result of their relationship with such corporation. The
Indiana Corporate Law also applies to individuals who are serving at such
corporation's request as directors, officers, employees and agents of such
corporation's subsidiaries. The Indiana Corporate Law requires corporations,
unless limited by their articles of incorporation, to indemnify any director or
officer against reasonable expenses incurred in connection with any proceeding
to which such person was a party if the individual is wholly successful on the
merits. The Indiana Corporate Law authorizes corporations to indemnify any
director, officer, employee or agent against liability incurred in such a
proceeding generally if the individual's conduct was in good faith and the
individual reasonably believed, in the case of conduct in the individual's
official capacity, that his or her conduct was in the corporation's best
interests and in all other cases that his or her conduct was not opposed to the
best interests of such corporation.
The Indiana Corporate Law further authorizes any court of competent
jurisdiction, unless the articles of incorporation provide otherwise, to order
indemnification generally if the court determines a director or officer of a
corporation is entitled to mandatory indemnification or is otherwise fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances. The Indiana Corporate Law also authorizes corporations to
advance reasonable expenses in advance of final disposition of a proceeding
generally if the individual affirms in writing a good faith belief that he
satisfies the standard of conduct for permissive indemnification, the individual
undertakes in a signed writing to repay the advance if it is determined he does
not satisfy the standard of conduct for permissive indemnification and the
corporation determines that the facts then known do not preclude
indemnification. Finally, the Indiana Corporate Law authorizes further
indemnification to the extent that the corporation may provide in its articles
of incorporation, bylaws, a resolution of the board of directors or the
shareholders or any other authorization, whenever adopted, after notice, by a
majority vote of holders of all the voting shares then issued and outstanding.
Except with respect to the advancement of expenses, CNB's Bylaws generally
provide for the indemnification of CNB's directors, officers, employees and
agents to the extent permitted by the Indiana Corporate Law.
National Bancorp
National Bancorp is subject to the same provisions of the Indiana Corporate
Law regarding indemnification as CNB. National Bancorp's Articles of
Incorporation and Bylaws generally provide for the indemnification of National
Bancorp's directors, officers and employees to the extent permitted by the
Indiana Corporate Law, including advancement of expenses.
Limitation of Liability of Directors
CNB
The Indiana Corporate Law provides that no director of a corporation will be
subject to liability for any action taken as a director, or any failure to take
any action as a director, unless the director has both breached or failed to
perform the duties of the director's office in compliance with the Indiana
Corporate Law and the breach or failure to perform constitutes willful
misconduct or recklessness. This provision eliminates the potential liability
of a corporation's directors for failure, except through willful misconduct or
recklessness, to satisfy their duty of care, which requires each director to
carry out his duties in good faith, with the care an ordinarily prudent person
in a like position would exercise under similar circumstances, and in a manner
the director reasonably believes to be in the best interests of the corporation.
This provision may thus reduce the likelihood of derivative litigation against
directors and discourage or deter shareholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have been beneficial to the corporation
and its shareholders. Shareholders therefore will not have a cause of action
based upon negligent business decisions, including those relating to attempts to
acquire control of the corporation. This
64
provision does not, however, preclude all equitable remedies for breach of the
duty of care, although such remedies might not be available as a practical
matter.
National Bancorp
National Bancorp is subject to the same provisions of the Indiana Corporate
Law with respect to limitation of liability of directors as CNB.
Consideration of Non-Shareholder Interests
CNB
The Indiana Corporate Law specifically authorizes directors, in considering
the best interests of a corporation, to consider the short-term and long-term
interests of the corporation as well as the effects of any action on
shareholders, employees, suppliers and customers of the corporation and
communities in which offices or other facilities of the corporation are located,
and any other factors the directors consider pertinent. Under the Indiana
Corporate Law, directors are not required to approve a proposed corporate action
if the directors determine in good faith after considering and weighing as they
deem appropriate the effect of such action on the corporation's constituents
that such approval is not in the best interest of the corporation. In addition,
the Indiana Corporate Law states that directors are not required to redeem any
rights under or render inapplicable a shareholder rights plan or to take or
decline to take any other action solely because of the effect such action might
have on a proposed acquisition of control of a corporation or the amounts to be
paid to shareholders under such an acquisition. The Indiana Corporate Law
explicitly provides that the different or higher degree of scrutiny imposed
under the Delaware General Corporation Law with respect to Delaware corporations
and certain other jurisdictions upon director actions taken in response to
potential changes in control will not apply. Any determination made with
respect to the foregoing by a majority of the disinterested directors will
conclusively be presumed to be valid unless it can be demonstrated that such
determination was not made in good faith.
National Bancorp
National Bancorp is subject to the same provisions of the Indiana Corporate
Law regarding consideration of non-shareholder interest as CNB.
INFORMATION ABOUT NATIONAL BANCORP
Business of National Bancorp
General
National Bancorp, a bank holding company organized in 1983, owns 100% of
the outstanding shares of TCB Bank. National Bancorp engages in the business of
commercial banking and other permissible activities closely related to banking.
It relies primarily upon funds from TCB Bank to pay the expenses of its
operations and any dividends on its outstanding shares of stock. The main
offices of National Bancorp and TCB Bank are located at 601 Main Street, Tell
City, Indiana 47586, and the telephone number is 812-547-2323. Additionally,
TCB Bank has two branches in Tell City, a branch in Cannelton, Indiana and a
branch in Santa Claus, Indiana. The insurance and investment subsidiaries of
TCB Bank also have offices in these cities. National Bancorp considers its
primary market to be Perry County and the eastern part of Spencer County,
Indiana.
TCB Bank has operated as a community bank since it was organized in 1874.
The primary source of its income is generated by its lending and insurance
activities. TCB Bank offers personal and business financial and trust services
to individuals, corporations, partnerships, municipalities and other public and
governmental
65
entities. TCB Bank's lending focus has been primarily single family residential
and one-four family multi-family residential, but a significant portion of its
loan portfolio also is composed of consumer, commercial and agricultural loans.
TCB Bank offers a full line of deposit products.
Competition
TCB Bank is the largest financial institution headquartered in Perry
County, Indiana. It experiences substantial competition both in attracting and
retaining deposits and in making mortgage and other loans. Direct competition
for deposits primarily comes from other commercial banks, savings associations
and credit unions located in or near TCB Bank's primary market area.
Competition for loans normally comes from savings associations, commercial
banks, mortgage bankers and credit unions. The competition for deposits and
loans is affected by interest rates, convenience of location, availability of
funds and general and local economic conditions.
Regulation and Supervision
National Bancorp, as a bank holding company, is subject to supervision and
regular examination by the Federal Reserve Board. TCB Bank has as its primary
regulators the Federal Reserve Board and the Indiana Department of Financial
Institutions. These regulators specify the types of activities in which bank
holding companies and banks may engage and include regulations governing the
extension of credit, the quality of loans and assets, maintenance of reserves,
minimum capital requirements and restrictions of dividends, among others.
Properties
National Bancorp requires minimal space for operations and, accordingly,
operates from TCB Bank's main office. TCB Bank operates from four locations in
Perry County, Indiana and one location in Spencer County, Indiana. The main
office is located at 601 Main Street, Tell City, Indiana. In Tell City, TCB
Bank operates branches at 1510 9th Street and SR 66 South. Additionally, it
operates a branch at 411 Washington Street, Cannelton, Indiana and at SR 162,
Santa Claus, Indiana. Further, subsidiaries of TCB Bank have offices in Tell
City at 723 Main Street and 741 12th Street. TCB Bank owns a parking lot behind
the main office at Franklin and 7th Street, Tell City, Indiana and owns two lots
on Washington Street in Cannelton, Indiana. The locations at 1510 9th Street,
SR 66 South, SR 162 and 723 Main Street are leased. National Bancorp owns the
land and buildings of all other locations free and clear of any major
encumbrances.
Employees
TCB Bank had 87 full-time and 14 part-time employees as of June 3, 1998.
None of TCB Bank's employees is represented by a collective bargaining
agreement. TCB Bank believes that it enjoys good relations with its personnel.
Legal Proceedings
Although National Bancorp, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which National Bancorp, any of its subsidiaries or any of their
property is subject.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion provides information regarding the major components
of financial condition and results of operations, liquidity and capital
resources of National Bancorp. This discussion and analysis should be read in
conjunction with the "SUMMARY CONSOLIDATED FINANCIAL DATA" and
66
"FINANCIAL STATEMENTS OF NATIONAL BANCORP" appearing elsewhere in this
Prospectus/Proxy Statement.
Results of Operations
Net income for 1997 was $2,229,000 as compared to $1,920,000 for 1996, an
increase of $309,000 or 16.1%. National Bancorp's return on average assets was
1.2% for 1997 compared to 1.1 % for 1996. Net income for 1996 was $1,920,000 as
compared to $1,741,000 for 1995, an increase of $179,000 or 10.3%. Return on
assets for 1995 was 1.1%. Interest rates were relatively stable during 1997 and
1996.
Net income for the three months ended March 31, 1998 was $523,000 compared
to $468,000 for the three months ended March 31, 1997, an increase of $55,000 or
11.8 %. National Bancorp's return on assets is significantly influenced by loan
demand and the actual and perceived condition of the local and regional economy,
factors which National Bancorp cannot predict and which are beyond its control.
Shareholders' equity increased to $17,850,000 at December 31, 1997, or
$56.65 per share, from $16,997,000 at December 31, 1996, or $51.91 per share.
The increase was a result of increased net income for 1997 reduced by dividends
paid and the repurchase of shares during 1997, as well as an increase in the
estimated fair value of investment securities classified as available-for-sale.
SFAS 115 (see Notes 1 and 3 to FINANCIAL STATEMENTS OF NATIONAL BANCORP) had the
effect of increasing shareholders' equity by $128,000, or $0.41 per share, at
December 31, 1997. Shareholders' equity increased to $16,997,000 at December 31,
1996, or $51.91 per share, from $15,013,000, or $48.00 per share, at December
31, 1995, representing a 13.2% increase in total shareholders' equity. The
increase in shareholders' equity at December 31, 1996 was due primarily to
increased net income for 1996 reduced by dividends paid during 1996.
National Bancorp achieved a 13.1% return on average common equity for 1997
compared to 12.0% for 1996, as a result of the factors mentioned previously.
National Bancorp declared dividends of $612,000, or $1.93 per share, and
$573,000, or $1.79 per share, in 1997 and 1996, respectively.
Shareholders' equity increased during the three months of 1998 to
$18,228,000, an increase of 2.1%, or $1.11 per share. Net income increased
shareholders' equity by $523,000, or $1.66 per share at March 31, 1998. In the
first three months of 1998, National Bancorp declared dividends of $160,000.
Net Interest Income
Net interest income is the difference between interest income and interest
expense. It has historically been the single most critical component of National
Bancorp's annual earnings. This calculation affected by both the prevailing
interest rate and outstanding volume of both earning assets and interest bearing
liabilities. Net interest income for 1997 was $7,670,000, an increase of 7.8%
from $7,115,000 earned in 1996. This increase was a result of favorable
movements in interest rates in 1997. National Bancorp was positioned such that
its assets repriced faster than its liabilities and therefore resulted in an
increase in the net interest income.
The net interest margin for the twelve month period ended December 31, 1997
was 4.56% compared to 4.50% for the same period ended December 31, 1996, an
increase of .06 %.
Net interest income for the three months ended March 31, 1998 increased by
$128,000 or 7.1%, to $1,925,000 compared to the three months ended March 31,
1997. Additionally the net interest margin for the three months ended March 31,
1998 was 4.51% as compared to 4.31% for same period ended March 31, 1997, an
increase of 0.20%.
67
The following table presents each significant category of interest earning
assets and interest bearing liabilities.
Average balance sheet and net interest analysis (dollars in thousands on fully taxable equivalent basis):
December 31, 1997 December 31, 1996 December 31, 1995
----------------------------- ---------------------------- --------------------------
Average Interest Average Average Interest Average Average Interest Average
Balances Rates Balances Rates Balances Rates
Assets
Federal funds sold and other short-term money
market investments.......................... $ 2,856 $ 156 5.46% $ 1,512 $ 81 5.36% $ 3,352 $ 204 6.09%
Real estate loans held for sale............... 17 - - 77 1 1.30 75 2 2.67
Investment securities:
Taxable..................................... 28,561 1,939 6.79 31,770 2,093 6.59 28,888 1,873 6.48
Tax exempt (1).............................. 13,178 1,110 8.42 11,719 1,017 8.68 11,140 1,002 8.99
-----------------------------------------------------------------------------------
Total investment securities................... 41,739 3,049 7.30 43,489 3,110 7.15 40,028 2,875 7.18
Loans: (2), (3)
Commercial and industrial................... 50,685 4,865 9.60 49,677 4,662 9.38 45,056 4,508 10.01
Tax exempt (1).............................. 656 65 9.91 948 84 8.86 705 68 9.65
Real estate mortgage........................ 60,604 5,107 8.43 49,972 4,370 8.74 40,238 3,488 8.67
Consumer.................................... 20,739 2,230 10.75 20,897 2,258 10.81 20,204 2,169 10.74
-----------------------------------------------------------------------------------
Total loans................................... 132,684 12,267 9.25 121,494 11,374 9.36 106,203 10,233 9.64
-----------------------------------------------------------------------------------
Total earning assets.......................... 177,296 15,472 8.73 166,572 14,566 8.74 149,658 13,314 8.90
Less: Allowance for loan losses.............. 1,894 1,773 1,634
Cash and due from banks....................... 4,256 3,799 3,908
Premises and equipment........................ 2,395 2,258 2,218
Other assets.................................. 4,370 4,349 4,152
-----------------------------------------------------------------------------------
Total assets.................................. $186,423 $175,205 $158,302
===================================================================================
Liabilities and Shareholder's Equity
Interest bearing deposits:
Interest bearing checking accounts.......... $ 13,795 $ 287 2.08% $ 13,556 $ 310 2.29% $ 15,199 $ 393 2.59%
Money market savings accounts............... 26,999 1,107 4.10 22,549 938 4.16 13,728 594 4.33
Other savings accounts...................... 10,267 236 2.30 10,158 245 2.41 11,778 319 2.71
Certificates of deposit and other time...... 89,376 5,106 5.71 85,892 4,905 5.71 79,383 4,381 5.52
-----------------------------------------------------------------------------------
Total interest bearing deposits............... 140,437 6,736 4.80 132,155 6,398 4.84 120,088 5,687 4.74
Securities sold under repurchase agreements... 4,427 143 3.23 3,135 108 3.44 3,987 169 4.24
Federal funds purchased and other
short-term borrowings....................... 54 4 7.41 441 25 5.67 9 - -
FHLB advances and other long-term debt........ 8,435 508 6.02 9,201 532 5.78 5,899 362 6.14
-----------------------------------------------------------------------------------
Total interest bearing liabilities............ 153,353 7,391 4.82 144,932 7,063 4.87 129,983 6,218 4.78
Noninterest bearing demand deposits........... 15,088 13,618 13,468
Other liabilities............................. 1,315 1,033 823
-----------------------------------------------------------------------------------
Total liabilities............................. 169,756 159,583 144,274
Shareholders' equity.......................... 16,667 15,622 14,028
-----------------------------------------------------------------------------------
Total liabilities and shareholders' equity.... $186,423 $175,205 $158,302
===================================================================================
Recap: (4)
Interest income............................... $15,472 8.73% $14,566 8.74% $13,314 8.90%
Interest expense.............................. 7,391 4.17 7,063 4.24 6,218 4.15
-----------------------------------------------------------------------------------
Net interest income/margin.................... $ 8,081 4.56% $ 7,503 4.50% $ 7,096 4.75%
===================================================================================
- -------------------------
(1) Tax exempt securities and loans have been adjusted to a fully tax
equivalent basis using a marginal tax rate of 35%.
(2) Nonaccrual loans have been included in the average balances.
(3) Loan income includes interest and fees on loans.
(4) Average rates have been computed by dividing by total earning assets.
68
The amount of net interest income is affected by changes in volume and mix
of earning assets and interest bearing deposits and liabilities, and the
interest rates on these assets and liabilities.
Earning assets, which include loans, federal funds sold and investment
securities increased by $6,293,000 during 1997 to $179,447,000, while interest
bearing liabilities increased by $4,422,000 to $155,663,000. The increase in
1997 in both earning assets and interest bearing liabilities is attributed to
strong loan demand, as well as a strong local economy. Earning assets were
$173,154,000 and interest bearing liabilities were $151,241,000 at year end
1996, an increase of $18,162,000 in earning assets and an increase in interest
bearing liabilities of $14,896,000 from year end 1995.
Earning assets decreased by $2,841,000 to $176,606,000 and interest bearing
liabilities decreased by $1,832,000 to $153,831,000 during the three months
ended March 31, 1998. These decreases are mainly due to interest rate
competition.
Provision for Loan Losses
The provision for loan losses represents a charge against income and a
corresponding increase to the allowance for loan losses. The 1997 provision
increased the allowance by $413,000. For the year ended December 31, 1997,
charge-offs totaled $369,000, which were offset by recoveries of $81,000 for net
charge-offs of $288,000.
The provision was $90,000 for each of the three month periods ended March
31, 1998 and 1997.
Noninterest Income
Noninterest income increased from $1,074,000 to $1,588,000 from 1996 to
1997. Noninterest income increased by $182,000 to $1,074,000 in 1996, from
$892,000 in 1995. The increase was due to the acquisition of an insurance agency
during 1996. The increase in 1996 also was the result of a loss on sale of
investment securities in 1995 of $117,000.
Noninterest income during the three months ended March 31, 1998 increased
to $398,000 from $367,000 for the three months ended March 31, 1997.
The following tables analyze noninterest income and changes from the prior
year (in thousands):
Change from Prior Year
-----------------------------------
Amount 1997 1996
--------------------- ---------------- ----------------
1997 1996 1995 Amount Percent Amount Percent
------ ------ ----- ------ ------- ------ -------
Service charges on deposit accounts......... $ 402 $ 355 $ 341 $ 47 13.2% $ 14 4.1%
Trust and plan administration fees.......... 75 35 36 40 114.3 (1) (2.8)
Insurance premiums and commissions.......... 661 384 142 277 72.1 242 170.4
Mortgage banking revenue.................... -- -- -- -- -- -- --
Non-interest fees on loans.................. 77 83 61 (6) (7.2) 22 36.1
Investment products fees.................... 132 96 77 36 37.5 19 24.7
Net securities gains (losses)............... 126 6 (145) 120 2,000.0 151 (104.1)
Other non-interest income................... 115 115 380 -- -- (265) (69.7)
------ ------ ----- ---- ------- ----- ------
Total noninterest income.................... $1,588 $1,074 $ 892 $514 47.9% $ 182 20.4%
====== ====== ===== ==== ======= ===== ======
69
Amount Change
March 31, From Prior Period
---------- ------------------
1998 1997 Amount Percentage
---- ---- ------ ----------
Service charges on deposit accounts....... $ 95 $ 96 $(1) (1.0)%
Trust and plan administration fees........ 12 9 3 33.3
Insurance premiums and commissions........ 194 169 25 --
Mortgage banking revenue.................. -- -- -- --
Non-interest fees on loans................ 24 32 (8) --
Investment products fees.................. 32 27 5 --
Net securities gains (losses)............. -- -- -- --
Other non-interest income................. 41 34 7 20.6
-----------------------------
Total noninterest income.................. $398 $367 $31 8.4%
=============================
Noninterest Expense
Operating expenses, other than interest and the provision for loan losses,
were $5,342,000 in 1997, as compared to $4,898,000 and $4,735,000 in 1996 and
1995, respectively. The increase in 1997 of $444,000 is attributed primarily to
increased salaries and benefits, as well as the acquisition of an insurance
agency during 1996.
Operating expenses for the three months ended March 31, 1998 were
$1,423,000, as compared to $1,339,000 for the three months ended March 31, 1997.
The increase of $84,000 or 6.3% is attributed to increases in salaries and
benefits and occupancy expenses.
70
The following tables analyze operating expenses and changes from the prior year
(in thousands):
Change from Prior Year
--------------------------------
Amount 1997 1996
---------------------- ---- ----
1997 1996 1995 Amount Percent Amount Percent
------ ------ ------ ------ ------- ------ -------
Salaries and employee benefits................ $2,831 $2,518 $2,310 $313 12.4% $ 208 9.0%
Data processing and other services............ 197 206 159 (9) (4.4) 47 29.6
Occupancy..................................... 387 343 312 44 12.8 31 9.9
Equipment..................................... 455 448 463 7 1.6 (15) (3.2)
Advertising and promotion..................... 155 189 142 (34) (18.0) 47 33.1
Professional fees............................. 103 135 135 (32) (23.7) - -
Postage and freight........................... 110 109 107 1 0.9 2 1.9
Printing and supplies......................... 121 133 122 (12) (9.0) 11 9.0
Amortization of intangible assets............. 249 209 152 40 19.1 57 37.5
FDIC assessments.............................. 19 2 151 17 850.0 (149) (98.7)
Other noninterest expense..................... 715 606 682 109 18.0 (76) (11.1)
------ ------ ------ ---- ----- ----- -----
Total operating expenses................. $5,342 $4,898 $4,735 $444 9.1% $ 163 3.4%
====== ====== ====== ==== ===== ===== =====
Amount Change From
March 31, Prior Period
--------- ---------------
1998 1997 Amount Percent
------ ------ ------ -------
Salaries and employee benefits........................... $ 741 $ 704 $ 37 5.3%
Data processing and other services....................... 56 44 12 27.3
Occupancy................................................ 111 88 23 26.1
Equipment................................................ 108 91 17 18.7
Advertising and promotion................................ 40 51 (11) (21.6)
Professional fees........................................ 30 39 (9) -
Postage and freight...................................... 25 30 (5) -
Printing and supplies.................................... 28 28 - -
Amortization of intangible assets........................ 61 63 (2) (3.2)
FDIC assessments......................................... 5 4 1 -
Other noninterest expense................................ 218 197 21 10.7
------ ------ ------ -------
Total operating expenses................................. $1,423 $1,339 $ 84 6.3%
====== ====== ====== =======
Income Taxes
The effective tax rate for 1997 and 1996 was 36%. Income taxes for each
year were positively affected by the amount of tax exempt interest income
earned. Income tax expense for the three months ended March 31, 1998 was
$287,000, as compared to $267,000 for the three months ended March 31, 1997, for
an effective tax rate of 37% and 36%, respectively. Income taxes are also
discussed in Note 12 of the FINANCIAL STATEMENTS OF NATIONAL BANCORP.
71
Financial Condition
At December 31, 1997, National Bancorp's total assets increased to
$191,287,000, as compared to $184,992,000 at December 31, 1996, a 3.4% increase.
The increase is primarily attributed to strong loan demand. Total assets were
$188,549,000 at March 31, 1998, an increase of $789,000 or 0.4% from March 31,
1997.
The financial condition of National Bancorp at March 31, 1998 and
December 31, 1997, is presented in the comparative balance sheet of National
Bancorp's financial statements (see "FINANCIAL STATEMENTS OF NATIONAL BANCORP").
The following discussion addresses loans and other components of earning assets,
sources of funds, capital resources, liquidity and interest rate sensitivity.
Loans
Loan balances, net of the loan loss allowance, were $136,706,000 as of
December 31, 1997, an increase of $8,622,000, or 6.7%, from December 31, 1996.
Loans as of December 31, 1996 were $128,084,000, an increase of $20,101,000, or
18.6%, over December 31, 1995. The increase in loans during 1997 was due to an
increase in real estate loans with the largest growth in commercial real estate.
National Bancorp's commercial loan portfolio as of December 31, 1997
was $52,396,000, a decrease over December 31, 1996 of $190,000. Installment
loans at December 31, 1997 were $20,742,000, a decrease of $516,000, from
$21,258,000 at December 31, 1996. The decrease in consumer loans experienced
during 1997 was offset somewhat by home equity loan demand, which caused a shift
in the loan mix from installment to real estate loans.
Loan balances as of March 31, 1998 increased $3,475,000 to
$142,149,000, as compared to December 31, 1997, an increase of 2.5%. Real estate
mortgage loans decreased by $616,000 to $64,920,000, from December 31, 1997.
Residential real estate accounted for approximately $63,319,000, or 97.5%, of
the real estate loans at March 31, 1998. Installment loans increased $375,000 to
$21,117,000 from December 31, 1997 to March 31, 1998. Commercial loans increased
by $3,716,000 to $56,112,000, due, in part, to a strong economy in the National
Bancorp lending area.
The National Bancorp loan portfolio contains no loans to foreign
governments, foreign enterprises, foreign operations of domestic companies, or
highly leveraged transactions, nor any concentration to borrowers engaged in the
same or similar industries that exceeded 10% of total loans.
72
The following table presents loans outstanding for the
periods indicated (in thousands):
March 31, December 31,
1998 1997 1996
------------ ------------ ------------
Commercial.................. $ 56,112 $ 52,396 $52,586
Real estate................. 64,920 65,536 56,083
Installment................. 21,117 20,742 21,258
------------ ------------ ------------
Total loans............... $142,149 $138,674 $129,927
============ ============ ============
The following table presents loan maturities at December 31, 1997 (in
thousands):
Within Over 5
1 Year 1-5 Years Years Total
------------ ------------ ------------ ------------
Commercial.................. $35,105 $13,099 $ 4,192 $ 52,396
Real estate................. 24,904 14,418 26,214 65,536
Installment................. 5,393 14,519 830 20,742
------------ ------------ ------------ ------------
Total loans.............. $65,402 $42,036 $31,236 $138,674
============ ============ ============ ============
In the above table, loans with maturities of over one year totaled
$73,272,000. Of this total $22,758,000 have floating interest rates and the
remainder have fixed interest rates.
The allowance for loan losses is maintained at a level considered adequate by
management of National Bancorp to absorb potential loan losses as determined by
evaluations of the loan portfolio on a continuing basis. This evaluation by
management of National Bancorp includes consideration of past loan loss
experience, changes in the composition of the loan portfolio, the volume and
condition of the loan portfolio, as well as the financial condition of specific
borrowers and current economic conditions.
Loans with principal or interest contractually past due but not yet paid are
reviewed at regular intervals by management and are placed on nonaccrual status
when scheduled payments remain unpaid for 90 days, unless the loan is adequately
secured and in the process of collection. Interest income on nonaccrual loans
is recorded when actually received (cash basis) in contrast to the accrual
basis, which records interest over the period in which it is earned, regardless
of when it is received. Loans are charged to the allowance for loan losses when
deemed uncollectible by management, unless sufficient collateral exists to
adequately secure the loan.
National Bancorp recorded a provision of $413,000 during the calendar year of
1997. For the year ended December 31, 1997, charge-offs totaled $369,000, which
were offset by recoveries of $81,000, resulting in net charge-offs of $288,000.
73
A summary of loan loss experience and management's allocation of the
allowance for loan loss to the various loan categories for the periods indicated
is as follows (in thousands):
Three Months
Ended
March 31, Years ended December 31,
--------- ----------------------------------------------
1998 1997 1996 1995 1994 1993
------ ------ ------ ------ ------- ------
Allowance for loan losses
Balance at beginning of period.................... $1,968 $1,843 $1,719 $1,250 $1,076 $ 985
Allowance related to bank acquired................ - - - 264 - -
Loan charge-offs:
Commercial, agricultural and tax
exempt....................................... 2 155 26 - 12 5
Real estate mortgage........................... 0 1 17 3 - -
Installment.................................... 25 213 210 154 139 113
------- ------- ------- ------- ------- -------
Total charge-offs............................ 27 369 253 157 151 118
------- ------- ------- ------- ------- -------
Loan recoveries:
Commercial, agricultural and tax
exempt....................................... 0 10 3 80 36 32
Real estate mortgage........................... 0 12 - - 48 1
Installment.................................... 16 59 64 62 4 38
------- ------- ------- ------- ------- -------
Total recoveries............................. 16 81 67 142 88 71
------- ------- ------- ------- ------- -------
Net charge-offs................................... 11 288 186 15 63 47
------- ------- ------- ------- ------- -------
Provision for loan losses......................... 90 413 310 220 237 138
------- ------- ------- ------- ------- -------
Balance at end of period.......................... $2,047 $1,968 $1,843 $1,719 $ 1,250 $1,076
======= ======= ======= ======= ======= =======
Non-performing loans consist of loans on nonaccrual status. Although these
loans have more than a normal risk of loss, they will not necessarily result in
a higher level of charge-offs in the future. Nonaccrual loans as of December
31, 1997 were $286,000, as compared to $856,000 at December 31, 1996.
The following table presents nonaccrual loans and 90 days or more past due
loans for the periods indicated (in thousands):
March 31, At December 31,
---------- ------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------- ----------- -------- ------- ------- -------
Nonaccrual loans................. $ 271 $ 286 $ 856 $ - $ 30 $ 7
90 days or more past due......... 203 164 219 151 83 231
Restructured loans............... - - - - - -
------ ----------- ------- ------ ------ ------
Total.......................... $ 474 $ 450 $ 1,075 $ 151 $ 113 $ 238
====== =========== ======= ====== ====== ======
Percent of total loans........... 0.19% 0.21% 0.66% 0% 0.03% 0.01%
====== =========== ======= ====== ====== ======
74
Investment Securities
National Bancorp adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" effective January 1, 1994. Investment securities
were classified as "available-for -sale" or "held-to-maturity" and have been
reported at their estimated fair value and at cost, respectively at December 31,
1997 and 1996. In accordance with SFAS No. 115, unrealized gains and losses,
net of related taxes, have been included in shareholders' equity. Net
unrealized losses can be expected to decrease should interest rates decrease
and, conversely, increase should interest rates increase. At December 31, 1997,
National Bancorp included a net unrealized gain of $128,000, net of related
income tax expense, in shareholders' equity. At December 31, 1996, a net
unrealized gain of $11,000 was included in shareholders' equity. The amount
included in shareholders' equity at March 31, 1998 was a net unrealized gain in
the amount of $143,000.
Total investment securities represented 22.5% and 23.5% of earning assets at
December 31, 1997 and 1996, respectively. In 1997, National Bancorp maintained
consistency within the classification of investment securities. Specifically,
proceeds from sales, maturities and calls were used to purchase similar types of
securities and no significant deviations between classifications occurred.
Investment securities represented 20.1% of earning assets at March 31, 1998.
Maturities and weighted average yields of investment securities at December
31, 1997 are as follows (in thousands and based on contract maturities and on a
fully taxable equivalent basis):
1 year or 1-5 years 5-10 years over 10 years Total
less ---------------- ---------------- --------------- ---------------
------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------------ ------ -------- ------ -------- ------ ------- ------ ------- ------
U.S. treasury.............. $1,492 6.04% $3,508 6.24% $ 0 0.00% $ 0 0.00% $ 5,000 6.18%
U.S. agencies.............. 3,511 6.06% 1,000 6.51% 268 6.13% 0 0.00% 4,779 6.16%
Mortgage backed............ 370 5.04% 588 6.28% 4418 6.42% 6333 6.50% 11,709 6.41%
State and municipals....... 906 8.78% 3,200 8.47% 8234 7.78% 3095 8.08% 15,435 8.04%
Corporates and other....... 1,405 6.55% 93 8.83% 560 6.00% 0 0.00% 2,058 6.51%
------ ---- ------ ---- ------- ---- ------ ---- ------- ----
Total...................... $7,684 6.42% $8,389 7.15% $13,480 7.23% $9,428 7.02% $38,981 7.40%
====== ==== ====== ==== ======= ==== ====== ==== ======= ====
Percent of total........... 19.71% 21.52% 34.58% 24.19%
====== ====== ======= ======
Sources of Funds
National Bancorp generally relies on customer deposits along with
retained earnings to fund its earning assets.
Total deposits increased $2,930,000, or 1.9%, to $155,342,000 at
December 31, 1997, from $152,412,000 at December 31, 1996. The mix of the
deposits remained relatively stable. Total deposits declined $1,083,000 to
$154,259,000 at March 31, 1998. The decrease was mainly the result of deposit
run-off due to interest rate competition.
Capital Resources
National Bancorp continues to maintain a strong capital position,
which provides a sound foundation to support current and future needs. At
December 31, 1997, shareholders' equity was $17,850,000, compared to
75
$16,997,000 at December 31, 1996, an increase of 5.0%. Book value per share was
$56.65 at December 31, 1997, as compared to $51.91 at December 31, 1996. The
dividend payout ratio (dividends as a percentage of net income) was 27.5% in
1997 and 29.8% in 1996. National Bancorp has historically paid dividends in
February, May, August and November of each year.
Shareholders' equity increased by 2.1%, to $18,228,000, at March
31, 1998 as compared December 31, 1997.
National Bancorp's capital was considered well capitalized by the FDIC
at year-end 1997. National Bancorp is not aware of any current recommendations
by its regulatory authorities or any other known trends, events or uncertainties
that would have, or that are reasonably likely to have, a material effect on its
liquidity or capital resources.
In order to maintain a proper level of liquidity, National Bancorp has
several sources of funds available on a daily basis which can be used for
liquidity purposes. These sources include: (i) core deposits of both business
and non-business customers; (ii) cash flows generated by the repayment of loans
and investment principal and interest; and (iii) federal funds purchased.
Effects of Inflation
Inflation has a minor effect on banking concerns since most of the
assets and liabilities are monetary in nature. Increases in operating costs, the
largest components of which are salaries and employee benefits have exceeded the
rate of inflation as measured by the consumer price index on each of the last
three years. National Bancorp continues to attempt to offset such increases
through the growth of net earning assets, particularly loans, and earnings
related thereto.
Liquidity and Interest Rate Sensitivity
Liquidity is a measure of National Bancorp's ability to meet its
customers' present and future deposit withdrawals and/or increased loan demand
without unduly penalizing earnings. Interest rate sensitivity involves the
relationship between rate sensitive assets and liabilities, and is an indication
of the probable effects of interest rate movements on National Bancorp's
interest income. Liquidity is provided by projecting credit demand and other
financial needs and maintaining sufficient cash and assets readily convertible
into cash to meet these requirements. National Bancorp has provided for its
liquidity needs through core deposits, federal funds sold, maturing loans and
investments in its security portfolio.
Interest rate sensitive assets and liabilities are those which have
yields or rates subject to change within a future period due to maturity or
changes in market rates. An ongoing objective of National Bancorp's
assets/liability policy is to match rate adjustable assets and liabilities at
similar maturity horizons so that changes in interest rates will not result in
wide fluctuations in net interest income. National Bancorp seeks to manage its
rate sensitivity position through the use of floating rate loans. The rate
sensitivity position is computed for various repricing intervals by calculating
rate sensitivity gaps.
Although rate sensitivity gaps constantly change as funds are acquired
and invested, National Bancorp's negative gap of $2,205,000 at the one year gap
or less at December 31, 1997, was approximately 1.15% of total assets at that
date and, in the opinion of management, represents a relatively balanced
position.
76
Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
As of the Record Date, there were no persons known to National Bancorp to
be beneficial owners of more than five percent (5%) of the issued and
outstanding shares of National Bancorp Common.
Security Ownership of Management
As of the Record Date, the following directors and executive officers of
National Bancorp were known to National Bancorp, individually and as a group, to
be the beneficial owners, respectively, of the issued and outstanding shares of
National Bancorp Common as set forth below. Except as otherwise noted, each
person or group identified below holds sole voting and sole investment power
with respect to the shares identified as beneficially owned.
Number of Shares Percentage of Shares
Name Beneficially Owned Outstanding*
- ---- ------------------ ------------
Don Foertsch(1) 1,553 .5%
J. David Huber 995 .3%
Thomas T. Huber 1,102 .3%
Thomas E. Kramer(2) 1,189 .4%
Kenneth D. Mulzer(3) 3,579 1.1%
Thomas R. McCart(4) 15,230 4.7%
Christopher A. Ramsey(5) 369 .1%
Janet S. Sprinkle(6) 519 .2%
Donald M. Schorr(7) 2,308 .7%
Directors and Executive Officers 26,844 8.3%
as a Group (11 persons)
__________________________
* Based upon 315,691 shares of National Bancorp Common outstanding and 8,520
employee stock options outstanding.
1 Mr. Foertsch beneficially owns 373 shares directly, and 1,180 shares are
beneficially owned by his wife.
2 Mr. Kramer beneficially owns 389 shares directly, and 200 shares are
beneficially owned by his son.
3 Mr. Mulzer owns 345 shares directly, and 3,235 shares are beneficially
owned by his wife.
4 Mr. McCart beneficially owns 5,248 shares directly, and 8,632 shares are
beneficially owned by Mr. McCart and his wife. Mr. McCart has options to
acquire an additional 1,350 shares.
5 Mr. Ramsey owns 169 shares directly, and 200 shares are beneficially owned
by C&K Partnership, L.P. over which Mr. Ramsey has sole voting and
investment power.
6 Ms. Sprinkle owns 311 shares directly, and 208 shares are beneficially
owned by Ms. Sprinkle and her husband.
7 Mr. Schorr is an executive officer of TCB Bank only. Mr. Schorr
beneficially owns 1,168 shares directly and has options to acquire an
additional 1,140 shares.
LEGAL OPINION
The legality of the CNB Common offered hereby and certain tax consequences
of the Merger will be passed upon by Lewis, Rice & Fingersh, L.C., St. Louis,
Missouri.
77
EXPERTS
Independent Auditors for CNB
The consolidated financial statements of CNB as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, included in CNB's Annual Report on Form 10-K, and the supplemental
consolidated financial statements of CNB as of December 31, 1997 and 1996, and
for each of the years in the three-year period ended December 31, 1997, included
in CNB's Current Report on Form 8-K dated June 1, 1998, have been incorporated
by reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
whose reports are incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of Pinnacle as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, included in Pinnacle's Annual Report on Form 10-K, have been incorporated
by reference herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants, whose
report is incorporated by reference herein, and upon the authority of said firm
as experts in accounting and auditing. KPMG Peat Marwick LLP previously audited
and reported on the consolidated balance sheet of Pinnacle as of December 31,
1996, and the related consolidated statements of income, changes in shareholders
equity, and cash flows for the years ended December 31, 1996 and 1995, prior to
their restatement for the 1997 pooling of interests. The contribution of
Pinnacle to total assets and net income represented 50% and 57% of the
respective restated totals for the year ended December 31, 1996 and the
contribution of Pinnacle to total assets and net income represented 40% of the
respective restated total for the year ended December 31, 1995. Separate
consolidated financial statements of the other companies included the December
31, 1996 restated consolidated balance sheet and consolidated statement of
income, changes in shareholders' equity, and cash flows for the years ended
December 31, 1996 and 1995 were audited and reported on separately by other
auditors. KPMG Peat Marwick LLP audited the combination of the Pinnacle
consolidated balance sheet as of December 31, 1996 and consolidated statements
of income, changes in shareholders equity, and cash flows for the years ended
December 31, 1996 and 1995, after restatement for the 1997 pooling of interests.
Independent Auditors of National Bancorp
The consolidated balance sheets of National Bancorp as of December 31, 1997
and 1996 and the related consolidated statements of income, changes in
shareholders' equity and cash flow for the years December 31, 1997, 1996 and
1995 have been audited by Harding, Shymanski & Company, P.C., independent
certified public accountants, and their reports thereon, which appear elsewhere
herein, have been included herein in reliance upon their reports given upon
their authority as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
Shareholder proposals for the Annual Meeting of CNB shareholders to be held
in April 1999 must be received by CNB not later than November 26, 1998 in order
to be considered for inclusion in the 1999 Proxy Statement and must meet the
requirements established by the S.E.C. for shareholder proposals. Upon receipt
of any such proposal, CNB will determine whether or not to include such proposal
in the Proxy Statement and Proxy in accordance with the S.E.C.'s regulations
governing the solicitation of proxies.
_______________
78
INDEX TO FINANCIAL STATEMENTS
National Bancorp and Subsidiary:
Page
----
Independent Accountant's Report F-2
Financial Statements - March 31, 1998 and 1997
Consolidated Balance Sheets.................................... F-3
Consolidated Statements of Income and Comprehensive Income..... F-4
Consolidated Statements of Cash Flows.......................... F-5
Consolidated Statements of Changes in Shareholders' Equity..... F-6
Notes to Interim Consolidated Financial Statements............. F-7
Independent Auditors' Report........................................ F-8
Financial Statements - December 31, 1997, 1996 and 1995
Consolidated Balance Sheets.................................... F-9
Consolidated Statements of Income.............................. F-10
Consolidated Statements of Cash Flows.......................... F-11
Consolidated Statements of Changes in Shareholders' Equity..... F-13
Notes to Consolidated Financial Statements..................... F-14
F-1
Independent Accountant's Report
To the Board of Directors
National Bancorp
Tell City, Indiana 47586
We have compiled the accompanying consolidated balance sheets of National
Bancorp and Subsidiary as of March 31, 1998 and 1997, and the related
consolidated statements of income and comprehensive income, changes in
shareholders' equity and cash flows for the three month periods then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting information that is the representation of
management in the form of financial statements. We have not audited or reviewed
the accompanying financial statements and, accordingly, do not express an
opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required by
generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Corporation's financial position, results of operations,
and cash flows and changes in shareholder's equity. Accordingly, these
financial statements should be read in conjunction with information included in
the December 31, 1997, annual report to shareholders.
Harding, Shymanski & Company, P.C.
Evansville, Indiana
April 27, 1998
F-2
NATIONAL BANCORP
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollar references in thousands except share data)
ASSETS March 31,
------ --------------------------
1998 1997
------------ ------------
Cash and due from banks............................... $ 4,979 $ 5,568
Federal funds sold.................................... - 1,925
------------ ------------
Cash and cash equivalents........................... 4,979 7,493
Investment securities held-to-maturity................ 18,096 23,007
Investment securities available-for-sale.............. 18,408 16,858
Loans
Total loans......................................... 142,149 134,766
Allowance for loan losses........................... (2,047) (1,849)
------------ ------------
Loans, net.......................................... 140,102 132,917
Premises and equipment, net........................... 2,333 2,367
Accrued interest receivable........................... 1,161 1,218
Other assets.......................................... 3,470 3,900
------------ ------------
Total assets.................................... $ 188,549 $ 187,760
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Noninterest-bearing deposits.......................... $ 14,277 $ 14,806
Interest-bearing deposits............................. 139,982 140,353
------------ ------------
Total deposits.................................. 154,259 155,159
Repurchase agreements and federal funds purchased..... 4,394 5,412
FHLB advances......................................... 9,455 7,773
Accrued interest payable.............................. 992 1,007
Other liabilities..................................... 1,221 1,130
------------ ------------
Total liabilities............................... 170,321 170,481
------------ ------------
Common stock ($2.50 stated value, 2,000,000 shares
authorized, 377,676 and 377,676 issued, 315,081 and
authorized, 328,085 outstanding, respectively)...... 944 944
Additional paid-in-capital............................ 4,376 4,337
Retained earnings..................................... 14,551 12,887
Accumulated other comprehensive income................ 143 (64)
------------ ------------
Total........................................... 20,014 18,104
------------ ------------
Treasury stock (62,595 and 49,591 shares at cost,
respectively........................................ (1,786) (825)
------------ ------------
Total shareholders' equity...................... 18,228 17,279
------------ ------------
Total liabilities and shareholders' equity...... $ 188,549 $ 187,760
============ ============
See accompanying accountant's report.
F-3
NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
----------------------------------------------------------
(Dollar references in thousands except per share data)
Three Months Ended March 31,
------------------------------
1998 1997
--------- -------
INTEREST INCOME
Interest and fees on loans........................................... $ 3,172 $ 2,958
Interest on short-term investments................................... 2 37
Interest and dividends on securities:
Taxable........................................................ 370 457
Non-taxable.................................................... 205 175
------- -------
Total interest income.................................... 3,749 3,627
INTEREST EXPENSE
Interest on deposits................................................. 1,656 1,678
Interest on borrowings............................................... 168 152
------- -------
Total interest expense................................... 1,824 1,830
------- -------
NET INTEREST INCOME........................................................ 1,925 1,797
Provision for loan losses.................................................. 90 90
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........................ 1,835 1,707
------- -------
NONINTEREST INCOME
Service charges on deposit accounts.................................. 95 96
Other service charges, commissions and fees.......................... 283 252
Trust income......................................................... 12 9
Other operating income............................................... 8 10
------- -------
Total noninterest income................................. 398 367
------- -------
NONINTEREST EXPENSE
Salaries and employee benefits....................................... 741 704
Occupancy expense.................................................... 111 88
Equipment expense and data processing services....................... 153 150
Other operating expenses............................................. 418 397
------- -------
Total noninterest expense................................ 1,423 1,339
------- -------
INCOME BEFORE INCOME TAXES................................................. 810 735
Income tax expense......................................................... 287 267
------- -------
NET INCOME................................................................. $ 523 $ 468
======= =======
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding gains (losses) arising during the period.......... $ 15 $ (75)
======= =======
EARNINGS PER SHARE
Basic................................................................ $ 1.66 $ 1.43
======= =======
Diluted.............................................................. $ 1.62 $ 1.41
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic................................................................ 314,371 327,273
======= =======
Diluted.............................................................. 322,128 331,754
======= =======
See accompanying accountant's report.
F-4
NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollar references in thousands)
Three Months Ended March 31,
-----------------------------------
1998 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................... $ 523 $ 468
--------------- ---------------
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization........................................... 169 161
Provision for loan losses............................................... 90 90
Change in assets and liabilities:
Accrued interest receivable........................................ 209 236
Other assets....................................................... (310) (285)
Accrued interest payable........................................... 29 169
Other liabilities.................................................. 256 113
--------------- ---------------
Total adjustments..................................................... 443 484
--------------- ---------------
Net cash provided by operating activities............................. 966 952
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities............................................. 4,726 4,264
Purchase of securities........................................................ (362) (2,172)
Loans made to customers and payments received................................. (3,486) (4,923)
Premises and equipment expenditures........................................... (28) (113)
--------------- ---------------
Net cash provided by (used in) investing activities................... 850 (2,944)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in customer deposit accounts....................................... (1,083) 2,747
Change in repurchase agreements and federal funds purchased................... (4,188) 831
Proceeds (payments) from FHLB advances........................................ 1,748 (1,500)
Dividends paid................................................................ (160) (152)
Issuance of treasury shares................................................... - 41
Net cash provided by (used in) financing activities................... --------------- ---------------
(3,683) 1,967
--------------- ---------------
Net change in cash and cash equivalents....................................... (1,867) (25)
Cash and cash equivalents at beginning of year................................ 6,846 7,518
--------------- ---------------
Cash and cash equivalents at end of year...................................... $ 4,979 $ 7,493
--------------- ---------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................................................... $ 1,853 $ 1,661
Supplemental schedule of noncash investing and financing activities:
Increase (decrease) in unrealized gain (loss) on securities
available-for-sale........................................................ $ 15 $ (75)
See accompanying accountant's report.
F-5
NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
Three Months ended March 31, 1998 and 1997
(Dollar references in thousands except per share data)
Accumulated
Additional other Total
Common Paid-In- Retained comprehensive Treasury Shareholders'
Stock Capital Earnings income Stock Equity
------- ---------- -------- ------------- -------- -------------
BALANCES, January 1, 1997 $ 944 $ 4,319 $12,571 $ 11 $ (848) $16,997
Net income period ended March 31, 1997 468 468
Cash dividends ($.46 per share) (152) (152)
Unrealized loss on securities AFS (75) (75)
Issuance of treasury stock 18 23 41
------- ------- ------- ------- ------- -------
BALANCES, March 31, 1997 $ 944 $ 4,337 $12,887 $ (64) $ (825) $17,279
======= ======= ======= ======= ======= =======
BALANCES, December 31, 1997 $ 944 $ 4,376 $14,188 $ 128 $(1,786) $17,850
Net income for period ended March 31, 1998 523 523
Cash dividends ($.51 per share) (160) (160)
Unrealized gain on securities AFS 15 15
------- ------- ------- ------- ------- -------
BALANCES, March 31, 1998 $ 944 $ 4,376 $14,551 $ 143 $(1,786) $18,228
======= ======= ======= ======= ======= =======
See accompanying accountant's report.
F-6
NATIONAL BANCORP
Notes to Interim Consolidated Financial Statements
Consolidation
The consolidated balance sheets as of March 31, 1998 and 1997, consolidated
statements of income and comprehensive income for each of the three month
periods ended March 31, 1998 and 1997, and the consolidated statements of cash
flows for each of the three month periods ended March 31, 1998 and 1997 have
been prepared by the Corporation, without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and changes in cash
flows at March 31, 1998 and 1997, and all periods presented, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Corporation's December 31, 1997 annual report to
shareholders. The results of operations for the periods ended March 31, 1998
and 1997, are not necessarily indicative of the operating results for the full
year.
Commitments and Contingent Liabilities
Other than ordinary routine litigation incidental to the business, there are no
material pending legal proceedings to which the Corporation or its subsidiary
are a party or of which any of their property is subject as of March 31, 1998.
Proposed Merger
National Bancorp has entered into a definitive agreement to merge with CNB
Bancshares, Inc. Upon consummation of the merger, each issued and outstanding
share of common stock of National Bancorp would be converted into the right to
receive shares of CNB calculated in accordance with a formula set forth in the
definitive merger agreement.
F-7
Independent Auditor's Report
----------------------------
Board of Directors
National Bancorp
Tell City, Indiana 47586
We have audited the accompanying consolidated balance sheets of National Bancorp
and Subsidiary, as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principals used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe 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 National Bancorp and
Subsidiary, as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
Harding, Shymanski & Company, P.C.
Evansville, Indiana
January 15, 1998
except for Note 20, as to which the date is
February 13, 1998
F-8
National Bancorp
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollar references in thousands except share data)
December 31,
------------
1997 1996
---- ----
ASSETS
Cash and due from banks (Note 13)............................................ $ 4,496 $ 4,018
Federal funds sold........................................................... 2,350 3,500
------------- --------------
Cash and cash equivalents................................................. 6,846 7,518
Interest-bearing balances with banks......................................... 462 1,254
Investment securities held-to-maturity (Note 3).............................. 20,925 24,145
Investment securities available-for-sale (Note 3)............................ 18,268 15,185
Nonmarketable equity securities.............................................. 1,198 1,448
Loans........................................................................
Total loans (Note 4)...................................................... 138,674 129,927
Allowance for loan losses (Note 4)........................................ (1,968) (1,843)
------------- --------------
Loans, net................................................................ 136,706 128,084
Premises and equipment, net (Note 6)......................................... 2,413 2,352
Accrued interest receivable.................................................. 1,370 1,454
Other assets................................................................. 3,099 3,552
Total assets.............................................................. $ 191,287 $ 184,992
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits................................................. $ 15,968 $ 15,026
Interest-bearing deposits.................................................... 139,374 137,386
------------- --------------
Total deposits (Note 7)................................................... 155,342 152,412
Repurchase agreements and federal funds purchased............................ 8,582 4,581
FHLB advances (Note 8)....................................................... 7,707 9,273
Accrued interest payable..................................................... 963 838
Other liabilities............................................................ 843 891
------------- --------------
Total liabilities......................................................... 173,437 167,995
------------- --------------
Commitments, contingent liabilities and credit risks (Notes 13 and 14)
Common stock ($2.50 stated value, 2,000,000 shares authorized, 377,676 and
377,734 issued, 315,081 and 327,408 outstanding in 1997 and 1996, 944 944
respectively)...............................................................
Additional paid-in-capital................................................... 4,376 4,319
Retained earnings (Note 18).................................................. 14,188 12,571
Unrealized gain on securities available-for-sale............................. 128 11
------------- --------------
Total 19,636 17,845
Treasury stock (62,595 and 50,326 shares at cost in 1997 and 1996,
respectively)............................................................... (1,786) (848)
------------- --------------
Total shareholders' equity................................................... 17,850 16,997
------------- --------------
Total liabilities and shareholders' equity................................... $ 191,287 $ 184,992
============= ==============
See accompanying notes to consolidated financial statements.
F-9
National Bancorp
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Dollar references in thousands except per share data)
Year Ended December 31
--------------------------------------------
1997 1996 1995
--------- --------- ---------
INTEREST INCOME
Interest and fees on loans...................... $ 12,244 $ 11,343 $ 10,211
Interest on federal funds sold.................. 156 81 205
Interest on short-term investments.............. 85 92 117
Interest and dividends on securities:
Taxable........................................ 1,822 1,959 1,719
Non-taxable.................................... 754 703 687
--------- --------- ---------
Total interest income......................... 15,061 14,178 12,939
--------- --------- ---------
INTEREST EXPENSE
Interest on deposits............................ 6,736 6,399 5,686
Interest on borrowings.......................... 655 664 532
--------- --------- ---------
Total interest expense........................ 7,391 7,063 6,218
--------- --------- ---------
NET INTEREST INCOME.............................. 7,670 7,115 6,721
Provision for loan losses (Note 4)............... 413 310 220
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES.................................. 7,257 6,805 6,501
--------- --------- ---------
NONINTEREST INCOME
Service charges on deposit accounts............. 402 355 341
Other service charges, commissions and fees..... 821 560 434
Trust income.................................... 75 35 36
Gain (loss) on sale of securities............... 126 6 (145)
Other operating income.......................... 164 118 226
--------- --------- ---------
Total noninterest income...................... 1,588 1,074 892
--------- --------- ---------
NONINTEREST EXPENSE
Salaries and employee benefits.................. 2,831 2,518 2,310
Occupancy expense............................... 387 343 312
Equipment expense and data processing services.. 542 513 545
FDIC insurance.................................. 19 2 151
Other operating expenses........................ 1,563 1,522 1,417
--------- --------- ---------
Total noninterest expense..................... 5,342 4,898 4,735
--------- --------- ---------
INCOME BEFORE INCOME TAXES....................... 3,503 2,981 2,658
Income tax expense (Note 12)..................... 1,274 1,061 917
--------- --------- ---------
NET INCOME....................................... $ 2,229 $ 1,920 $ 1,741
========= ========= =========
EARNINGS PER SHARE (Notes 1 and 10)
Basic........................................... $ 7.00 $ 5.97 $ 5.57
========= ========= =========
Diluted......................................... $ 6.84 $ 5.89 $ 5.54
========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic........................................... 318,296 321,667 312,661
========= ========= =========
Diluted......................................... 326,053 326,148 $ 314,168
========= ========= =========
See accompanying notes to consolidated financial statements.
F-10
National Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollar references in thousands)
Year Ended December 31,
--------------------------------
1997 1996 1995
------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................................................... $ 2,229 $ 1,920 $ 1,741
------- -------- --------
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization................................................ 572 537 448
Amortization and accretion of securities..................................... (143) (45) (72)
Provision for loan losses.................................................... 413 310 220
Excess of increase in cash surrender value over premiums paid on life
insurance.................................................................... (27) (17) (15)
Provision for deferred taxes................................................. 164 32 153
(Gain) loss on sale of securities............................................ (126) (6) 145
Change in assets and liabilities:
Deferred loan fees......................................................... 33 45 52
Accrued interest receivable................................................ 84 (95) (59)
Other assets............................................................... (10) 279 (522)
Accrued interest payable................................................... 125 33 235
Other liabilities.......................................................... (48) 191 42
------- -------- --------
Total adjustments.............................................................. 1,037 1,264 627
------- -------- --------
Net cash provided by operating activities...................................... 3,266 3,184 2,368
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in interest-bearing balances with banks and banker's acceptance......... 792 894 27
Proceeds from principal payments and maturities of securities.................. 6,061 2,718 5,214
Proceeds from sales of securities.............................................. 3,867 7,561 9,331
Purchase of securities......................................................... (9,078) (7,559) (19,632)
Loans made to customers and payments received.................................. (9,068) (20,291) (6,087)
Premises and equipment expenditures............................................ (384) (334) (475)
Purchase of First National Bank of Perry Co. (net of cash and cash equivalents
acquired).................................................................... - - (2,325)
Cash acquired in connection with acquisition of Zoercher Insurance Agency...... - 79 -
------- -------- --------
Net cash used in investing activities....................................... (7,810) (16,932) (13,947)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in customer deposit accounts........................................ 2,930 11,138 7,220
Change in repurchase agreements and federal funds purchased.................... 4,001 1,968 (190)
Proceeds from FHLB advances.................................................... 1,000 5,500 3,000
Payments on FHLB advances...................................................... (2,566) (3,066) (1,066)
Dividends paid................................................................. (612) (573) (509)
Purchase of treasury shares.................................................... (1,039) (7) (12)
Issuance of treasury shares.................................................... 158 92 42
Net cash provided by financing activities................................... 3,872 15,052 8,485
------- -------- --------
Net change in cash and cash equivalents........................................ (672) 1,304 (3,094)
Cash and cash equivalents at beginning of year................................. 7,518 6,214 9,308
Cash and cash equivalents at end of year....................................... $ 6,846 $ 7,518 $ 6,214
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest...................................................................... $ 7,259 $ 7,026 $ 5,915
Income taxes.................................................................. $ 1,044 $ 717 $ 1,011
F-11
NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
-------------------------------------------------
(Dollar references in thousands)
Year Ended December 31,
-------------------------
1997 1996 1995
---- ----- --------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Acquisition of First National Bank of Perry County:
Cash purchase price.............................................. $ 3,350
========
Investments acquired............................................. 9,235
Loans acquired (net of allowance for loan losses)................ 8,393
Other assets acquired (net of cash and cash equivalents of
$1,025)........................................................ 3,632
Deposits assumed................................................. (18,532)
Other liabilities assumed........................................ (403)
--------
$ 2,325
========
Acquisition of Zoercher Insurance Agency:
Value of common stock issued (13,000 shares)..................... $ 650
=====
Assets acquired (net of cash and cash equivalents of $79)........ $ 781
Liabilities assumed.............................................. $(210)
-----
$ 571
=====
Increase (decrease) in unrealized gain (loss) on securities
available-for-sale............................................... $194 $(161) $ 517
(Increase) decrease in net deferred income tax asset attributable
to the unrealized gain (loss) on securities available-for-sale... $(77) $ 64 $ (204)
See accompanying notes to consolidated financial statements.
F-12
NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
Years ended December 31, 1997, 1996, and 1995
(Dollar references in thousands except per share data)
Additional Unrealized Gain Total
Common Paid-In- Retained (Loss) on Treasury Shareholders'
Stock Capital Earnings Securities AFS Stock Equity
------ ---------- -------- --------------- -------- -------------
BALANCES, January 1, 1995
- ------------------------- $912 $3,652 $ 9,992 $(205) $ (913) $13,438
Net income for 1995 1,741 1,741
Cash dividends ($1.63 per share) (509) (509)
Unrealized gain on securities AFS (net of tax) 313 313
Purchase 238 shares of treasury stock (12) (12)
Issue 838 shares of treasury stock 16 26 42
---- ------ ------- ----- ------- -------
BALANCES, December 31, 1995 $912 $3,668 $11,224 $ 108 $ (899) $15,013
- ---------------------------
Net income for 1996 1,920 1,920
Cash dividends ($1.79 per share) (573) (573)
Unrealized loss on securities AFS (net of tax) (97) (97)
Issue 13,000 shares of common stock 32 617 649
Purchase 133 shares of treasury stock (7) (7)
Issue 1,811 shares of treasury stock 34 58 92
---- ------ ------- ----- ------- -------
BALANCES, December 31, 1996 $944 $4,319 $12,571 $ 11 $ (848) $16,997
- ---------------------------
Net income for 1997 2,229 2,229
Cash dividends ($1.93 per share) (612) (612)
Unrealized gain on securities AFS (net of tax) 117 117
Purchase 14,789 shares of treasury stock (1,039) (1,039)
Issue 2,520 shares of treasury stock 57 101 158
---- ------ ------- ----- ------- -------
BALANCES, December 31, 1997 $944 $4,376 $14,188 $ 128 $(1,786) $17,850
- --------------------------- ==== ====== ======= ===== ======= =======
See accompanying notes to consolidated financial statements.
F-13
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
BASIS OF PRESENTATION
The financial statements include the accounts of National Bancorp, TCB Bank
(Bank) (a wholly-owned subsidiary of National Bancorp), the Investment Center,
Inc., and Zoercher/Kennedy Insurance (wholly owned subsidiaries of TCB Bank).
Significant intercompany balances and transactions are eliminated in
consolidation.
NATURE OF BUSINESS
Through its subsidiaries, National Bancorp provides a full range of banking and
financial services to individuals and corporate customers located in Perry
County, Indiana, and surrounding communities. National Bancorp is subject to
competition from other financial institutions and nonfinancial institutions
providing financial products and services.
CASH EQUIVALENTS
For purposes of the statement of cash flows, cash and cash equivalents is
defined to include National Bancorp's cash on hand, amounts due from other
banks, and federal funds sold.
SECURITIES HELD-TO-MATURITY
Securities classified as held-to-maturity (HTM) are those debt securities
National Bancorp has both the intent and ability to hold to maturity regardless
of changes in market conditions, liquidity needs, or changes in general economic
conditions. These securities are carried at cost adjusted for amortization of
premium and accretion of discount which are recognized in interest income using
the interest method over the period to maturity.
SECURITIES AVAILABLE-FOR-SALE
Securities classified as available-for-sale (AFS) are those debt securities
National Bancorp intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors including significant
movements in interest rates, changes in the maturity mix of National Bancorp's
assets and liabilities, liquidity needs, regulatory capital considerations, and
other similar factors. Securities available-for-sale are carried at fair value.
The difference between fair value and amortized cost, adjusted for amortization
of premiums and accretion of discounts, which are recognized in interest income
using the interest method over their contractual lives, results in an unrealized
gain or loss. Unrealized gains or losses are reported as increases and
decreases in shareholder's equity net of the related deferred tax effect.
Gains and losses on disposition of securities are computed by the specific
identification method.
LOANS
Loans are stated at the principal amount outstanding. Interest on loans is
accrued based on the principal balance outstanding except where substantial
doubt exists as to the collectibility of the loan, in which case income accrual
is discontinued.
F-14
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996 and 1995
(Dollar references in thousands except share data)
ALLOWANCE FOR LOAN LOSSES
Because some loans may not be repaid in full, an allowance for loan losses is
recorded. Increases to the allowance are recorded by a provision for loan
losses, charged to expense. Eliminating the risk of loss and the amount of loss
on any loan is necessarily subjective. Accordingly, the allowance is maintained
by management at a level considered adequate to cover possible losses that are
currently anticipated based on past loss experience, general economic
conditions, information about specific borrower situations, including their
financial position and collateral values, and other factors and estimates which
are subject to change over time.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation computed
on the straight-line and accelerated methods over the estimated useful lives of
the assets.
INCOME TAXES
National Bancorp, the Bank and its subsidiaries file a consolidated tax return.
Income taxes are computed on a separate return basis, with subsidiaries paying
their tax liability to the parent corporation.
Deferred tax liabilities and assets are determined at each balance sheet date.
They are measured by applying enacted tax laws to future amounts that will
result from differences in the financial statement and tax bases of assets and
liabilities. Recognition of deferred tax assets is limited by the establishment
of a valuation reserve unless management concludes that the assets will more
likely than not result in future tax benefits to National Bancorp.
EARNINGS PER SHARE (EPS)
Basic EPS is computed as net income available to common stockholders divided by
the weighted average common shares.
Diluted EPS is computed as net income available to common stockholders divided
by the weighted average common shares outstanding and common stock equivalents
weighted to reflect the portion of the period the shares were outstanding. The
difference between Basic EPS and Diluted EPS is primarily due to common stock
equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
REPORTING COMPREHENSIVE INCOME
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" (FAS 130), was issued in July 1997 by the Financial Accounting Standards
Board. The Standard establishes reporting of comprehensive income for general
purpose financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during the period and all other events and
circumstances from nonowner sources. The Standard is effective for financial
statement periods beginning after December 31, 1997. National
F-15
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996 and 1995
(Dollar references in thousands except share data)
Bancorp does not believe the adoption of the Standard will have a material
impact on the consolidated financial statements.
Note 2 - BUSINESS COMBINATION
- -----------------------------
On January 1, 1995, the Corporation acquired the common stock of First National
Bank of Perry County (FNB) for $3,350. The excess of total acquisition cost over
the fair value of the net assets acquired of $1,698 is being amortized over 15
years by the straight-line method.
The acquisition has been accounted for as a purchase and results of operations
of the acquired company since the date of acquisition are included in the
consolidated financial statements.
On June 1, 1996, the Corporation acquired the common stock of Zoercher Insurance
Agency for $650. The excess of total acquisition cost over fair market value of
the net liabilities assumed of $698 is being amortized over 7 years by the
straight-line method.
The acquisition has been accounted for as a purchase and results of operations
of the acquired company since the date of acquisition are included in the
consolidated financial statements.
Note 3 - SECURITIES
- -------------------
The amortized cost and fair values of securities are summarized as follows:
Held-to-Maturity
----------------
Gross Gross
Amortized Unrealized Unrealized Fair
BALANCES at December 31, 1997 Cost Gains Losses Value
- ----------------------------- --------- ---------- ---------- -------
U.S. Government agencies securities.............. $ 2,786 $ 29 $ (1) $ 2,814
State and municipal securities................... 9,427 422 -- 9,849
Corporate and other securities................... 1,958 16 -- 1,974
Mortgage-backed securities....................... 6,754 13 (39) 6,728
--------- ---------- ---------- -------
Total investment securities.................... $ 20,925 $ 480 $ (40) $21,365
========= ========== ========== =======
Gross Gross
Amortized Unrealized Unrealized Fair
BALANCES at December 31, 1997 Cost Gains Losses Value
- ----------------------------- --------- ---------- ---------- -------
U.S. Government agencies securities.............. $ 3,675 $ 101 $ (143) $ 3,723
State and municipal securities................... 9,776 241 (42) 9,975
Corporate and other securities................... 2,545 12 (1) 2,556
Mortgage-backed securities....................... 8,059 12 (90) 7,981
--------- ---------- ---------- -------
Total investment securities.................... $ 24,145 $ 366 $ (276) $24,235
========= ========== ========== =======
Available-for-Sale
------------------
Gross Gross
Amortized Unrealized Unrealized Fair
BALANCES at December 31, 1997 Cost Gains Losses Value
- ----------------------------- --------- ---------- ---------- -------
U.S. Treasury securities......................... $ 4,998 $ 30 $ -- $ 5,028
U.S. Government agencies securities.............. 1,994 8 -- 2,002
State and municipal securities................... 6,007 187 -- 6,194
Marketable equity securities..................... 100 -- -- 100
Mortgage-backed securities....................... 4,957 7 (20) 4,944
--------- ---------- ---------- -------
Total investment securities.................... $ 18,056 $ 232 $ (20) $18,268
========= ========== ========== =======
F-16
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 3 - SECURITIES (CONTINUED)
Gross Gross
Amortized Unrealized Unrealized Fair
BALANCES at December 31, 1996 Cost Gains Losses Value
- ----------------------------- --------- ---------- ---------- -------
U.S. Treasury securities ................. $ 3,454 $ 19 $ (1) $ 3,472
U.S. Government agencies securities ...... 4,484 43 -- 4,527
State and municipal securities ........... 2,552 11 (12) 2,551
Marketable equity securities ............. 60 -- -- 60
Mortgage-backed securities ............... 4,617 -- (42) 4,575
------- ---- ----- -------
Total investment securities .......... $15,167 $ 73 $ (55) $15,185
======= ==== ===== =======
The amortized cost and fair value of securities at December 31, 1997 by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Held-to-Maturity Available-for-Sale
-------------------- --------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
Due in one year or less .................. $ 2,924 $ 2,944 $ 2,984 $ 2,994
Due after one year through five years .... 5,392 5,521 5,315 5,368
Due after five years through ten years ... 4,158 4,375 3,279 3,385
Due after ten years ...................... 1,697 1,759 1,421 1,477
Mortgage-backed securities ............... 6,754 6,766 5,057 5,044
------- ------- ------- -------
Total investment securities .......... $20,925 $21,365 $18,056 $18,268
======= ======= ======= =======
Securities held-to-maturity having a book value of $9,037 and $7,546 at December
31, 1997 and 1996, respectively, were pledged to secure public deposits,
repurchase agreements, and for other purposes required by law.
F-17
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 4 - LOANS
- --------------
Loans are summarized as follows:
1997 1996
--------- ----------
Commercial loans..................................................... $ 52,396 $ 52,586
Real estate loans.................................................... 65,536 56,083
Installment loans.................................................... 20,742 21,258
-------- --------
Total loans....................................................... $138,674 $129,927
Less allowance for loan losses.................................... 1,968 1,843
-------- --------
Net loans......................................................... $136,706 $128,084
======== ========
The changes in the allowance for loan losses are:
1997 1996 1995
------- ------ ------
Balance at January 1................................................ $1,843 $1,719 $1,250
Increase in allowance acquired from FNB........................... -- -- 264
Provision for loan losses......................................... 413 310 220
Recoveries on loans charged off................................... 81 67 142
Loans charged off................................................. (369) (253) (157)
------ ------ ------
Balance at December 31............................................ $1,968 $1,843 $1,719
====== ====== ======
Management has not identified any impaired loans as of December 31, 1997, 1996,
and 1995.
Note 5 - MORTGAGE LOAN SERVICING
- --------------------------------
Mortgage loans serviced for others are not included in the accompanying
consolidated statements of financial condition. The unpaid principal balances
of mortgage loans serviced for others was $7,722 and $8,685 at December 31, 1997
and 1996, respectively.
Custodial escrow balances maintained in connection with the foregoing loan
servicing, and included in demand deposits, were approximately $77 and $89 at
December 31, 1997 and 1996, respectively.
Effective January 1, 1996, the Corporation adopted FAS 122, "Accounting for
Mortgage Servicing Rights." In evaluating mortgage servicing rights, management
has determined the amount to be immaterial.
Note 6 - PREMISES AND EQUIPMENT
- -------------------------------
The major classes of premises and equipment and the total accumulated
depreciation are as follows:
1997 1996
------ ------
Land, buildings and improvements............................... $2,922 $2,901
Furniture and equipment........................................ 2,393 2,175
------ ------
Total........................................................ 5,315 5,076
Less accumulated depreciation................................ 2,902 2,724
------ ------
Net premises and equipment................................... $2,413 $2,352
====== ======
F-18
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 7 - DEPOSITS
- -----------------
The aggregate amount of short-term jumbo CDs, each with a minimum denomination
of $100 was $19,536 and $17,917 in 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of CDs are as follows:
Year
----
1998 $46,423
1999 29,811
2000 7,925
2001 2,827
2002 2,141
Thereafter 840
-------
Total $89,967
=======
Note 8 - FEDERAL HOME LOAN BANK ADVANCES
- ----------------------------------------
Long-term debt of the Corporation totaling $7,707 and $9,273 at December 31,
1997 and 1996, respectively, consisted entirely of advances from the Federal
Home Loan Bank. The Bank is a member of the Federal Home Loan Bank (FHLB) of
Indianapolis and, accordingly, is permitted to obtain advances. The advances
from the FHLB, at December 31, 1997, accrue interest at annual rates varying
from 5.11% to 6.86%. At December 31, 1997, the advances are due as follows:
Year
----
1998 $ 569
1999 5,567
2000 1,068
2001 69
2002 434
------
Total $7,707
======
All advances are secured by a Blanket Collateral Agreement with the Federal Home
Loan Bank. The member must maintain an otherwise unencumbered portfolio of
eligible collateral with outstanding balances not less than 170% of advances
outstanding plus any amount required for other Bank credit products.
Note 9 - RETIREMENT PLANS
- -------------------------
The Bank has a trusteed profit-sharing and 401K plan which covers all employees
with greater than 1,000 hours of service. The Bank matches 75% of employee
contributions up to 5% of compensation. Profit-sharing contributions are
discretionary as authorized by the Board of Directors. Total contributions were
$52, $47 and $52 for 1997, 1996 and 1995, respectively.
The Corporation sponsors an Employee Stock Ownership Plan. The purpose of the
Plan is to enable full-time employees who have been employed for at least one
year to acquire stock ownership in the Corporation. Contributions to the Plan
are discretionary. For the years ended December 31, 1997, 1996 and 1995, the
Corporation contributed 1,021, 735 and 894 shares of its common stock that had a
total fair value of $71, $44 and $44, respectively. These contributions are
included in compensation expense in the accompanying income statement.
In the event a terminated Plan participant desires to sell shares of the
Corporation's stock, the Corporation may be required to purchase the shares from
the participant at the fair market value. At December 31, 1997 and 1996, the
Plan held 2,650 and 1,629 shares, respectively, all of which have been allocated
to Plan participants. The fair market value of those shares was $186 and $98,
respectively, for the years ended December 31, 1997 and 1996.
All shares held by the Employee Stock Ownership Plan are included as outstanding
in the computation of earnings per common share.
F-19
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 10 - STOCK OPTION AND EARNINGS PER COMMON SHARES
- -----------------------------------------------------
The Corporation has a stock option plan, which provides for the granting of
shares of the Corporation's common stock to certain key managerial employees.
These options vest and thus become exercisable ratably over a five-year period
from the date granted. The option price is based on the fair market value of the
common stock on the date the option is granted.
Grants under the above plan are accounted for following APB Opinion No. 25 and
related Interpretations. Accordingly, no compensation cost has been recognized
for grants under the stock option plan. In evaluating the grants under the stock
option plan and related pro formas, management has determined the amount to be
immaterial.
The following is a summary of the changes in options outstanding under the stock
option plan:
1997 1996
------- -------
Options outstanding, beginning of the year 5,955 2,990
Granted.................................. 3,575 2,965
------- -------
Exercised................................ (50) -
------- -------
Options outstanding, end of the year..... 9,480 5,955
======= =======
Options exercisable...................... 1,739 598
======= =======
Note 11 - CAPITAL RATIOS
- ------------------------
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Indiana
Department of Financial Institutions and the Federal Reserve Bank of St. Louis
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately capitalized, the Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
F-20
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
----------------- ----------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
As of December 31, 1997
Total capital (to Risk Weighted Assets)
Consolidated................................ $ 17,368 13.1% $ 10,575 8.0% $ 13,219 10.0%
Bank........................................ $ 16,912 12.8% $ 10,579 8.0% $ 13,223 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated................................ $ 15,712 11.9% $ 5,288 4.0% $ 7,932 6.0%
Bank........................................ $ 15,255 11.5% $ 5,289 4.0% $ 7,934 6.0%
Tier I Capital (to Average Assets)
Consolidated................................ $ 15,712 8.4% $ 5,611 3.0% $ 9,351 5.0%
Bank........................................ $ 15,255 8.2% $ 5,611 3.0% $ 9,351 5.0%
To Be Well Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
----------------- ----------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- -------- ----- -------- -----
As of December 31, 1996
Total capital (to Risk Weighted Assets)
Consolidated................................ $ 16,434 12.9% $ 10,226 8.0% $ 12,783 10.0%
Bank........................................ $ 15,924 12.5% $ 10,201 8.0% $ 12,751 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated................................ $ 14,833 11.6% $ 5,113 4.0% $ 7,670 6.0%
Bank........................................ $ 14,327 11.2% $ 5,100 4.0% $ 7,651 6.0%
Tier I Capital (to Average Assets)
Consolidated................................ $ 14,833 8.2% $ 5,442 3.0% $ 9,069 5.0%
Bank........................................ $ 14,327 7.9% $ 5,431 3.0% $ 9,051 5.0%
F-21
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 12 - INCOME TAXES
- ----------------------
The components of income tax expense are as follows:
1997 1996 1995
--------- ---------- ---------
Currently payable.................................................. $ 1,110 $ 1,029 $ 764
Deferred benefit................................................... 164 32 153
--------- ---------- ---------
Total income taxes............................................. $ 1,274 $ 1,061 $ 917
========= ========= =========
The Corporation's income tax expense differed from the statutory federal rate of
34% as follows:
1997 1996 1995
--------- ---------- --------
Expected income taxes................................................ $ 1,191 $ 1,014 $ 904
Income tax effect of:
Tax exempt income............................................... (224) (210) (207)
State income tax (net of federal tax effect..................... 211 184 166
Other differences............................................... 96 73 54
--------- --------- ---------
Total income taxes............................................ $ 1,274 $ 1,061 $ 917
========= ========= =========
The net deferred tax asset in the accompanying consolidated balance sheet
includes the following amounts of deferred tax assets and liabilities:
1997 1996
---------- ----------
Deferred tax assets................................. $ 649 $ 801
Deferred tax liabilities............................ (368) (279)
Valuation allowance................................. -- --
---------- ----------
Net deferred tax asset............................ $ 28(1) $ 522
========== ==========
The tax effects of principal temporary differences are as follows:
1997 1996
----------- ----------
Allowance for loan losses........................... $ 587 $ 538
Discount Accretion.................................. (132) (7)
Deferred loan fees.................................. (89) 41
Other-net........................................... (85) (50)
---------- ----------
Total............................................. $ 281 $ 522
Valuation allowance............................... -- --
---------- ----------
Net deferred tax asset............................ $ 281 $ 522
========== ==========
F-22
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
------------------------------------------------
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 13 - COMMITMENTS
- ---------------------
Minimum annual rental commitments under noncancellable operating leases at
December 31, 1997 are as follows:
Year Property Leases
-------- ---------------
1998 $ 70
1999 70
2000 64
2001 34
2002 33
Thereafter 142
--------
Total $ 413
========
Rental expense of $73, $72 and $60 was included in the statement of income in
1997, 1996 and 1995, respectively.
At December 31, 1997, the Bank was required to have $728 on deposit with the
Federal Reserve or as cash on hand.
Note 14 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
- -----------------------------------------------------------
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and stand-by letters
of credit. Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet. The contractual
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and stand-by
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the contract amount of the Bank's exposure to off-balance sheet
risk at December 31, is as follows:
1997 1996
--------- ---------
Commitments to extend credit $17,967 $ 19,802
Stand-by letters of credit $ 505 $ 892
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower, and may include accounts receivable, inventory, property, land,
and other items.
The Corporation does not engage in the use of futures, forwards, interest rate
swaps, or option contracts or other financial instruments with similar
characteristics.
Note 15 - CONCENTRATION OF CREDIT RISK
- --------------------------------------
The Bank's commercial loan portfolio includes a concentration of loans to
borrowers outside of the Bank's lending area amounting to approximately $22,444
and $23,434 as of December 31, 1997 and 1996, respectively. Generally, those
loans are collateralized by assets of those entities. The loans are expected to
be repaid from cash flows or from proceeds from the sale of selected assets of
the borrowers. Credit losses arising from lending transactions with borrowers
outside of the Bank's primary lending area compare favorably with the Bank's
credit loss experience on its loan portfolio as a whole.
F-23
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------------------------------
The estimated fair value of the Corporation's financial instruments at December
31, 1997 and 1996 are as follows:
1997 1996
------------------------ ---------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
Financial Assets:
Cash and due from banks............................. $ 4,496 $ 4,496 $ 4,018 $ 4,018
Fed Funds Sold...................................... $ 2,350 $ 2,350 $ 3,500 $ 3,500
Securities held-to-maturity......................... $ 20,925 $ 21,365 $ 24,145 $ 25,345
Securities available-for-sale....................... $ 18,268 $ 18,268 $ 15,185 $ 15,185
Loans............................................... $138,674 $138,955 $129,927 $128,826
Financial Liabilities:
Deposits............................................ $155,342 $156,995 $152,412 $149,031
Federal funds purchased............................. $ -- $ -- $ -- $ --
Securities sold under repurchase agreement.......... $ 8,582 $ 8,582 $ 4,581 $ 4,581
Federal Home Loan Bank advances..................... $ 7,707 $ 7,681 $ 9,273 $ 9,223
For certain financial instruments, including cash and due from banks, federal
funds sold, interest-bearing balances with banks, variable rate loans, variable
rate FHLB advances, variable rate money market accounts and certificates of
deposit, the carrying amounts approximate fair values. The estimated fair
values of investment securities and fixed rate FHLB advances are based on quoted
market prices, where available, or if not available, based on quoted market
prices of comparable instruments. Discounted cash flows using interest rates
currently being offered on similar instruments are used to determine the fair
values of fixed rate loans, fixed rate certificates of deposit, federal funds
purchased, and repurchase agreements.
The fair value of off-balance sheet instruments was estimated based on quoted
fees currently being charged for similar instruments. At the reporting date, no
significant fair value differences exist on commitments to extend credit and
stand-by letters of credit.
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of the Corporation's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. The fair value estimates are based on
financial instruments without attempting to estimate the value of assets and
liabilities that are not financial instruments, such as, premises and equipment
and other assets and liabilities. Accordingly, the fair value estimates are not
intended to represent the Corporation's underlying value.
Note 17 - RELATED PARTY TRANSACTIONS
- ------------------------------------
Certain directors, executive officers, and principal shareholders of the Bank,
including their immediate families and companies in which they are principal
owners, are loan customers of the Bank. Total loans to these persons amounted
to $5,345, $4,947, and $1,623 at December 31, 1997, 1996, and 1995,
respectively.
Note 18 - DIVIDEND RESTRICTIONS
- -------------------------------
The Bank is restricted by Indiana law and regulations of the Department of
Financial Institutions, State of Indiana, and the Federal Deposit Insurance
Corporation as to the maximum amount of dividends it can pay, without prior
approval, to the balance of the undivided profits account, adjusted for defined
bad debts. As a practical matter, the Bank restricts dividends to a lesser
amount because of the need to maintain an adequate capital structure.
F-24
National Bancorp
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
---------------------------------------------
December 31, 1997, 1996, and 1995
(Dollar references in thousands except share data)
Note 19 - NATIONAL BANCORP (PARENT COMPANY)
- -------------------------------------------
The Parent Company's principal asset is its investment in TCB Bank. The primary
source of funds is dividends received from the Bank.
Note 20 - SUBSEQUENT EVENTS
- ---------------------------
On February 13, 1998, the Corporation entered into a definitive agreement to
merge with CNB Bancshares, Inc. of Evansville, Indiana. Under the terms of the
agreement, shareholders of National Bancorp will receive 1,118,528 shares of CNB
Bancshares, Inc. common stock valued at $50.8 million (based upon the stock
price of CNB Bancshares, Inc. on the date the transaction was announced). The
merger is subject to shareholder and regulatory approval.
F-25
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
by and between
NATIONAL BANCORP,
an Indiana corporation,
and
CNB BANCSHARES, INC.,
an Indiana corporation.
Dated as of February 13, 1998.
================================================================================
A
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE ONE - TERMS OF MERGER AND CLOSING A-1
Section 1.01. Merger........................................................... A-1
Section 1.02. Merging Corporation.............................................. A-1
Section 1.03. Surviving Corporation............................................ A-1
Section 1.04. Effect of Merger................................................. A-1
Section 1.05. Conversion of Company Common..................................... A-2
Section 1.06. Share Adjustments................................................ A-2
Section 1.07. Closing.......................................................... A-3
Section 1.08. Exchange Procedures; Surrender of Certificates................... A-3
Section 1.09. Closing Date..................................................... A-3
Section 1.10. Closing Deliveries............................................... A-4
Section 1.11. Right to Revise Transaction...................................... A-4
Section 1.12. Disclosure Schedule; Standard.................................... A-5
ARTICLE TWO - REPRESENTATIONS AND WARRANTIES OF COMPANY.......................... A-5
Section 2.01. Organization and Capital Stock................................... A-5
Section 2.02. Authorization; No Defaults....................................... A-6
Section 2.03. Subsidiaries..................................................... A-6
Section 2.04. Financial Information............................................ A-7
Section 2.05. Absence of Changes............................................... A-7
Section 2.06. Regulatory Enforcement Matters................................... A-7
Section 2.07. Tax Matters...................................................... A-8
Section 2.08. Litigation and Related Matters................................... A-8
Section 2.09. Employment Agreements............................................ A-8
Section 2.10. Reports.......................................................... A-9
Section 2.11. Loan Portfolio................................................... A-9
Section 2.12. Investment Portfolio............................................. A-9
Section 2.13. Interest Rate Risk Management Instruments........................ A-9
Section 2.14. Employee Matters and ERISA....................................... A-9
Section 2.15. Title to Properties; Insurance................................... A-11
Section 2.16. Environmental Matters............................................ A-11
Section 2.17. Compliance with Law.............................................. A-12
Section 2.18. Brokerage........................................................ A-12
Section 2.19. Interim Events................................................... A-12
Section 2.20. Non-Banking Activities of Company and Subsidiaries............... A-12
Section 2.21. Trust Administration............................................. A-12
Section 2.22. Pooling of Interests; Tax-Free Reorganization.................... A-12
Section 2.23. Properties, Contracts and Other Agreements....................... A-12
Section 2.24. No Undisclosed Liabilities....................................... A-13
Section 2.25. Statements True and Correct...................................... A-13
Section 2.26. State Takeover Laws.............................................. A-14
Section 2.27. Fair Lending; Community Reinvestment Act......................... A-14
Section 2.28. Assets Necessary to Company's Business........................... A-14
A-i
ARTICLE THREE - REPRESENTATIONS AND WARRANTIES OF CNB............................ A-14
Section 3.01. Organization and Capital Stock................................... A-14
Section 3.02. Authorization.................................................... A-14
Section 3.03. Subsidiaries..................................................... A-15
Section 3.04. Financial Information............................................ A-15
Section 3.05. Absence of Changes............................................... A-15
Section 3.06. Litigation....................................................... A-15
Section 3.07. Reports.......................................................... A-15
Section 3.08. Compliance With Law.............................................. A-15
Section 3.09. Pooling of Interests; Tax-Free Reorganization.................... A-16
Section 3.10. Statements True and Correct...................................... A-16
ARTICLE FOUR - AGREEMENTS OF COMPANY............................................. A-16
Section 4.01. Business in Ordinary Course...................................... A-16
Section 4.02. Breaches......................................................... A-18
Section 4.03. Submission to Shareholders....................................... A-18
Section 4.04. Consents to Contracts and Leases................................. A-18
Section 4.05. Consummation of Agreement........................................ A-19
Section 4.06. Environmental Reports............................................ A-19
Section 4.07. Restriction on Resales........................................... A-19
Section 4.08. Access to Information............................................ A-19
Section 4.09. Subsidiary Bank Merger........................................... A-20
Section 4.10. Plan of Merger................................................... A-20
Section 4.11. Delivery of Audited Financial Statements......................... A-20
ARTICLE FIVE - AGREEMENTS OF CNB................................................. A-20
Section 5.01. Regulatory Approvals and Registration Statement.................. A-20
Section 5.02. Breaches......................................................... A-21
Section 5.03. Consummation of Agreement........................................ A-21
Section 5.04. Directors and Officers' Liability Insurance and Indemnification.. A-21
Section 5.05. Employee Benefits................................................ A-21
Section 5.06. Access to Information............................................ A-22
Section 5.07. Stock Options.................................................... A-22
ARTICLE SIX - CONDITIONS PRECEDENT TO MERGER..................................... A-23
Section 6.01. Conditions to CNB's Obligations.................................. A-23
Section 6.02. Conditions to Company's Obligations.............................. A-24
ARTICLE SEVEN - TERMINATION OR ABANDONMENT....................................... A-25
Section 7.01. Mutual Agreement................................................. A-25
Section 7.02. Breach of Agreements............................................. A-25
Section 7.03. Environmental Reports............................................ A-25
Section 7.04. Failure of Conditions............................................ A-25
Section 7.05. Regulatory Approval Denial; Burdensome Condition................. A-25
Section 7.06. Shareholder Approval Denial; Withdrawal/Modification of Board
Recommendation................................................... A-25
Section 7.07. Regulatory Enforcement Matters................................... A-25
Section 7.08. Fall-Apart Date.................................................. A-26
Section 7.09. Possible Purchase Price Adjustment............................... A-26
A-ii
Section 7.10. Termination Fee.................................................. A-26
ARTICLE EIGHT - GENERAL.......................................................... A-27
Section 8.01. Confidential Information......................................... A-27
Section 8.02. Publicity........................................................ A-27
Section 8.03. Return of Documents.............................................. A-27
Section 8.04. Notices.......................................................... A-27
Section 8.05. Liabilities and Expenses......................................... A-28
Section 8.06. Nonsurvival of Representations, Warranties and Agreements........ A-28
Section 8.07. Entire Agreement................................................. A-29
Section 8.08. Headings and Captions............................................ A-29
Section 8.09. Waiver, Amendment or Modification................................ A-29
Section 8.10. Rules of Construction............................................ A-29
Section 8.11. Counterparts..................................................... A-29
Section 8.12. Successors and Assigns........................................... A-29
Section 8.13. Severability..................................................... A-29
Section 8.14. Governing Law; Assignment........................................ A-30
Section 8.15. Enforcement of Agreement......................................... A-30
EXHIBIT 1.11(a) - Company's Legal Opinion Matters
EXHIBIT 1.11(b) - Acquiror's Legal Opinion Matters
EXHIBIT 4.07 - Form of Affiliate's Letter
A-iii
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of
February 13, 1998, by and between NATIONAL BANCORP, an Indiana corporation
("Company"), and CNB BANCSHARES, INC., an Indiana corporation ("CNB").
RECITALS
--------
A. The Boards of Directors of CNB and Company have approved, and deem
it advisable and in the best interests of their respective shareholders to
consummate, the business combination transaction provided for herein in which
Company shall, subject to the terms and conditions set forth herein, merge with
and into CNB (the "Merger").
B. The Boards of Directors of CNB and Company have each determined
that the Merger and the other transactions contemplated by this Agreement are
consistent with, and in furtherance of, their respective business strategies and
goals.
C. For federal income tax purposes, it is intended that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and, as such,
shareholders of Company will receive certain federal income tax tax-deferral
benefits with respect to shares of CNB received in the Merger. This Agreement
shall constitute a "plan of reorganization" for purposes of the Code.
D. For accounting purposes, it is intended that the Merger shall be
accounted for under the "pooling of interests" method of accounting.
E. CNB and Company desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
F. In consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth herein, CNB and
Company hereby agree as follows:
ARTICLE ONE
-----------
TERMS OF MERGER AND CLOSING
---------------------------
Section 1.01. Merger. Pursuant to the terms and provisions set
forth herein and the Indiana Business Corporation Law (the "IBCL"), Company
shall merge with and into CNB.
Section 1.02. Merging Corporation. Company shall be the merging
corporation under the Merger and its corporate identity and existence, separate
and apart from CNB, shall cease on consummation of the Merger.
Section 1.03. Surviving Corporation. CNB shall be the surviving
corporation in the Merger. No changes in the Articles of Incorporation of CNB
shall be effected by the Merger.
Section 1.04. Effect of Merger. The Merger shall have all of the
effects provided for herein and the IBCL.
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Section 1.05. Conversion of Company Common.
(a) At the Effective Time (as defined in Section 1.09 hereof), by virtue of
the Merger and without any action on the part of CNB, Company or their
respective shareholders, each share of common stock, no par value per share,
stated value $2.50 per share, of Company (the "Company Common") issued and
outstanding immediately prior to the Effective Time (other than shares of
Company Common held in the treasury of Company or by any direct or indirect
subsidiary of Company) shall be converted into the right to receive 3.45 shares
(the "Conversion Ratio") of common stock of CNB, stated value $1.00 per share
(the "CNB Common"). The Conversion Ratio shall be subject to adjustment as set
forth in Sections 1.06 and 7.09 hereof.
(b) The shares of CNB Common to be issued pursuant to Section 1.05(a),
together with any cash payment in lieu of fractional shares, as provided below
in this Section 1.05(b), is referred to herein as the "Merger Consideration."
No fractional shares of CNB Common shall be issued and, in lieu thereof, holders
of shares of Company Common who would otherwise be entitled to a fractional
share interest (after taking into account all shares of Company Common held by
such holder) shall be paid an amount in cash equal to the product of such
fractional share interest and the closing price of a share of CNB Common as
reported in The Wall Street Journal (Midwest Edition) on the trading day
immediately preceding the date on which the Effective Time occurs.
(c) At the Effective Time, all of the shares of Company Common, by virtue
of the Merger and without any action on the part of the holders thereof, shall
no longer be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of any certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of Company Common
(the "Certificates") shall thereafter cease to have any rights with respect to
such shares, except the right of such holders to receive, without interest, the
Merger Consideration upon the surrender of such Certificate or Certificates in
accordance with Section 1.08 hereof.
(d) At the Effective Time, each share of Company Common, if any, held in
the treasury of Company or by any direct or indirect subsidiary of Company
(other than shares held in trust accounts for the benefit of others or in other
fiduciary, nominee or similar capacities and shares held by Company or any of
its subsidiaries in respect to a debt previously contracted) immediately prior
to the Effective Time shall be canceled.
(e) Each share of CNB Common outstanding immediately prior to the Effective
Time shall remain outstanding unaffected by the Merger.
Section 1.06. Share Adjustments. If between the date hereof and the
Effective Time a share of CNB Common shall be changed into a different number of
shares of CNB Common or a different class of shares (a "Share Adjustment") by
reason of reclassification, recapitalization, splitup, exchange of shares or
readjustment, or if a stock dividend thereon shall be declared with a record
date within such period, then the number of shares of CNB Common into which a
share of Company Common shall be converted pursuant to Section 1.05(a) hereof
shall be appropriately and proportionately adjusted so that each shareholder of
Company shall be entitled to receive such number of shares of CNB Common as such
shareholder would have received pursuant to such Share Adjustment had the record
date therefor been immediately following the Effective Time of the Merger. In
the event that the sum of (i) the number of shares of Company Common presented
for exchange pursuant to Section 1.08 hereof or otherwise issued and outstanding
at the Effective Time, and (ii) the number of shares of Company Common issuable
upon the exercise of options or warrants (whether pursuant to Company Stock
Options (as defined in Section 5.07 hereof) or otherwise) as of the Effective
Time, shall be greater than the sum of (x) the number of shares of Company
Common represented in Section 2.01(b) hereof as being outstanding as of the date
hereof, and (y) the number of shares of Company Common issuable upon the
exercise of Company Stock Options represented in Section 2.01(b) hereof as being
outstanding as of the date hereof, then the Conversion Ratio shall be
appropriately and proportionately decreased to take into account such additional
issued and outstanding, and issuable, shares of Company Common.
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Section 1.07. Closing. The closing of the Merger (the "Closing") shall take
place at a location mutually agreeable to the parties at 10:00 a.m., Central
Time, on the Closing Date described in Section 1.09 hereof.
Section 1.08. Exchange Procedures; Surrender of Certificates.
-------------------------------------------------------------
(a) The Citizens National Bank of Evansville shall act as Exchange Agent in
the Merger (the "Exchange Agent").
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each record holder of any Certificate or
Certificates whose shares were converted into the right to receive the Merger
Consideration, a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as CNB may reasonably specify) (each
such letter, the "Merger Letter of Transmittal") and instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender to the Exchange Agent of a Certificate, together
with a Merger Letter of Transmittal duly executed and any other required
documents, the holder of such Certificate shall be entitled to receive in
exchange therefor solely the Merger Consideration. No interest on the Merger
Consideration issuable upon the surrender of the Certificates shall be paid or
accrued for the benefit of holders of Certificates. If the Merger Consideration
is to be issued to a person other than a person in whose name a surrendered
Certificate is registered, it shall be a condition of issuance that the
surrendered Certificate shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such issuance shall pay to the
Exchange Agent any required transfer taxes or other taxes or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(c) Notwithstanding anything to the contrary contained herein, no Merger
Consideration shall be delivered to a person who is an "affiliate" (as such term
is used in Section 4.07 hereof) of Company unless such "affiliate" shall have
theretofore executed and delivered to CNB the agreement referred to in Section
4.07 hereof.
(d) No dividends that are otherwise payable on shares of CNB Common
constituting the Merger Consideration shall be paid to persons entitled to
receive such shares of CNB Common until such persons surrender their
Certificates. Upon such surrender, there shall be paid to the person in whose
name the shares of CNB Common shall be issued any dividends which shall have
become payable with respect to such shares of CNB Common (without interest and
less the amount of taxes, if any, which may have been imposed thereon), between
the Effective Time and the time of such surrender.
(e) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by CNB in its
sole discretion, the posting by such person of a bond in such amount as CNB may
determine is reasonably necessary as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent shall issue
in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof pursuant hereto.
(f) At or after the Effective Time there shall be no transfers on the stock
transfer books of Company of any shares of Company Common. If, after the
Effective Time, Certificates are presented for transfer, they shall be cancelled
and exchanged for the Merger Consideration as provided in, and subject to the
provisions of, this Section 1.08.
Section 1.09. Closing Date. At CNB's election, the Closing shall take place
on (i) the last business day of, or (ii) the first business day of the month
following, or (iii) the last business day of the earliest month which is the
second month of a calendar quarter following, in each case, the month during
which each of the conditions in Sections 6.01(d) and 6.02(d) hereof is satisfied
or waived by the appropriate party or on such other date after such satisfaction
or waiver as Company and CNB may agree (the "Closing Date"). The Merger shall be
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effective upon the filing of Articles of Merger with the Secretary of State of
the State of Indiana (the "Effective Time"), which the parties shall use their
best efforts to cause to occur on the Closing Date.
Section 1.10. Closing Deliveries.
---------------------------------
(a) At the Closing, Company shall deliver to CNB:
(i) a certified copy of the Articles of Incorporation and Bylaws of
Company and each of its subsidiaries; and
(ii) a Certificate signed by an appropriate officer of Company
stating that (A) each of the representations and warranties contained in
Article Two hereof (subject to the standard in Section 1.12 hereof) is true
and correct at the time of the Closing with the same force and effect as if
such representations and warranties had been made at Closing, and (B) all
of the conditions set forth in Section 6.01(b) hereof have been satisfied
or waived as provided therein; and
(iii) a certified copy of the resolutions of Company's Board of
Directors and shareholders as required for valid approval of the execution
of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement; and
(iv) Certificate of the Secretary of State of the State of Indiana,
dated a recent date, stating that Company and each of its subsidiaries is
in existence; and
(v) Articles of Merger executed by Company, reflecting the terms
and provisions hereof and in proper form for filing with the Secretary of
State of the State of Indiana in order to cause the Merger to become
effective pursuant to the IBCL; and
(vi) a legal opinion from counsel for Company, in form reasonably
acceptable to CNB's counsel, opining with respect to the matters listed on
Exhibit 1.11(a) hereto.
(b) At the Closing, CNB shall deliver to Company:
(i) a Certificate signed by an appropriate officer of CNB stating
that (A) each of the representations and warranties contained in Article
Three hereof (subject to the standard in Section 1.12 hereof) is true and
correct at the time of the Closing with the same force and effect as if
such representations and warranties had been made at Closing, and (B) all
of the conditions set forth in Section 6.02(b) and 6.02(d) hereof (but
excluding the approval of Company's shareholders) have been satisfied; and
(ii) a certified copy of the resolutions of CNB's Board of Directors
as required for valid approval of the execution of this Agreement and the
consummation of the transactions contemplated by this Agreement; and
(iii) a legal opinion from counsel for CNB, in form reasonable
acceptable to Company's counsel, opining with respect to the matters listed
on Exhibit 1.10(b) hereto.
Section 1.11. Right to Revise Transaction . CNB may, at any time, change
the method of effecting the Merger (including, without limitation, the
provisions of this Article One) if and to the extent CNB deems such change to be
desirable, including, without limitation, to provide for the merger of Company
and a wholly-owned subsidiary of CNB; provided, however, that no such change
shall (A) alter or change the amount or kind of the Merger Consideration to be
received by the shareholders of Company in the Merger, (B) adversely affect the
tax treatment to shareholders of Company, as generally described in Section
6.01(h) hereof, or (C) materially impede or delay receipt of any approvals
referred to in Section 6.01(d) hereof or the consummation of the transactions
contemplated by this Agreement.
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Section 1.12. Disclosure Schedule; Standard.
--------------------------------------------
(a) Company has delivered to CNB a confidential schedule (the "Disclosure
Schedule"), executed by both Company and CNB concurrently with the delivery and
execution hereof, setting forth, among other things, items the disclosure of
which shall be necessary or appropriate either in response to an express
disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Article Two hereof; provided,
that (a) no such item shall be required to be set forth in the Disclosure
Schedule as an exception to a representation or warranty if its absence would
not be reasonably likely to result in the related representation or warranty
being deemed untrue or incorrect under the standard established by Section
1.12(b) hereof, and (b) the mere inclusion of an item in the Disclosure Schedule
as an exception to a representation or warranty shall not be deemed an admission
by Company that such item represents a material exception or fact, event or
circumstance or that such item is reasonably likely to result in a Material
Adverse Effect (as defined in Section 1.12 hereof). Notwithstanding the
foregoing, where a specific representation or warranty contained in Article Two
hereof requires a list, itemization, summary or description of a certain item or
items, such list, itemization, summary or description shall be provided without
regard to the standard set forth in Section 1.12(b) hereof.
(b) No representation or warranty of Company contained in Article Two
hereof or CNB contained in Article Three hereof shall be deemed untrue or
incorrect, and Company and CNB, as the case may be, shall not be deemed to have
breached a representation or warranty, as a consequence of the existence of any
fact, event or circumstance unless such fact, circumstance or event,
individually or taken together with all other facts, events or circumstances
inconsistent with any representation or warranty contained in Article Two
hereof, in the case of Company, or Article Three hereof, in the case of CNB, has
had or is reasonably likely to have a Material Adverse Effect on the party
making such representation or warranty. As used herein, the term "Material
Adverse Effect" means, with respect to Company or CNB, any effect that (i) is,
or is reasonably expected to be, material and adverse to the financial position,
results of operations or business of Company and its subsidiaries taken as a
whole, or CNB and its subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either Company or CNB to perform its
obligations under this Agreement or otherwise materially threaten or materially
impede the consummation of the Merger and the other transactions contemplated by
this Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and their holding
companies generally, and (c) any modifications or changes to valuation policies
and practices in connection with the Merger or restructuring charges taken in
connection with the Merger, in each case in accordance with generally accepted
accounting principles.
ARTICLE TWO
-----------
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Subject to Section 1.12 hereof and except as disclosed in a Section of
the Disclosure Schedule corresponding to the relevant Section in this Article
Two, Company hereby makes the following representations and warranties:
Section 2.01. Organization and Capital Stock.
---------------------------------------------
(a) Company is a corporation duly organized and validly existing under the
laws of the State of Indiana and has the corporate power to own all of its
property and assets, to incur all of its liabilities and to carry on its
business as now being conducted. Company is a bank holding company registered
with the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended (the "B.H.C.A.").
True, complete and correct copies of the Articles of Incorporation and Bylaws of
Company, as amended and as in effect on the date of this Agreement, are included
as exhibits in the Disclosure Schedule.
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(b) The authorized capital stock of Company consists only of
2,000,000 shares of Company Common, of which 315,081 shares are issued and
outstanding. All of the issued and outstanding shares of Company Common are duly
and validly issued and outstanding and are fully paid and non-assessable and
free of preemptive rights. None of the outstanding shares of Company Common has
been issued in violation of any preemptive rights of the current or past
shareholders of Company. Company has outstanding employee stock options
representing the right to acquire not more than 9,130 shares of Company Common
pursuant to the Stock Option Plan (as defined in Section 5.07 hereof). Each
Certificate issued by Company in replacement of any Certificate theretofore
issued by it which was claimed by the record holder thereof to have been lost,
stolen or destroyed was issued by Company only upon receipt of an affidavit of
lost stock certificate and indemnity agreement of such shareholder indemnifying
Company against any claim that may be made against it on account of the alleged
loss, theft or destruction of any such Certificate or the issuance of such
replacement Certificate.
(c) Except as set forth in subsection 2.01(b) above, (i) there are no
shares of capital stock or other equity securities of Company outstanding and no
outstanding options, warrants, rights to subscribe for, calls, or commitments of
any character whatsoever relating to, or securities or rights convertible into
or exchangeable for, shares of Company Common or other capital stock of Company
or contracts, commitments, understandings or arrangements by which Company is or
may be obligated to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock, and (ii) there are no outstanding stock appreciation, phantom stock or
similar rights.
(d) The minute books of Company accurately reflect all corporate
actions held or taken by its shareholders and Board of Directors (including
committees of the Board of Directors).
Section 2.02. Authorization; No Defaults. Company's Board of
Directors has, by all appropriate action, approved this Agreement and the Merger
and authorized the execution hereof on its behalf by its duly authorized
officers and the performance by Company of its obligations hereunder. Company's
Board of Directors has directed that the agreement of merger (within the meaning
of the IBCL) contained in this Agreement and the transactions contemplated by
this Agreement, including the Merger, be submitted to the shareholders of
Company for approval at the Company Shareholders Meeting (as defined in Section
4.03 hereof), and, except for the adoption and approval of this Agreement by the
affirmative vote of the holders of 67% of the outstanding shares of Company
Common, no other corporate proceedings on the part of Company are necessary to
approve this Agreement and to consummate the transactions contemplated by this
Agreement, including the Merger. Nothing in the Articles of Incorporation or
Bylaws of Company, as amended, or any other agreement, instrument, decree,
proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which it or any of its subsidiaries are
bound or subject would prohibit or inhibit Company from consummating this
Agreement and the Merger on the terms and conditions herein contained. This
Agreement has been duly and validly executed and delivered by Company and
constitutes a legal, valid and binding obligation of Company, enforceable
against Company in accordance with its terms. Company and its subsidiaries are
neither in default under nor in violation of any provision of their Articles of
Incorporation, Bylaws, or any promissory note, indenture or any evidence of
indebtedness or security therefor, lease, contract, insurance policy, purchase
or other commitment or any other agreement or arrangement (however evidenced),
whether written or oral, and there has not occurred any event that, with the
lapse of time or giving of notice or both, would constitute such a default or
violation. Holders of Company Common have dissenters' rights in connection with
the Merger.
Section 2.03. Subsidiaries. Company's banking subsidiary and each of
its other direct or indirect subsidiaries (collectively, the "subsidiaries") the
name and jurisdiction of incorporation of which is disclosed in Section 2.03 of
the Disclosure Schedule, is duly organized, and validly existing under the laws
of the jurisdiction of its incorporation and has the corporate power to own its
respective properties and assets, to incur its respective liabilities and to
carry on its respective business as now being conducted. The deposits of each of
Company's subsidiaries that is an insured institution are insured by the Federal
Deposit Insurance Corporation (the "F.D.I.C.") in accordance with the Federal
Deposit Insurance Act, as amended, up to applicable limits. The number of issued
and outstanding shares of capital stock of each such subsidiary is disclosed in
Section 2.03 of
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the Disclosure Schedule, all of which shares are owned by Company or Company's
subsidiaries, as the case may be, free and clear of all liens, encumbrances,
rights of first refusal, options or other restrictions of any nature whatsoever,
except for directors' qualifying shares, assessability under 12 U.S.C. (S)55 and
comparable state laws, if applicable. There are no options, warrants or rights
outstanding to acquire any capital stock of any of Company's subsidiaries and no
person or entity has any other right to purchase or acquire any unissued shares
of stock of any of Company's subsidiaries, nor does any such subsidiary have any
obligation of any nature with respect to its unissued shares of stock. Neither
Company nor any of Company's subsidiaries is a party to any partnership or joint
venture or owns an equity interest in any other business or enterprise. The
Articles of Incorporation and Bylaws of each subsidiary of Company, as amended,
copies of which were previously furnished to CNB, are true, complete and correct
copies of such documents as in effect on the date of this Agreement.
Section 2.04. Financial Information. The (i) unaudited consolidated
balance sheet of Company and its subsidiaries as of December 31, 1997, and
related consolidated income statement for the year ended December 31, 1997, as
filed with the Federal Reserve Board and included in Section 2.04 of the
Disclosure Schedule, (ii) the audited consolidated balance sheets of Company and
its subsidiaries as of December 31, 1996, 1995 and 1994, and related
consolidated income statements and statements of changes in shareholders' equity
and of cash flows for the three (3) years ended December 31, 1996, together with
the notes thereto, included in Section 2.04 of the Disclosure Schedule, and
(iii) the year-end Reports of Condition and Reports of Income of TCB Bank (the
"Subsidiary Bank") for 1997, as currently on file with the F.D.I.C. and included
in Section 2.04 of the Disclosure Schedule (together, the "Company Financial
Statements"), have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be disclosed
therein and except for regulatory reporting differences required by the reports
of the Subsidiary Bank) and fairly present the consolidated financial position
and the consolidated results of operations, changes in shareholders' equity and
cash flows of the respective entity and its respective consolidated subsidiaries
as of the dates and for the periods indicated. The audited financial statements
of Company and its subsidiaries to be delivered to CNB pursuant to Section 4.11
hereof shall not differ materially from the unaudited financial statements of
Company described in clause (i) of this Section 2.04 and included in Section
2.04 of the Disclosure Schedule. The books and records of Company and its
subsidiaries have been, and are being, maintained in accordance with generally
accepted accounting principles and any other applicable legal and accounting
requirements and reflect only actual transactions.
Section 2.05. Absence of Changes. Since December 31, 1996, there
has not been any change in the financial condition, the results of operations or
the business of Company and its subsidiaries taken as a whole which would have a
Material Adverse Effect on Company. Since the date of its most recent
regulatory examination report, there has been no change in the financial
condition, the results of operations or the business of the Subsidiary Bank
which would have a Material Adverse Effect on the Subsidiary Bank, except as
disclosed by Subsidiary Bank since the date of such most recent regulatory
examination report in its quarterly Reports of Condition and Reports of Income
filed with the F.D.I.C.
Section 2.06. Regulatory Enforcement Matters. Neither Company, the
Subsidiary Bank nor any other subsidiaries is subject or is party to, or has
received any notice or advice that it may become subject or party to, any
investigation with respect to, any cease-and-desist order, agreement, consent
agreement, memorandum of understanding or other regulatory enforcement action,
proceeding or order with or by, or is a party to any commitment letter or
similar undertaking to, or is subject to any directive by, or has been a
recipient of any supervisory letter from, or has adopted any board resolutions
at the request of, any Regulatory Agency (as defined below in this Section 2.06)
that currently restricts the conduct of its business or that relates to its
capital adequacy, its credit policies, its management or its business (each, a
"Regulatory Agreement"), nor has Company, the Subsidiary Bank or any other
subsidiaries been advised by any Regulatory Agency that it is considering
issuing or requesting any such Regulatory Agreement. There is no unresolved
violation, criticism or exception by any Regulatory Agency with respect to any
report or statement relating to any examinations of Company, the Subsidiary
Bank, any other subsidiaries. As used herein, the term "Regulatory Agency"
means any federal or state agency charged with the supervision or regulation of
banks or bank holding companies, or engaged in the insurance of bank deposits,
or any court, administrative agency or commission or other
A-7
governmental agency, authority or instrumentality having supervisory or
regulatory authority with respect to Company or any of its subsidiaries.
Section 2.07. Tax Matters.
---------------------------
(a) Each of Company and its subsidiaries has filed with the
appropriate governmental agencies all foreign, federal, state and local Tax (as
defined below in this Section 2.07) returns, declarations, estimates,
information returns, statements and reports (collectively, "Tax Returns")
required to be filed by it. Neither Company nor its subsidiaries are (a)
delinquent in the payment of any Taxes shown on such Tax Returns or on any
assessments received by it for such Taxes, (b) subject to any agreement
extending the period for assessment or collection of any Tax, or (c) a party to
any action or proceeding with, nor has any claim been asserted or threatened
against any of them by, any governmental authority for assessment or collection
of Taxes or for the refund of Taxes previously paid. The income Tax Returns of
Company and its subsidiaries have been not been audited by the Internal Revenue
Service (the "I.R.S.") and comparable state agencies since at least 1987. The
reserve for Taxes in the financial statements of Company for the year ended
December 31, 1996, is adequate to cover all of the liabilities for Taxes of
Company and its subsidiaries that may become payable in future years with
respect to any transactions consummated prior to December 31, 1996. As used
herein, the term "Taxes" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated or
other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or undisputed.
(b) Any amount that could be received (whether in cash or property or
the vesting of property) as a result of any of the transactions contemplated by
this Agreement by any employee, officer or director of Company or any of its
affiliates who is a "Disqualified Individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Company Employee
Plan (as defined in Section 2.14(c) hereof) currently in effect would not be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code).
(c) Company has not been subject to any disallowance of a deduction
under Section 162(m) of the Code nor does Company reasonably believe that such a
disallowance is reasonably likely to be applicable for any tax year of Company
ended on or before the Closing Date.
Section 2.08. Litigation and Related Matters. Section 2.08 of the
Disclosure Schedule describes all litigation, claims or other proceedings or
investigations of any nature pending or, to the knowledge of Company,
threatened, against Company or any of its subsidiaries, or of which the property
of Company or any of its subsidiaries is or would be subject. There is no
injunction, order, judgment, decree or regulatory restriction imposed upon
Company, or any of its subsidiaries or the assets of Company of any of its
subsidiaries. Company and its subsidiaries have continuously maintained fidelity
bonds insuring them against acts of dishonesty in such amounts as are customary,
usual and prudent for organizations of their size and business. There are no
facts which would form the basis of a claim or claims under such bonds. Neither
Company nor any of its subsidiaries has reason to believe that its respective
fidelity coverage would not be renewed by the carrier on substantially the same
terms as the existing coverage, except for possible premium increases unrelated
to Company's and its subsidiaries' past claim experience.
Section 2.09. Employment Agreements. Neither Company nor any of its
subsidiaries is a party to or bound by any agreement, arrangement, commitment or
contract (whether written or oral) for the employment, election, retention or
engagement, or with respect to the severance, of any present or former officer,
employee, agent, consultant or other person or entity which, by its terms, is
not terminable by Company or such subsidiary on thirty (30) days written notice
or less without the payment of any amount by reason of such termination. A true,
accurate and complete copy of each such agreement and any and all amendments or
supplements thereto which is in writing, and a summary of each such agreement
which is not in writing, is included in Section 2.09 of the Disclosure Schedule.
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Section 2.10. Reports. Company and each of its subsidiaries has
filed all reports and statements, together with any amendments required to be
made with respect thereto, if any, that it was required to file with (i) the
Federal Reserve Board, (ii) the F.D.I.C., (iii) any state securities
authorities, and (iv) any other Regulatory Agency with jurisdiction over Company
or any of its subsidiaries, and have paid all fees and assessments due and
payable in connection therewith. As of their respective dates, each of such
reports and documents, including any financial statements, exhibits and
schedules thereto, complied with the relevant statutes, rules and regulations
enforced or promulgated by the regulatory authority with which they were filed,
and did not 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 were made,
not misleading.
Section 2.11. Loan Portfolio. (i) All loans and discounts shown on
the Company Financial Statements or which were entered into after the date of
the most recent balance sheet included in the Company Financial Statements were
and shall be made for good, valuable and adequate consideration in the ordinary
course of the business of Company and its subsidiaries, in accordance with sound
banking practices, and are not subject to any known defenses, setoffs or
counterclaims, including without limitation any such as are afforded by usury or
truth in lending laws, except as may be provided by bankruptcy, insolvency or
similar laws or by general principles of equity, (ii) the notes or other
evidences of indebtedness evidencing such loans and all forms of pledges,
mortgages and other collateral documents and security agreements are and shall
be, enforceable, valid, true and genuine and what they purport to be, and (iii)
Company and its subsidiaries have complied and shall prior to the Closing Date
comply with all laws and regulations relating to such loans.
Section 2.12. Investment Portfolio. All investment securities held
by Company or its subsidiaries, as reflected in the consolidated balance sheets
of Company included in the Company Financial Statements, are carried in
accordance with generally accepted accounting principles, specifically including
but not limited to FAS 115.
Section 2.13. Interest Rate Risk Management Instruments. Section
2.13 of the Disclosure Schedule describes all interest rate swaps, caps, floors,
option agreements or other interest rate risk management arrangements or
agreements, whether entered into for the account of Company or its subsidiaries
or for the account of a customer of Company or one of its subsidiaries. All such
arrangements and agreements disclosed in Section 2.13 of the Disclosure Schedule
were entered into in the ordinary course of business and in accordance with
prudent banking practice and applicable rules, regulations and policies and with
counterparties believed to be financially responsible at the time and are legal,
valid and binding obligations of Company or one of its subsidiaries enforceable
in accordance with their terms (subject to the provisions of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally from time to time in
effect, and equitable principles relating to the granting of specific
performance and other equitable remedies as a matter of judicial discretion),
and are in full force and effect. Company and each of its subsidiaries have duly
performed all of their obligations thereunder to the extent that such
obligations to perform have accrued; and, to Company's knowledge, there are no
breaches, violations or defaults or allegations or assertions of such by any
party thereunder.
Section 2.14. Employee Matters and ERISA.
------------------------------------------
(a) Neither Company nor any of its subsidiaries has entered into any
collective bargaining agreement with any labor organization with respect to any
group of employees of Company or any of its subsidiaries and to the knowledge of
Company there is no present effort nor existing proposal to attempt to unionize
any group of employees of Company or any of its subsidiaries.
(b) (i) Company and its subsidiaries are and have been in compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including, without limitation,
any such laws respecting employment discrimination and occupational safety and
health requirements, and neither Company nor any of its subsidiaries is engaged
in any unfair labor practice, (ii) there is no unfair labor practice complaint
against Company or any subsidiary pending or, to the knowledge
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of Company, threatened before the National Labor Relations Board, (iii) there is
no labor dispute, strike, slowdown or stoppage actually pending or, to the
knowledge of Company, threatened against or directly affecting Company or any
subsidiary, and (iv) neither Company nor any subsidiary has experienced any work
stoppage or other labor difficulty during the past five (5) years.
(c) Section 2.14(c) of the Disclosure Schedule describes each
employee benefit plan, as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and each nonqualified
employee benefit plan, deferred compensation, bonus, stock and incentive plan,
and each other employee benefit and fringe benefit program for the benefit of
former or current employees of Company or any subsidiary (the "Company Employee
Plans") which Company and its subsidiaries maintain, contribute to or
participate in or have any liability under. No present or former employee of
Company or any subsidiary has been charged with breaching, or to the knowledge
of Company has breached, a fiduciary duty under any of the Company Employee
Plans. Neither Company nor any of its subsidiaries participates in, nor has it
in the past five (5) years participated in, nor has it any present or future
obligation or liability under, any multiemployer plan (as defined at Section
3(37) of ERISA). Section 2.14(c) of the Disclosure Schedule describes all plans
that provides health, major medical, disability or life insurance benefits to
former employees of Company or any subsidiary that Company and any subsidiary
maintain, contribute to, or participate in.
(d) Neither Company nor any of its subsidiaries maintain, nor have
any of them maintained for the past ten years, any Company Employee Plans
subject to Title IV of ERISA or Section 412 of the Code. No claim is pending,
and Company has not received notice of any threatened or imminent claim with
respect to any Company Employee Plan (other than a routine claim for benefits
for which plan administrative review procedures have not been exhausted) for
which Company or any of its subsidiaries would be liable after December 31,
1996, except as reflected on the Company Financial Statements. All liabilities
of the Company Employee Plans have been funded, to the extent required by law,
on the basis of consistent methods in accordance with sound actuarial
assumptions and practices. No actuarial assumptions have been changed since the
last written report of actuaries on such Company Employee Plans. All insurance
premiums (including premiums to the Pension Benefit Guaranty Corporation) have
been paid in full, subject only to normal retrospective adjustments in the
ordinary course. Company and its subsidiaries have no contingent or actual
liabilities under Title IV of ERISA. No accumulated funding deficiency (within
the meaning of Section 302 of ERISA or Section 412 of the Code) has been
incurred with respect to any of the Company Employee Plans, whether or not
waived. No reportable event (as defined in Section 4043 of ERISA) has occurred
with respect to any of the Company Employee Plans as to which a notice would be
required to be filed with the Pension Benefit Guaranty Corporation. After
December 31, 1996, Company and its subsidiaries do not have any liabilities for
excise taxes under Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Code or
for a fine under Section 502 of ERISA with respect to any Company Employee Plan.
All Company Employee Plans have been operated, administered and maintained in
accordance with the terms thereof and in compliance with the requirements of all
applicable laws, including, without limitation, ERISA and the Code.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement (either alone or
upon the occurrence of any additional acts or events) would (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director, officer or employee
of Company or any of its affiliates from Company or any of its affiliates under
any Company Employee Plan or otherwise, (ii) increase any benefits otherwise
payable under any Company Employee Plan, or (iii) result in any acceleration of
the time of payment or vesting of any such benefits.
(f) Attached to Section 2.14 of the Disclosure Schedule are, in
addition to copies of each Company Employee Plan and all amendments or
supplements thereto, (i) summary plan descriptions, (ii) lists of all current
participants and all participants with benefit entitlements, (iii) contracts
relating to plan documents, (iv) actuarial valuations for any defined benefit
plan, (v) valuations for any plan as of the most recent date, (vi) determination
letters from the I.R.S., (vii) the most recent annual report filed with the
I.R.S., and (viii) trust agreements.
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Section 2.15. Title to Properties; Insurance. (i) Company and its
subsidiaries have marketable title, insurable at standard rates, free and clear
of all liens, charges and encumbrances (except Taxes which are a lien but not
yet payable and liens, charges or encumbrances reflected in the Company
Financial Statements and easements, rights-of-way, and further excepting in the
case of Other Real Estate Owned (as such real estate is internally classified on
the books of Company or its subsidiaries) rights of redemption under applicable
law) to all of their real properties, (ii) all leasehold interests for real
property and personal property used by Company and its subsidiaries in their
businesses are held pursuant to lease agreements which are valid and enforceable
in accordance with their terms, (iii) all such properties comply with all
applicable private agreements, zoning requirements and other governmental laws
and regulations relating thereto and there are no condemnation proceedings
pending or, to the knowledge of Company, threatened with respect to such
properties, (iv) Company and its subsidiaries have valid title or other
ownership rights under licenses to all intangible personal or intellectual
property necessary to conduct the business and operations of Company and its
subsidiaries as presently conducted, free and clear of any claim, defense or
right of any other person or entity, subject only to rights of the licensors
pursuant to applicable license agreements, which rights do not adversely
interfere with the use of such property, (v) all insurable properties owned or
held by Company and its subsidiaries are adequately insured by financially sound
and reputable insurers in such amounts and against fire and other risks insured
against by extended coverage and public liability insurance, as is customary
with bank holding companies of similar size, and there are presently no claims
pending under such policies of insurance and no notices have been given by
Company or any of its subsidiaries under such policies, and (vi) all tangible
properties used in the businesses of Company and its subsidiaries are in good
condition, reasonable wear and tear excepted, and are useable in the ordinary
course of business consistent with past practices. Section 2.15 of the
Disclosure Schedule sets forth, for each policy of insurance maintained by
Company and its subsidiaries, the amount and type of insurance, the name of the
insurer and the amount of the annual premium.
Section 2.16. Environmental Matters.
------------ ---------------------
(a) As used herein, the term "Environmental Laws" shall mean all
local, state and federal environmental, health and safety laws and regulations
and common law standards in all jurisdictions in which Company and its
subsidiaries have done business or owned, leased or operated property,
including, without limitation, the Federal Resource Conservation and Recovery
Act, the Federal Comprehensive Environmental Response, Compensation and
Liability Act, the Federal Clean Water Act, the Federal Clean Air Act, and the
Federal Occupational Safety and Health Act.
(b) Neither the conduct nor operation of Company or its subsidiaries
nor any condition of any property presently or previously owned, leased or
operated by any of them violates or violated or, to the knowledge of Company,
may violate, Environmental Laws and no condition has existed or event has
occurred with respect to any of them or any such property that, with notice or
the passage of time, or both, would constitute or, to the knowledge of Company,
may constitute, a violation of Environmental Laws or obligate (or potentially
obligate) Company or its subsidiaries to remedy, stabilize, neutralize or
otherwise alter the environmental condition of any such property. Neither
Company nor any of its subsidiaries has received any notice from any person or
entity that Company or its subsidiaries or the operation or condition of any
property ever owned, leased or operated by any of them are or were in violation
of any Environmental Laws or that any of them are responsible (or potentially
responsible) for the cleanup or other remediation of any pollutants,
contaminants, or hazardous or toxic wastes, substances or materials at, on or
beneath any such property and, to the knowledge of Company, Company and its
subsidiaries and the operation and condition of any property ever owned, leased
or operated by any of them are not and were not in violation of any
Environmental Laws and none of them are responsible (or potentially responsible)
for the cleanup or other remediation of any pollutants, contaminants, or
hazardous or toxic wastes, substances or materials at, on or beneath any such
property.
Section 2.17. Compliance with Law. Company and its subsidiaries
have all licenses, franchises, permits and other governmental authorizations
that are legally required to enable them to conduct their respective businesses
and are in compliance with all applicable laws and regulations.
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Section 2.18. Brokerage. There are no existing claims or agreements
for brokerage commissions, finders' fees, or similar compensation in connection
with the transactions contemplated by this Agreement payable by Company or its
subsidiaries.
Section 2.19. Interim Events. Since December 31, 1996, neither
Company nor its subsidiaries has paid or declared any dividend or made any other
distribution to shareholders or taken any action which if taken after the date
hereof would require the prior written consent of CNB pursuant to Section
4.01(b) hereof.
Section 2.20. Non-Banking Activities of Company and Subsidiaries.
Neither Company nor any of its subsidiaries that is neither a bank, a bank
operating subsidiary or a bank service corporation, directly or indirectly,
engages in any activity prohibited by the Federal Reserve Board or the B.H.C.A.
or which is not listed at 12 C.F.R. 225.25. Without limiting the generality of
the foregoing, any equity investment of Company and each of its subsidiaries
that is not a bank, a bank operating subsidiary or a bank service corporation,
is not prohibited by the Federal Reserve Board or the B.H.C.A.
Section 2.21. Trust Administration. The Subsidiary Bank has
properly administered all accounts for which it acts as a fiduciary or agent,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing documents and applicable state and
federal law and regulation and common law. Neither Company, any subsidiary of
Company, nor any director, officer or employee of Company or any of its
subsidiaries acting on behalf of Company or any of its subsidiaries, has
committed any breach of trust with respect to any such fiduciary or agency
account, and the accountings for each such fiduciary or agency account are true
and correct and accurately reflect the assets of such fiduciary or agency
account. There is no investigation or inquiry by any Regulatory Agency pending,
or to the knowledge of Company, threatened, against or affecting Company or any
of its subsidiaries relating to the compliance by Company or any such subsidiary
with sound fiduciary principles and applicable regulations.
Section 2.22. Pooling of Interests; Tax-Free Reorganization.
Company has no reason to believe that the Merger shall not qualify as a "pooling
of interests" for accounting purposes or a tax-free reorganization within the
meaning of Section 368(a) of the Code.
Section 2.23. Properties, Contracts and Other Agreements. Section
2.23 of the Disclosure Schedule lists or describes the following (and copies of
each document, plan or contract listed and described in Section 2.23 of the
Disclosure Schedule are appended to such Schedule and included in the Disclosure
Schedule):
(a) Each parcel of real property owned by Company or its subsidiaries
and the principal buildings and structures located thereon; and
(b) Each lease of real property to which Company or its subsidiaries
is a party, identifying the parties thereto, the annual rental payable, the term
and expiration date thereof and a brief description of the property covered; and
(c) Each loan and credit agreement, conditional sales contract,
indenture or other title retention agreement or security agreement relating to
money borrowed by Company or its subsidiaries; and
(d) Each guaranty by Company or any of its subsidiaries of any
obligation for the borrowing of money or otherwise (excluding any endorsements
and guarantees in the ordinary course of business and letters of credit issued
by a Subsidiary Bank in the ordinary course of its business) or any warranty or
indemnification agreement; and
(e) Each agreement between Company or any of its subsidiaries and any
present or former officer, director or shareholder of Company or any of its
subsidiaries (except for deposit or loan agreements entered into in the ordinary
course of a Subsidiary Bank's business); and
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(f) Each lease or license with respect to personal property involving
Company or any of its subsidiaries, whether as lessee or lessor or licensee or
licensor, with annual rental or other payments due thereunder in excess of
$10,000; and
(g) The name and annual salary as of December 31, 1997, of each
director or employee of Company and its subsidiaries and any employment
agreement or arrangement with respect to each such person; and
(h) Each agreement, loan, contract, lease, guaranty, letter of credit,
line of credit or commitment of Company or its subsidiaries not referred to
elsewhere in this Section 2.23 which (i) involves payment by Company or its
subsidiaries (other than as disbursement of loan proceeds to customers) of more
than $15,000, (ii) involves payments based on profits of Company or its
subsidiaries, (iii) relates to the future purchase of goods or services in
excess of the requirements of its respective business at current levels or for
normal operating purposes, or (iv) were not made in the ordinary course of
business.
Section 2.24. No Undisclosed Liabilities. Company and its
subsidiaries do not have any liability, whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due,
including any liability for Taxes (and there is no past or present fact,
situation, circumstance, condition or other basis for any present or future
action, suit or proceeding, hearing, charge, complaint, claim or demand against
Company or its subsidiaries giving rise to any such liability), except (i) for
liabilities set forth in the Company Financial Statements, (ii) normal
fluctuation in the amount of the liabilities referred to in clause (i) above
occurring in the ordinary course of business of Company and its subsidiaries
since the date of the September 30, 1997 balance sheet included in the Company
Financial Statements, and (iii) as may be specifically disclosed in Section 2.24
of the Disclosure Schedule.
Section 2.25. Statements True and Correct. None of the information
supplied or to be supplied by Company or its subsidiaries for inclusion in (i)
the Registration Statement (as defined in Section 4.05 hereof), (ii) the Proxy
Statement/Prospectus (as defined in Section 4.03 hereof), and (iii) any other
documents to be filed with the Securities and Exchange Commission (the "S.E.C.")
or any other Regulatory Agency in connection with the transactions contemplated
by this Agreement shall, at the respective times such documents are filed, and,
in the case of the Registration Statement, when it becomes effective, and, with
respect to the Proxy Statement/Prospectus, when first mailed to the shareholders
of Company and at the time of the Company Shareholders Meeting (as defined in
Section 4.03 hereof), contain any untrue statement of a material fact, or omit
to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not
misleading. All documents that Company shall be responsible for filing any
Regulatory Agency in connection with the transactions contemplated by this
Agreement shall comply as to form in all material respects with the provisions
of applicable law and the applicable rules and regulations thereunder.
Section 2.26. State Takeover Laws. The Board of Directors of
Company has taken all such action required to be taken by it to provide that
this Agreement and the transactions contemplated by this Agreement shall be
exempt from the requirements of any "moratorium," "control share," "fair price"
or other anti-takeover laws or regulations of the State of Indiana.
Section 2.27. Fair Lending; Community Reinvestment Act. With the
exception of routine investigation of consumer complaints, neither Company nor
any of its subsidiaries has been advised by any Regulatory Agency that it is or
may be in violation of the Equal Credit Opportunity Act or the Fair Housing Act
or any similar federal or state statute. Each of Company's depository
institution subsidiaries received a Community Reinvestment Act ("CRA") rating of
"Outstanding" or "Satisfactory" in its most recent CRA examination.
Section 2.28. Assets Necessary to Company's Business. The assets
of Company and its subsidiaries constitute all of the assets used or employed by
Company and its subsidiaries, directly or indirectly, in their business as
heretofore conducted and there are no other assets, whether real or personal,
tangible or intangible,
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choate or inchoate, which are necessary to conduct the business and operations
of Company and its subsidiaries as heretofore conducted.
ARTICLE THREE
-------------
REPRESENTATIONS AND WARRANTIES OF CNB
-------------------------------------
Subject to Section 1.12 hereof, CNB hereby make the following
representations and warranties:
Section 3.01. Organization and Capital Stock.
(a) CNB is a corporation duly incorporated and validly existing under
the laws of the State of Indiana with full corporate power and authority to
carry on its business as it is now being conducted. CNB is a bank holding
company registered with the Federal Reserve Board under the B.H.C.A.
(b) The authorized capital stock of CNB consists of (i) 50,000,000
shares of CNB Common, of which, as of December 31, 1997, approximately
20,404,000 shares were issued and outstanding, and (ii) 2,000,000 shares of
preferred stock, of which none are issued and outstanding. All of the issued
and outstanding shares of CNB Common are duly and validly issued and outstanding
and are fully paid and non-assessable and free of preemptive rights.
(c) The shares of CNB Common that are to be issued to the shareholders
of Company pursuant to the Merger have been duly authorized and, when so issued
in accordance with the terms hereof, shall be validly issued and outstanding,
fully paid and non-assessable, with no personal liability attaching to the
ownership thereof.
Section 3.02. Authorization. The Executive Committee of the Board
of Directors of CNB has approved this Agreement and the Merger and authorized
the execution hereof on its behalf by its duly authorized officers and the
performance by CNB of its obligations hereunder. Nothing in the Articles of
Incorporation or Bylaws of CNB, as amended, or any other agreement, instrument,
decree, proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which CNB or any of its subsidiaries
are bound or subject would prohibit or inhibit CNB from entering into and
consummating this Agreement and the Merger on the terms and conditions herein
contained. This Agreement has been duly and validly executed and delivered by
CNB and constitutes a legal, valid and binding obligation of CNB, enforceable
against CNB in accordance with its terms and, except for the approval of the
Board of Directors of CNB, no other corporate acts or proceedings are required
to be taken by CNB to authorize the execution, delivery and performance of this
Agreement. Except for the requisite approval of the Federal Reserve Board and
the Indiana Department of Financial Institutions, no notice to, filing with,
authorization by, or consent or approval of, any federal or state bank
regulatory authority is necessary for the execution and delivery of this
Agreement or consummation of the Merger by CNB.
Section 3.03. Subsidiaries. Each of CNB's significant subsidiaries
(as such term is defined in Rule 1-02 of Regulation S-X promulgated by the
S.E.C.) is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the corporate power to own its
respective properties and assets, to incur its respective liabilities and to
carry on its respective business as now being conducted.
Section 3.04. Financial Information. The consolidated balance
sheets of CNB and its subsidiaries as of December 31, 1996 and 1995, and related
consolidated statements of income, changes in shareholders' equity and cash
flows for the three (3) years ended December 31, 1996, together with the notes
thereto, included in CNB's Annual Report on Form 10-K for the year ended
December 31, 1996, as currently on file with the S.E.C., and the unaudited
consolidated balance sheets of CNB and its subsidiaries as of March 31, 1997,
June 30, 1997 and September 30, 1997, and the related unaudited consolidated
income statements and statements of changes in shareholders' equity and cash
flows for the three (3) months, six (6) months and nine (9) months,
respectively, then ended included in CNB's Quarterly Reports on Form 10-Q for
the quarters then ended, as currently on file
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with the S.E.C. (together, the "CNB Financial Statements"), have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis (except as may be disclosed therein) and fairly present in all
material respects the consolidated financial position and the consolidated
results of operations, changes in shareholders' equity and cash flows of CNB and
its consolidated subsidiaries as of the dates and for the periods indicated
(subject, in the case of interim financial statements, to normal recurring year-
end adjustments, none of which shall be material).
Section 3.05. Absence of Changes. Since December 31, 1996, there
has not been any change in the financial condition, the results of operations or
the business of CNB and its subsidiaries which would have a Material Adverse
Effect on CNB, except as disclosed by CNB since December 31, 1996 in its
periodic reports filed with the S.E.C. under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
Section 3.06. Litigation. There is no litigation, claim or other
proceeding pending or, to the knowledge of CNB, threatened, against CNB or any
of its subsidiaries, or of which the property of CNB or any of its subsidiaries
is or would be subject which would have a Material Adverse Effect on CNB.
Section 3.07. Reports. CNB and each of its significant subsidiaries
has filed all material reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (i)
the S.E.C., (ii) the Federal Reserve Board, (iii) the Office of the Comptroller
of the Currency (the "O.C.C."), (iv) the F.D.I.C., (v) the New York Stock
Exchange ("N.Y.S.E."), and (vi) any other Regulatory Agency with jurisdiction
over CNB or any of its significant subsidiaries. As of their respective dates,
each of such reports and documents, as amended, including any financial
statements, exhibits and schedules thereto, complied with the relevant statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed and did not 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 were made, not misleading.
Section 3.08. Compliance With Law. CNB and its significant
subsidiaries have all licenses, franchises, permits and other governmental
authorizations that are legally required to enable them to conduct their
respective businesses and are in compliance with all applicable laws and
regulations.
Section 3.09. Pooling of Interests; Tax-Free Reorganization. CNB
has no reason to believe that the Merger shall not qualify as a "pooling of
interests" for accounting purposes or a tax-free reorganization within the
meaning of Section 368(a) of the Code.
Section 3.10. Statements True and Correct. None of the information
supplied or to be supplied by CNB for inclusion in (i) the Registration
Statement, (ii) the Proxy Statement/Prospectus, and (iii) any other documents to
be filed with the S.E.C., the N.Y.S.E. or any other Regulatory Agency in
connection with the transactions contemplated by this Agreement shall, at the
respective times such documents are filed, and, in the case of the Registration
Statement, when it becomes effective, and with respect to the Proxy
Statement/Prospectus, when first mailed to the shareholders of Company and at
the time of the Company Shareholders Meeting, contain any untrue statement of a
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading. All documents that CNB shall be responsible for filing
with the S.E.C., the N.Y.S.E. or any other Regulatory Agency in connection with
the transactions contemplated by this Agreement shall comply as to form in all
material respects with the provisions of applicable law and the applicable rules
and regulations thereunder.
ARTICLE FOUR
------------
AGREEMENTS OF COMPANY
---------------------
Section 4.01. Business in Ordinary Course.
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(a) Company shall not declare or pay any dividend or make any other
distribution to shareholders, whether in cash, stock or other property, after
the date hereof, except that Company may declare and pay its regular quarterly
dividend on the Company Common not to exceed $0.51 per share at approximately
the same times during each quarter which it has historically declared and paid
such dividends; provided, however, that Company and CNB shall cooperate with
each other to coordinate the record and payment dates of their respective
dividends for the quarter in which the Effective Time occurs such that the
Company shareholders shall receive a quarterly dividend from either Company or
CNB but not from both during or with respect to such quarter.
(b) Company shall, and shall cause each of its subsidiaries to, (1)
continue to carry on after the date hereof its respective business and the
discharge or incurrence of obligations and liabilities, only in the usual,
regular and ordinary course of business, as heretofore conducted, (2) use
reasonable best efforts to maintain and preserve intact its respective business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees, and (3) by way of amplification and
not limitation, Company and each of its subsidiaries shall not, without the
prior written consent of CNB (which shall not be unreasonably withheld):
(i) issue any Company Common or other capital stock or any
options, warrants, or other rights to subscribe for or purchase Company
Common or any other capital stock or any securities convertible into or
exchangeable for any capital stock of Company or any of its subsidiaries
(except for the issuance of Company Common pursuant to the valid exercise
of Company Stock Options which are outstanding on the date hereof); or
(ii) directly or indirectly redeem, purchase or otherwise acquire
any Company Common or any other capital stock of Company or its
subsidiaries; or
(iii) effect a reclassification, recapitalization, splitup,
exchange of shares, readjustment or other similar change in or to any
capital stock or otherwise reorganize or recapitalize; or
(iv) change its Articles of Incorporation or Association, as the
case may be, or Bylaws; or
(v) grant any increase, other than ordinary and normal increases
consistent with past practices, in the compensation payable or to become
payable to officers or salaried employees, grant any stock options or,
except as required by law, adopt or make any change in any bonus,
insurance, pension, or other Company Employee Plan, agreement, payment or
arrangement made to, for or with any of such officers or employees; or
(vi) borrow or agree to borrow any amount of funds except in the
ordinary course of business, or directly or indirectly guarantee or agree
to guarantee any obligations of others; or
(vii) make or commit to make any new loan or letter of credit or
any new or additional discretionary advance under any existing line of
credit, in principal amounts in excess of $500,000 or that would increase
the aggregate credit outstanding to any one borrower (or group of
affiliated borrowers) to more than $500,000 (excluding for this purpose any
accrued interest or overdrafts), without the prior written consent of CNB,
acting through its Senior Vice President and Chief Credit Officer or such
other designee as CNB may give notice of to Company; or
(viii) purchase or otherwise acquire any investment security for
its own account having an average remaining life to maturity greater than
five (5) years or any asset-backed securities other than those issued or
guaranteed by the Government National Mortgage Association, the Federal
National Mortgage Association or the Federal Home Loan Mortgage
Corporation; or
(ix) increase or decrease the rate of interest paid on time
deposits, or on certificates of deposit, except in a manner and pursuant to
policies consistent with past practices; or
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(x) enter into any agreement, contract or commitment out of the
ordinary course of business or having a term in excess of three (3) months
other than letters of credit, loan agreements, deposit agreements, and
other lending, credit and deposit agreements and documents made in the
ordinary course of business; or
(xi) except in the ordinary course of business, place on any of
its assets or properties any mortgage, pledge, lien, charge, or other
encumbrance; or
(xii) except in the ordinary course of business, cancel or
accelerate any material indebtedness owing to Company or its subsidiaries
or any claims which Company or its subsidiaries may possess or waive any
material rights with respect thereto; or
(xiii) sell or otherwise dispose of any real property or any
material amount of any tangible or intangible personal property other than
properties acquired in foreclosure or otherwise in the ordinary collection
of indebtedness to Company and its subsidiaries; or
(xiv) foreclose upon or otherwise take title to or possession or
control of any real property without first obtaining a phase one
environmental report thereon which indicates that the property is free of
pollutants, contaminants or hazardous or toxic waste materials; provided,
however, that Company and its subsidiaries shall not be required to obtain
such a report with respect to single family, non-agricultural residential
property of one acre or less to be foreclosed upon unless it has reason to
believe that such property might contain any such waste materials or
otherwise might be contaminated; or
(xv) commit any act or fail to do any act which would cause a
breach of any agreement, contract or commitment and which would have a
Material Adverse Effect on Company; or
(xvi) purchase any real or personal property or make any other
capital expenditure where the amount paid or committed therefor is in
excess of $25,000 individually or $50,000 in the aggregate; or
(xvii) take, or cause to be taken, any action, whether before or
after the Effective Time, which, in the good faith determination of Company
after consultation with its advisors and/or CNB, 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; or
(xviii) take any action which would adversely effect or delay
the ability of either CNB or Company to obtain any necessary approvals of
any Regulatory Agency or other governmental authority required for the
transactions contemplated by this Agreement or to perform its covenants and
agreements under this Agreement.
(c) Company and its subsidiaries shall not, without the prior written
consent of CNB, engage in any transaction or take any action that would render
untrue any of the representations and warranties of Company contained in Article
Two hereof, if such representations and warranties were given as of the date of
such transaction or action.
(d) Company shall promptly notify CNB in writing of the occurrence of
any matter or event known to and directly involving Company, which would not
include any changes in conditions that affect the banking industry generally,
that would have, either individually or in the aggregate, a Material Adverse
Effect on Company.
(e) Company and its subsidiaries shall not, and shall not authorize or
permit any of their respective officers, directors, employees or agents to, on
or before the earlier of the Closing Date or the date of termination of this
Agreement, directly or indirectly solicit, initiate or encourage or (subject to
the fiduciary duties of its directors as advised by counsel) hold discussions or
negotiations with or provide any information to any person
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in connection with any proposal from any person for the acquisition of all or
any substantial portion of the business, assets, shares of Company Common or
other securities of Company or its subsidiaries. Company shall promptly (which
for this purpose shall mean within twenty-four (24) hours) advise CNB of its
receipt of any such proposal or inquiry concerning any possible such proposal,
the substance of such proposal or inquiry, and the identity of such person.
Section 4.02. Breaches. Company shall, in the event it has
knowledge of the occurrence, or impending or threatened occurrence, of any event
or condition which would cause or constitute a breach (or would have caused or
constituted a breach had such event occurred or been known prior to the date
hereof) of any of its representations or agreements contained or referred to
herein, give prompt written notice thereof to CNB and use its best efforts to
prevent or promptly remedy the same.
Section 4.03. Submission to Shareholders. Company shall cause to be
duly called and held, on a date mutually selected by CNB and Company, a special
meeting of its shareholders (the "Company Shareholders Meeting") for submission
of this Agreement and the Merger for approval of such Company shareholders as
required by the IBCL. In connection with the Company Shareholders Meeting, (i)
Company shall cooperate and assist CNB in preparing and filing a Proxy
Statement/Prospectus (the "Proxy Statement/Prospectus") with the S.E.C. and
Company shall mail it to its shareholders, (ii) Company shall furnish CNB all
information concerning itself that CNB may reasonably request in connection with
such Joint Proxy Statement/Prospectus, and (iii) the Board of Directors of
Company (subject to compliance with its fiduciary duties as advised by counsel)
shall recommend to its shareholders the approval of this Agreement and the
Merger contemplated by this Agreement and use its best efforts to obtain such
shareholder approval.
Section 4.04. Consents to Contracts and Leases. Company shall use
its best efforts to obtain all necessary consents with respect to all interests
of Company and its subsidiaries in any material leases, licenses, contracts,
instruments and rights which require the consent of another person for their
transfer or assumption pursuant to the Merger, if any.
Section 4.05. Consummation of Agreement. Company shall use its best
efforts to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger and the
other transactions contemplated hereby in accordance with the terms and
provisions hereof and to effect the transition and integration of the business
and operations of Company and its subsidiaries with the business and operations
of CNB and its subsidiaries. Company shall furnish to CNB in a timely manner
all information, data and documents in the possession of Company requested by
CNB as may be required to obtain any necessary regulatory or other approvals of
the Merger and to file with the S.E.C. a registration statement on Form S-4 (the
"Registration Statement") relating to the shares of CNB Common to be issued to
the shareholders of Company pursuant to the Merger and this Agreement and shall
otherwise cooperate fully with CNB to carry out the purpose and intent of this
Agreement.
Section 4.06. Environmental Reports. Company shall provide to CNB,
as soon as reasonably practical, but not later than thirty (30) days after the
date hereof, a report of a phase one environmental investigation on all real
property owned, leased or operated by Company or its subsidiaries as of the date
hereof (but excluding space in retail and similar establishments leased by
Company for automatic teller machines or bank branch facilities where the space
leased comprises less than 20% of the total space leased to all tenants of such
property) and within ten (10) days after the acquisition or lease of any real
property acquired or leased by Company or its subsidiaries after the date hereof
(but excluding space in retail and similar establishments leased by Company for
automatic teller machines or bank branch facilities where the space leased
comprises less than 20% of the total space leased to all tenants of such
property), except as otherwise provided in Section 4.01(b)(xiv) hereof. If
required by the phase one investigation in CNB's reasonable opinion, Company
shall provide to CNB, within thirty (30) days of such request, a report of a
phase two investigation on properties requiring such additional study. CNB
shall have fifteen (15) business days from the receipt of any such phase two
investigation report to notify Company of any dissatisfaction with the contents
of such report. Should the cost of taking all remedial or other corrective
actions and measures (i) required by applicable law or reasonable likely to be
required by applicable law, or (ii) recommended or suggested by such report or
reports or prudent in
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light of serious life, health or safety concerns, in the aggregate, exceed the
sum of $150,000 as reasonably estimated by an environmental expert retained for
such purpose by CNB and reasonably acceptable to Company, or if the cost of such
actions and measures cannot be so reasonably estimated by such expert to be such
amount or less with any reasonable degree of certainty, then CNB shall have the
right pursuant to Section 7.03 hereof, for a period of fifteen (15) business
days following receipt of such estimate or indication that the cost of such
actions and measures can not be so reasonably estimated, to terminate this
Agreement, which shall be CNB's sole remedy in such event.
Section 4.07. Restriction on Resales. Company shall deliver to CNB, at
least five (5) days prior to the mailing of the Proxy Statement/Prospectus to
the shareholders of Company in connection with the Company Shareholders Meeting,
a list of each person who may reasonably be deemed an "affiliate" of Company
within the meaning of such term as used in Rule 145 under the Securities Act of
1933, as amended (the "Securities Act"), at the time the Proxy Statement/
Prospectus is mailed to the shareholders of Company. Company shall use its best
efforts to obtain and deliver to CNB, at least thirty-one (31) days prior to the
Closing Date, the signed agreement, in the form of Exhibit 4.07 hereto, of each
person named on the list referred to in the preceding sentence regarding
compliance by such person with (i) the provisions of such Rule 145, and (ii) the
requirements of Accounting Principles Board Opinion No. 16 regarding the
disposition of shares (or reduction of risk with respect thereto) of Company
Common during the thirty (30) days preceding the Closing Date, or CNB Common
until such time as financial results covering at least thirty (30) days of post-
Merger combined operations have been published.
Section 4.08. Access to Information. Company shall permit CNB reasonable
access in a manner which shall avoid undue disruption or interference with
Company's normal operations to its properties and shall disclose and make
available to CNB all books, documents, papers, records and computer systems
documentation and files relating to its assets, stock ownership, properties,
operations, obligations and liabilities, including, but not limited to, all
books of account (including the general ledger), tax records, minute books of
directors' and shareholders' meetings, organizational documents, material
contracts and agreements, loan files, filings with any regulatory authority,
accountants' workpapers (if available and subject to the respective independent
accountants' consent), litigation files (but only to the extent that such review
would not result in a material waiver of the attorney-client or attorney work
product privileges under the rules of evidence), Company Employee Plans, and any
other business activities or prospects in which CNB may have a reasonable and
legitimate interest in furtherance of the transactions contemplated by this
Agreement. CNB shall hold any such information which is nonpublic in confidence
in accordance with the provisions of Section 8.01 hereof.
Section 4.09. Subsidiary Bank Merger. Upon the request of CNB, Company
shall cause the Subsidiary Bank to enter into a merger agreement with Citizens
Bank of Jasper, a wholly-owned banking subsidiary of CNB, and take all other
actions and cooperate with CNB in causing such merger to be effected. Such
subsidiary bank merger agreement shall provide, in addition to customary terms
for the combination of subsidiary bank operations in transactions such as this:
(i) for consummation of any such merger on a date on or after the Closing Date,
as may be selected by CNB, and (ii) that the obligations of the Subsidiary Bank
thereunder are conditioned on the prior or simultaneous consummation of the
Merger pursuant to this Agreement.
Section 4.10. Plan of Merger. At the request of CNB, Company shall
enter into a separate plan of merger or articles of merger reflecting the terms
hereof for purposes of any filing requirement of the IBCL.
Section 4.11. Delivery of Audited Financial Statements. Company shall
deliver to CNB, on or before March 31, 1998, an unqualified audit opinion
on the consolidated balance sheet of Company as of December 31, 1997, and the
related consolidated statement of income, changes in stockholders' equity and
cash flows of Company for the year ended December 31, 1997.
ARTICLE FIVE
------------
AGREEMENTS OF CNB
-----------------
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Section 5.01. Regulatory Approvals and Registration Statement.
(a) CNB shall file all regulatory applications required in order to
consummate the Merger, including but not limited to the necessary applications
for the prior approval of the Federal Reserve Board and the Indiana Department
of Financial Institutions. CNB shall keep Company reasonably informed as to the
status of such applications and make available to Company, upon reasonable
request by Company from time to time, copies of such applications and any
supplementally filed materials.
(b) CNB shall file with the S.E.C. the Registration Statement relating
to the shares of CNB Common to be issued to the shareholders of Company pursuant
hereto, and shall use its best efforts to cause the Registration Statement to
become effective. At the time the Registration Statement becomes effective, the
Registration Statement shall comply in all material respects with the provisions
of the Securities Act and the published rules and regulations thereunder, and
shall 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 not false or misleading, and at the time of mailing thereof to the
shareholders of Company, at the time of the Company Shareholders Meeting and at
the Effective Time, the Proxy Statement/Prospectus included as part of the
Registration Statement, as amended or supplemented by any amendment or
supplement, shall not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not false or
misleading. CNB shall timely file all documents required to obtain all
necessary Blue Sky permits and approvals, if any, required to carry out the
transactions contemplated by this Agreement, shall pay all expenses incident
thereto and shall use its best efforts to obtain such permits and approvals on a
timely basis. CNB shall promptly and properly prepare and file (i) any
application required to list on the N.Y.S.E. the shares of CNB Common to be
issued pursuant to the Merger, and (ii) any filings required under the Exchange
Act relating to the Merger and the transactions contemplated herein.
Section 5.02. Breaches. CNB shall, in the event it has knowledge of
the occurrence, or impending or threatened occurrence, of any event or condition
which would cause or constitute a breach (or would have caused or constituted a
breach had such event occurred or been known prior to the date hereof) of any of
its representations or agreements contained or referred to herein, give prompt
written notice thereof to Company and use its best efforts to prevent or
promptly remedy the same.
Section 5.03. Consummation of Agreement. CNB shall use its best efforts
to perform and fulfill all conditions and obligations on its part to be
performed or fulfilled under this Agreement and to effect the Merger in
accordance with the terms and conditions of this Agreement.
Section 5.04. Directors and Officers' Liability Insurance and
Indemnification.
(a) For a period of three (3) years after the Effective Time, CNB
shall use its reasonable best efforts to cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
Company (provided that CNB may substitute therefor policies of comparable
coverage with respect to claims arising from facts or events which occurred
before the Effective Time); provided, however, that in no event shall CNB be
obligated to expend, in order to maintain or provide insurance coverage pursuant
to this Section 5.04(a), any amount per annum in excess of 150% of the amount of
the annual premiums paid as of the date hereof by Company for such insurance
(the "Maximum Amount"). If the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount, CNB
shall use all reasonable efforts to maintain the most advantageous policies of
directors' and officers' insurance obtainable for an annual premium equal to the
Maximum Amount. Notwithstanding the foregoing, prior to the Effective Time, CNB
may request Company to, and Company shall, purchase insurance coverage, on such
terms and conditions as shall be acceptable to CNB, extending for a period of
three (3) years Company's directors' and officers' liability insurance coverage
in effect as of the date hereof (covering past or future claims with respect to
periods before the Effective Time) and such coverage shall satisfy CNB's
obligations under this Section 5.04(a).
(b) For three (3) years after the Effective Time, CNB shall indemnify,
defend and hold harmless the present and former officers, directors, employees
and agents of Company and its subsidiaries (each, an
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"Indemnified Party") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring on or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement) to the full extent then permitted under the IBCL and by
Company's Articles of Incorporation as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
action or suit.
Section 5.05. Employee Benefits.
(a) CNB shall, with respect to each employee of Company or its
subsidiaries at the Effective Time who shall continue in employment with CNB
(the surviving corporation in the Merger) or its subsidiaries after the Merger,
including the Subsidiary Bank (each a "Continued Employee"), provide the
benefits described in this Section 5.05. Subject to the right of subsequent
amendment, modification or termination in CNB's sole discretion, each Continued
Employee shall be entitled, as an employee of a subsidiary of CNB, to
participate in such employee benefit plans, as defined in Section 3(3) of ERISA,
or any non-qualified employee benefit plans or deferred compensation, stock
option, bonus or incentive plans, or other employee benefit or fringe benefit
programs that may be in effect generally for employees of CNB and its
subsidiaries (the "CNB Employee Plans"), if and as a Continued Employee shall be
eligible and, if required, selected for participation therein under the terms
thereof and otherwise shall not be participating in a similar plan maintained by
Company after the Effective Time. Company employees shall be eligible to
participate on the same basis as similarly situated employees of CNB and its
subsidiaries. All such participation shall be subject to such terms of such CNB
Employee Plans as may be in effect from time to time and this Section 5.05 is
not intended to give Continued Employees any rights or privileges superior to
those of other employees of CNB's subsidiaries. CNB may terminate or modify all
Company Employee Plans except insofar as benefits thereunder shall have vested
at the Effective Time and cannot be modified and CNB's obligation under this
Section 5.05 shall not be deemed or construed so as to provide duplication of
similar benefits but, subject to that qualification, CNB shall, for purposes of
vesting and any age or period of service requirements for commencement of
participation with respect to any CNB Employee Plans in which Continued
Employees may participate (but not for benefit accruals under any defined
benefit plan), credit each Continued Employee with his or her term of service
with Company and its subsidiaries.
(b) Employees of Company and Subsidiary Bank shall become covered by
CNB's welfare benefit plans at such time(s) as shall be determined by CNB in its
sole discretion. Until such time as the employees of Company and Subsidiary
Bank become covered by the CNB welfare benefit plans, employees of Subsidiary
Bank shall remain covered by the welfare benefit plans of Company and Subsidiary
Bank, subject to the terms of such plans as in effect prior to the Effective
Time. Notwithstanding the foregoing, CNB shall cause Company's Section 125 Plan
to be maintained at least until December 31, 1998.
(c) No full-time employee of Company and Subsidiary Bank and none of
the dependents of any such employee serving as of the Effective Time shall be
subject to any pre-existing condition exclusions under any of CNB's welfare
benefit plans if such employee or dependant was covered by the corresponding
Company or Subsidiary Bank welfare benefit plan for more than 270 consecutive
days immediately preceding the Effective Time.
Section 5.06. Access to Information. CNB shall permit Company reasonable
access in a manner which shall avoid undue disruption or interference with CNB's
normal operations to its properties and shall disclose and make available to
Company all books, documents, papers and records relating to its assets, stock
ownership, properties, operations, obligations and liabilities, including, but
not limited to, all books of account (including the general ledger), tax
records, minute books of directors' and shareholders' meetings, organizational
documents, material contracts and agreements, loan files, filings with any
regulatory authority, accountants' workpapers (if available and subject to the
respective independent accountants' consent), litigation files (but only to the
extent that such review would not result in a material waiver of the attorney-
client or attorney work product privileges under the rules of evidence), plans
affecting employees, and any other business activities or prospects in which
Company may have a reasonable and legitimate interest in furtherance of the
transactions
A-21
contemplated by this Agreement. Company shall hold any such information which is
nonpublic in confidence in accordance with the provisions of Section 8.01
hereof.
Section 5.07. Stock Options.
(a) At the Effective Time, each outstanding option to purchase shares
of Company Common (a "Company Stock Option") issued pursuant to the National
Bancorp Stock Option Plan (the "Stock Option Plan"), whether or not exercisable
or vested, shall cease to represent a right to acquire shares of Company Common
and shall be converted automatically into an option to acquire, from and after
the Effective Time, on the same terms and conditions as were applicable under
such Company Stock Option, the number of full shares of CNB Common as the holder
of such Company Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time (determined by multiplying the aggregate number of shares of
Company Common covered by such Company Stock Option by the Conversion Ratio), at
a price per share equal to (y) the aggregate amount of the exercise prices for
Company Common otherwise purchasable pursuant to such Company Stock Option,
divided by (z) the number of full shares of CNB Common deemed purchasable
pursuant to such Company Stock Option (determined as provided above in this
Section 5.07(a)). In no event shall CNB be required to issue fractional shares
of CNB Common.
(b) As soon as practicable after the Effective Time, CNB shall deliver
to each holder of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the Stock Option Plan, and the agreements evidencing
the grants of such Company Stock Options shall continue in effect on the same
terms and conditions (subject to the conversion required by this Section 5.07
after giving effect to the Merger and the assumption by CNB as set forth above).
To the extent necessary to effectuate the provisions of this Section 5.07, CNB
shall deliver new or amended agreements reflecting the terms of each Company
Stock Option assumed by CNB and amend the Stock Option Plan to reflect the terms
hereof.
(c) As soon as practicable after the Effective Time, CNB shall file
with the S.E.C. a registration statement on an appropriate form with respect to
the shares of CNB Common subject to such options and shall use its best efforts
to maintain the effectiveness of such registration statement (and maintain the
current status of the prospectus or prospectuses with respect thereto) for so
long as such options remain outstanding.
(d) The adjustment provided in this Section 5.07 with respect to any
Company Stock Options which are "incentive stock options" (as defined in Section
422 of the Code) shall be and is intended to be effected in a manner which is
consistent with Section 424(a) of the Code and, to the extent it is not so
consistent, such Section 424(a) of the Code shall override anything to the
contrary contained herein.
ARTICLE SIX
-----------
CONDITIONS PRECEDENT TO MERGER
------------------------------
Section 6.01. Conditions to CNB's Obligations. The obligations of CNB to
effect the Merger shall be subject to the satisfaction (or waiver by CNB) prior
to or on the Closing Date of the following conditions:
(a) The representations and warranties made by Company in this Agreement
shall be true and correct (subject to the standard in Section 1.12 hereof) on
and as of the Closing Date with the same effect as though such representations
and warranties had been made or given on and as of the Closing Date (except for
any such representations and warranties made only as of a specified date which
shall be true and correct as of such date); and
(b) Company shall have performed and complied in all material respects
with all of its obligations and agreements required to be performed on or prior
to the Closing Date under this Agreement; and
(c) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the
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consummation of the Merger shall be in effect, nor shall any proceeding by any
Regulatory Agency or other person seeking any of the foregoing be pending. There
shall not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal; and
(d) All necessary regulatory approvals, consents, authorizations and other
approvals, including the requisite approval of this Agreement and the Merger by
the shareholders of Company, required by law for consummation of the Merger
shall have been obtained and all waiting periods required by law shall have
expired, and no regulatory approval shall have imposed any condition,
requirement or restriction which the Board of Directors of CNB reasonably
determines in good faith would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement to CNB and
its shareholders as to render inadvisable the consummation of the Merger (any
such condition, requirement or restriction, a "Burdensome Condition"); and
(e) CNB shall have received all documents required to be received from
Company on or prior to the Closing Date, all in form and substance reasonably
satisfactory to CNB; and
(f) The Merger shall qualify for pooling of interests accounting
treatment under Accounting Principles Board Opinion No. 16 if closed and
consummated in accordance with this Agreement; and
(g) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the S.E.C. or any state securities agency; and
(h) CNB shall have received an opinion of its counsel, Lewis, Rice &
Fingersh, L.C., to the effect that if the Merger is consummated in accordance
with the terms set forth in this Agreement (i) the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Code, (ii) no gain or
loss shall be recognized by the holders of shares of Company Common upon receipt
of Merger Consideration (except for cash received in lieu of fractional shares),
(iii) the basis of shares of CNB Common received by the shareholders of Company
shall be the same as the basis of shares of Company Common exchanged therefor,
and (iv) the holding period of the shares of CNB Common received by such
shareholders shall include the holding period of the shares of Company Common
exchanged therefor, provided such shares were held as capital assets as of the
Effective Time.
Section 6.02. Conditions to Company's Obligations. The obligations of
Company to effect the Merger shall be subject to the satisfaction (or waiver by
Company) prior to or on the Closing Date of the following conditions:
(a) The representations and warranties made by CNB in this Agreement
shall be true and correct (subject to the standard in Section 1.12 hereof) on
and as of the Closing Date with the same effect as though such representations
and warranties had been made or given on and as of the Closing Date (except for
any such representations and warranties made only as of a specified date which
shall be true and correct as of such date); and
(b) CNB shall have performed and complied in all material respects with
all of its obligations and agreements hereunder required to be performed on or
prior to the Closing Date under this Agreement; and
(c) No Injunction preventing the consummation of the Merger shall be
in effect, nor shall any proceeding by any Regulatory Agency seeking any of the
foregoing be pending. There shall not be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal; and
(d) All necessary regulatory approvals, consents, authorizations and other
approvals, including the requisite approval of this Agreement and the Merger by
the shareholders of Company, required by law for
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consummation of the Merger shall have been obtained and all waiting periods
required by law shall have expired; and
(e) Company shall have received all documents required to be received
from CNB on or prior to the Closing Date, all in form and substance reasonably
satisfactory to Company; and
(f) The Registration Statement shall be effective under the Securities
Act and no stop orders suspending the effectiveness of the Registration
Statement shall be in effect or proceedings for such purpose pending before or
threatened by the S.E.C. or any state securities agency; and
(g) Company shall have received a copy of the opinion of CNB's counsel
contemplated by Section 6.01(h) hereof; and
(h) The Board of Directors of CNB shall have authorized the execution of
this Agreement and the consummation of the transactions contemplated hereby,
including the Merger, at or before its regularly scheduled meeting in March,
1998.
ARTICLE SEVEN
-------------
TERMINATION OR ABANDONMENT
--------------------------
Section 7.01. Mutual Agreement. This Agreement may be terminated by the
mutual written agreement of CNB and Company at any time prior to the Closing
Date, regardless of whether approval of this Agreement and the Merger by the
shareholders of Company shall have been previously obtained.
Section 7.02. Breach of Agreements. In the event that there is a
breach in any of the representations and warranties (subject to the standard in
Section 1.12 hereof) or a material breach of any of the agreements of CNB or
Company, which breach is not cured within thirty (30) days after notice to cure
such breach is given to the breaching party by the non-breaching party, then the
non-breaching party, regardless of whether shareholder approval of this
Agreement and the Merger shall have been previously obtained, may terminate and
cancel this Agreement by providing written notice of such action to the other
party hereto.
Section 7.03. Environmental Reports. CNB may terminate this Agreement to
the extent provided by Section 4.06 hereof and this Section 7.03 by giving
written notice thereof to Company.
Section 7.04. Failure of Conditions. In the event any of the conditions
to the obligations of either party are not satisfied or waived on or prior to
the Closing Date, and if any applicable cure period provided in Section 7.02
hereof has lapsed, then such party may, regardless of whether approval of this
Agreement and the Merger by the shareholders of Company shall has been
previously obtained, terminate and cancel this Agreement by delivery of written
notice of such action to the other party on such date.
Section 7.05. Regulatory Approval Denial; Burdensome Condition. If any
regulatory application filed pursuant to Section 5.01(a) hereof should be
finally denied or disapproved by the respective regulatory authority, then this
Agreement thereupon shall be deemed terminated and canceled; provided, however,
that a request for additional information or undertaking by CNB, as a condition
for approval, shall not be deemed to be a denial or disapproval so long as CNB
diligently provides the requested information or undertaking. In the event an
application is denied pending an appeal, petition for review, or similar such
act on the part of CNB (hereinafter referred to as the "appeal") then the
application shall be deemed denied unless CNB prepares and timely files such
appeal and continues the appellate process for purposes of obtaining the
necessary approval. CNB may terminate this Agreement if its Board of Directors
shall have reasonably determined in good faith that any of the requisite
regulatory approvals imposes a Burdensome Condition.
Section 7.06. Shareholder Approval Denial; Withdrawal/Modification of
Board Recommendation. If this Agreement and the relevant transactions
contemplated by this Agreement, including the Merger, are not
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approved by the requisite vote of the shareholders of Company at the Company
Shareholders Meeting, then either party may terminate this Agreement. CNB may
terminate this Agreement if Company's Board of Directors shall have failed to
approve or recommend this Agreement or the Merger, or shall have withdrawn or
modified in any manner adverse to CNB its approval or recommendation of this
Agreement or the Merger, or shall have resolved or publicly announced an
intention to do either of the foregoing.
Section 7.07. Regulatory Enforcement Matters. In the event that Company
or any of its subsidiaries shall, after the date hereof, become a party or
subject to any new or amended written agreement, memorandum of understanding,
cease and desist order, imposition of civil money penalties or other regulatory
enforcement action or proceeding with any Regulatory Agency, which would have a
Material Adverse Effect on Company, then CNB may terminate this Agreement.
Section 7.08. Fall-Apart Date. If the Closing Date does not occur on or
prior to December 31, 1998, then this Agreement may be terminated by either
party by giving written notice thereof to the other, unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth in this Agreement.
Section 7.09. Possible Purchase Price Adjustment.
(a) As used in this Section 7.09, the term "CNB Average Price" shall
mean the average of the daily closing prices of CNB Common as reported in The
Wall Street Journal (Midwest Edition) for the ten (10) N.Y.S.E. trading days
preceding the fifth (5th) calendar day prior to the Closing Date (the
"Determination Date"). The CNB Average Price shall be appropriately and
proportionately adjusted to reflect any Share Adjustment, as contemplated by
Section 1.06 hereof.
(b) Company may terminate this Agreement if its Board of Directors so
determines by a vote of a majority of the members of its entire Board if the CNB
Average Price shall be less than $35.50; subject, however, to the following two
sentences. If Company elects to exercise its termination right pursuant to the
immediately preceding sentence, it shall give written notice to CNB within
twenty-four (24) hours of the Determination Date. Within two (2) business days
after the date of receipt of such notice, CNB shall have the option of adjusting
the Conversion Ratio to equal a number equal to a quotient, the numerator of
which is the product of $35.50 and the Conversion Ratio (as then in effect) and
the denominator of which is the CNB Average Price. If CNB makes an election
contemplated by the preceding sentence, it shall give prompt written notice to
Company of such election and the revised Conversion Ratio, whereupon no
termination shall have occurred pursuant to this Section 7.09(b) and this
Agreement shall remain in effect in accordance with its terms (except as the
Conversion Ratio shall have been so modified), and any references in this
Agreement to "Conversion Ratio" shall thereafter be deemed to refer to the
Conversion Ratio as adjusted pursuant to this Section 7.09(b).
(c) CNB may terminate this Agreement if its Board of Directors so
determines by a vote of a majority of the members of its entire Board, if the
CNB Average Price shall be greater than the $48.50; subject, however, to the
following two sentences. If CNB elects to exercise its termination right
pursuant to the immediately preceding sentence, it shall give written notice to
Company within twenty-four (24) hours of the Determination Date. Within two (2)
business days after the date of receipt of such notice, Company shall have the
option of adjusting the Conversion Ratio to equal a number equal to a quotient,
the numerator of which is the product of $48.50 and the Conversion Ratio (as
then in effect) and the denominator of which is the CNB Average Price. If
Company makes an election contemplated by the preceding sentence, it shall give
prompt written notice to CNB of such election and the revised Conversion Ratio,
whereupon no termination shall have occurred pursuant to this Section 7.09(c)
and this Agreement shall remain in effect in accordance with its terms (except
as the Conversion Ratio shall have been so modified), and any references in this
Agreement to "Conversion Ratio" shall thereafter be deemed to refer to the
Conversion Ratio as adjusted pursuant to this Section 7.09(c).
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Section 7.10. Termination Fee. Upon the occurrence of one or more of
the following events (a "Triggering Event"), Company shall pay to CNB the sum of
$1,500,000:
(a) upon termination of this Agreement by CNB pursuant to Section 7.02
hereof (including without limitation, upon, on account of or due to the entering
into of an agreement between Company and any third party which is inconsistent
with the transactions contemplated by this Agreement), provided that within
eighteen (18) months of the date of such termination, either (i) an event
described in clause (b) below shall have occurred, or (ii) Company shall have
entered into an agreement with any third party whereby such third party will
acquire, merge or consolidate with Company or Subsidiary Bank, purchase all or
substantially all of Company's or Subsidiary Bank's assets or acquire 50% or
more of the outstanding shares of the Company Common;
(b) any person or group of persons (other than CNB) shall acquire or
have the right to acquire 33% or more of the Company Common, exclusive of shares
of the Company Common sold directly or indirectly to such person or group of
persons by CNB;
(c) upon the entry by Company into an agreement or other understanding
with a person or group of persons (other than CNB and/or its affiliates) for
such person or group of persons to acquire, merge or consolidate with Company or
Subsidiary Bank or to purchase all or substantially all of Company's or
Subsidiary Bank's assets.
As used in this Section 7.10, "person" and "group of persons" shall have the
meanings conferred thereon by Section 13(d) of the Exchange Act. Company shall
notify CNB promptly in writing upon its becoming aware of the occurrence of any
Triggering Event; provided, however, that the giving of such notice by Company
shall not be a condition to the rights of CNB hereunder.
ARTICLE EIGHT
-------------
GENERAL
-------
Section 8.01. Confidential Information. The parties acknowledge the
confidential and proprietary nature of the "Information" (as described below in
this Section 8.01) which has heretofore been exchanged and which shall be
received from each other hereunder and agree to hold and keep the same
confidential. Such Information shall include any and all financial, technical,
commercial, marketing, customer or other information concerning the business,
operations and affairs of a party that may be provided to the other,
irrespective of the form of the communications, by such party's employees or
agents. Such Information shall not include information which is or becomes
generally available to the public other than as a result of a disclosure by a
party or its representatives in violation of this Agreement. The parties agree
that the Information shall be used solely for the purposes contemplated by this
Agreement and that such Information shall not be disclosed to any person other
than employees and agents of a party who are directly involved in evaluating the
transaction. The Information shall not be used in any way detrimental to a
party, including use directly or indirectly in the conduct of the other party's
business or any business or enterprise in which such party may have an interest,
now or in the future, and whether or not now in competition with such other
party.
Section 8.02. Publicity. CNB and Company shall cooperate with each other
in the development and distribution of all news releases and other public
disclosures concerning this Agreement and the Merger and shall not issue any
news release or make any other public disclosure without the prior consent of
the other party, unless it reasonably believes such is required by law upon the
advice of counsel or is in response to published newspaper or other mass media
reports regarding the transactions contemplated by this Agreement, in which such
latter event the parties shall give reasonable notice, and to the extent
practicable, consult with each other regarding such responsive public
disclosure.
Section 8.03. Return of Documents. Upon termination of this Agreement
without the Merger becoming effective, each party (i) shall deliver to the
other originals and all copies of all Information made available to such
party, (ii) shall not retain any copies, extracts or other reproductions in
whole or in part of such
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Information, and (iii) shall destroy all memoranda, notes and other writings
prepared by any party based on the Information.
Section 8.04. NoticeS. Any notice or other communication shall be
in writing and shall be deemed to have been given or made on the date of
delivery, in the case of hand delivery, or three (3) business days after deposit
in the United States Registered Mail, postage prepaid, or upon receipt if
transmitted by facsimile telecopy or any other means, addressed (in any case) as
follows:
(a) if to CNB:
CNB Bancshares, Inc.
20 N.W. Third Street
Evansville, Indiana 47739-0001
Attention: James J. Giancola, Chief Executive Officer
Facsimile: 812/456-3496
with a copy to:
Lewis, Rice & Fingersh, L.C.
500 N. Broadway
St. Louis, Missouri 63102
Attention: Thomas C. Erb, Esq.
Facsimile: 314/444-7788
and
(b) if to Company:
National Bancorp
601 Main Street
Tell City, Indiana 47568
Attention: Thomas R. McCart, President
Facsimile: 812/547-2323
with a copy to:
Krieg, Devault, Alexander and Capehart
One Indiana Square, Suite 2800
Indianapolis, Indiana 46204
Attention: John W. Tanselle, Esq.
Telecopy No. (317) 636-1507
or to such other address as any party may from time to time designate by notice
to the others.
Section 8.05. Liabilities and Expenses . Except as provided in
Section 7.10 hereof, in the event that this Agreement is terminated pursuant to
the provisions of Article Seven hereof, no party hereto shall have any liability
to any other party for costs, expenses, damages or otherwise; provided, however,
that, notwithstanding the foregoing, in the event that this Agreement is
terminated pursuant to Article Seven hereof on account of a willful breach of
any of the representations and warranties set forth herein or any breach of any
of the agreements set forth herein, then the non-breaching party shall be
entitled to recover appropriate damages from the breaching party, including,
without limitation, reimbursement to the non-breaching party of its costs, fees
and expenses (including attorneys', accountants' and advisors' fees and
expenses) incident to the negotiation, preparation and execution of this
Agreement and related documentation; provided, however, that nothing in this
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proviso shall be deemed to constitute liquidated damages for the willful breach
by a party of the terms of this Agreement or otherwise limit the rights of the
non-breaching party.
Section 8.06. Nonsurvival of Representations, Warranties and
Agreements. Except for, and as provided in, this Section 8.06 , no
representation, warranty or agreement contained herein shall survive the
Effective Time or the earlier termination of this Agreement; provided, however,
that no such representation, warranty or covenant shall be deemed to be
terminated or extinguished so as to deprive CNB or Company (or any director,
officer or controlling person thereof) of any defense in law or equity which
otherwise would be available against the claims of any person, including,
without limitation, any shareholder or former shareholder of either CNB or
Company, the aforesaid representations, warranties and covenants being material
inducements to the consummation by CNB and Company of the transactions
contemplated herein. The agreements set forth in Sections 5.04 and 5.05 hereof
shall survive the Effective Time and the agreements set forth in Sections 7.10,
8.01, 8.02, 8.03 and 8.05 hereof and this Section 8.06 shall survive the
Effective Time or the earlier termination of this Agreement.
Section 8.07. Entire Agreement. This Agreement constitutes the
entire agreement between the parties and supersede and cancel any and all prior
discussions, negotiations, undertakings, agreements in principle or other
agreements between the parties relating to the subject matter hereof.
Section 8.08. Headings and Captions. The captions of Articles and
Sections hereof are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this Agreement.
Section 8.09. Waiver, Amendment or Modification. The conditions of
this Agreement which may be waived may only be waived by notice to the other
party waiving such condition. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. This Agreement may be amended or modified
by the parties hereto, at any time before or after shareholder approval of the
Agreement; provided, however, that after any such approval no such amendment or
modification shall alter the amount or change the form of the Merger
Consideration contemplated by this Agreement to be received by shareholders of
Company. This Agreement not be amended or modified except by a written document
duly executed by the parties hereto.
Section 8.10. Rules of Construction. Unless the context otherwise
requires: (i) a term has the meaning assigned to it, (ii) an accounting term
not otherwise defined has the meaning assigned to it in accordance with
generally accepted accounting principles, (iii) "or" is not exclusive, and (iv)
words in the singular may include the plural and in the plural include the
singular.
Section 8.11. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of which
shall be deemed one and the same instrument. For purposes of executing this
Agreement, a document (or signature page thereto) signed and transmitted by
facsimile machine or telecopier is to be treated as an original document. The
signature of any party thereon, for purposes hereof, is to be considered as an
original signature, and the document transmitted is to be considered to have the
same binding effect as an original signature on an original document. At the
request of any party, any facsimile or telecopy document shall be re-executed in
original form by the parties who executed the facsimile or telecopy document.
No party may raise the use of a facsimile machine or telecopier or the fact that
any signature was transmitted through the use of a facsimile or telecopier
machine as a defense to the enforcement of this Agreement or any amendment or
other document executed in compliance with this Section 8.11.
Section 8.12. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. There shall be no third party beneficiaries hereof.
Section 8.13. Severability. In the event that any provisions of
this Agreement or any portion thereof shall be finally determined to be unlawful
or unenforceable, such provision or portion thereof shall be deemed to be
A-28
severed from this Agreement, and every other provision, and any portion of a
provision, that is not invalidated by such determination, shall remain in full
force and effect. To the extent that a provision is deemed unenforceable by
virtue of its scope but may be made enforceable by limitation thereof, such
provision shall be enforceable to the fullest extent permitted under the laws
and public policies of the State whose laws are deemed to govern enforceability.
It is declared to be the intention of the parties that they would have executed
the remaining provisions without including any that may be declared
unenforceable.
Section 8.14. Governing Law; Assignment. This Agreement shall be
governed by the laws of the State of Indiana and applicable federal laws and
regulations. This Agreement may not be assigned by either of the parties
hereto.
Section 8.15. Enforcement of 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 shall
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 and such right shall
be in addition to any other remedy to which they shall be entitled at law or in
equity.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
NATIONAL BANCORP
By
------------------------------
Thomas R. McCart
President
CNB BANCSHARES, INC.
By
------------------------------
James J. Giancola
President and Chief Executive Officer
A-29
EXHIBIT 1.10(a)
---------------
COMPANY'S LEGAL OPINION MATTERS
1. The due incorporation and valid existence of Company under the
laws of the State of Indiana, its power and authority to own and operate its
properties and to carry on its business as now conducted, and its power and
authority to enter into the Agreement, to merge with CNB in accordance with the
terms of the Agreement and to consummate the transactions contemplated by the
Agreement.
2. The due incorporation or organization and valid existence of each
of the other subsidiaries of Company and any subsidiary of any such subsidiary
listed in Section 2.03 of the Disclosure Schedule, their power and authority to
own and operate their properties, the possession of all licenses, permits and
authorizations necessary to carry on their respective businesses as now
conducted.
3. With respect to Company, (i) the number of authorized, issued and
outstanding shares of capital stock of Company on the Closing Date, (ii) the
nonexistence of any violation of the preemptive or subscription rights of any
person, (iii) the nonexistence of any options, warrants, or other rights to
acquire, or securities convertible into, any equity security of Company, (iv)
the nonexistence of any obligation, contingent or otherwise, to reacquire any
shares of capital stock of Company, and (v) the nonexistence of any outstanding
stock appreciation, phantom stock or similar rights, except as disclosed in the
Agreement.
4. With respect to Company's subsidiaries, (i) the number of
authorized, issued and outstanding shares of capital stock on the Closing Date
and the ownership of all issued shares by Company of a subsidiary of Company,
(ii) the nonexistence of any violation of the preemptive or subscription rights
of any person, (iii) the nonexistence of any outstanding options, warrants, or
other rights to acquire, or securities convertible into, any equity securities
of such subsidiary, (iv) the nonexistence of any obligation, contingent or
otherwise, to reacquire any shares of capital stock of such subsidiary, and (v)
the nonexistence of any outstanding stock appreciation, phantom stock or similar
rights.
5. The due and proper performance of all corporate acts and other
proceedings necessary or required to be taken by Company to authorize the
execution, delivery and performance of the Agreement, the due execution and
delivery of the Agreement by Company, and the Agreement as a valid and binding
obligation of Company, enforceable against Company in accordance with its terms
(subject to the provisions of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally from time to time in effect, and equitable
principles relating to the granting of specific performance and other equitable
remedies as a matter of judicial discretion).
6. The execution of the Agreement by Company, and the consummation of
the Merger and the other transactions contemplated therein, does not violate or
cause a default under Company's Articles of Incorporation or Bylaws, or any
statute, regulation or rule or any judgment, order or decree against or any
material agreement binding upon Company or its subsidiaries.
7. To the best knowledge of such counsel, the receipt of all required
consents, approvals (including the requisite approval of the shareholders of
Company), orders or authorizations of, or registrations, declarations or filings
with or notices to, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, or any other
person or entity required to be obtained or made by Company or its subsidiaries
in connection with the execution and delivery of the Agreement or the
consummation of the transactions contemplated therein.
8. The nonexistence of any material actions, suits, proceedings,
orders, investigations or claims pending or threatened against or affecting
Company or its subsidiaries which, if adversely determined, would have a
material adverse effect upon their respective properties or assets or the
transactions contemplated by the Agreement.
A-30
EXHIBIT 1.10(b)
---------------
CNB'S LEGAL OPINION MATTERS
1. The due incorporation and valid existence of CNB under the laws of
the State of Indiana, and its power and authority to enter into the Agreement
and to consummate the transactions contemplated thereby.
2. The due and proper performance of all corporate acts and other
proceedings required to be taken by CNB to authorize the execution, delivery and
performance of the Agreement, its due execution and delivery of the Agreement,
and the Agreement as a valid and binding obligation of CNB enforceable against
CNB in accordance with its terms (subject to the provisions of bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforceability of creditors' rights generally from time to time in effect, and
equitable principles relating to the granting of specific performance and other
equitable remedies as a matter of judicial discretion).
3. The due authorization and, when issued to the shareholders of
Company in accordance with the terms of the Agreement, the valid issuance of the
shares of CNB Common to be issued pursuant to the Merger, such shares being
fully paid and non-assessable, with no personal liability attaching to the
ownership thereof.
4. The execution and delivery of the Agreement by CNB and the
consummation of the transactions contemplated therein, as neither conflicting
with, in breach of or in default under, resulting in the acceleration of,
creating in any party the right to accelerate, terminate, modify or cancel, or
violate, any provision of CNB's Articles of Incorporation or Bylaws, or any
statute, regulation, rule, judgment, order or decree binding upon CNB which
would be materially adverse to the business of CNB and its subsidiaries taken as
a whole.
5. To the best knowledge of such counsel, the receipt of all required
consents, approvals, orders or authorizations of, or registrations, declarations
or filings with or without notices to, any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, or any other person or entity required to be obtained or made by or
with respect to CNB in connection with the execution and delivery of the
Agreement or the consummation of the transactions contemplated by the Agreement.
A-31
APPENDIX B
____________, 1998
Board of Directors
National Bancorp
601 Main Street
Tell City, Indiana 47586
Dear Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial perspective, to the common shareholders of National Bancorp, Tell
City, Indiana (the "Company") of the proposed merger of the Company with CNB
Bancshares, Inc., Evansville, Indiana ("CNB"). In the proposed merger, Company
shareholders will receive 3.45 CNB shares for each share of the Company, as
further defined in the Agreement and Plan of Merger between CNB and the Company
(the "Agreement").
Professional Bank Services, Inc. ("PBS") is a bank consulting firm and as part
of its investment banking business is continually engaged in reviewing the
fairness, from a financial perspective, of bank acquisition transactions and in
the valuation of banks and other businesses and their securities in connection
with mergers, acquisitions, estate settlements and other purposes. We are
independent with respect to the parties of the proposed transaction.
For purposes of this opinion, PBS performed a review and analysis of the
historic performance of the Company and its wholly owned subsidiary TCB Bank,
Tell City, Indiana (the "Bank") contained in: (i) December 31, 1997
Consolidated Reports of Condition and Income filed by the Bank; (ii) December
31, 1996 and 1995 audited annual reports of the Company and unaudited financial
data of the Company and Bank as of December 31, 1997; and (iii) September 30,
1997 Uniform Bank Performance Report of the Bank. We have reviewed and
tabulated statistical data regarding the loan portfolio securities portfolio and
other performance ratios and statistics. Financial projections were prepared
and analyzed as well as other financial studies, analyses and investigations as
deemed relevant for the purposes of this opinion. In review of the
aforementioned information, we have taken into account our assessment of general
market and financial conditions, our experience in other transactions, and our
knowledge of the banking industry generally. We have also taken into
consideration other offers received by the Company.
For the purposes of this opinion, PBS reviewed and analyzed the historic
performance of CNB contained in: (i) December 31, 1997, 1996, 1995 and 1994
audited annual reports of CNB; (ii) March 31, 1997, June 30, 1997 and September
30, 1997 unaudited financial data; and year-to-date 1998, 1997 and 1996 reports
filed on Forms 8-K, 10-K and 10-Q filed with the Securities and Exchange
Commission.
We have not compiled, reviewed or audited the financial statements of the
Company or CNB, nor have we independently verified any of the information
reviewed; we have relied upon such information as being complete and accurate in
all material respects. We have not made independent evaluation of the assets of
the Company or CNB.
B-1
Board of Directors
National Bancorp
_____________, 1998
Page Two
Based on the foregoing and all other factors deemed relevant, it is our opinion
as investment bankers, that, as of the date hereof, the consideration proposed
to be received by shareholders of the Company under the Agreement is fair and
equitable from a financial perspective.
Very truly yours,
PROFESSIONAL BANK SERVICES, INC.
By:
----------------------------------
Christopher L. Hargrove
President
B-2
APPENDIX C
INDIANA STATUTES GOVERNING DISSENTERS' RIGHTS
23-1-44-1 "CORPORATION."--As used in this chapter, "corporation" means the
issuer of the shares held by a dissenter before the corporate action, or the
surviving or acquiring corporation by merger or share exchange of that issuer.
23-1-44-2 "DISSENTER."--As used in this chapter, "dissenter" means a
shareholder who is entitled to dissent from corporate action under section 8 of
this chapter and who exercises that right when and in the manner required by
sections 10 through 18 of this chapter.
23-1-44-3 "FAIR VALUE."--As used in this chapter, "fair value," with
respect to a dissenter's shares, means the value of the shares immediately
before the effectuation of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable.
23-1-44-1 "INTEREST."--As used in this chapter, "interest" means interest
from the effective date of the corporate action until the date of payment, at
the average rate currently paid by the corporation on its principal bank loans
or, if none, at a rate that is fair and equitable under all the circumstances.
23-1-44-5 "RECORD SHAREHOLDER."--As used in this chapter, "record
shareholder" means the person in whose name shares are registered in the records
of a corporation or the beneficial owner of shares to the extent that treatment
as a record shareholder is provided under a recognition procedure or a
disclosure procedure established under IC 23-1-30-4.
23-1-44-6 "BENEFICIAL SHAREHOLDER."--As used in this chapter, "beneficial
shareholder" means the person who is a beneficial owner of shares held by a
nominee as the record shareholder.
23-1-44-7 "SHAREHOLDER."--As used in this chapter, "shareholder" means the
record shareholder or the beneficial shareholder.
23-1-44-8 WHEN SHAREHOLDER MAY DISSENT.--(a) A shareholder is entitled to
dissent from, and obtain payment of the fair value of the shareholder's shares
in the event of any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party
if:
(A) shareholder approval is required for the merger by IC 23-1-40-3 or the
articles of incorporation; and
(B) the shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash
C-1
pursuant to a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one (1) year after the date
of sale.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, by-laws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which the merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares of
that class or series were:
(1) registered on a United States securities exchange registered under the
Exchange Act (as defined in IC 23-1-43-9); or
(2) traded on the National Association of Securities Dealers, Inc.
Automated Quotations Systems Over-the-Counter Markets--National Market Issues or
a similar market.
(c) A shareholder:
(1) who is entitled to dissent and obtain payment for the shareholder's
shares under this chapter; or (2) who would be so entitled to dissent and obtain
payment but for the provisions of subsection (b); may not challenge the
corporate action creating (or that, but for the provisions of subsection (b),
would have created) the shareholder's entitlement.
23-1-44-9 DISSENTERS' RIGHTS WITH RESPECT TO FEWER THAN ALL SHARES
REGISTERED IN SHAREHOLDER'S NAME.--(a) A record shareholder may assert
dissenters' rights as to fewer than all the shares registered in the
shareholder's name only if the shareholder dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the
shareholder's other shares were registered in the names of different
shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares on
the shareholder's behalf only if:
(1) the beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(2) the beneficial shareholder does so with respect to all the beneficial
shareholder's shares or those shares over which the beneficial shareholder has
power to direct the vote.
23-1-44-10 NOTICE OF PROPOSED ACTION CREATING DISSENTERS' RIGHTS.--(a) If
proposed corporate action creating dissenters' rights under section 8 of this
chapter is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter.
C-2
(b) If corporate action creating dissenters' rights under section 8 of
this chapter is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in section
12 of this chapter.
23-1-44-11 NOTICE OF SHAREHOLDER'S INTENT TO ASSERT DISSENTERS' RIGHTS.--
(a) If proposed corporate action creating dissenters' rights under section 8 of
this chapter is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(1) must deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated; and
(2) must not vote the shareholder's shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
23-1-44-12 DISSENTERS' NOTICE.--(a) If proposed corporate action creating
dissenters' rights under section 8 of this chapter is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of section 11 of this
chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) state where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
(4) set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty (30) or more than sixty (60) days after
the date the subsection (a) notice is delivered; and
(5) be accompanied by a copy of this chapter.
23-1-44-13 DEMAND.--(a) A shareholder sent a dissenters' notice described
in IC 23-1-42-11 or in section 12 of this chapter must demand payment, certify
whether the shareholder acquired beneficial ownership of the shares before the
date required to be set forth in the dissenters' notice under section 12(b)(32)
of this chapter, and deposit the shareholder's certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed corporate
action.
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(c) A shareholder who does not demand payment or deposit the shareholders
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholders shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action.
23-1-44-14 TRANSFER OF UNCERTIFICATED SHARES.--(a) The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received until the proposed corporate action is taken or the
restrictions released under section 16 of this chapter.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
23-1-44-15 PAYMENT OF FAIR VALUE.--(a) Except as provided in section 17 of
this chapter, as soon as the proposed corporate action is taken, or, if the
transaction did not need shareholder approval and has been completed, upon
receipt of a payment demand, the corporation shall pay each dissenter who
complied with section 13 of this chapter the amount the corporation estimates to
be the fair value of the dissenters' shares.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending
not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the
share; and
(3) a statement of the dissenter's right to demand payment under section 18
of this chapter.
23-1-4-16 RETURN OF DEPOSITED CERTIFICATES--RELEASE OF TRANSFER
RESTRICTIONS.--(a) If the corporation does not take the proposed action within
sixty (60) days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed actions, it must send a new
dissenters' notice under section 12 of this chapter and repeat the payment
demand procedure.
23-1-44-17 WITHHOLDING PAYMENT.--(a) A corporation may elect to withhold
payment required by section 15 of this chapter from a dissenter unless the
dissenter was the beneficial owner of the share before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to the
shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of the dissenters' demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares and a statement of the dissenter's right to demand payment
under section 18 of this chapter.
23-1-44-18 DISSENTERS' ESTIMATE.--(a) A dissenter may notify the
corporation in writing of the dissenter's own estimate of the fair value of the
dissenter's shares and demand payment of the dissenter's
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estimate (less any payment under section 15 of this chapter), or reject the
corporation's offer under section 17 of this chapter and demand payment of the
fair value of the dissenter's shares, if:
(1) the dissenter believes that the amount paid under section 15 of this
chapter or offered under section 17 of this chapter is less than the fair value
of the dissenter's shares;
(2) the corporation fails to make payment under section 15 of this chapter
within sixty (60) days after the date set for demanding payment; or
(3) the corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty (60) days after the date set for demanding
payment.
(b) A dissenter waives the right to demand payment under this section unless
the dissenter notifies the corporation of the dissenter's demand in writing
under subsection (a) within thirty (30) days after the corporation made or
offered payment for the dissenter's shares.
23-1-44-19 APPRAISAL PROCEEDING.--(a) If a demand for payment under IC 23-
1-42-11 or under section 18 of this chapter remains unsettled, the corporation
shall commence a proceeding within sixty (60) days after receiving the payment
demand and petition the court to determine the fair value of the shares. If the
corporation does not commence the proceeding within the sixty (60) day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or superior
court of the county where a corporation's principal office (or, if none in
Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint one (1) or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment:
(1) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation;
or
(2) for the fair value, plus accrued interests of the dissenter's after-
acquired shares for which the corporation elected to withhold payment under
section 17 of this chapter.
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23-1-44-20 DETERMINATION OF COSTS OF APPRAISAL PROCEEDING.--(a) The court
in an appraisal proceeding commenced under section 19 of this chapter shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against such parties and in such amounts as the court finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of sections 10 through 18 of this chapter; or
(2) against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Bylaws of CNB provide that CNB shall indemnify any director or officer of
CNB against any and all liability and reasonable expense that said director or
officer may incur in connection with or resulting from any claim, action, suit
or proceeding, or civil, criminal, administrative or investigative action, or
threat thereof, by reason of said director's or officer's being or having been a
director or officer of CNB, or serving or having served at the request of CNB as
a director or officer of another corporation, partnership, joint venture, trust
or other enterprise, if either (i) the officer or director is wholly successful
in any such claim, action, suit or proceeding, or (ii) the officer or director
is not wholly successful but it is nevertheless determined that such officer or
director acted in good faith in what he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, either said officer or director had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful. The Bylaws further provide that the board of
directors may (i) authorize like indemnification of persons who are not
directors or officers of CNB but are employees of CNB or are officers, directors
or employees of any subsidiary of CNB, and (ii) approve indemnification of
directors, officers persons to the full extent permitted by the Indiana Business
Corporation Law (the "Indiana Corporate Law") in effect at such time.
Chapter 23-1-37-9 of the Indiana Corporate Law provides for "mandatory
indemnification," unless limited by the articles of incorporation, by a
corporation against reasonable expenses incurred by a director who is wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which the director was a party by reason of the director being or having been a
director of the corporation. Chapter 23-1-37-10 of the Indiana Corporate Law
states that a corporation may, in advance of the final disposition of a
proceeding, reimburse reasonable expenses incurred by a director who is a party
to a proceeding if the director furnishes the corporation with a written
affirmation of the director's good faith belief that the director has met the
standard of conduct required by Chapter 23-1-37-8 of the Indiana Corporate Law,
that the director will repay the advance if it is ultimately determined that he
did not meet the standard of conduct required by Chapter 23-1-37-8 of the
Indiana Corporate Law, and that those making the decision to reimburse the
director determine that the facts then known would not preclude indemnification
under the Indiana Corporate Law.
CNB's Bylaws further provide, in accordance with the Indiana Corporate Law,
that CNB shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of CNB, or is or
was serving at the request of CNB as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not CNB would have
power to indemnify him against such liability under the Bylaws or the Indiana
Corporate Law. Pursuant to a policy of directors' and officers' liability
insurance with total bi-annual limits of $15,000,000, CNB's directors and
officers are insured, subject to the limits, retention, exceptions and other
terms and conditions of such policy, against liability for any actual or alleged
breach of duty, neglect, error, misstatement, misleading statement, omission or
other act done or wrongfully attempted while acting in their capacities as
directors or officers of CNB.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filed as part of this Registration
Statement or incorporated by reference herein:
II-1
(2)(a) Agreement and Plan of Merger, dated as of February 13, 1998,
by and between CNB Bancshares, Inc. and National Bancorp
(Appendix A to Proxy Statement/Prospectus);
(3)(a) Restated Articles of Incorporation of CNB Bancshares, Inc.,
incorporated herein by reference as Exhibit 3(a) to CNB
Bancshares, Inc.'s Registration Statement on Form S-8 POS
dated May 18, 1998 (Registration Statement No. 333-46837);
(3)(b) Amended Bylaws of CNB Bancshares, Inc., incorporated herein
by reference as Exhibit 3(ii) to CNB Bancshares, Inc.'s 1995
Annual Report on Form 10-K;
(4) No long-term debt instrument issued by CNB Bancshares, Inc.
exceeds 10% of the consolidated total assets of CNB
Bancshares, Inc. and its subsidiaries. In accordance with
paragraph 4(iii) of Item 601(b) of Regulation S-K, CNB
Bancshares, Inc. will furnish to the Securities and Exchange
Commission upon request copies of long-term debt instruments
and related agreements.
(5) Opinion of Lewis, Rice & Fingersh, L.C. (re legality);
(8) Opinion of Lewis, Rice & Fingersh, L.C. (re federal income
tax consequences);
(23)(a) Consent of Lewis, Rice & Fingersh, L.C. (in opinion re
legality);
(23)(b) Consent of Lewis, Rice & Fingersh, L.C. (in opinion re
federal income tax consequences);
(23)(c) Consent of KPMG Peat Marwick LLP;
(23)(d) Consent of KPMG Peat Marwick LLP;
(23)(e) Consent of Harding, Shymanski & Co.;
(23)(f) Consent of Professional Bank Services;
(24) Powers of Attorney;
(99)(a) Form of Proxy Card for National Bancorp Special Meeting;
(99)(b) Fairness Opinion of Professional Bank Services (Appendix B
to Proxy Statement/Prospectus);
(99)(c) Excerpts from Indiana Corporate Law (Dissenters' Rights)
(Appendix C to Proxy Statement/Prospectus).
(b) No financial statement schedules are required to be filed herewith
pursuant to Item 21(b) or (c) of this Form.
II-2
Item 22. Undertakings.
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through the use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The undersigned Registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act of 1933, as
amended, and is used in connection with an offering of securities subject to
Rule 415, will be filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933, as amended, 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.
(3) 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, within one business day of receipt of
such request, and to send the incorporated document 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.
(4) 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.
(5) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934, as amended) 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.
(6) The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
II-3
that, for the purpose 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; and to remove from registration by means of a post-
effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
(7) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, 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 expressed
in the Securities Act of 1933, as amended, 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.
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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 Evansville,
State of Indiana, on June 1, 1998.
CNB BANCSHARES, INC.
By /s/ James J. Giancola
-----------------------
James J. Giancola
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed on June 1, 1998, by the following persons in the
capacities indicated.
Name Title/Position
- ---- --------------
/s/ H. Lee Cooper III Chairman of the Board
- ------------------------------
H. Lee Cooper III
/s/ James J. Giancola President, Chief Executive
- ------------------------------ (principal executive officer)
Officer and Director
James J. Giancola
/s/ John R. Spruill Executive Vice President
- ------------------------------ (principal financial officer)
John R. Spruill
/s/ Ralph L. Alley Senior Vice President and Controller,
- ------------------------------ Treasurer (principal accounting officer)
Ralph L. Alley
* Director
- ------------------------------
John D. Engelbrecht
* Director
- ------------------------------
Terrence A. Friedman
* Director
- ------------------------------
James E. Hutton
* Director
- ------------------------------
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Robert L. Koch, II
* Director
- --------------------------------
Larry J. Kremer
* Director
- --------------------------------
Edmund L. Hafer, Jr.
* Director
- --------------------------------
Burkley F. McCarthy
* Director
- --------------------------------
Robert K. Ruxer
* Director
- --------------------------------
Thomas W. Traylor
* Director
- --------------------------------
Alton C. Wendzel
* By /s/ James J. Giancola
-----------------------
Attorneys-in-fact
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INDEX TO EXHIBITS
Number Exhibit
------ -------
(2)(a) Agreement and Plan of Merger, dated as of February 13, 1998, by
and between CNB Bancshares, Inc. and National Bancorp (Appendix A
to Proxy Statement/Prospectus);
(3)(a) Restated Articles of Incorporation of CNB Bancshares, Inc.,
incorporated herein by reference as Exhibit 3(a) to CNB
Bancshares, Inc.'s Registration Statement on Form S-8 POS dated
May 18, 1998 (Registration Statement No. 333-46837);
(3)(b) Amended Bylaws of CNB Bancshares, Inc., incorporated herein by
reference as Exhibit 3(ii) to CNB Bancshares, Inc.'s 1995 Annual
Report on Form 10-K;
(4) No long-term debt instrument issued by CNB Bancshares, Inc.
exceeds 10% of the consolidated total assets of CNB Bancshares,
Inc. and its subsidiaries. In accordance with paragraph 4(iii) of
Item 601(b) of Regulation S-K, CNB Bancshares, Inc. will furnish
to the Securities and Exchange Commission upon request copies of
long-term debt instruments and related agreements.
(5) Opinion of Lewis, Rice & Fingersh, L.C. (re legality);
(8) Opinion of Lewis, Rice & Fingersh, L.C. (re federal income tax
consequences);
(23)(a) Consent of Lewis, Rice & Fingersh, L.C. (in opinion re legality);
(23)(b) Consent of Lewis, Rice & Fingersh, L.C. (in opinion re federal
income tax consequences);
(23)(c) Consent of KPMG Peat Marwick LLP;
(23)(d) Consent of KPMG Peat Marwick LLP;
(23)(e) Consent of Harding, Shymanski & Co.
(23)(f) Consent of Professional Bank Services;
(24) Powers of Attorney;
(99)(a) Form of Proxy Card for National Bancorp Special Meeting;
(99)(b) Fairness Opinion of Professional Bank Services (Appendix B to
Proxy Statement/Prospectus);
(99)(c) Excerpts from Indiana Corporate Law (Dissenters' Rights) (Appendix
C to Proxy Statement/Prospectus).