SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
LSB INDUSTRIES, INC.
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(Name of Registrant as Specified in Its Charter)
LSB INDUSTRIES, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
N/A
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2) Aggregate number of securities to which transaction applies:
N/A
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$6,100,000/(1)/
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4) Proposed maximum aggregate value of transaction:
$6,100,000/(1)/
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/(1)/ The transaction to which this Proxy Statement relates contemplates the
sale of the Company's Financial Services Business for a purchase price
of approximately $92,000,000, and the repurchase by the Company of
certain assets of the Financial Services Business for a purchase price
to be paid by the Company of $85,900,000. Accordingly, the filing fee
is $1,220, representing one-fiftieth of one percent of the aggregate
value of the property to be received by the Company of $6,100,000
($92,000,000 - $85,900,00), pursuant to Exchange Act Rule 0-11(c)(2).
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
"PRELIMINARY PROXY STATEMENT"
[LSB LETTERHEAD]
February _____, 1994
To the Shareholders of
LSB Industries, Inc.:
Enclosed for your review and consideration are a Notice of Special Meeting,
Proxy Statement and Proxy for a Special Meeting of the shareholders of LSB
Industries, Inc. (the "Company") to be held at 11:00 a.m., Central Standard
Time, on March 28, 1994, or any adjournment or postponement thereof, at the
Company's financial center located at 4000 Northwest 39th Expressway, Oklahoma
City, Oklahoma 73112 (405-948-9550).
The purpose of the Special Meeting is to consider and vote upon the sale by
the Company of its wholly-owned subsidiary, Equity Bank for Savings, F.A. (the
"Equity Bank"), which constitutes the Financial Service Business of the Company.
Equity Bank is primarily engaged in retail banking services, mortgage, and
consumer and commercial lending services through fifteen (15) branch offices
located in the Oklahoma City metropolitan area and western Oklahoma, and
operates an Oklahoma-based credit card operation. The sale of Equity Bank is
intended to be made pursuant to a Stock Purchase Agreement, dated February ____,
1994, as it may be amended or supplemented from time to time (the "Acquisition
Agreement"), between the Company, Prime Financial Corporation, a wholly-owned
subsidiary of the Company ("Prime"), and, Fourth Financial Corporation ("Fourth
Financial"). Prime is a wholly-owned subsidiary of the Company and Equity Bank
is a wholly-owned subsidiary of Prime. Fourth Financial is to acquire all of
the outstanding shares of capital stock of Equity Bank. Under the Acquisition
Agreement, the Company is to acquire from Equity Bank (i) prior to the
completion of the sale of Equity Bank under the Acquisition Agreement certain
subsidiaries of Equity Bank ("Retained Corporations") that own the real and
personal property and other assets contributed by the Company to Equity Bank at
the time of the acquisition of the predecessor of Equity Bank by the Company for
Equity Bank's carrying values of such Retained Corporations at the time of the
acquisition of the Retained Corporations from Equity Bank, and (ii) at the time
of closing of the sale of Equity Bank under the Acquisition Agreement, (a) the
loan and mortgage on and option to purchase the Equity Tower located in Oklahoma
City, Oklahoma ("Equity Tower Loan"), (b) other real estate owned by Equity Bank
that was acquired by Equity Bank through foreclosure ("OREO"), and (c) the real
estate on which one of Equity Bank's branches is located in Oklahoma City,
Oklahoma (the "Branch") (theEquity Tower Loan, the OREO and the Branch are
collectively called the "Retained Assets"), which are to be acquired for an
amount equal to Equity Bank's carrying value of the Retained Assets at time of
closing of the sale of Equity Bank. In addition, the Company has the option,
but
not the obligation, to acquire any loan owned by Equity Bank that has been
charged off or written down that may be acquired for a price equal to the net
book value of such loan that has been written down and for a price of $1.00 in
the case of each loan that has been charged off ("Other Loans").
The Company currently expects that the purchase price to be paid by Fourth
Financial for Equity Bank will be approximately $92 million, subject to
determination and adjustment in accordance with the Acquisition Agreement (the
"Purchase Price"). The Purchase Price is based on a number of estimates, and
the amount of the Purchase Price will not be determined exactly until the
closing of the sale of Equity Bank. Of the approximately $92 million, the
Company will use approximately $65.4 million, plus interest, to repay a certain
indebtedness the Company intends to incur to finance the purchase from Equity
Bank of the Retained Corporations. In addition, the Company will use
approximately $20.5 million to purchase the Retained Assets. As of this date,
the Company has made no decision if it will acquire any of the Other Loans.
Further, the Company will use the net balance of the Purchase Price (after
repaying the indebtedness incurred to purchase the Retained Corporations and
paying for the Retained Assets and transactional costs relating to the sale of
Equity Bank) for general working capital purposes.
The enclosed Proxy Statement sets forth the details of the proposed
transaction and discusses the factors considered by the Board of Directors in
determining to approve the sale of Equity Bank to Fourth Financial pursuant to
the Acquisition Agreement. Shareholders are urged to read the Proxy Statement
in its entirety prior to voting on the proposed sale of Equity Bank.
The Board of Directors of the Company has unanimously concluded that the sale
of Equity Bank is in the best interests of the Company and its shareholders and
that the terms and conditions contained in the Acquisition Agreement are fair
to, and in the best interests of, the Company and its shareholders. In arriving
at its conclusion, the Board of Directors considered the opinion, dated February
____, 1994, of Lazard Freres & Co. ("Lazard"), its independent financial
advisor, that, as of such date, the consideration to be received by the Company
pursuant to the sale of Equity Bank under the Acquisition Agreement was fair to
the Company from a financial point of view. A copy of the opinion of Lazard is
attached as Exhibit "B" to the Proxy Statement and shareholders are urged to
read this opinion in its entirety.
The Board of Directors of the Company unanimously recommends that you vote to
approve the Acquisition Agreement and the sale of Equity Bank. YOUR APPROVAL OF
THE SALE OF EQUITY BANK WILL SPECIFICALLY AUTHORIZE THE COMPANY TO MAKE FUTURE
AMENDMENTS OR MODIFICATIONS TO THE TERMS AND CONDITIONS OF THE TRANSACTION WHICH
IT DETERMINES TO BE NECESSARY OR APPROPRIATE, WITHOUT OBTAINING ANY FURTHER
APPROVAL BY THE SHAREHOLDERS AND WITHOUT FURTHER SOLICITATION OF PROXIES FROM
SHAREHOLDERS.
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The sale of Equity Bank pursuant to the Acquisition Agreement is currently
estimated to result in a pre-tax gain for financial reporting purposes for the
Company of approximately $25.0 million, based upon the currently-expected
Purchase Price of approximately $92 million. The exact amount of the Purchase
Price will depend on certain factors at the time of closing, and, as a result,
the pre-tax gain for financial reporting purposes could be higher or lower
depending upon the ultimate amount of the Purchase Price. The Company's tax
basis in Equity Bank is higher than its basis for financial reporting purposes.
Under current federal income tax laws, the consummation of the Acquisition
Agreement and the sale of Equity Bank will not have any federal income tax
consequences to either the Company or to the shareholders of the Company. There
are, however, certain proposed regulations which, if adopted by the Internal
Revenue Service (the "IRS") before the consummation of the sale of Equity Bank,
could result in the Company having a gain for federal income tax purposes in
connection with the sale of Equity Bank, but will not have any federal income
tax effect on the shareholders of the Company. The shareholders are urged to
read the enclosed Proxy Statement, including the section styled "Federal Income
Tax Consequences".
Upon completion of the sale of Equity Bank, the Company will continue to
operate its industrial businesses consisting of the Chemical Business,
Environmental Control Business, Automotive Products Business and Industrial
Products Business.
The directors and officers of the Company, and their respective spouses and
children, beneficially own approximately 33.0% of the outstanding voting shares
of the Company, and they have indicated that they intend to vote in favor of the
Acquisition Agreement and the sale of Equity Bank.
Shareholders are not entitled to appraisal rights under Delaware law as a
result of the consummation of the Acquisition Agreement and the sale of Equity
Bank.
At the Special Meeting, you will also be asked to consider and vote upon an
adjournment of the Special Meeting to solicit additional proxies, if necessary.
In the event the holders of a majority of the outstanding voting stock approve
an adjournment, and the Company adjourns the Special Meeting, no vote will be
called with respect to the sale of Equity Bank until the date set by the Company
for the adjournment. The adjournment, if taken, will not exceed ten (10) days.
An adjournment of the Special Meeting will provide the Company with an
opportunity to solicit additional proxies in order to increase the likelihood of
shareholder approval of the sale of Equity Bank. The Board of Directors of the
Company unanimously recommends that you vote to approve the adjournment of the
Special Meeting, if necessary. Your approval of the adjournment of the Special
Meeting will specifically authorize the Company to adjourn the Special Meeting
for up to ten (10) days in order to solicit additional proxies to approve the
sale of Equity Bank.
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All shareholders are invited to attend the Special Meeting in person.
However, in order that your shares may be represented at the Special Meeting,
please promptly sign and return the accompanying Proxy in the envelope provided
whether or not you plan to attend. If you attend the Special Meeting in person,
you may, if you wish, revoke your proxy and vote personally on all matters
brought before the meeting.
Very truly yours,
Jack E. Golsen
Chairman and President
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"PRELIMINARY PROXY STATEMENT"
LSB INDUSTRIES, INC.
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
March 28, 1994
__________________________________________
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ("Special
Meeting") of LSB Industries, Inc., a Delaware corporation (the "Company"), will
be held at the Company's financial center, located at 4000 Northwest 39th
Expressway, Oklahoma City, Oklahoma 73107 (405-948-9550), on March 28, 1994, at
11:00 a.m., Central Standard Time, or any adjournment or postponement thereof,
for the following purposes:
1. To consider and approve a proposal to sell the Company's subsidiary,
Equity Bank for Savings, F.A., which operates its financial services
business;
2. To approve the adjournment of the Special Meeting to solicit additional
proxies, if necessary; and
3. To transact such other business as may properly come before the meeting or
any adjournments or postponements thereof.
In accordance with the provisions of the Bylaws, the Board of Directors has
fixed the close of business on February 8, 1994, as the record date for the
determination of shareholders entitled to notice of, and to vote at, the Special
Meeting. Your attention is directed to the accompanying Proxy Statement.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING. EVEN
IF YOU PLAN TO ATTEND THE SPECIAL MEETING, WE REQUEST THAT YOU PROMPTLY SIGN,
DATE, AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. A SHAREHOLDER WHO
HAS GIVEN A PROXY MAY REVOKE IT BY FILING WITH THE COMPANY'S SECRETARY AN
INSTRUMENT REVOKING IT, BY SUBMITTING A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY VOTING IN PERSON AT THE MEETING.
By order of the Board of Directors,
David M. Shear
Vice President and Secretary
Oklahoma City, Oklahoma
February ____, 1994
"PRELIMINARY PROXY STATEMENT"
LSB INDUSTRIES, INC.
16 South Pennsylvania
Oklahoma City, Oklahoma 73107
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PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 28, 1994
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING AND MATTERS TO BE DISCUSSED AT THE
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SPECIAL MEETING. This Proxy Statement is solicited on behalf of the Board of
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Directors of LSB Industries, Inc., a Delaware corporation (the "Company"), and
is furnished to the holders of the Company's Common Stock, par value $.10 per
share ("Common Stock"); voting Convertible Noncumulative Preferred Stock, par
value $100 per share ("Convertible Preferred"); and, voting Series B 12%
Cumulative, Convertible Preferred Stock, par value $100 per share ("Series B
Preferred"), in connection with the solicitation of proxies to be used at the
Special Meeting of Shareholders of the Company to be held March 28, 1994, or any
adjournment or postponement thereof (the "Special Meeting"), at 11:00 a.m.
(Central Standard Time) at the Company's financial center, located at 4000
Northwest 39th Expressway, Oklahoma City, Oklahoma 73112. The date on which
this Proxy Statement and the enclosed Proxy are first sent to the shareholders
is on or about February ____, 1994.
At the Special Meeting, the shareholders are to consider and vote upon a
proposal to sell the Company's Financial Service Business, which consists of
Equity Bank for Savings, F.A. ("Equity Bank"), pursuant to a Stock Purchase
Agreement, dated January _____, 1994, as it may be amended and supplemented from
time to time (the "Acquisition Agreement"), between the Company; Prime Financial
Corporation ("Prime"), an Oklahoma corporation and a wholly-owned subsidiary of
the Company; and, Fourth Financial Corporation ("Fourth Financial"), a Kansas
corporation. Prime owns all of the issued and outstanding capital stock of
Equity Bank, and the Company owns all of the issued and outstanding capital
stock of Prime. The Acquisition Agreement is attached to this Proxy Statement
as Exhibit "A".
The shareholders are also to consider and vote upon a proposal to adjourn the
Special Meeting to solicit additional proxies, if required.
The Acquisition Agreement provides for the sale by the Company and Prime to
Fourth Financial of all of the outstanding shares of capital stock of Equity
Bank. The Company currently estimates that the purchase price to be paid by
Fourth Financial for Equity Bank will be approximately $92 million, subject to
determination and adjustment in accordance with the Acquisition Agreement. See
"Sale of Equity Bank - Summary of Sale". Approval at the Special Meeting by the
shareholders of the Company of the Acquisition Agreement and the transactions
contemplated thereby will also authorize the Company, without further
shareholder approval and without further solicitation of proxies from
shareholders, to make future modifications and amendments to the terms and
conditions of the sale of Equity Bank which the Company determines to be
necessary or appropriate, including with respect to changes in the amount or
type of consideration to be received or the assets to be sold.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE SALE OF
EQUITY BANK AND RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR THE SALE OF
EQUITY BANK.
RECORD DATE; VOTING AT SPECIAL MEETING. The Board of Directors of the Company
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has fixed February 8, 1994, as the Record Date for the determination of the
shareholders of the Company entitled to notice of, and to vote at, the Special
Meeting. As of the close of business on the Record Date, the Company had the
following shares of voting common stock and voting preferred stock issued and
outstanding: (i) 13,678,272 shares of Common Stock (excluding 835,784 shares
held in treasury), (ii) 1,632.5 shares of Convertible Preferred, and (iii)
20,000 shares of Series B Preferred. Each shareholder of record, as of the
Record Date, will have one vote for each share of voting common stock and voting
preferred stock of the Company (or one-half of one vote for each fractional
one-half share of the Convertible Preferred) that the shareholders own as of the
Record Date. All shares of voting common stock and voting preferred stock will
vote together as a single class on all matters coming before the Special
Meeting. A majority of all of the outstanding shares of voting common stock and
voting preferred stock of the Company, as a single class, entitled to notice of,
and to vote at, the Special Meeting, represented in person or by proxy, will
constitute a quorum for the Meeting.
Pursuant to the General Corporation Law of the State of Delaware, only votes
cast "For" a matter constitute affirmative votes, except proxies in which the
shareholder failed to make a specification as to whether he votes "For",
"Against" or "Abstains" as to a particular matter shall be considered as a vote
"For" that matter. Votes will be tabulated by an inspector of election
appointed by the Company's Board of Directors. Votes in which the shareholder
specifies that he is "Abstaining" from voting are counted for quorum purposes.
Abstentions and broker non-votes are not considered as votes "For" a particular
matter.
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The proposed sale of Equity Bank is conditioned on, among other things, the
affirmative vote of the holders of a majority of the outstanding voting stock,
voting as a single class, of the Company and certain regulatory approvals. As
of the Record Date, the directors and officers of the Company and their
respective spouses and children beneficially owned approximately 33.0% of the
outstanding shares of voting stock of the Company, and they have indicated that
they intend to vote in favor of the Acquisition Agreement and the sale of Equity
Bank and the adjournment of the Special Meeting, if necessary. See "Sale of
Equity Bank -- Shareholder Approval".
APPROVAL BY THE SHAREHOLDERS OF THE COMPANY OF THE ACQUISITION AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY WILL ALSO AUTHORIZE THE COMPANY, WITHOUT
FURTHER SHAREHOLDER APPROVAL AND WITHOUT FURTHER SOLICITATION OF PROXIES FROM
SHAREHOLDERS, TO MAKE FURTHER MODIFICATIONS AND AMENDMENTS TO THE TERMS AND
CONDITIONS OF THE ACQUISITION AGREEMENT AND THE SALE OF EQUITY BANK WHICH THE
COMPANY DETERMINES TO BE NECESSARY OR APPROPRIATE. THERE ARE NO LIMITATIONS ON
THE COMPANY'S ABILITY TO ALTER OR CHANGE THE AMOUNT OR TYPE OF CONSIDERATION TO
BE RECEIVED. THE COMPANY IS NOT CURRENTLY AWARE OF ANY SUCH AMENDMENTS OR
MODIFICATIONS WHICH ARE EXPECTED TO OCCUR.
Approval by the shareholders of the Company of the proposal to adjourn the
Special Meeting to solicit additional proxies, if necessary, will authorize the
Company to adjourn the Special Meeting for a period of not more than ten (10)
days. During such period, the Company will have the opportunity to solicit
additional proxies in favor of the Acquisition Agreement and the transactions
contemplated thereby. In the event the Company elects to adjourn the Special
Meeting in order to solicit additional proxies, no vote will be called with
respect to the approval of the Acquisition Agreement and transactions
contemplated thereby until the date set by the Company for such adjournment.
PROXIES. The enclosed proxy is solicited by and on behalf of the Board of
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Directors for use in connection with the Special Meeting and the vote to be held
at such meeting with respect to the sale of Equity Bank. Any proxy given may be
revoked by filing with the Secretary of the Company an instrument revoking it,
by submitting a duly executed proxy bearing a later date or by voting in person
at the Special Meeting. The Company has retained Kissel-Blake, Inc. (the "Proxy
Agent") to assist in the solicitation of proxies. The Proxy Agent will receive
a fee from the Company of $3,000 for its services, plus reimbursement for its
reasonable out-of-pocket expenses. All additional expenses of the solicitation
of proxies for the Special Meeting, including the cost of mailing, will be borne
by the Company. In addition to solicitation by mail and the services performed
by the Proxy Agent, officers and regular employees of the Company may solicit
proxies from shareholders by telephone, telegram or personal interview. Such
persons will receive no additional compensation for such services. Further, the
Company and the Proxy Agent request persons holding stock in their name or
custody, or in the name of nominees, to send proxy materials to their
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principals and request authority for the execution of proxies, and the Company
will reimburse such persons for their expenses in doing so.
SALE OF EQUITY BANK
THE COMPANY AND FOURTH FINANCIAL. The Company is a diversified holding company
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which is engaged, through its subsidiaries, in (i) the manufacture and sale of
chemical products for the explosives, agricultural and industrial acids markets
(the "Chemical Business"), (ii) the manufacture and sale of a broad range of air
handling and heat pump products for use in commercial and residential air
conditioning systems (the "Environmental Control Business"), (iii) the
manufacture or purchase and sale of certain automotive and industrial products,
including automotive bearings and other automotive replacement parts (the
"Automotive Products Business") and the purchase and sale of machine tools (the
"Industrial Products Business"), and (iv) the financial services business, which
is conducted through Equity Bank (the "Financial Services Business"). The
Company's unaudited revenues and net income for the nine (9) month period ending
September 30, 1993, were $210.6 million and $10.8 million, respectively, as
compared to the Company's revenues of $246.8 million and net income of $9.3
million for the year ended December 31, 1992. For the nine (9) month period
ended September 30, 1993, approximately 85.2%, and 87.2% of the Company's
revenues and operating income, respectively were attributable to its businesses
other than the Financial Services Business on an unaudited basis, while for the
year ended December 31, 1992, approximately 81.0% and 88.5% of the Company's
consolidated revenues and operating income were attributable to businesses other
than the Financial Services Business. The Financial Services Business accounted
for approximately 77.1% of the Company's unaudited consolidated assets at
September 30, 1993.
The Chemical Business manufactures and sells specialty explosives products,
prilled ammonium nitrate products and high grade specialty industrial acids to
the explosives, agricultural and industrial acids markets. The Chemical
Business accounted for approximately $91.0 million (43.2%) and $15.5 million
(61.7%) of the Company's unaudited consolidated revenues and operating income,
respectively, for the nine (9) month period ended September 30, 1993, and
approximately $107.2 million (43.4%) and $18.4 million (71.2%) of the Company's
consolidated revenues and operating income, respectively, for the year ended
December 31, 1992.
The Environmental Control Business manufactures and sells a broad range of fan
coil, air handling, air conditioning, heating, heat pump, and dehumidification
products targeted to both new building construction and renovation, as well as
industrial applications. The Environmental Control Business also sells
components used in the manufacture of air conditioning, heating, and
refrigeration products to other manufacturers of those products, some of whom
resell those products in competition with the Environmental Control Business.
The
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Environmental Control Business accounted for approximately $51.6 million (24.5%)
and $2.7 million (10.7%) of the Company's unaudited consolidated revenues and
operating income, respectively, for the nine (9) month period ended September
30, 1993, and approximately $55.0 million (22.3%) and $3.3 million (12.6%) of
the Company's consolidated revenues and operating income, respectively, for the
year ended December 31, 1992.
The Automotive Products Business is primarily engaged in the manufacture and
sale of a line of anti-friction ball and roller bearings, oil seals and motor
mounts and certain other automotive replacement parts. The Industrial Products
Business purchases and markets a line of machine tools including milling,
drilling, turning, fabricating and grinding machines. The Automotive Products
Business and the Industrial Products Business combined accounted for
approximately $36.8 million (17.4%) and $3.7 million (14.8%) of the Company's
unaudited consolidated revenues and operating income, respectively, for the nine
(9) month period ended September 30, 1993, and approximately $37.6 million
(15.3%) and $1.2 million (4.7%) of the Company's consolidated revenues and
operating income, respectively, for the year ended December 31, 1992.
The Financial Services Business offers, through Equity Bank, retail banking
services, mortgage, consumer and commercial lending, and other related financial
products and services through fifteen (15) branch offices located in the
Oklahoma City metropolitan area and western Oklahoma. In addition, the
Financial Services Business operates an Oklahoma-based credit card division in
order to complement its consumer lending activities. At September 30, 1993, the
Financial Services Business had, on a stand-alone basis, assets of $519.9
million and a net worth of $56.9 million. On a consolidated basis with the
Company, the Financial Services Business represented 77.1% of the Company's
unaudited consolidated assets at September 30, 1993. The Financial Services
Business accounted for approximately $31.2 million (14.8%) and $3.2 million
(12.8%) of the Company's unaudited consolidated revenues and operating income,
respectively, for the nine (9) month period ended September 30, 1993, and
approximately $46.9 million (19.0%) and $3.0 million (11.5%) of the Company's
consolidated revenues and operating income, respectively, for the year ended
December 31, 1992.
The Company's principal executive offices are located at 16 South
Pennsylvania, Oklahoma City, Oklahoma 73107, and its telephone number is (405)
235-4546.
Fourth Financial is a Kansas-based bank holding company that owns banks in
_________ states of the United States, including ________ banks in the State of
Oklahoma. The principal executive office of Fourth Financial is 100 North
Broadway, Wichita, Kansas 67201, and its telephone number is (316) 261-4444.
BACKGROUND OF AND REASONS FOR THE SALE. The Company entered the Financial
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Services Business in March, 1988, with the acquisition of the predecessor of
Equity Bank, because
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the Company perceived an opportunity to purchase a business with approximately
$55.0 million in assets at an attractive price and through which it could
develop a profitable business and facilitate financing of the Company's working
capital needs pursuant to an accounts receivable financing arrangement approved
by the appropriate regulatory agency at the time of the acquisition. In
December, 1988, the Company acquired Arrowhead Federal Savings and Loan
Association ("Arrowhead"), which had assets of approximately $317.0 million, in
order to augment its Financial Services Business. In 1989, Equity Bank acquired
a credit card company, which provides MasterCard and Visa credit card services
to member financial institutions and their customers and merchants.
In connection with the acquisition of Equity Bank in March, 1988, and the
approval of the appropriate regulatory authority at that time, the Company and
several of its subsidiaries transferred certain properties to Northwest
Financial Corporation ("Northwest Financial"), a wholly-owned service
corporation of Equity Bank. The properties included, but were not limited to,
the manufacturing facilities and the then existing distribution facilities of
the Chemical Business, a portion of the real estate which the Environmental
Control, the Automotive Products and Industrial Products Businesses conduct
manufacturing and distribution operations and certain other assets.
(collectively, the "Transferred Assets"). Based upon approvals by the
appropriate regulatory authority at that time, Equity Bank was allowed to
record, on a stand-alone basis, the Transferred Assets at their then current
fair market value based on MAI appraisals approved by the appropriate regulatory
agency at that time. The MAI appraisals relating to the Transferred Assets
were, in the aggregate, approximately $69.8 million. The Transferred Assets
were transferred to Northwest Financial subject to approximately $21.5 million
in debt. Equity Bank was allowed to reflect the MAI appraised values of the
Transferred Assets, less the associated debt, for capital purposes. The Company
continued to reflect the historical cost, less depreciation to date, for such
Transferred Assets on the Company's consolidated financial statements. The
Company's historical cost for all of the Transferred Assets, less depreciation,
equaled approximately $18.8 million as of the time such were transferred to
Northwest Financial. In order for the Company and its subsidiaries to continue
their operations on those properties, Northwest Financial entered into
agreements to lease or sublease the properties back to their original users for
an original term of twelve (12) years expiring in the year 2000, with an option
to renew for an additional term of ten (10) years, at an aggregate annual rental
for all of the Transferred Assets of $3.2 million, which lease agreement was
amended, including increasing the annual rental to approximately $4.3 million,
due to an agreement with its regulators as hereafter discussed in this section.
Subject to the terms of the leases between Northwest Financial and the Company's
subsidiary leasing such, Northwest Financial transferred beneficial ownership of
these properties to two general partnerships in which Northwest Financial owns
99.0% of the partnership interest and the other 1.0% is owned by another
subsidiary of the Company. Northwest Financial continues to hold record title
to the real properties that constitute part of the Transferred Assets.
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As part of the acquisition of Equity Bank and thereafter Arrowhead and the
approval of the appropriate regulatory authority at that time, the Company and
its subsidiaries were permitted to sell up to $60.0 million of eligible accounts
receivable at any one time to Equity Bank with recourse to the seller
("Receivable Financing"). Under such Receivable Financing, each account
receivable sold to Equity Bank was sold at 100% of face value.
As a result of regulatory examinations by the Office of Thrift Supervision
("OTS"), Equity Bank's primary regulatory authority, and the Federal Deposit
Insurance Corporation ("FDIC") in 1990, and subsequent years, the OTS and the
FDIC took the position that, among other things, the capital carrying value of
certain of the Transferred Assets contributed to Equity Bank in 1988, which
values were approved by the appropriate governmental agency at the time of
acquisition, needed to be substantially reduced. The Company denied that such
action by the FDIC and/or the OTS was proper. In 1992, the Company, the FDIC
and the OTS settled the issue as to the valuation of such assets. As part of
such settlement, (i) the Company agreed, among other things, to concede to the
request of such regulatory authorities and amended the lease between Northwest
Financial and the Company's subsidiary leasing those particular Transferred
Assets for which the regulatory authorities questioned the value to increase the
rent and also shortened the lease term for such Transferred Assets, and (ii)
another wholly-owned subsidiary of the Company agreed to acquire from Equity
Bank those particular Transferred Assets at the end of the lease term at Equity
Bank's then carrying value for regulatory capital purposes of such Transferred
Assets. As of the date of this Proxy Statement, Equity Bank's carrying value
for such Transferred Assets and all of the other Transferred Assets is
approximately $65.4 million.
In addition, the OTS took the position that the initial five (5) year
approvals granted in 1988 allowing for the Receivable Financing between Equity
Bank and the Company and certain of its other subsidiaries expired, and because
of an intervening change in the law, beginning in September, 1993, the amount of
the Receivable Financing was to be reduced to amounts allowable under current
regulations relating to transactions with affiliated companies which is based on
a percentage of Equity Bank's capital. As part of the negotiations with the
OTS, the parties agreed to a phase-down period regarding the Receivable
Financing instead of having to reduce such to the applicable percentage of
Equity Bank's capital by September, 1993. It was agreed that: (i) at no one
time subsequent to September 28, 1993, but prior to September 1, 1994, would the
total amount of such Receivable Financing outstanding at any one time exceed
$33.6 million; (ii) beginning January 28, 1994, Equity Bank will not purchase
any new accounts receivable from the Company and/or its subsidiaries under the
Receivable Financing arrangement if such would result in Equity Bank owning an
amount that would exceed the amount allowed by current regulations, and (iii) on
and after September 1, 1994, the outstanding amount of such Receivable Financing
at any one time must be in compliance with current regulations. Assuming that on
September 30, 1993, Equity Bank had been required to meet current
-7-
regulations regarding such Receivable Financing, the amount would have had to be
reduced to approximately $8.6 million as of such date.
The Company had not considered selling Equity Bank prior to 1993. During the
first half of 1993, the Company was considering a public offering of a new
series of its Class C preferred stock, which offering was completed in May, 1993
(the "Offering"). In connection with the Offering, the Company selected Lazard
Freres & Co. ("Lazard") as the managing underwriter of the Offering. In
connection therewith, Lazard advised the Company that, despite benefits of
ownership of Equity Bank, the public market and potential investors found the
Company more difficult to evaluate as a result of its ownership of Equity Bank
and the complexity of the Company being in both industrial businesses and the
financial services business. Lazard recommended that since market conditions
are currently favorable for selling financial institutions, the Company consider
selling Equity Bank or taking other steps regarding Equity Bank to remove the
complexity of analyzing the Company in the minds of the investing public. As a
result, the Company indicated in its prospectus relating to the Offering the
following:
The Company has pursued a strategy of acquisitions and is focusing on
increasing profitability within each of its businesses and concentrating on
business and product lines in niche markets where the Company can establish a
position as a market leader. In addition, the Company is seeking to further
build value for its stockholders through realization of the value of selected
assets reflected on its balance sheet. In this connection, the Company is
considering alternatives with respect to the Financial Services Business,
including its possible disposition. As of the date of this Prospectus, no
decision has been made as to the disposition of the Financial Services
Business. Any disposition of the Financial Services Business is, however,
subject, among other things, to the Company obtaining an acceptable price,
acquisition of, or agreement as to the treatment of certain assets owned by
the Financial Services Business contributed by the Company at the time of the
acquisition of the predecessor of Equity Bank and obtaining necessary
approvals from appropriate governmental regulatory agencies.
The terms of the new series of preferred stock sold in the Offering provided,
among other things, that each share of such preferred stock would have (i)
rights to convert such into the Company's common stock, subject to adjustment of
the conversion price upon the occurrence of certain events based on a formula,
including, but not limited to, the distribution to all holders of common stock
of the Company of evidence of indebtedness or other assets, and (ii) special
conversion rights upon a corporate change or ownership change having occurred,
which would provide the holders of such preferred stock greater conversion
rights under certain conditions than under the terms of the standard conversion
rights applicable to such preferred stock. Under the terms of such preferred
stock, a "corporate
-8-
change" was to occur at such time that the Company shall consummate any
transaction of merger or consolidation of the Company or the Company shall
convey, sell, lease, assign, transfer or otherwise dispose of all or
substantially all of the Company's property, business or assets. Although the
Company did not consider the sale or disposition of Equity Bank to constitute
all or substantially all of its business, properties, or assets, as a result of
Lazard's recommendations regarding Equity Bank and to avoid any confusion, the
Company provided in the terms of the preferred stock covered by the Offering
that (i) in the event of any dividend or distribution to shareholders of the
Company consisting exclusively of capital stock of Equity Bank and/or certain
other subsidiaries of the Company, the Company may, at its option, elect, in
lieu of all or any portion of the adjustment to the conversion price, to make a
cash payment to the holders of such preferred stock based upon a formula
described in the terms of such preferred stock, and (ii) that, among other
things, the sale, transfer or other disposition by the Company of any or all of
the capital stock or assets of Equity Bank and/or certain other subsidiaries of
the Company would not be considered a corporate change triggering the special
conversion rights.
Upon completion of the Offering, in which Lazard was paid a customary
compensation for such activity, the Company retained Lazard to act as the
exclusive financial advisor to the Company in connection with the consideration
of alternatives relating to Equity Bank, including a possible sale of Equity
Bank. The Company selected Lazard to act as its financial advisor as a result
of the knowledge of the Company and Equity Bank that Lazard had obtained acting
as the managing underwriter of the Offering. In connection with such services as
the financial advisor, the Company paid to Lazard a financial advisory fee of
$75,000, and agreed to pay Lazard the sum of $1.0 million, less the $75,000
previously paid, upon completion of the sale of Equity Bank to Fourth Financial
under the Acquisition Agreement, and reimburse Lazard for certain of its
reasonable out-of-pocket expenses in connection therewith.
After entering into the engagement with Lazard to act as the Company's
exclusive financial advisor in connection with the consideration of alternatives
relating to Equity Bank, including its possible sale, Lazard, with the
assistance of the Company, prepared an informational memorandum regarding Equity
Bank and distributed such to potential acquirers of Equity Bank, which they
believed might have an interest in acquiring Equity Bank and which would have
the financial resources to fund such acquisition. Of those financial
institutions contacted, Lazard and the Company decided to begin negotiations
with Fourth Financial after considering numerous factors.
After Fourth Financial conducted its due diligence of Equity Bank,
representatives of the Company and Fourth Financial met on numerous occasions
between August, 1993, and the end of November, 1993, to determine what was the
maximum Fourth Financial would pay for Equity Bank.
-9-
As a result of these discussions with Fourth Financial, Fourth Financial made
a formal proposal as to the amount that it would pay for Equity Bank. Fourth
Financial's proposal was based on numerous factors, many of which can only be
finally determined as to amount at the time of closing of the Equity Bank
transaction. Based on the formula, management of the Company calculated that
the projected Purchase Price should be approximately $92 million, based on
certain estimates and projections made by management. During the period from
November 30, 1993, to January ___, 1994 (the date that the definitive agreement
was executed), the Company and Fourth Financial have refined certain terms of
such formula, which the Company does not believe should materially change the
estimated amount of the Purchase Price of approximately $92 million. See "Sale
of Equity Bank -- Summary of Sale" for the terms of the formula as set forth in
the Acquisition Agreement to determine the Purchase Price to be received by the
Company from Fourth Financial at the closing of the sale of Equity Bank under
the Acquisition Agreement. The estimated amount of $92 million is based on a
number of estimates made by management of the Company, including an estimate of
Equity Bank's earnings through March 31, 1994, and other variables that will
affect the amount of the Purchase Price. As a result, the exact amount of the
Purchase Price may be higher or lower depending on numerous factors at the time
of closing of the sale of Equity Bank.
The Company and Fourth Financial also agreed that the Company (i) would
purchase from Equity Bank prior to completion of the transaction all of the
capital stock of the subsidiaries of Equity Bank that own the Transferred Assets
("Retained Corporations") for an amount equal to Equity Bank's carrying value of
the Transferred Assets at the time the Company acquires the Retained
Corporations, and (ii) that the Company would acquire from Equity Bank, at the
closing of the sale of Equity Bank, (a) the loan and mortgage on and option to
purchase the twenty-two (22) story Equity Tower, located in Oklahoma City,
Oklahoma ("Equity Tower Loan"), in which the principal offices of Equity Bank
are located, (b) all the other real estate owned by Equity Bank as a result of
foreclosures ("OREO"), (c) the real property located at 5700 North Portland,
Oklahoma City, Oklahoma, at which Equity Bank conducts one of its branch
operations (the "Branch") (the Equity Tower Loan, the OREO and the Branch are
collectively called the "Retained Assets"), for an amount equal to the carrying
value thereof as shown on the books of Equity Bank at the closing. See "Sale of
Equity Bank -- Summary of Sale". As of December 31, 1993, the carrying value on
the books of Equity Bank as to (i) the Transferred Assets held by the Retained
Corporations was, in the aggregate, approximately $65.4 million, and (ii) the
Retained Assets was approximately $20.5 million.
At a meeting of the Company's Board of Directors held on November 11, 1993,
the Board of Directors was advised as to the status of the negotiations between
the Company and Fourth Financial regarding Equity Bank.
-10-
Prior to any meeting of the Company's Board of Directors regarding whether the
Company should sell Equity Bank to Fourth Financial, management of the Company
provided each member of the Board of Directors with a substantial amount of
information relating to Equity Bank and the Fourth Financial proposal,
including, but not limited to, a summary of Fourth Financial's proposal and an
example calculation of the proposed Purchase Price; Equity Bank's historical
earnings and projected earnings based on numerous assumptions if Equity Bank was
retained by the Company; and the effect on the Company of selling Equity Bank at
an assumed purchase price of $92 million after acquiring the Transferred Assets
at Equity Bank's carrying value thereof but before acquisition of the note and
mortgage relating to the Equity Tower. Management made no recommendations to
the Board of Directors regarding Fourth Financial's proposal at that time.
After allowing the members of the Board of Directors several days to review such
information and documents, a meeting of the Board of Directors was held on
November 29, 1993. All of the directors (except for Robert C. Brown, M.D.) were
present. Also present at that meeting were the Company's General Counsel, the
Company's Managing Counsel, and the president of Equity Bank. At this meeting,
management presented to the Board of Directors a summary of the progress to date
as to the negotiations with Fourth Financial and the other institution that
management had discussions with regarding Equity Bank. The Company's Board of
Directors reviewed in detail at the meeting the documents supplied to them
regarding the offer from Fourth Financial and discussed other alternatives as to
Equity Bank, such as spinning off Equity Bank to the holders of the Company's
common stock, the possibility of retaining Equity Bank, and the possibility of
Equity Bank having an initial public offering ("IPO") of a certain percentage of
its stock with the Company retaining a majority of the outstanding stock of
Equity Bank. The Board made no decision at the November 29, 1993, meeting
regarding Equity Bank.
The Company's Board of Directors met again on November 30, 1993. At that
meeting all of the directors (except Robert C. Brown, M.D.) were present. The
Company's General Counsel, the Company's Managing Counsel, and representatives
of Ernst & Young, the Company's independent public accountants, and Lazard were
also present. At this meeting, representatives of Lazard presented to the Board
of Directors in writing a summary of the preliminary valuation analysis for
Equity Bank and orally advised the Board of Directors that the proposal made by
Fourth Financial was, in their opinion, fair from a financial point of view to
the Company. See "Sale of Equity Bank -- Opinion of Financial Advisor". At
this meeting, the Board of Directors unanimously approved the Company proceeding
with a sale of Equity Bank to Fourth Financial on terms substantially as
presented to the Board of Directors and approved the execution of an agreement
in principle to sell Equity Bank to Fourth Financial on such terms.
The alternatives considered by the Board of Directors regarding spinning off
Equity Bank to the holders of the Company's common stock and the IPO with the
Company retaining a majority of the outstanding stock of Equity Bank were
determined by the Board
-11-
not to be satisfactory alternatives for, among other things, (i) increased
competition in the markets served by Equity Bank; (ii) Equity Bank would
continue to own the Transferred Assets and the Company's subsidiary would
continue to have the obligation to purchase the Transferred Assets at the end of
the lease term for a substantial amount of money; (iii) the Company would have
to continue to pay rent for the Transferred Assets to an entity which would no
longer be a wholly-owned subsidiary; (iv) the Transferred Assets would continue
to be owned by Equity Bank, which is highly regulated, and, as a result, under
certain conditions, the regulators could require Equity Bank to dispose of, or
to take other actions regarding, the Transferred Assets to the detriment of the
Company and Equity Bank; (v) the distribution of the capital stock of Equity
Bank to the holders of the Company's Common Stock could result in substantially
greater dilution to the holders of the Company's Common Stock than under the
normal conversion rights of the holders of the preferred stock covered by the
Offering as a result of the required adjustment to the conversion rights of such
preferred stock due to such distribution or, in order to avoid the additional
dilution, require the Company to make a substantial cash payment to the holders
of such preferred stock reducing the Company's working capital; and, (vi) the
Company would receive greater benefit in selling Equity Bank at this time than
in spinning off the capital stock of Equity Bank to the Company's holders of
Common Stock or having Equity Bank sell a portion of its stock through an IPO
with the Company retaining a majority of Equity Bank's stock.
The Board of Directors concluded on November 30, 1993, that the sale of Equity
Bank at this time on the terms presented to the Board of Directors would be in
the best interest of the Company and its shareholders. In arriving at such
conclusion, the Board of Directors considered a number of factors, including,
but not limited to: (i) that at the present time there was a favorable market to
sell financial institutions, (ii) increased competition in the markets served by
Equity Bank, (iii) the highly regulated nature of Equity Bank, (iv) limitations
on the growth of Equity Bank as a result of such regulations, (v) changing
marketplace for savings institutions such as Equity Bank, (v) potential change
in the tax laws which could result in the Company having to recognize a taxable
gain if the sale were to occur after certain proposed regulations were adopted
(see "Sale of Equity Bank --Federal Income Tax Consequences"), (vi) sale would
eliminate problems with having to raise the funds at a later date to buy back
certain of the Transferred Assets and to pay rent to an entity which is no
longer a wholly-owned subsidiary, (vii) recommendations of Lazard as to the (a)
economic benefits of the sale of Equity Bank to Fourth Financial, as compared to
the future benefits of the Company retaining ownership of Equity Bank, and (b)
the effect owning Equity Bank was having on the value of the Company's Common
Stock, (viii) increase in net worth of the Company as a result of the sale of
Equity Bank, and (x) the fairness of the terms of the transaction to the Company
from an economic standpoint. See "Sale of Equity Bank -- Fairness of the Sale"
and "Sale of Equity Bank -- Opinion of Financial Advisor" for a discussion of
the factors considered relating to the fairness of the sale of Equity Bank. See
"Sale of Equity Bank -- Use of Proceeds" for a discussion of the use and
potential use of the proceeds from the sale of Equity Bank. See also "Sale of
Equity Bank
-12-
- -- Business of the Company after the Sale of Equity Bank" and "Pro Forma
Financial Statements".
The Board of Directors also concluded that the sale of Equity Bank will enable
management to focus the resources of the Company, both financially and
operationally, on its industrial businesses which, although such only
represented approximately 22.9% and 20.0% of the Company's consolidated assets
as of September 30, 1993, and December 31, 1992, respectively, such industrial
businesses represented approximately 85.2% and 81.0% of the Company's
consolidated revenues for the nine (9) month period ended September 30, 1993,
and for the year ended December 31, 1992, respectively.
On November 30, 1993, the Company and Fourth Financial entered into an
agreement in principle regarding the sale and purchase of Equity Bank, and on
December 1, 1993, both the Company and Fourth Financial issued press releases
that they had reached an agreement in principle whereby the Company would sell,
and Fourth Financial would purchase, Equity Bank, and that such transaction was
subject to the execution of a definitive agreement, obtaining regulatory
approvals and other conditions to be met.
The first draft received by the Company from Fourth Financial of a definitive
agreement was not acceptable for numerous reasons. Between November 30, 1993,
and January ____, 1994 (the date that the definitive agreement was executed),
representatives of the Company and Fourth Financial had numerous meetings and
telephone conferences negotiating the terms of the definitive agreement.
On January ____, 1994, copies of the Acquisition Agreement and a draft of
Lazard's form of opinion that the Purchase Price was fair from a financial
standpoint were delivered to the members of the Board of Directors. On January
___, 1994, a [meeting or telephonic meeting] of the Board of Directors was held,
at which time the Board of Directors reviewed, in detail, the Acquisition
Agreement and the draft of Lazard's form of opinion. Present at the meeting
were all of the directors, the Company's General Counsel and the Company's
Managing Counsel. See "Sale of Equity Bank -- Opinion of Financial Advisor".
After discussion of the merits and status, the Board of Directors unanimously
approved and authorized the execution, delivery and performance of the
Acquisition Agreement and the sale of Equity Bank pursuant to the terms thereof.
The Board of Directors unanimously approved and authorized the consummation of
the Acquisition Agreement, subject to, among other things specified in the
Acquisition Agreement, the approval of the shareholders of the Company and
obtaining regulatory approvals, which shareholder approval would specifically
authorize the Company to amend or modify the Acquisition Agreement (including
with respect to the amount or type of consideration to be received or the assets
to be sold) without further shareholder approval.
-13-
On January ____, 1994, the Acquisition Agreement was executed by all of the
parties. On January ____, 1994, press releases announcing the execution of a
definitive agreement were issued by the Company and Fourth Financial. On
February ____, 1994, Lazard delivered an executed fairness opinion. See "Sale
of Equity Bank -- Opinion of Financial Advisor".
FAIRNESS OF THE SALE. The Board of Directors believes that the terms and
- --------------------
conditions contained in the Acquisition Agreement are fair to, and in the best
interests of, the Company and its shareholders. In arriving at this belief, the
Board of Directors considered (i) the factors enumerated under "Sale of Equity
Bank -- Background of and Reasons for the Sale"; (ii) the opinion of Lazard, the
Company's independent financial advisor, that, as of the date of such opinion,
the consideration to be received by the Company pursuant to the sale of Equity
Bank was fair to the Company from a financial point of view; (iii) the analysis
presented to the Board of Directors at its November 30, 1992, meeting by Lazard
in connection with Lazard's rendering of its fairness opinion;; and, (iv) the
use of proceeds from the sale of Equity Bank. See "Sale of Equity Bank --
Opinion of Financial Advisor" and "Sale of Equity Bank -- Use of Proceeds". The
Board of Directors also noted the substantial efforts undertaken by the Company
and Lazard to locate other potential purchasers for Equity Bank. Such efforts
included discreet inquiries of, and discussions with, potential financial
purchasers, as well as potential strategic purchasers which, like Fourth
Financial, may be in a position to take advantage of synergies created by
combining the operations of Equity Bank with their present business operations.
In determining that the sale of Equity Bank is fair to, and in the best
interests of, the Company and its shareholders, the Board of Directors did not
assign any particular weight to any of the factors it considered, but gave
serious consideration to each of them. See "Sale of Equity Bank -- Background
of and Reasons for the Sale" and "Sale of Equity Bank -- Opinion of Financial
Advisor".
OPINION OF FINANCIAL ADVISOR. On November 30, 1993, at the meeting at which the
- ----------------------------
Company's Board of Directors approved the agreement in principle to sell Equity
Bank to Fourth Financial, Lazard delivered its oral opinion, which was
subsequently confirmed in writing on _________________, 1994, that the Purchase
Price for Equity Bank was fair, from a financial point of view, to the Company.
No limitations were imposed by the Company's Board of Directors upon Lazard with
respect to the investigations made or procedures followed by it in rendering its
opinion.
THE FULL TEXT OF THE OPINION OF LAZARD, DATED AS OF _______________, 1994 (THE
"LAZARD FAIRNESS OPINION"), WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINION,
IS ATTACHED HERETO AS EXHIBIT "B" TO THIS PROXY STATEMENT. THE LAZARD FAIRNESS
OPINION IS ADDRESSED ONLY TO THE COMPANY'S BOARD OF DIRECTORS AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY OF THE
-14-
COMPANY'S SHAREHOLDERS AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING. THE SUMMARY OF THE LAZARD FAIRNESS OPINION SET FORTH IN THIS PROXY
STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THE LAZARD FAIRNESS
OPINION IN ITS ENTIRETY.
Lazard is a nationally recognized investment banking firm and is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, underwritings, distributions of securities and similar
activities. Lazard has acted as financial advisor to the Company in connection
with the sale of Equity Bank. In connection therewith, Lazard has been paid a
fee of $75,000 and will be paid an additional fee for its services as financial
advisor which is contingent upon the consummation of the Acquisition Agreement.
In the course of its activities, Lazard has provided investment banking services
to the Company from time to time, including acting as managing underwriter of
the Offering by the Company in May, 1993, for which Lazard received customary
compensation. See "Sale of Equity Bank -- Background of and Reasons for the
Sale". Lazard may, in the ordinary course of its business, trade securities of
the Company for its own account or for the accounts of customers and, thus, may
hold long or short positions in such securities at any time.
In connection with the delivery of the Lazard Fairness Opinion, Lazard
reviewed, among other things, (i) the Acquisition Agreement; (ii) this Proxy
Statement; (iii) audited, consolidated financial statements of Equity Bank for
the three (3) years ended December 31, 1992; and (iv) certain financial and
other information regarding Equity Bank, including financial forecasts for
Equity Bank, which were furnished to Lazard by the Company and Equity Bank or
were publicly available. Lazard held discussions with members of the senior
management of Equity Bank with respect to its past and current business
operations and financial condition, regulatory relationships and future
prospects. Lazard also held discussions with the independent auditors of Equity
Bank regarding its financial and accounting affairs. In addition, Lazard
compared certain financial and stock market information for Equity Bank with
similar information for other companies the securities of which are publicly
traded, and reviewed the financial terms of certain recent merger and
acquisition transactions involving savings institutions specifically and in
other industries generally and performed such other studies and analyses as it
considered appropriate.
Lazard relied upon the accuracy and completeness of all of the financial and
other information reviewed by it for purposes of the Lazard Fairness Opinion and
did not attempt independently to verify any of such information. In that
regard, Lazard did not conduct a physical inspection of any of the properties or
assets of Equity Bank, nor did it obtain any independent evaluation or appraisal
of any properties, assets or liabilities of Equity Bank. In addition, Lazard
assumed, with the consent of the Company's Board of Directors, that the
financial forecasts furnished to it had been reasonably prepared on a basis
reflecting the
-15-
best currently available judgments and estimates of Equity Bank. The Lazard
Fairness Opinion does not address the relative merits of the sale of Equity Bank
as compared to any alternative business strategies that might exist for the
Company. The Lazard Fairness Opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to it
as of the date hereof.
The following is a brief summary of the material analyses performed by Lazard
in connection with rendering its written opinion, dated as of February ____,
1994. Lazard utilized substantially the same financial analyses in preparing
its oral opinion to the Company's Board of Directors on November 30, 1993.
Derivation of Equity Bank's Normalized Earnings. Equity Bank's historical and
projected consolidated stand-alone statements of income include interest income
from certain affiliated Receivable Financing transactions, non-interest revenues
associated with the Equity Tower Loan, gains on the sale of the OREO, and rental
income generated by the Retained Corporations relating to the Transferred
Assets. Lazard adjusted Equity Bank's earnings to remove these revenues since
under the Acquisition Agreement, the Company will purchase the Retained Assets
and the Retained Corporations from Equity Bank. Lazard made a related pro forma
adjustment to credit Equity Bank's interest income for a 6% yield on the
theoretical reinvestment of cash of approximately $85.9 million received from
the sale of the Retained Assets and the Retained Corporations and $29.4 million
for the repurchase of the accounts receivable sold to Equity Bank under the
Receivable Financing. Lazard further adjusted Equity Bank's earnings to
eliminate the effect of certain non-recurring items which would either be
eliminated due to purchase accounting adjustments or whose value was separately
determined. These adjustments included goodwill amortization and the accretion
of a discount relating to and gains on the sale of a portfolio of purchased
loans.
As a result of the adjustments discussed above, Lazard calculated Equity
Bank's normalized pre-tax income for the nine (9) months ended September 30,
1993, to be $4.9 million, versus $6.4 million reported by Equity Bank in its
internal stand-alone financial statements. Lazard calculated normalized pre-tax
income for the years ending December 31, 1993, and 1994 (based on estimates
prepared by management of Equity Bank) to be $6.8 million and $5.6 million,
versus management's estimated figures of $8.1 million and $5.7 million,
respectively. Since the value of Equity Bank's net operating loss carryforwards
also was determined separately (together with the adjustments referred to in the
preceding paragraph, the "Valuation Adjustment"), and in order to facilitate
comparisons, Lazard applied a tax rate of 38% to the normalized pre-tax income
figures. This resulted in fully-taxed net income ("Normalized Earnings") of
$3.0 million, $4.2 million and $3.5 million for the nine (9) months ended
September 30, 1993, and estimated for the years ending December 31, 1993, and
1994, respectively. The Valuation Adjustment was calculated based
-16-
on financial information relating to Equity Bank provided to Lazard by the
managements of the Company and Equity Bank, which information Lazard did not
independently verify.
Analysis of Selected Savings Institution Stock Purchases. Lazard reviewed
certain merger and acquisition transactions involving savings institutions
announced since January 1, 1992, in which the acquired institution had assets of
less than $1 billion and was located in selected midwest and southern states,
and compared certain multiples implied by the Fourth Financial proposal with
comparable multiples for these transactions. The analysis indicated
price/tangible book values for these transactions that ranged from 0.48x to
2.22x, with a median multiple of 1.59x; and price/last twelve (12) months
("LTM") earnings per share ("EPS") multiples that ranged from 3.4x to 20.3x with
a median multiple of 13.5x. Based on a Purchase Price of $92 million and before
the Valuation Adjustment, the comparable analysis of the Fourth Financial
proposal to acquire Equity Bank indicated a price/tangible book value of 2.36x;
a price/LTM fully-taxed reported earnings of 17.3x; and a price/LTM Normalized
Earnings of 22.8x. Reducing the assumed purchase price of $92 million by the
Valuation Adjustment, the comparable analysis of the Fourth Financial proposal
to acquire Equity Bank indicated a price/tangible book value of 1.69x; a
price/LTM fully-taxed reported earnings of 12.4x; and a price/LTM Normalized
Earnings of 16.4x.
Valuation of the Bank. As Equity Bank is not a publicly-traded company,
Lazard undertook a series of analyses, described below, to determine a reference
range for the transaction value of Equity Bank under different valuation
methodologies:
Analysis Based on Selected Savings Institution M&A Transactions. As
described above, Lazard reviewed certain merger and acquisition transactions
involving savings institutions. Lazard applied the multiples implied by
these transactions to Equity Bank's tangible book value and Normalized
Earnings and added the Valuation Adjustment to these products. On the basis
of this analysis, Lazard established a reference range for the transaction
value of Equity Bank of $78.4 million to $88.3 million.
Analysis Based on Selected Thrift Trading Multiples. Lazard selected and
analyzed a group of publicly traded savings institutions located in selected
midwest and southern states, with total assets between $200 million and $800
million, and with return on assets between 0.50% and 2.00%. The institutions
in this group were Conservative Savings Corproation, FirstFed Northern
Kentucky Bancorp, Inc., Great Southern Bancorp, Inc., Home Federal Savings
Bank of Missouri, Railroad Financial Corporation and UNSL Financial Corp.
This analysis indicated that the common stock of the group traded at
price/tangible book values that ranged from 0.72x to 1.55x, with a median
multiple of 1.24x; price/LTM EPS multiples that ranged from 5.4x to 14.7x
with a median multiple of 8.7x; price/1993E EPS (as compiled by the
Institutional Brokers' Estimate System, "I/B/E/S") multiples that ranged from
6.7x
-17-
to 14.0x with a median multiple of 11.2x; and price/1994E (as compiled by
I/B/E/S) EPS multiples that ranged from 7.8x to 13.4x with a median multiple
of 11.9x. Lazard applied these multiples to Equity Bank's tangible book value
and Normalized Earnings, added an assumed control premium of 25% to this
product and further added the Valuation Adjustment to this sum. On the basis
of this analysis, Lazard established a reference range for the transaction
value of the Bank of $66.0 million to $84.2 million.
Analysis Based on Balance Sheet Mark-to-Market. Lazard analyzed the values
that might be obtained if the assets and liabilities of Equity Bank were sold
separately. This analysis considered not only the possible premiums that
might be paid for certain on-balance sheet assets, but also the possible
premiums for off balance sheet assets such as Equity Bank's portfolios of
mortgage servicing and credit card receivables. In determining the range of
possible premiums that might be paid for these assets, Lazard took into
account the range of premiums that had been paid in transactions involving
similar asset types. On the basis of this analysis, Lazard established a
reference range for the transaction value of Equity Bank of $78.0 million to
$88.9 million.
No company or transaction used in the above analyses is identical to Equity
Bank or the Acquisition Agreement. Accordingly, an analysis of the results of
the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading or acquisition
values of the companies to which they are being compared.
The summary set forth above does not purport to be a complete description of
the analyses performed by Lazard. The preparation of a fairness opinion is a
complex process and is not susceptible to partial analysis or summary
description. Lazard believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses or factors, or
selecting parts of the above summary, without considering all analyses and
factors, could create an incomplete view of the processes underlying the
preparation of the Lazard Fairness Opinion. None of the analyses performed by
Lazard was indicated by Lazard to have a greater significance than any other.
The ranges of valuations resulting from any particular analysis described above
should not be taken to be Lazard's view of the actual value of Equity Bank.
In performing its analyses, Lazard made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Equity Bank. The analyses
performed by Lazard are not necessarily indicative of actual value or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, the analyses do not
-18-
purport to be appraisals or to select the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. Lazard used in its analyses various
projections of future performance prepared by the management of Equity Bank.
The projections are based on numerous variables and assumptions which are
inherently unpredictable and must be considered uncertain of occurrence in the
amounts and at the times projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, the Lazard Fairness Opinion was among many factors taken
into account by the Company's Board of Directors in making its determination to
approve the Acquisition Agreement.
The terms of the engagement of Lazard were set forth in an engagement letter
dated June 11, 1993, and amended on January ____, 1994. Pursuant to that
letter, as amended, Lazard was paid a financial advisor's fee of $75,000, and,
if the Acquisition Agreement is consummated, the Company will pay to Lazard a
transaction fee of $1 million, less the $75,000 previously paid. The Company
has further agreed to reimburse Lazard for certain of its reasonable
out-of-pocket expenses. The Company has agreed to indemnify Lazard against
certain liabilities relating to, or arising out of, the engagement, including
liabilities under the federal securities laws.
USE OF PROCEEDS. As stated in the "Sale of Equity Bank -- Background of and
- ---------------
Reasons for the Sale", the Acquisition Agreement provides that the Company is to
purchase prior to the consummation of the Acquisition Agreement the Retained
Corporations from Equity Bank for a price equal to the then carrying value of
the Retained Corporations on the books of Equity Bank. The Company anticipates
that such price for the Retained Corporations will be approximately $65.4, which
is the carrying value of the Transferred Assets contained in the Retained
Corporations on the books of Equity Bank as of December 31, 1993. The Company
has arranged with Bank IV Oklahoma, National Association ("Bank IV"), a
subsidiary of Fourth Financial, to borrow such funds to acquire the Retained
Subsidiaries, with such funds to bear an annual rate of interest of _______% and
to be repaid in full as soon as possible after the consummation of the
Acquisition Agreement with a portion of the proceeds received as the Purchase
Price from Fourth Financial. In addition, the Acquisition Agreement also
provides that the Company is to acquire at the time of the consummation of the
Acquisition Agreement the Retained Assets for an amount equal to the carrying
value of such on the books of Equity Bank at the consummation of the Acquisition
Agreement, which is estimated to be approximately $20.8 million, since such was
the aggregate carrying value of the Retained Assets as of December 31, 1993.
The Acquisition Agreement also provides that the Company will have the option,
but not the obligation, to acquire loans of Equity Bank that have been charged
off or written down ("Other Loans") for a price equal to the net book value of
each loan that has been written down or $1.00 for each loan charged off. See
"Sale of Equity Bank -- Summary of Sale". [As of the date of
-19-
this Proxy Statement, the Company has not made a decision as to whether it will
acquire any Other Loans.] The price to be paid for the Retained Assets and, if
acquired, the Other Loans shall be paid by the Company at the closing of the
sale of Equity Bank. The Company will use the balance of the Purchase Price
(after repaying the loan obtained to purchase the Retained Corporations and
payment for the the Retained Assets, and, if any, the Other Loans) for general
working capital purposes.
BUSINESS OF THE COMPANY AFTER THE SALE. After completion of the sale of Equity
- --------------------------------------
Bank, the Company will continue to operate its industrial businesses consisting
of the Chemical Business, The Environmental Control Business, the Automotive
Products Business and the Industrial Products Business.
The Chemical Business. The Chemical Business manufactures and sells specialty
explosive products, prilled ammonium nitrate products, and high grade specialty
industrial acids to the explosives, agricultural and industrial acids markets.
The Chemical Business' revenues (i) for the nine (9) month period ended
September 30, 1993, were approximately $91.0 million, with approximately 35.3%
consisting of sales of fertilizer and related chemical products for agricultural
purposes; 40.3% consisting of sales to ammonium nitrate and other chemical-based
blasting products for the mining industry, and 20.5% consisting of acid sales
to the industrial acid markets, and (ii) for the year ended December 31, 1992,
were $107.2 million, with 31.8% consisting of sales of fertilizer and related
chemical products for agricultural purposes, 41.0% consisting of sales to
ammonium nitrate and other chemical-based blasting products for the mining
industry, and 26.1% consisting of acid sales to the industrial acid markets.
The Company believes that the only seasonal products of the Chemical Business
are fertilizer and related chemical products sold to the agricultural industry.
The selling seasons for those products generally occur during the spring and
fall planting seasons (i.e., from February through May and from September
through November). In addition, sales to the agricultural markets depend upon
weather conditions and other circumstances beyond the control of the Company.
Ammonia represents an essential component in the production of most of the
products of the Chemical Business, and the price of those products generally
fluctuates with the price of ammonia. The Company has a contract with a
supplier of ammonia pursuant to which the supplier has agreed to supply the
ammonia requirements of the Chemical Business on terms the Company considers
favorable. The Company believes that it could obtain ammonia from other sources
in the event of a termination of that contract.
The Chemical Business sells and markets its products directly through its own
sales force, twenty-one (21) agricultural distribution centers located in Texas,
Missouri, and
-20-
Tennessee, and thirteen (13) blasting centers located in Missouri, Kentucky,
Indiana, Wyoming, West Virginia, Illinois, New Mexico, Georgia, Oklahoma and
Kansas.
The Company's Chemical Business' primary manufacturing operations are
conducted on 150 acres of a 1,400-acre tract located in El Dorado, Arkansas (the
"Site"). Since the 1940's, the Site has been a manufacturing facility for
ammonium nitrate compounds and, until 1969, was a manufacturing facility for
ammonia. In 1955, the Site was acquired by Monsanto Company ("Monsanto"), and,
in June, 1983, Monsanto sold the Site to El Dorado Chemical Company ("EDC").
EDC was acquired by the Company in 1984. Under the agreement with Monsanto, the
indemnification is not assignable to a party to which EDC transfers the Site
without the prior written consent of Monsanto, except to any company 100% of the
voting stock of which is owned or controlled, directly or indirectly, by EDC.
Although EDC has operated the Site since its acquisition from Monsanto in 1983,
in 1988 EDC transferred ownership of the Site to the Company, which, in turn,
transferred title to a company within the Financial Services Business. The
Site, together with certain assets located on the Site, are included in the
Transferred Assets. Although no consent was obtained from Monsanto when EDC
transferred ownership of the Site to its affiliated company to assign the
Monsanto indemnification, if such a consent was required under the agreement
with Monsanto, the Monsanto indemnification remains applicable to EDC. The
Company's Chemical Business has been advised that the Site had been placed in
the Environmental Protection Agency's ("EPA") data-based tracking system (the
"System"). The System maintains an inventory of sites in the United States
where it is known or suspected that a release of hazardous waste has occurred.
Notwithstanding inclusion in the System, EPA regulations recognize that such
inclusion does not represent a determination of liability or a finding that any
response action will be necessary. Over 36,000 sites in the United States are
presently listed in the System. If a site is placed in the System, EPA
regulations require that the government or its agent perform a preliminary
assessment of the site. If the preliminary assessment determines that there has
been a release, or that there is suspected to have occurred a release, at the
site of certain types of contamination, the EPA will perform a site
investigation. Pursuant to such regulations, the State of Arkansas performed
such preliminary assessment for the EPA. The preliminary assessment report
prepared by the State of Arkansas, dated September 30, 1992, regarding the Site
states, in part, that releases of certain types of contaminants at the Site is
probable or suspected to have occurred and that certain violations alleged by
the State of Arkansas of environmental regulations, some of which are alleged to
have occurred between 1989 and 1991, may be contributing factors. The Company
believes that a number of statements in the Arkansas report are inaccurate and
that others relate to matters that had already been corrected. Accordingly, the
Company provided the State of Arkansas with a response to the report which
challenged a number of the findings contained therein. The Company understands
that this response was forwarded to the EPA by the State of Arkansas. It is
anticipated that the EPA will, at some future date, perform a site inspection at
the Site, which inspection will usually involve the gathering of additional data
including environmental sampling of the
-21-
Site. After conducting the site inspection, the regulations provide that the
EPA may determine that: (i) the Site does not warrant further involvement in the
evaluation process, or (ii) that further study of the Site is warranted to
determine what appropriate action is to be taken in response to a release of
contaminants at the Site or whether such release justifies the Site being placed
on the National Priorities List. Being placed in the System will generally be
the first step in the EPA's determination as to whether a site will be placed on
the National Priorities List. After the EPA completes its site inspection and
evaluates other information, the EPA will then assess the Site using the Hazard
Ranking System to ascertain whether the Site poses a sufficient risk to human
health or the environment to be proposed for the National Priorities List.
There are approximately 1,200 sites in the United States presently listed on the
National Priorities List. The Company has been advised that there have occurred
certain releases of contaminants at the Site. However, the Company does not
believe that such releases should warrant the Site being placed on the National
Priorities List, but there are no assurances to that effect. The Company is in
the process of studying the Site in an attempt to determine the extent of such
releases at the Site and when such releases may have occurred. In addition, as
a result of certain releases of contaminants at the Site, EDC may be
subject to assessment of certain civil penalties. While there are no assurances,
based on information presently available to the Company, the Company does not
believe, as of the date of this Proxy Statement, that the Site being placed in
the System or the response to any contamination at the Site or the assessment of
penalties, if any, due to release of certain contaminants at the Site should
have any material adverse effect on the Company or the Company's financial
condition. See "Sale of Equity Bank -- Summary of Sale" for a discussion of
certain indemnities provided to Fourth Financial and Bank IV by the Company
related to environmental matters as to the Transferred Assets.
The Environmental Control Business. The Environmental Control Business
manufactures and sells a broad range of fan coil, air handling, air
conditioning, heating, heat pump and dehumidification products targeted to both
new building construction and renovation, as well as industrial applications.
For the nine (9) month period ending September 30, 1993, the revenues of the
Environmental Control Business were approximately $51.6 million. For the year
ended December 31, 1992, the revenues for the Environmental Control Business
were $55.0 million.
Most of the Environmental Control Business' production of the above-described
products occurs on a specific order basis. The Company manufactures the units
in many sizes, as required by the purchaser, to fit the space and capacity
requirements of hotels, motels, schools, hospitals, apartment buildings, office
buildings and other commercial or residential structures.
The Environmental Control Business sells its products to mechanical
contractors, original equipment manufactures and distributors. The Company's
sales to mechanical
-22-
contractors primarily occur through independent manufacturer's representatives,
who also represent complimentary product lines not manufactured by the Company.
Original equipment manufacturers generally consist of other air conditioning and
heating equipment manufacturers who resell under their own brand name the
products purchased from the Environmental Control Business as a separate item in
competition with the Company or as part of a package with other air
conditioning-heating equipment products to form a total air conditioning system
which they then sell to mechanical contractors or end-users for commercial
application. The Environmental Control Business depends primarily on the
commercial construction industry, including new construction and the remodeling
and renovation of older buildings.
During 1993, the Environmental Control Business entered into two (2) letters
of intent to supply a foreign customer in Poland and a foreign customer in a
country that was formerly part of the Soviet Union with equipment, licenses,
designs, tooling, machinery, and technical data and services to manufacture
environmental control products. Each letter of intent provides that the
purchase price is to be approximately $49 million. Each letter of intent
provides that, in lieu of cash, the Company will accept payment in kind of
anhydrous ammonia from the foreign customer for use by the Company's Chemical
Business. The letter of intent with the customer in Poland has been orally
amended to provide that (i) the agreement will be divided into two (2) segments,
with a definitive agreement as to the first segment presently being negotiated
for approximately one-half of the total purchase price and the second segment
for approximately the other half of such purchase price to be negotiated after
finalization of the definitive agreement relating to the first segment, and (ii)
the Polish customer will pay cash under such contracts in lieu of delivering
anhydrous ammonia to the Company. The Company has not yet begun negotiations as
to a definitive agreement with the other customer. Each letter of intent is
subject to the finalization and the execution of a definitive agreement. The
Company has not finalized definitive agreements under either of the letters of
intent, and there are no assurances that definitive agreements will be reached
on either of these projects.
The Automotive Products Business. The Automotive Products Business is
primarily engaged in the manufacture and sale of a line of anti-friction
bearings, which includes straight-thrust and radial-thrust ball bearings,
angular contact ball bearings, and certain other automotive replacement parts.
These products are used in automobiles, trucks, trailers, tractors, farm and
industrial machinery, and other equipment. For the nine (9) month period ending
September 30, 1993, and the year ended December 31, 1992, the revenues of the
Automotive Products Business were approximately $22.2 million and $20.0 million,
respectively.
The automotive and truck replacement market serves as the principal market for
the Automotive Products Business. This business sells its products domestically
and for export, principally through independent manufacturers' representatives
who also sell other
-23-
automotive products. Those manufacturers' representatives sell to retailers
(including major chain stores), wholesalers, distributors and jobbers. The
Automotive Products Business also sells its products directly to original
equipment manufacturers and certain major chain stores.
The Company generally produces or purchases the products sold by the
Automotive Products Business in quantities based on a general sales forecast,
rather than on specific orders from customers. The Company fills most orders
for the automotive replacement market from inventory. The Company generally
produces or purchases bearings for original equipment manufacturers after
receiving an order from the manufacturer.
The principal materials that the Automotive Products Business needs to produce
its products consist of high alloy steel tubing, steel bars, flat strip coil
steel and bearing components produced to specifications. The Company acquires
those materials from a variety of domestic and foreign suppliers at competitive
prices. The Company does not anticipate having any difficulty in obtaining
those materials in the near future.
The Industrial Products Business. The Industrial Products Business purchases
and markets a proprietary line of machine tools and also markets industrial
supplies. The current line of machine tools distributed by the Industrial
Products Business includes milling, drilling, turning, fabricating and grinding
machines. The Company purchases most of the machine tools marketed by the
Industrial Products Business from foreign companies, which manufacture the
machine tools to the Company's specifications. For the nine (9) month period
ending September 30, 1993, and for the year ended December 31, 1992, the
revenues of the Industrial Products Business were approximately $14.6 million
and $17.6 million, respectively.
The Industrial Products Business distributes its machine tools in the United
States, Mexico, Canada and certain other foreign markets. The Industrial
Products Business sells and distributes its products through its own sales
personnel, who call directly on end-users. The Industrial Products Business also
sells its machine tools through independent machine tool dealers throughout the
United States and Canada, who purchase the machine tools, for resale to end
users. The principal markets for machine tools, other than independent machine
tool dealers, consist of manufacturing and metal working companies, maintenance
facilities, utilities and schools.
The Industrial Products Business does not depend on any single customer, or a
few customers, the loss of any one or more of which would have a material
adverse effect on the Industrial Products Business. A significant increase in
the revenues of the Industrial Products Business occurred during 1992 and 1993
as a result of an agreement with a Slovakian company ("Buyer") signed July 6,
1992, to supply the Buyer with equipment, technology and technical services to
manufacture certain types of automotive bearing
-24-
products. The agreement provides for a total contract amount of approximately
$56.0 million, with $12.0 million of the contract amount to be retained by the
Buyer as the Company's subsidiary's equity participation in the Buyer at a
nominal amount. The balance of approximately $44.0 million has been or will be
paid to the Company's subsidiary as follows: (i) approximately $12.3 million was
paid during 1992 as a downpayment, and (ii) the balance of approximately $31.6
million payable in equal quarterly installments over a ten (10) year period,
plus interest. Payment of the quarterly installments has been delayed from time
to time. However, during the first 1993, approximately $791,000 of such balance
was paid by the Buyer to the Industrial Products Business under this agreement.
The Industrial Products Business has acquired the machinery and equipment and is
developing the tooling and designs to be delivered to the Buyer under the
Agreement. The Company has shipped to the Buyer certain machinery and equipment
and expects to deliver the balance of such machinery and equipment and the
tooling and designs to the Buyer by the end of June, 1994. Circumstances could
arise that could delay the delivery of the machinery, equipment, designs and
tooling to the Buyer. Under the agreement, the Company's subsidiary will use
its best efforts to purchase approximately $14.5 million of bearing products
from the Buyer each year over a period of ten (10) years; provided, however,
that the Company's subsidiary is not required to purchase more product from the
Buyer in any one (1) year than the amount of tapered bearings the Company's
subsidiary is able to sell in its market. The Company presently manufactures
and purchases from outside sources tapered bearings. During the nine (9) months
ended September 30, 1993, and for the year ended December 31, 1992, the Company
sold approximately $8.0 million and $6.9 million, respectively, of tapered
bearings. The Company believes that the purchase price of these bearings will
be favorable compared to its present cost in purchasing these products from
other sources or manufacturing these products. Such prices are subject to
increases or decreases based upon price increases or decreases sustained in the
United States bearing industry. The Company will recognize revenues and profits
on the sale of equipment and technology over the term of the agreement as they
are realized. The revenue and profit realized during the delivery and
installation period will be recognized on a percentage of completion basis.
During the nine (9) months ended September 30, 1993, and the year ended December
31, 1992, the Company recorded sales of approximately $5.4 million and $6.2
million, respectively, in connection with the agreement. The percentage of
completion will be determined by relating the productive costs incurred to date
to the total productive costs estimated to complete the performance under the
contract for delivery and installation. The Company presently meets all of its
obligations under the contract which generally coincides with the payout term.
During the last quarter of 1993, the Industrial Products Business exchanged
its rights to an equity interest in the Buyer to a foreign non-affiliated
company ("Purchaser of the Interest") for $12.0 million in notes. The Company
has been advised that the Buyer has agreed to repurchase from the Purchaser of
the Interest up to $6 million of such equity interest over a six (6) year
period, with payment to be either in cash or bearing products.
-25-
The notes issued to the Industrial Products Business for its rights to the
equity interest in the Buyer will only be payable when, as and if the Purchaser
of the Interest collects from the Buyer for such equity interest, and the method
of payment to the Company will be either cash or bearing products in the same
manner as received by the Purchaser of the Interest from the Buyer. Due to the
Company's inability to determine what payments, if any, it will receive on such
notes, the Company will continue to carry such notes at a nominal amount.
See "Sale of Equity Bank -- The Company and Fourth Financial", "Pro Forma
Financial Statements" and "Incorporation of Certain Documents by Reference".
RECENT DEVELOPMENTS OF THE COMPANY. In addition to those described in this
- ----------------------------------
Proxy Statement, the Company did not have any material change in the Company's
affairs which have occurred since December 31, 1992, that have not been
described in a report on Form 10-K, Form 10-Q or Form 8-K filed by the Company
under the Securities and Exchange Commission ("SEC"), except that during
November, 1993, the Company's Chemical Business acquired an additional
concentrated nitric acid plant and related assets ("Plant and Assets") for
approximately $1.9 million. The Chemical Business is in the process of moving
such Plant and Assets from Illinois to, and installing such at, its
manufacturing plant located in El Dorado, Arkansas. The Company anticipates
that the total amount that will be expended to acquire, move and install the
Plant and Assets will be approximately $12.0 million.
ACCOUNTING TREATMENT IN CONNECTION WITH THE SALE. As Equity Bank represents all
- ------------------------------------------------
of the operations of the Company's Financial Services Business, the sale of
Equity Bank will result in the disposal of a business segment for financial
reporting purposes by the Company. Accordingly, the financial statements of the
Company for 1993 and prior years will reflect the operations of Equity Bank as a
discontinued operation. The gain on the sale of Equity Bank will be reflected
when the sale is consummated, which is expected to occur during the second
quarter of 1994.
FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of certain of the
- -------------------------------
federal income tax consequences to the Company as a result of the sale of Equity
Bank under the Acquisition Agreement. The consummation of such sale will not in
itself be a taxable event for the shareholders of the Company.
The Company, Equity Bank, and the Company's other subsidiaries file a
consolidated federal income tax return. The Company expects to realize a
consolidated net loss for federal income tax purposes upon the consummation of
the sale of Equity Bank in the amount of approximately $19.9 million. Under the
Treasury Regulations promulgated by the Internal Revenue Service (the "IRS")
governing consolidated returns in effect as of the date of this Proxy Statement
(the "Consolidated Return Regulations"), no deduction is generally allowed for
any loss recognized by a member of a consolidated group with respect
-26-
to the disposition of stock of a subsidiary. Accordingly, the Company may not
deduct any losses arising from the consummation of the sale of Equity Bank.
The Consolidated Return Regulations permit the Company to elect to reattribute
to itself the amount of any disallowed loss which is otherwise attributable to
Equity Bank. Under the terms of the Acquisition Agreement, Equity Bank is
required to indemnify Fourth Financial and Bank IV from any reduction in the
aggregate amount of Equity Bank's net operating loss for federal income tax
purposes below $64.0 million; provided, however, that such reduction results
solely from a reduction required by final action of the Internal Revenue Service
and made retroactive to the period prior to the consummation of the sale of
Equity Bank under the Acquisition Agreement. The Company is required to
indemnify Fourth Financial in an amount (not to exceed $10.5 million, which
represents that amount allocated toward the Purchase Price for Equity Bank's net
operating loss) equal to a percentage of the amount by which Equity Bank's net
operating losses are reduced below $64.0 million. See "Sale of Equity Bank --
Summary of Sale". Any significant reattribution of such disallowed loss would
result in Equity Bank's net operating loss carryovers being reduced to an amount
less than $64.0 million, thereby invoking the Company's obligation to indemnify
Fourth Financial; therefore, it is anticipated that the Company will not elect
to reattribute any such disallowed loss.
The consolidated net loss which the Company expects to recognize in connection
with the sale of Equity Bank under the Acquisition Agreement for federal tax
purposes differs substantially from the net gain arising from the sale of Equity
Bank under the Acquisition Agreement as computed for financial accounting
purposes. The Company expects to realize a net gain of approximately $25.0
million for financial accounting purposes. This difference is primarily
attributable to the Company's increased tax basis in its shares of Equity Bank
stock under the Consolidated Return Regulations as a result of (i) the amount of
nontaxable assistance to Equity Bank by the Federal Savings and Loan Insurance
Corporation which is excluded from Equity Bank's taxable income without a
corresponding reduction in tax basis and (ii) the amount of Equity Bank's net
operating loss carryovers which are unused by the Company's consolidated group
at the time of the consummation of the sale of Equity Bank under the Acquisition
Agreement. Other factors creating the difference relate to increases in the
Company's basis in its shares of Equity Bank stock attributable to temporary
differences between financial accounting and income tax reporting.
The calculation of the consolidated net loss which the Company expects to
realize in connection with the sale of Equity Bank under the Acquisition
Agreement is based upon the Consolidated Return Regulations in effect as of the
date of this Proxy Statement. On November 12, 1992, certain proposed amendments
to the Consolidated Return Regulations were published in the Federal Register
(the "Proposed Regulations"). The Proposed Regulations, if effective, would
result in a reduction of the Company's basis in its shares of Equity Bank stock
by certain net operating loss carryovers attributable to Equity Bank which
-27-
have expired since Equity Bank has been a member of the Company's consolidated
group. This stock basis reduction is not required under the Consolidated Return
Regulations currently in effect.
As of December 31, 1993, the amount of Equity Bank's expired net operating
loss carryovers was approximately $36.1 million. Thus, the Proposed
Regulations, if effective, would result in a reduction of approximately $36.1
million in the Company's basis in its shares of Equity Bank stock. This
reduction would result in the recognition by the Company of a consolidated net
gain in connection with the sale of Equity Bank of approximately $16.2 million
for federal tax purposes. The approximately $16.2 million gain which would be
generated under the Proposed Regulations would be applied against and result in
a reduction of Equity Bank's net operating loss carryovers in the amount of
approximately $5.0 million and the reduction of the Company's net operating loss
carryovers in the amount of approximately $11.2 million. This reduction of
Equity Bank's net operating loss carryovers by approximately $5.0 million would
invoke the Company's obligation to indemnity Fourth Financial for the reduction
of Equity Bank's net operating loss carryovers below $64.0 million, for an
amount equal to a percentage of the amount by which Equity Bank's net operating
losses are reduced below $64.0 million.
The Proposed Regulations have not been finalized as of the date of this Proxy
Statement, and, if finalized, will be effective as to transactions occurring
after the date the Proposed Regulations are filed in final form with the Federal
Register. Thus, the Proposed Regulations will not be effective as to the sale
of Equity Bank under the Acquisition Agreement if the sale of Equity Bank under
the Acquisition Agreement occurs prior to the date the Proposed Regulations are
published in final form with the Federal Register. The Company has reserved the
right under the Acquisition Agreement to terminate the Acquisition Agreement and
cancel the sale of Equity Bank under the Acquisition Agreement if the Proposed
Regulations become effective prior to the consummation of the sale of Equity
Bank under the Acquisition Agreement or if any other change in the law occurs
with the effect that the tax basis of the Company in its shares of Equity Bank
stock shall be significantly reduced. See "Summary of the Sale of Equity Bank".
REGULATORY MATTERS. As a federally chartered savings institution, the
- ------------------
acquisition of Equity Bank by Fourth Financial is subject to the approval of the
Office of Thrift Supervision under the Home Owners' Loan Act. In addition, the
acquisition by Fourth Financial is subject to the approval of the board of
Governors of the Federal Reserve System under the Bank Holding Company Act of
1956 and the Merger with Bank IV is subject to the approval of the United States
Office of the Comptroller of the Currency under the National Bank Act. In
considering the applications, applicable law requires that the agencies take
into consideration the financial and managerial resources and future prospects
of Fourth Financial and Bank IV as well as the competitive effects of the
acquisition and Merger. Following the receipt of such approvals, a period of
thirty (30) days must expire within
-28-
which time the Federal Trade Commission ("FTC") or the Assistant Attorney
General ("Attorney General") may file objections to the acquisition of the
Merger under the Hart-Scott-Rodino Antitrust Improvement Act. The foregoing
applications have not as of the date of this Proxy Statement been filed with the
appropriate agencies and, when they are, there can be no assurance that all such
approvals will, in fact, be obtained.
APPRAISAL RIGHTS. Pursuant to the Delaware General Corporation Law, holders of
- ----------------
shares of the Company's voting securities will not be entitled to rights of
appraisal in connection with the sale of Equity Bank under the Acquisition
Agreement.
SHAREHOLDER APPROVAL. The Company is a Delaware corporation and, under Delaware
- --------------------
law, a sale of all or substantially all of the Company's assets would require
shareholder approval by the affirmative vote of a majority of the outstanding
stock of the Company entitled to vote thereon, unless otherwise provided in the
Company's certificate of incorporation. The business proposed to be sold
comprises all of the Financial Services Business of the Company. This sale does
not include any of the Company's industrial businesses, consisting of its
Chemical Business, Environmental Control Business, Automotive Products Business
or Industrial Products Business, and, as a result, the Company does not believe
that such constitutes a sale of all or substantially all of the Company's
assets.
Article Eleventh of the Company's Restated Certificate of Incorporation
provides, among other things, that, in addition to any affirmative vote of the
holders of the outstanding voting capital stock required by law or the Company's
Restated Certificate of Incorporation, the affirmative vote of the holders of
not less than two-thirds of the outstanding voting stock of the Company voting
as a single class shall be required for the approval or authorization of any
sale, lease or exchange of all or substantially all of the assets of the
Company; provided, however, that such two-thirds voting requirement shall not be
applicable if such transaction has been approved by a vote of at least a
majority of the members of the Board of Directors of the Company. Although the
Company does not believe the sale of Equity Bank constitutes a sale of all or
substantially all of the Company's assets since the sale of Equity Bank to
Fourth Financial was approved by more than a majority of the Board of Directors
(see "Sale of Equity Bank -- Background of and Reasons for the Sale"), then the
sale of Equity Bank to Fourth Financial under the Acquisition Agreement, if such
constituted a sale of all or substantially all of the Company's assets, would
require only the affirmative vote of a majority of the outstanding voting stock
of the Company as of the close of business on the Record Date.
While the Financial Services Business constituted a significant portion of the
total consolidated assets, at historical cost, of the Company as at September
30, 1993, the Financial Services Business comprised only 14.8% and 19.0% of the
consolidated revenues of the Company for the nine (9) month period ended
September 30, 1993, and for the year ended December 31, 1992, respectively, and
only 12.8% and 11.5% of the Company's con-
-29-
solidated operating income for the nine (9) month period ended September 30,
1993, and for the year ended December 31, 1992, respectively.
The sale of Equity Bank is not believed by the Company to be deemed to be a
sale of all or substantially all of the Company's assets under applicable
Delaware law. However, the Board of Directors has determined that the sale of
Equity Bank represents a significant step for the Company and, notwithstanding
the fact that the Company does not believe that it is legally required to obtain
shareholder approval for the proposed transaction, the Board of Directors has
determined in this case that the sale of Equity Bank will be concluded only if
it receives the affirmative vote of a majority of the votes cast by all
shareholders voting as a single class entitled to vote thereon, in person or by
proxy at the Special Meeting. As of the Record Date, the directors and
officers, and their spouses and children, of the Company beneficially owned
approximately 33.0% of the outstanding shares of voting stock of the Company,
and they have indicated that they intend to vote all such shares in favor of the
sale of Equity Bank. However, if such required vote is not obtained, the
Company will terminate the Acquisition Agreement in accordance with its terms.
Approval at the Special Meeting by the shareholders of the Company of the
Acquisition Agreement and the transactions contemplated thereby will also
authorize the Company, without further shareholder approval and without further
solicitation of proxies from shareholders to make future modifications and
amendments to the terms and conditions of the sale of Equity Bank which the
Company determines to be necessary or appropriate. There are no limitations on
the Company's ability to alter or change the amount or type of consideration to
be received or the assets to be sold. The Company is not currently aware of any
such amendments or modifications which are expected to occur or of any estoppel
effects respecting the sale of Equity Bank which will be applicable to a
shareholder depending on the manner of such shareholder's vote.
If the sale of Equity Bank to Fourth Financial is not approved, the likely
alternatives which will be considered by the Board of Directors for the
foreseeable future consist of the continued ownership and operation of Equity
Bank by the Company or negotiate with other possible parties to acquire Equity
Bank.
SUMMARY OF SALE. The following is a summary of the Acquisition Agreement, a
- ---------------
copy of which is attached hereto as Exhibit "A" to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Acquisition Agreement. Terms which are not otherwise defined
in this summary have the meaning set forth in the Acquisition Agreement. For
purposes of such summary, references to the "Company" are to both the Company
and Prime unless the context requires otherwise.
Business to be Sold. The terms of the Acquisition Agreement contemplate,
among other things, the sale of all of the issued and outstanding capital stock
of Equity Bank, which constitutes the sale of the Company's Financial Services
Business. After the sale of Equity
-30-
Bank, the Company will continue to operate its industrial businesses through the
Chemical Business, Environmental Control Business, Automotive Products Business
and Industrial Products Business. The Acquisition Agreement also contemplates
that after the sale of Equity Bank, Fourth Financial will merge Equity Bank into
its wholly-owned subsidiary, Bank IV (the "Merger"). The closing of the
Acquisition Agreement, which is to occur within fifteen (15) days after
obtaining the necessary Regulatory Approvals (as defined below under "Sale of
Equity Bank -- Required Consents and Approvals") or non-objection, as the case
may be, of all governmental, self governing agencies required in order to
consummate the sale of Equity Bank, the Merger, and the retention by Bank IV of
Equity Bank and the following subsidiaries of Equity Bank: Credit Card Center,
Inc., Equity Financial Services Corp., and United BankCard, Inc. (such Equity
Bank subsidiaries are referred to as the "Corporations") contained in the
Acquisition Agreement (the "Closing"). Prior to the Closing, the Company has
agreed to purchase from Equity Bank the Retained Corporations. Under the
Acquisition Agreement, the Company will pay to Equity Bank for the Retained
Corporations an amount equal to Equity Bank's carrying value of such Retained
Corporations as of the date of purchase of such Retained Corporations. As of
December 31, 1993, Equity Bank's carrying value of the Transferred Assets held
by the Retained Corporations is approximately $65.4 million. In addition, the
Acquisition Agreement provides that the Company is to purchase from Equity Bank
at the Closing for an amount equal to Equity Bank's aggregate carrying value
thereof at the Closing (i) the Equity Tower Loan, (ii) all OREO and (iii) the
Branch (the Equity Tower Loan, the OREO and the Branch, which have been
collectively defined as the "Retained Assets"). As of December 31, 1993, Equity
Bank's aggregate carrying value of the Retained Assets was approximately $20.5
million. The Purchase Price to be paid by Fourth Financial to the Company for
Equity Bank, which is estimated to be approximately $92 million, is to be paid
at Closing. The Company will pay Equity Bank, at the Closing, for the Retained
Assets from the Purchase Price, and will use a portion of the Purchase Price to
repay Bank IV for the loan obtained, plus interest, to purchase the Retained
Corporations.
The Company shall have the option to acquire any loan owned by Equity Bank
that has been charged off or written down for a purchase price equal to the net
book value of each loan that has been written down and for a purchase price of
$1.00 in the case of each loan that has been written off.
The Company shall have the option to be released from its obligations to
indemnify Fourth Financial and Bank IV regarding Equity Bank's net operating
loss by having the Purchase Price to be paid by Fourth Financial reduced by
$750,000, as further discussed under "Representations, Warranties and
Indemnities" of this section.
Purchase Price. The purchase price ("Purchase Price") to be paid by Fourth
Financial for Equity Bank under the Acquisition Agreement at the Closing is
estimated to be approximately $92 million. The exact amount of the Purchase
Price is to be equal to an amount
-31-
determined at Closing as the sum of the following: (i) the tangible book value
of Equity Bank at Closing, plus a premium over Equity Bank's book value of the
following determined at the Closing: (a) $9.3 million for Equity Bank's credit
card business, (b) 1% of the aggregate of the unpaid principal balance at
Closing of Equity Bank's loans secured by fixed rate mortgages having fully
amortizing original terms of fifteen (15) years or less, excluding loans
originated after October 31, 1993, (c) 6% of the aggregate unpaid principal
balance at Closing of Equity Bank's loans secured by fixed rate mortgages having
fully amortizing original terms in excess of fifteen (15) years but not more
than thirty (30) years, excluding loans originated after October 31, 1993, and
(d) 2% of the aggregate unpaid principal balance at Closing of Equity Bank's
loans secured by variable rate mortgages, excluding loans originated after
October 31, 1993; (ii) an amount at the Closing equal to the unamortized
discount on Equity Bank's mortgages included in (i) (b), (c), and (d) above;
(iii) an amount at the Closing equal to (a) 0.65% of the aggregate unpaid
principal balance of loans serviced by Equity Bank prior to March 1, 1993, on
which Equity Bank performs mortgage servicing (other than loans serviced for the
account of Equity Bank), (b) 1% of such balance on such loans serviced by Equity
Bank that were originated after March 31, 1993, secured by fixed or adjustable
rate mortgages of fully amortizing original terms of at least ten (10) but not
more than fifteen (15) years, and (c) 1.25% of such balance on such loans
originated on or after March 1, 1993, secured by fixed or adjustable rate
mortgages having original fully amortized terms of more than fifteen (15) but
not more than thirty (30) years; (iv) an amount, either positive or negative, by
which Equity Bank's loan loss reserves would have had to be adjusted at Closing
had such loan loss reserves been only $2.7 million at the Closing to reflect
changes of individual loans of at least $300,000 occurring subsequent to October
31, 1993; (v) an amount, either positive or negative, by which the aggregate
fair market value of Equity Bank's securities portfolio at the Closing differs
from Equity Bank's book value of such portfolio at the Closing; (vi) the
difference, positive or negative, between the carrying value of Equity Bank's
time deposits and the aggregate value of such deposits after repricing them to
the Treasury yield curve at the Closing; (vii) $10.5 million for Equity Bank's
net operating loss; (viii) $11.0 million for Equity Bank's deposit balance; and,
(ix) $1.4 million for certain of Equity Bank's branches.
The percentages specified in (i)(b) and (c) immediately above are determined
utilizing the spread between the bank's average portfolio yield and FNMA
required thirty (30) day yield as of August 31, 1993. If, at the time of the
Closing, such spreads have fluctuated by more than 0.25%, the applicable
percentages in such subparagraphs (i)(b) and (c) will be adjusted up or down by
one-fourth of 1% for each one-eighth of 1% change, in the case of loans with an
original term of fifteen (15) years or less, and by three-eighths of 1% for each
one-eighth of 1% change, in the case of loans with an original term of more than
fifteen (15) but fewer than thirty (30) years.
Based on the above, the Company estimates that at the Closing the Purchase
Price will be approximately $92 million, which amount is estimated based upon
estimates which
-32-
cannot be definitively determined until the Closing. Among other things,
management of the Company has estimated Equity Bank's earnings through March 31,
1994, in order to estimate tangible net worth of Equity Bank, a major component
of the Purchase Price, and made estimates with respect to the other variables
which make up the Purchase Price. The date of Closing is not known as of the
date of this Proxy Statement, and the Purchase Price will be affected by the
results of operations of and the fluctuation of interest rates between the date
of this Proxy Statement and the Closing. Notwithstanding the foregoing, if the
Purchase Price, as finally determined at the Closing, is less than $92 million,
the Company may, at its option, terminate the Acquisition Agreement.
Representations, Warranties and Indemnities. In the Acquisition Agreement,
the Company made certain representations and warranties to Fourth Financial,
including as to: the organization, good standing and authority of the Company
and the Corporations; the Acquisition Agreement as a binding obligation of the
Company; Equity Bank's financial statements; certain tax matters; Equity Bank's
capitalization; the financial statements of Equity Bank; the absence of certain
changes, violations of law, events or defaults respecting the Company, Equity
Bank and the other Corporations; pending or threatened litigation affecting the
Company, Equity Bank or any of the other Corporations; compliance with
applicable laws (including, without limitation, applicable environmental laws);
real and personal property owned or leased by Equity Bank or any other
Corporation; material contracts; the status of employee benefit plans and
employee compensation arrangements; labor relations; government authorizations;
maintenance of insurance; notes and leases of Equity of Equity Bank or any other
Corporations; payments to brokers; and, environmental compliance. Fourth
Financial made certain representations and warranties to the Company including
as to: the organization, good standing and authority of Fourth Financial; the
Acquisition Agreement as a binding obligation of Fourth Financial; the absence
of certain changes, violations of law, events or defaults respecting Fourth
Financial; obtaining the Regulatory Approvals; and, the future capitalization of
Bank IV.
The Acquisition Agreement also provides indemnification obligations.
Specifically, the Company has agreed to indemnify and hold harmless Fourth
Financial and the Corporations against and with respect to any liabilities
arising from any breach or nonfulfillment of any of the warranties, agreements,
or representations made by the Company. The Acquisition Agreement provides
generally that a minimum $1.0 million in damages must be sustained before
seeking monetary recovery pursuant to certain of the indemnification provisions,
and that the Company shall not be required to pay more than $25.0 million
pursuant to the indemnification obligations.
The Company has also agreed to indemnify Fourth Financial and Bank IV from any
reduction below $64.0 million in the aggregate amount of Equity Bank's net
operating loss for federal income tax purposes as a result of final action of
the Internal Revenue Service made retroactive to the period prior to the
Closing; provided, however, the payment to be
-33-
made by the Company shall not exceed an amount equal to the product of (a) the
dollar amount of such reduction, and (b) a fraction, the numerator of which
shall be $10.5 million and the denominator of which shall be $64.0 million.
Thus, the Company's aggregate liability for indemnification as a result of the
reduction in the aggregate amount of Equity Bank's net operating loss shall not
exceed $10.5 million. As stated above, the Company has the option to be
released from its indemnification obligation relating to Equity Bank's net
operating loss by having the amount of the Purchase Price to be paid by Fourth
Financial at the Closing reduced by the sum of $750,000.
The Acquisition Agreement also provides that the Company shall indemnify and
hold harmless Fourth Financial, Equity Bank, and Bank IV against and with
respect to certain liabilities relating to environmental matters relating to
the Transferred Assets that are acquired by the Company as part of the Retained
Corporations. This indemnification for environmental liabilities is not subject
to the $1.0 million deductibility and $25.0 maximum liability provisions.
Fourth Financial has agreed to indemnify and hold harmless any officer,
director, or employee of Equity Bank or any of the other Corporations from and
against any liability in connection with any claim in which such persons are, or
threatened to be made, a party based on such person's status as an officer,
director or employee of a Corporation prior to Closing, if such claim pertains
to any matter arising prior to the Closing.
The representations and warranties set forth in the Acquisition Agreement will
survive for two (2) years following the Closing. However, notwithstanding the
two (2) year survival period (i) a three (3) year period of survival will apply
to certain representations of the Company relating to the payment of taxes (ii)
the obligation of the Company arising as a result of a reduction in Equity
Bank's net operating loss below $64.0 million shall survive until the earlier of
October 31, 1998, or thirty (30) days after the Internal Revenue Service's
completion of its examination of Fourth Financial's 1994 federal income tax
returns; and, (iii) there shall be no time limit with respect to the
indemnification for environmental liabilities with respect to the Retained
Corporations.
In addition, the parties' indemnity does not apply to claims for any breaches
which were communicated to the nonbreaching party prior to the Closing where
nonbreaching party elects to close the transactions contemplated by the
Acquisition Agreement notwithstanding notification of such breach or
misrepresentation.
Required Consents and Approvals. The Acquisition Agreement provides that the
consummation of the transactions contemplated by the Acquisition Agreement is
subject to the approval, consent or non-objection, as the case may be, of the
Board of Governors of the Federal Reserve System, the Office of Thrift
Supervision, the United States Controller
-34-
of the Currency, and all other necessary governmental or self-governing agencies
(the "Regulatory Approvals"). See "Sale of Equity Bank -- Regulatory Matters".
The Acquisition Agreement also provides that the obligations of the Company
under the Acquisition Agreement are subject to the approval of the shareholders
of the Company of the Acquisition Agreement and the transactions contemplated
thereby.
Closing Conditions. The obligations of the Company and Fourth Financial to
consummate the transactions contemplated by the Acquisition Agreement are
subject to the satisfaction or waiver of the following conditions at or prior to
Closing: (i) all Regulatory Approvals in connection with the sale of Equity
Bank, the Merger, and the retention by Bank IV of the Corporations shall have
been procured; and (ii) no proceeding, whether judicial or administrative, shall
be pending or threatened for the purpose of enjoining or preventing the sale of
Equity Bank, the Merger or any of the other transactions permitted or
contemplated by the Acquisition Agreement, and no order, judgment, or decree
shall be outstanding restraining or enjoining consummation of the same.
The obligations of the Company to consummate the transactions contemplated by
the Acquisition Agreement are further subject to satisfaction or waiver of the
following conditions at or prior to Closing: (i) the representations and
warranties of Fourth Financial shall have been true and correct in all respects
when such representations and warranties were originally made and as of the date
of Closing (except for such changes permitted in compliance with the Acquisition
Agreement); (ii) Fourth Financial shall have duly performed all of its
obligations under the Acquisition Agreement; (iii) the Purchase Price shall not
be less than $92 fairness of the Purchase Price to the Company; (iv) the Company
shall have a written opinion from Lazard as to the fairness of the Purchase
Price to the Company; (v) all certificates and opinions required to be delivered
by Fourth Financial or any other party representing Fourth Financial, as
contemplated by the Acquisition Agreement shall have been duly executed and
delivered, including, without limitation, the execution and delivery of the
opinion of counsel to Fourth Financial; (vi) the shareholders of the Company
shall have approved the Acquisition Agreement and the sale of Equity Bank; (vii)
no change in the law shall have occurred with the effect of significantly
reducing the tax basis of the Company in its shares of Equity Bank, including,
but not limited to, the final adoption of the proposed changes to the Treasury
Regulations at (S) 1.1502-33; and, (viii) all of the Retained Assets and all of
Equity Bank's interests in the Retained Corporations shall have been transferred
to the Company as provided in the Acquisition Agreement.
The obligations of Fourth Financial to consummate the transactions
contemplated by the Acquisition Agreement are further subject to the
satisfaction or waiver of the following conditions at or prior to the Closing:
(i) the tangible net worth of Equity Bank shall not be less than $41.0 million;
(ii) all certificates and opinions required to be delivered by the Company or
any other party representing the Company, as contemplated by the
-35-
Acquisition Agreement shall have been duly executed and delivered, including,
without limitation, the execution and delivery of the opinion of counsel to the
Company and the Corporations; (iii)the representations and warranties of the
Company shall have been true and correct in all respects when such
representations and warranties were originally made and as of the date of
Closing (except for such changes permitted in compliance with the Acquisition
Agreement); (iv) the Company shall have duly performed all of its obligations
under the Acquisition Agreement; (v) the Company shall have delivered to Fourth
Financial the written resignations, effective at Closing, of certain officers
and directors of Equity Bank and the other Corporations as requested by Fourth
Financial; (vi) the Company shall have delivered to Fourth Financial a copy of
Equity Bank's audited consolidated financial statements as of December 31, 1993
and for the year then ended; and, (vii) Bank IV shall have entered into leases
as lessee of a certain portion of Equity Tower and as lessee of the Branch.
Additional Agreements of the Parties. The Acquisition Agreement provides that
the Company shall use its reasonably best efforts to cause Equity Bank and each
of the other Corporations to conduct its business in the ordinary and usual
course consistent with past practice. In connection with, and without
limitation to, the foregoing, prior to the Closing and without the consent of
Fourth Financial: (i) no changes may be made in the Corporations' certificate of
incorporation, charter or bylaws; (ii) no changes may be made in the authorized
or issued shares of capital stock or any security convertible into any class of
the Corporations' capital stock; (iii) no dividends or other distributions in
respect of any class of the Corporations' capital stock may be declared or paid;
(iv) no material amendment to any employment contract, stock option, or similar
employee benefit arrangement may be adopted, except (a) normal individual
increases in compensation to employees in accordance with established employee
procedures, (b) the Fourth Financial Corporation Acquisition Severance Schedule,
and (c) severance agreements to be performed by the Company without any
obligation of Equity Bank or Fourth Financial; (v) Equity Bank and the other
Corporations may not, except in the ordinary and usual course of business (a)
guarantee or assume any indebtedness of any other individual, firm or
corporation, (b) pay or incur any obligation or liability; (vi) except for
transactions in the ordinary and usual course of its business, Equity Bank shall
not (a) mortgage or otherwise encumber any of its properties or assets and (b)
sell or transfer any of its properties or assets or cancel, release or assign
any indebtedness owed to it or any claims held by it; (vii) the Corporations
shall not make any investment of a capital nature in excess of $25,000 for any
one item or group of similar items, other than certain planned leasehold
improvements being made to Equity Tower and the Branch; (viii) the Corporations
may not enter into any other agreement not in the usual course of business; and,
(ix) the Corporations may own only certain investment securities.
Prior to the Closing, the Acquisition Agreement also provides that the Company
shall use its reasonable and best efforts to cause each of the Corporations to
conduct its
-36-
respective business in the ordinary and usual course consistent with previous
practice and to use its reasonable and best efforts (i) to maintain its existing
business organization intact; (ii) keep available to Bank IV the services of the
present officers and employees of Equity Bank; (iii) to preserve the goodwill of
customers with Equity Bank; (iv) to maintain its properties; (v) to comply with
applicable laws; (vi) to maintain existing policies of insurance; (vii) to make
no material change in the terms and conditions upon which it does business;
(viii) to continue its current practice of selling loans secured by fixed rate
mortgages on a service-retained basis; (ix) to duly and timely file all
government, state and local authorities' reports and returns; and, (x) to pay
all material taxes and to withhold or collect and pay all taxes and other
assessments which it believes, in good faith, to be required by law to be so
withheld or collected.
The Acquisition Agreement further provides that (i) Equity Bank shall give
Fourth Financial and its counsel and accountants access to their respective
properties, books and records, and Fourth Financial shall treat as confidential
all confidential information disclosed to it; (ii) the Company agrees not to
transfer or encumber any shares of Equity Bank stock prior to Closing; (iii) the
Company shall cause Equity Bank and the Corporations to take all such corporate
action as may be necessary to (a) obtain all required Regulatory Approvals, (b)
authorize, execute and perform the Bank Merger Agreement; and, (iv) the
Corporations shall cooperate in Fourth Financial's efforts to obtain certain
reports and surveys.
The Acquisition Agreement provides that Fourth Financial shall (i) use its
best efforts and good faith to obtain all necessary Regulatory Approvals; (ii)
observe the confidentiality of information obtained from the Company and the
Corporations; (iii) consult with the Company prior to issuing any planned public
statement regarding the subject matter of the Acquisition Agreement or the
termination thereof; (iv) cause Bank IV to be well capitalized upon the
consummation of the transactions contemplated by the Acquisition Agreement at
and immediately following the Closing; (vi) provide the Company with such
information as the Company may request in connection in preparation of material
for the Company's shareholders' meeting to approve the Acquisition Agreement;
(vii) following the Closing, permit the Company to examine the former records of
Equity Bank or the other Corporations in order to defend against new legal
action with respect to matters occurring prior to Closing.
No Sale Negotiations. The Acquisition Agreement provides that the Company
agrees that, prior to the Closing, the Company will not merge or consolidate
with any other corporation, acquire any stock, solicit any offers for any Equity
Bank stock or a substantial portion of the assets of any of the Corporations or,
except in the ordinary course of business, acquire any assets of any other
person, corporation, or any other business organization, or enter into any
discussions with any person concerning, or agree to do, any of the foregoing.
-37-
Additional Termination Provisions. In addition to the termination provisions
previously described, the Acquisition Agreement provides that it may be
terminated at any time prior to Closing by (i) mutual consent of the parties;
(ii) by either party if the Regulatory Approvals have not been approved or the
conditions to obtaining a Regulatory Approval are reasonably deemed onerous by
Fourth Financial; (iii) on June 30, 1994, unless extended by agreement of the
parties, if the conditions to the obligations of the parties have not occurred
on or before June 30, 1994.
The Company or Fourth Financial may terminate the Acquisition Agreement in the
event of (i) any uncured material breach of any of the obligations, covenants or
warranties of the other party, or (ii) any written representation furnished by
the other party is false or misleading in any material respect at the time made
in relation to the size and scope of the transactions contemplated by the
Acquisition Agreement.
Expenses. The Acquisition Agreement provides that each party shall pay all of
its costs and expenses incurred in connection with the Acquisition Agreement and
the transactions contemplated thereby, whether or not the sale of Equity Bank is
consummated and whether or not the Acquisition Agreement is terminated.
BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE SALE OF EQUITY BANK
PURSUANT TO THE ACQUISITION AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE SALE OF EQUITY BANK.
SELECTED FINANCIAL DATA
HISTORICAL SELECTED FINANCIAL DATA. The selected financial information
- ----------------------------------
presented below has been derived from, and should be read in conjunction with,
the Consolidated Financial Statements of the Company incorporated by reference
in this Proxy Statement. The historical financial data for the five (5) years
ended December 31, 1992, is derived from the Company's audited Consolidated
Financial Statements for such years. The historical financial data for the nine
(9) months ended September 30, 1993 and 1992, is derived from unaudited
consolidated financial statements of the Company for such periods, and, in the
opinion of management, includes all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results for such
interim periods. Results for the interim periods are not necessarily indicative
of the results for the entire year.
-38-
(Amounts in thousands, except per share data)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1988 1989 1990 1991 1992 1992 1993
----------- ---------- ----------- ----------- ----------- ----------- ----------
Selected statement of operations data:
Net sales $211,709 $212,748 $196,577 $177,035 $198,373 $150,858 $177,798
======== ======== ======== ======== ======== ======== ========
Interest income on
loans and invest-
ments $ 3,557 $ 28,746 $ 33,856 $ 40,548 $ 32,205 $ 24,604 $ 20,911
======== ======== ======== ======== ======== ======== ========
FSLIC interest and yield maintenance $ - $ 10,089 $ 7,803 $ 3,441 $ 936 $ 712 $ -
======== ======== ======== ======== ========
Total revenues $216,309 $262,590 $248,226 $234,191 $246,783 $188,238 $210,567
======== ======== ======== ======== ======== ======== ========
Interest expense:
Deposits $ 5,167 $ 30,580 $ 27,940 $ 23,144 $ 16,445 $ 12,982 $ 9,556
Long-term debt
and other 8,112 13,996 16,100 16,142 13,194 10,108 7,305
-------- -------- -------- -------- -------- -------- --------
$ 13,279 $ 44,576 $ 44,040 $ 39,286 $ 29,639 $ 23,090 $ 16,861
======== ======== ======== ======== ======== ======== ========
Provision for loan losses $ 375 $ 35 $ 5,852 $ 1,335 $ 1,224 $ 882 $ 1,037
======== ======== ======== ======== ======== ======== ========
Income (loss) before extraordinary items $ 1,451 $ 4,036 $(10,654) $ (1,147) $ 9,255 $ 7,481 $ 10,839
======== ======== ======== ======== ======== ======== ========
Net income (loss) $ 3,251 $ 4,036 $ (9,121) $ (1,147) $ 9,255 $ 7,481 $ 10,839
======== ======== ======== ======== ======== ======== ========
Net income (loss) applic-
able to common stock $ 1,092 $ 1,987 $(11,107) $ (3,090) $ 7,428 $ 6,079 $ 9,604
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
common share:
Primary:
Income (loss) before
extraordinary items $ (0.06) $ 0.32 $ (2.30) $ (0.48) $ 0.94 $ 0.79 $ 0.74
======== ======== ======== ======== ======== ======== ========
Net income (loss) $ 0.19 $ 0.32 $ (2.02) $ (0.48) $ 0.94 $ 0.79 $ 0.74
======== ======== ======== ======== ======== ======== ========
Fully diluted:
Income (loss) before
extraordinary items $ (0.06) $ 0.31 $ (2.30) $ (0.48) $ 0.66 $ 0.53 $ 0.64
======== ======== ======== ======== ======== ======== ========
Net income (loss) $ 0.19 $ 0.31 $ (2.02) $ (0.48) $ 0.66 $ 0.53 $ 0.64
======== ======== ======== ======== ======== ======== ========
Selected Balance Sheet Data:
Total assets $549,007 $662,424 $649,730 $605,513 $582,248 $587,394 $581,289
-39-
Deposits $385,003 $386,493 $364,402 $359,228 $336,053 $340,244 $332,941
Long-term debt $ 53,591 $ 43,616 $ 57,092 $ 56,330 $ 50,321 $ 51,154 $ 27,115
Redeemable preferred stock $ 206 $ 196 $ 186 $ 179 $ 163 $ 168 $ 158
Non-redeemable pre-
ferred stock, common
stock, and other
stockholders' equity $ 24,787 $ 25,144 $ 13,481 $ 10,352 $ 18,339 $ 16,769 73,954
======== ======== ======== ======== ======== ======== ========
Cash dividends declared per common share $ - $ - $ - $ - $ - $ - 0.03
======== ======== ======== ======== ======== ======== ========
UNAUDITED RESTATED HISTORICAL SELECTED FINANCIAL DATA. The proposed sale of
- -----------------------------------------------------
Equity Bank will require the Company to remove the results of operations of
Equity Bank from continuing operations for financial statement reporting
purposes. Accordingly, certain historical data has been restated below in
accordance with the requirements effective with the consummation of the proposed
sale of Equity Bank.
(Amounts in thousands, except per share data)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------- -----------------------
1988 1989 1990 1991 1992 1992 1993
---------- ---------- ---------- ---------- ---------- ----------- ----------
Net sales $211,709 $212,748 $196,577 $177,035 $198,373 $150,858 $177,798
Operating costs and
expenses:
Cost of sales 161,061 159,848 148,352 136,258 146,391 111,899 132,991
Selling, general and administrative 33,291 36,357 36,785 36,240 37,124 27,019 30,123
-------- -------- -------- -------- -------- -------- --------
194,352 196,205 185,137 172,498 183,515 138,918 163,114
-------- -------- -------- -------- -------- -------- --------
Operating income 17,357 16,543 11,440 4,537 14,858 11,941 14,685
Other deductions
(income):
Interest expense 8,035 9,694 11,128 10,776 9,225 6,965 5,778
Interest income (227) (1,022) (655) (492) (147) (109) (180)
Other expense
(income), net (377) (2,200) (2,314) (2,212) (1,706) (1,265) 142
-------- -------- -------- -------- -------- -------- --------
-40-
Income (loss) from con-
tinuing operations be-
fore provision for in-
come taxes and extra-
ordinary items 9,926 10,071 3,281 (3,535) 7,486 6,350 8,945
Provision for income taxes 2,940 529 379 47 353 414 720
-------- -------- -------- -------- -------- -------- --------
Income (loss) from con-
tinuing operations: 6,986 9,542 2,902 ( 3,582) 7,133 5,936 8,225
Discontinued operations:
Income (loss) from dis-
continued operations,
net of applicable in-
come taxes (5,535) (5,506) (13,556) 2,435 2,122 1,546 2,615
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary items 1,451 4,036 (10,654) ( 1,147) 9,255 7,481 10,839
Extraordinary items, net
of tax 1,800 - 1,533 - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 3,251 $ 4,036 $ (9,121) $ (1,147) $ 9,255 $ 7,481 $ 10,839
======== ======== ======== ======== ======== ======== ========
Net income (loss) applic- able to common
stock
$ 1,092 $ 1,987 $(11,107) $ (3,090) $ 7,428 $ 6,079 $ 9,604
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
common share:
Primary:
Income (loss) from
continuing opera-
tions before extra-
ordinary items $ 0.71 $ 1.07 $ 0.17 $ (0.88) $ 0.68 $ 0.60 $ 0.54
Discontinued opera-
tions (0.77) (0.75) (2.47) 0.40 0.26 0.19 0.20
Extraordinary items 0.25 - 0.28 - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 0.19 $ 0.32 $ (2.02) $ (0.48) $ 0.94 $ 0.79 $ 0.74
======== ======== ======== ======== ======== ======== ========
Fully diluted:
Income (loss) from
continuing opera-
tions before extra-
ordinary items $ 0.44 $ 0.74 $ 0.17 $ (0.88) $ 0.51 $ 0.42 $ 0.47
Discontinued opera-
tions (0.50) (0.43) (2.47) 0.40 0.15 0.11 0.17
Extraordinary items 0.25 - 0.28 - - - -
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 0.19 $ 0.31 $ (2.02) $ (0.48) $ 0.66 $ 0.53 $ 0.64
======== ======== ======== ======== ======== ======== ========
-41-
Weighted average com-
mon and dilutive
common equivalent
shares outstanding:
Primary 7,202 7,343 5,495 6,105 8,188 8,027 13,059
Fully diluted 11,015 12,705 5,495 6,105 14,413 14,360 15,497
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA.
- -------------------------------------------
The selected balance sheet data at September 30, 1993, and the selected income
statement data for the year ended December 31, 1992, and the nine (9) month
period ended September 30, 1993, has been adjusted to reflect the impact of the
sale of Equity Bank, all as if such transaction had occurred, for the purposes
of the balance sheet data, on September 30, 1993, and, for the income statement
data, on January 1, 1992. The data should be read in conjunction with the
"Unaudited Pro Forma Financial Information" and the related notes thereto.
UNAUDITED PRO FORMA
SELECTED BALANCE SHEET DATA
AT SEPTEMBER 30, 1993
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Total assets $187,779
Long-term debt $ 56,747
Redeemable preferred stock $ 158
Non-redeemable preferred stock, common
stock, and other stockholders' equity $ 98,954
Book value per common share $ 3.83
Cash dividends declared per common share $ .03
-42-
UNAUDITED PRO FORMA
SELECTED INCOME STATEMENT DATA
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1992 SEPTEMBER 30, 1993
--------------------- --------------------
(Amounts in thousands, except per share
amounts)
Net sales $198,373 $177,798
======== ========
Income from continuing opera-
tions $ 7,799 $ 9,168
======== ========
Gain on disposiiton of Financial
Services Business $ 25,000 -
======== ========
Net income $ 34,921 $ 9,168
======== ========
Income applicable to common stock $ 33,094 $ 7,933
======== ========
Earnings per common share:
Primary:
Continuing operations $ 0.79 $ 0.63
Discontinued operations 3.31 -
Net income -------- --------
$ 4.11 $ 0.63
======== ========
Fully diluted:
Continuing operations $ 0.56 $ 0.53
Discontinued operations 1.88 -
Net income -------- --------
$ 2.44 $ 0.53
======== ========
-43-
PRO FORMA FINANCIAL STATEMENTS
The following unaudited Pro Forma Balance Sheet as of September 30, 1993, and
the Pro Forma Statements of Income for the fiscal year ended December 31, 1992,
and the nine (9) months ended September 30, 1993, are presented to give effect
to the sale of Equity Bank.
Historical financial data used to prepare the pro forma financial statements
were derived from the audited financial statements included in the Company's
Form 10-K for the year ended December 31, 1992, and the unaudited financial
statements included in the Company's Report on Form 10-Q for the nine (9) months
ended September 30, 1993, which are incorporated by reference into this Proxy
Statement. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE". These pro
forma financial statements should be read in conjunction with such historical
financial statements.
The pro forma adjustments reflected herein are based on available information
and certain assumptions that the Company's management believes are reasonable.
Pro forma adjustments made in the Pro Forma Balance Sheet assume that the sale
of Equity Bank was consummated on September 30, 1993, and do not reflect the
impact of Equity Bank's historical operating results or changes in other balance
sheet amounts subsequent to September 30, 1993. The pro forma adjustments
related to the Pro Forma Statements of Operations assume that the sale of Equity
Bank was consummated on January 1, 1992.
The Pro Forma Balance Sheet and Statements of Income are based on assumptions
and approximations and, therefore, do not reflect in precise numerical terms the
impact of the transaction on the historical financial statements. In addition,
such pro forma financial statements should not be used as a basis for
forecasting the future operations of the Company.
-44-
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (NOTE)
SEPTEMBER 30, 1993
(UNAUDITED)
PRO FORMA AS
ACTUAL ADJUSTMENT ADJUSTED
---------- ------------ --------------
(Amounts in thousands)
ASSETS
- -------------------------------------
Cash and cash equivalents $ 18,476 $ (11,906) $ 6,570
Investment securities 7,812 (7,812) -
Trade accounts receivable,
less allowance for doubtful
accounts 49,000 - 49,000
Loans, less allowance for loan
losses 138,340 (138,340) -
Mortgage-backed securities 202,835 (202,835) -
Inventories 44,957 - 44,957
Supplies and prepaid items 6,645 - 6,645
Foreclosed real estate 19,961 (3,928) 16,033
Net property, plant and equipment 61,165 (7,617) 53,548
Excess of purchase price over net
assets acquired, net of accumu- -
lated amortization 22,539 (17,919) 4,620
Other assets 9,559 (3,153) 6,406
-------- --------- --------
$581,289 $(393,510) $187,779
======== ========= ========
LIABILITIES, PREFERRED AND COMMON
STOCKS AND OTHER STOCKHOLDERS
EQUITY
- -------------------------------------
Liabilities:
Deposits $332,941 $(332,941) $ -
Accounts and drafts payable 26,041 - 26,041
Securities sold under agreements to 38,721 (38,721) -
repurchase 9,209 (3,330) 5,879
Accrued liabilities 73,150 (73,150) -
Federal Home Loan Bank advances 27,115 29,632 56,747
Long-term debt -------- --------- --------
507,177 (418,510) 88,667
Redeemable, noncumulative,
convertible preferred stock 158 - 158
-45-
Non-redeemable preferred stock,
common stock,
and other stockholders' equity: 48,000 - 48,000
Preferred stocks 1,411 - 1,411
Common Stock 36,175 - 36,175
Capital in excess of par value (7,885) 25,000 17,115
Retained earnings (deficit) -------- --------- --------
77,701 25,000 102,701
Less treasury stock 3,747 - 3,747
-------- --------- --------
Total non-redeemable preferred
stock, common stock and other
stockholders' equity 73,954 25,000 98,954
-------- --------- --------
$581,289 $(393,510) $187,779
======== ========= ========
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
The Pro forma adjustment to the Condensed Consolidated Balance Sheet assumes
that the sale of Equity Bank was consummated on September 30, 1993. The
adjustment is based on an estimated selling price of $92 million resulting in a
financial gain of $25 million after consideration of costs of the transaction.
The reductions in the detail balance sheet amounts represent the historical
carrying values of such accounts that will remain assets and liabilities of
Equity Bank after the sale and after acquisition by the Company of the Retained
Assets and Retained Corporations.
A summary of the pro forma adjustment is as follows:
(IN THOUSANDS)
Sales price of Equity Bank $ 92,000
Estimated costs incurred in connection with
the sale 2,500/(1)/
-----------
Net proceeds of sale 89,500
Carrying value of investment in Equity Bank 64,500
-----------
Gain on sale of Equity Bank $ 25,000
===========
- ---------------------------
/(1)/ Includes a possible payment of $750,000 to release the Company from the
indemnification relating to Equity Bank's net operating loss. See "Sale
of Equity Bank -- Summary of Sale".
-46-
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (NOTES)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1992 NINE MONTHS ENDED SEPTEMBER 30, 1993
----------------------------------------------- ---------------------------------------------------
ALLOCATION PRO FORMA AS ALLOCATION PRO FORMA AS
ACTUAL ENTRIES ADJUSTMENTS ADJUSTED ACTUAL ENTRIES ADJUSTMENTS ADJUSTED
--------- ----------- ------------ --------- --------- ----------- -------------- -----------
(Note 1) (Note 2) (Note 1) (Note 2)
Revenues:
Net sales $198,373 $ $ $198,373 $177,798 $ $ $177,798
Interest income
on loans and
investments 32,205 (32,058) 147 20,911 (20,731) 180
FSLIC interest
and yield
maintenance 936 (936) 0 0 0
Credit card and
other 15,269 (13,563) 314 2,020 11,858 (10,233) 671 2,296
-------- -------- ------- -------- -------- -------- ------ --------
Total revenues 246,783 (46,557) 314 200,540 210,567 (30,964) 671 180,274
Costs and expenses: 146,391 146,391 132,991 132,991
Cost of sales
Selling, general
and administra-
tive:
Financial
Services 22,282 (22,282) 0 15,838 (15,838) 0
Nonfinancial
Services 37,476 (352) 133 37,257 30,414 (291) 78 30,201
Interest:
Deposits 16,445 (16,445) 0 9,556 (9,556) 0
Long-term debt
and other 13,194 (3,969) (694) 8,531 7,305 (1,527) (506) 5,272
Provision for
loan losses 1,224 (1,224) 0 1,037 (1,037) 0
Settlement of
dispute 0 1,767 1,767
-------- -------- ------- -------- -------- -------- ------ --------
237,012 (44,272) (561) 192,179 198,908 (28,249) (428) 170,231
-------- -------- ------- -------- -------- -------- ------ --------
Income from con-
tinuing opera-
tions before pro-
vision for income
taxes 9,771 (2,285) 875 8,361 11,659 (2,715) 1,099 10,043
-47-
Provision for in-
come taxes 516 (163) 209 566 820 (100) 155 875
-------- -------- ------- -------- -------- -------- ------ --------
Income from con-
tinuing
opera-
tions 9,255 (2,122) 666 7,799 10,839 (2,615) 944 9,168
Discontinued
operations:
Income from dis-
continued
operations, net
of applicable
income taxes 2,122 2,122 0 0
Gain on disposi-
tion 25,000 25,000 0 0
-------- -------- ------- -------- -------- -------- ------ --------
Net income $ 9,255 $ 0 $25,666 $ 34,921 $ 10,839 $ (2,615) $ 944 $ 9,168
======== ======== ======= ======== ======== ======== ====== ========
Income applicable
to common stock $ 7,428 $ 33,094 $ 9,604 $ 7,933
======== ======== ======== ========
Earnings per common
share:
Primary:
Continuing
operations $ 0.68
Discontinued $ 0.79 $ 0.54 $ 0.63
operations 0.26
Gain on dis- 0.26 0.20 0.00
position 0.00
-------- 3.05 0.00 0.00
-------- -------- --------
Net income $ 0.94 $ 4.11 $ 0.74 $ 0.63
======== ======== ======== ========
Fully diluted:
Continuing
operations $ 0.51 $ 0.56 $ 0.47 $ 0.54
Discontinued
operations 0.15 0.15 0.17 0.00
Gain on dis-
position 0.00 1.73 0.00 0.00
-------- -------- -------- --------
Net income $ 0.66 $ 2.44 $ 0.64 $ 0.54
======== ======== ======== ========
-48-
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
Note 1
- ------
The columns labeled "Allocation Entries" reflect the reclassification of
revenues and expenses of Equity Bank as a discontinued operation of the Company
for the periods presented. Such amounts are reconciled to previously reported
segment data as follows:
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1992 1993
---------------- -----------------
(AMOUNTS IN THOUSANDS)
Operating profit -
Financial Services, as reported $2,989 $3,238
Allocation of general corporate expenses (750) (563)
Allocation of income taxes (163) (100)
Losses on Retained Assets 46 39
------ ------
Income from discontinued operations $2,122 $2,615
====== ======
Note 2:
- -------
The columns labeled "Pro Forma Adjustments" include, in 1992, the estimated
financial gain on the sale of Equity Bank of $25 million. Additionally, in 1992
and 1993, the estimated effect on earnings of acquiring the Retained Assets is
considered. These include reduced interest expense on financing of the
Company's accounts receivable with a new lender and the earnings on real estate
assets acquired as Retained Assets.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table shows the
- -----------------------------------------------
total number and percentage of the outstanding shares of the Company's voting
common stock and voting preferred stock beneficially owned as of the Record
Date, with respect to each person (including any "group" as used in Section
13(d)(3) of the Securities Act of 1934, as amended) that the Company knows to
have beneficial ownership of more than five percent (5%) of the Company's voting
common stock and voting preferred stock. A person is deemed to be the
beneficial owner of voting shares of Common Stock of the Company which he or she
could acquire within sixty (60) days of the Record Date, such as upon the
exercise of options.
-49-
Because of the requirements of the Securities and Exchange Commission as to
the method of determining the amount of shares an individual or entity may
beneficially own, the amounts shown below for an individual or entity may
include shares also considered beneficially owned by others.
AMOUNTS OF
NAME & ADDRESS TITLE SHARES PERCENT
OF OF BENEFICIALLY OF
BENEFICIAL OWNER CLASS OWNED/(1)/ CLASS
- ------------------------------------ --------- -------------------- --------
Jack E. Golsen and members Common 4,058,771/(3)(5)(6)/ 27.9%
of his family/(2)/ Preferred 20,000/(4)(6)/ 92.5%
- ------------------------------
/(1)/ The Company based the information with respect to beneficial
ownership on information furnished by the above-named individuals or
entities or contained in filings made with the Securities and Exchange
Commission or the Company's records.
/(2)/ Includes Jack E. Golsen and the following members of his family: wife,
Sylvia H. Golsen; son, Barry H. Golsen (a director of the Company and
President of several subsidiaries of the Company); son, Steven J. Golsen
(Executive officer of several subsidiaries of the Company), and daughter,
Linda F. Rappaport. The address of Jack E. Golsen, Sylvia H. Golsen and
Linda F. Rappaport is 16 South Pennsylvania Avenue, Oklahoma City,
Oklahoma 73107; Barry H. Golsen's address is 5000 S.W. Seventh Street,
Oklahoma City, Oklahoma 73125; and Steven J. Golsen's address is 518 North
Indiana Avenue, Oklahoma City, Oklahoma 73107.
/(3)/ Includes (a) the following shares that Jack E. Golsen ("J. Golsen") has
the sole voting and investment power: (i) 89,028 shares that he owns of
record, (ii) 165,000 shares that he has the right to acquire under a
non-qualified stock option, (iii) 4,000 shares that he has the right to
acquire upon conversion of a promissory note, (iv) 133,333 shares that he
has the right to acquire upon the conversion of 4,000 shares of the
Company's Series B 12% Cumulative Convertible Preferred Stock (the "Series
B Preferred") owned of record by him, and (v) 10,000 shares that he has
the right to acquire within the next sixty (60) days under the Company's
stock option plans; (b) 1,315,310 shares owned of record by Sylvia H.
Golsen, in which she and her husband, J. Golsen, share voting and
investment power; (c) 264,526 shares that Barry H. Golsen ("B. Golsen")
has the sole voting and investment power, 533 shares that he shares the
voting and investment power with his wife that are owned of record by his
wife, and 14,000 shares that he has the right to acquire within the next
sixty (60) days under the Company's stock option plans; (d) 225,897 shares
that Steven J. Golsen ("S. Golsen") has the sole voting and investment
power and 14,000 shares that he has the right to acquire within the next
sixty (60) days under the Company's stock option plans; (e) 145,460 shares
held in trust for the grandchildren of Jack E. and Sylvia H. Golsen of
which B. Golsen, S. Golsen and Linda F. Rappaport jointly or individually
are trustees; (f) 82,552 shares owned of record by Linda F. Rappaport,
which Mrs. Rappaport has the sole voting and investment power; and, (g)
1,061,799 shares owned of record by Golsen Petroleum Corporation ("GPC")
and 533,333 shares that GPC has the right to acquire upon conversion of
16,000 shares of Series B Preferred owned of record by GPC. GPC is wholly
owned by J. Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen and Linda F.
Rappaport, with each owning twenty percent (20%) of the outstanding stock
of GPC, and, as a result, GPC, J. Golsen, Sylvia H. Golsen, B. Golsen, S.
Golsen and Linda F. Rappaport share the voting and investment power of the
shares beneficially owned by GPC. GPC's address is 16 South Pennsylvania
Avenue, Oklahoma City, Oklahoma 73107.
-50-
/(4)/ Includes: (a) 4,000 shares of Series B Preferred owned of record by J.
Golsen, which he has the sole voting and investment power; and (b) 16,000
shares of Series B Preferred owned of record by GPC, in which GPC, J.
Golsen, Sylvia H. Golsen, B. Golsen, S. Golsen and Linda F. Rappaport
share the voting and investment power.
/(5)/ Does not include 144,260 shares of Common Stock that Linda F. Rappaport's
husband owns of record and 14,000 shares which he has the right to acquire
within the next sixty (60) days under the Company's stock option plans,
all of which Linda F. Rappaport disclaims beneficial ownership.
/(6)/ J. Golsen disclaims beneficial ownership of the shares that B. Golsen, S.
Golsen and Linda F. Rappaport each have the sole voting and investment
power over as noted in footnote (3) above. B. Golsen, S. Golsen and Linda
F. Rappaport disclaim beneficial ownership of the shares that J. Golsen
has the sole voting and investment power over as noted in footnote (3) and
the shares owned of record by Sylvia H. Golsen. Sylvia H. Golsen
disclaims beneficial ownership of the shares that J. Golsen has the sole
voting and investment power over as noted in footnote (3) above.
SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth information
- --------------------------------
obtained from the directors of the Company and the directors and executive
officers of the Company as a group as to their beneficial ownership of the
Company's voting common stock and voting preferred stock as of the Record Date.
Because of the requirements of the Securities and Exchange Commission as to
the method of determining the amount of shares an individual or entity may own
beneficially, the amount shown below for an individual may include shares also
considered beneficially owned by others. A person is deemed to be the
beneficial owner of voting shares of Common Stock of the Company which he or she
could acquire within sixty (60) days of the Record Date, such as upon the
exercise of an option. In calculating the percentage of any class of stock
which such person does not own but which he or she has the right to acquire
within sixty (60) days from the Record Date is deemed to be outstanding for the
purpose of computing the percentage of outstanding stock of the class owned by
such person but is not deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person.
AMOUNTS OF
NAME TITLE SHARES PERCENT
OF OF BENEFICIALLY OF
BENEFICIAL OWNER CLASS OWNED/(1)/ CLASS
- ----------------------------------------- --------- --------------- --------
Raymond B. Ackerman Common 140/(2)/ *
Robert C. Brown, M.D. Common 253,329/(3)/ 1.8%
Barry H. Golsen Common 1,946,921/(4)/ 14.2%
Preferred 16,000/(4)/ 74.0%
Jack E. Golsen Common 3,311,803/(5)/ 23.9%
Preferred 20,000/(5)/ 92.5%
David R. Goss Common 266,477/(6)/ 1.9%
-51-
Bernard G. Ille Common 125,000/(7)/ *
Jerome D. Shaffer, M.D. Common 135,374/(8)/ 1.0%
Tony M. Shelby Common 262,882/(9)/ 1.9%
C. L. Thurman Common 66,833/(10)/ *
Directors and Executive Officers as a Common 5,095,085/(11)/ 36.9%
group (12 persons) Preferred 20,000/(11)/ 92.5%
- -------------------------------
* Less than 1%.
/(1)/ The Company based the information with respect to beneficial ownership on
information furnished by each director or officer, contained in filings
made with the Securities and Exchange Commission, or contained in the
Company records.
/(2)/ Mr. Ackerman has sole voting and investment power of these shares, which
shares are held in a trust in which Mr. Ackerman is both the settlor and
the trustee and in which he has both the vested interest in the corpus and
income.
/(3)/ The amount shown includes 65,000 shares of common stock that Dr. Brown may
acquire pursuant to currently exercisable nonqualified stock options
granted to him by the Company. Dr. Brown has sole voting and investment
power over 30,000 shares and shares the voting and investment power of the
balance of the shares. The shares with respect to which Dr. Brown shares
the voting and investment power consist of 87,516 shares owned by Dr.
Brown's wife, 50,727 shares owned by Robert C. Brown, M.D., Inc., a
corporation wholly-owned by Dr. Brown, and 20,086 shares held by the
Robert C. Brown M.D., Inc. Employee Profit Sharing Plan, of which Dr.
Brown serves as the trustee. The amount shown does not include 56,090
shares directly owned by the children of Dr. Brown, all of which Dr. Brown
disclaims beneficial ownership.
/(4)/ See footnotes (3), (4) and (6) of the table under "Security Ownership of
Certain Beneficial Owners and Management" of this Item for a description
of the amount and nature of the shares beneficially owned by B. Golsen,
including the 14,000 shares B. Golsen has the right to acquire within
sixty (60) days.
/(5)/ See footnotes (3), (4) and (6) of the table under "Security Ownership of
Certain Beneficial Owners and Management of this Item for a description of
the amount and nature of the shares beneficially owned by J. Golsen,
including the 10,000 shares J. Golsen has the right to acquire within
sixty (60) days.
/(6)/ The amount shown includes 5,000 shares that he has the right to acquire
within sixty (60) days pursuant to options granted under the Company's
ISOs, all of which Mr. Goss has the sole voting and investment power. Mr.
Goss shares voting and investment power over 2,429 shares owned by Mr.
Goss's wife, individually and/or as custodian for Mr. Goss's children and
has sole voting and investment power over the balance of the shares.
/(7)/ The amount includes 65,000 shares that Mr. Ille may purchase pursuant to
currently exercisable nonqualified stock options, all of which Mr. Ille
has the sole voting and investment power. Mr. Ille shares voting and
investment power over 60,000 shares owned by Mr. Ille's wife.
-52-
/(8)/ Dr. Shaffer has the sole voting and investment power over these shares,
which includes 65,000 shares that Dr. Shaffer may purchase pursuant to
currently exercisable non-qualified stock options.
/(9)/ Mr. Shelby has the sole voting and investment power over these shares,
which include 5,000 shares that he has the right acquire to within sixty
(60) days pursuant to options granted under the Company's ISOs.
/(10)/ Mr. Thurman has the sole voting and investment power over these shares.
/(11)/ The amount shown includes 489,380 shares of common stock that officers
and directors, or entities controlled by officers and directors of the
Company, have the right to acquire within sixty (60) days.
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION. The Company's common stock trades on the American Stock
- ------------------
Exchange ("AMEX"). The following table shows for the periods indicated, the
high and low closing sales prices for the common stock.
Fiscal Year Ended
DECEMBER 31,
------------------
QUARTER 1992
------- ----
High Low
First 2-7/8 1-1/4
Second 4-7/8 2-3/8
Third 6-1/2 3-3/4
Fourth 7-3/4 4-3/4
1993
----
First 11-1/8 6-3/4
Second 12 9
Third 12-3/8 10
Fourth 11-3/8 8-1/8
1994
----
First ______ ______
(through
February
___, 1994)
-53-
On November 30, 1993, the last full trading day preceding the initial public
announcement by the Company of the agreement in principle to sell Equity Bank,
the closing price of the Company's Common Stock on the AMEX was $9.875. On
January ___, 1994, the last full trading day preceding the announcement by the
Company of the execution of the Acquisition Agreement, the closing price of the
Company's Common Stock on the AMEX was $_______.
SHAREHOLDERS OF AND DIVIDENDS ON COMPANY'S COMMON STOCK. As of the Record Date,
- -------------------------------------------------------
the Company had _____________ record holders of its Common Stock.
The sale of Equity Bank to Fourth Financial would not have any effect on the
amount and percentage of present holdings of the Company's Common Stock owned
beneficially by (i) any person (including any group as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) who is known to the
Company to be the beneficial owner of more than 5% of any class of the Company's
Common Stock, and (ii) each director and all directors and officers as a group,
and the Company's present commitments to such persons with respect to the
issuance of shares of any class of its Common Stock.
Holders of the Company's Common Stock are entitled to receive dividends only
when, as, and if declared by the Board of Directors. No dividends may be paid
on the Company's Common Stock until all required dividends are paid on the
outstanding shares of the Company's preferred stock, or declared and amounts set
apart for the current period, and, if cumulative, prior periods. The Company
has issued and outstanding as of the Record Date 920,000 shares of a series of
$3.25 Convertible Exchangeable Class C Preferred Stock, Series 2, no par value,
1,632.5 shares of a series of Convertible Preferred and 20,000 shares of Series
B Preferred. The Company did not pay cash dividends on its Common Stock for
many years. During the first part of 1993, the Company's Board of Directors
approved the adoption of a policy as to the payment of cash dividends on its
outstanding Common Stock pursuant to which an annual cash dividend of $.06 per
share will be declared by the Board of Directors and paid on the Company's
outstanding shares of Common Stock, payable at $.03 per share semiannually,
subject to change or termination by the Board of Directors at any time. The
Company paid a cash dividend of $.03 a share on its outstanding Common Stock on
July 1, 1993, and January 1, 1994; however, there are no assurances that this
policy will not be terminated or changed by the Board of Directors.
ADJOURNMENT OF THE MEETING
The proxies solicited by this Proxy Statement request authority to vote for an
adjournment of the Special Meeting. Approval of the adjournment will authorize
the Company to seek an adjournment of the Special Meeting for not more than ten
(10) days
-54-
to enable the Company to solicit additional votes in favor of the approval of
the Acquisition Agreement and the sale of Equity Bank pursuant to the terms of
the Acquisition Agreement. If the Company wishes to seek an adjournment, it
will request a motion that the Special Meeting be adjourned and, if that motion
is approved, no vote will be taken on the sale of Equity Bank at the Special
Meeting as originally scheduled.
Any adjournment will permit the Company to solicit additional proxies and will
permit more extensive consideration and expression by the shareholders of their
views on the sale of Equity Bank. Such an adjournment would be disadvantageous
to shareholders who oppose the sale of Equity Bank because such an adjournment
would give the Company additional time to solicit votes and to increase the
likelihood of shareholder approval of the Acquisition Agreement and the sale of
Equity Bank pursuant to the Acquisition Agreement.
Because the Board of Directors of the Company recommends the approval of the
Acquisition Agreement and the sale of Equity Bank pursuant to the Acquisition
Agreement, the Board of Directors unanimously recommends that holders of record
of Common Stock, Convertible Preferred, and Series B Preferred vote to approve
the proposal to adjourn the Special Meeting, if required. Approval by the
affirmative vote of the holders of a majority of the voting stock of the Company
present in person or represented by proxy at the Special Meeting will be
necessary to approve the adjournment proposal.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE ADJOURNMENT
PROPOSAL AND RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS VOTE FOR ADJOURNMENT OF
THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES, IF NECESSARY.
SHAREHOLDER PROPOSAL
In order for the Company to include a shareholder proposal in the proxy
materials for the Company's 1994 Annual Meeting of Shareholders, a shareholder
must deliver the proposal, in writing, to the Secretary of the Company no later
than April 15, 1994.
INDEPENDENT ACCOUNTANTS
For many years, Ernst & Young (and its predecessor, Arthur Young & Company),
independent public accountants, have audited the Company's financial statements.
It is expected that representatives of Ernst & Young will attend the Special
Meeting where they will have an opportunity to address the Special Meeting, if
they so desire, and to respond to appropriate shareholder questions.
-55-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
EXCEPT AS NOTED BELOW, THIS PROXY STATEMENT INCORPORATES BY REFERENCE
DOCUMENTS WHICH ARE NOT DELIVERED HEREWITH. SUCH DOCUMENTS RELATING TO THE
COMPANY WILL BE PROVIDED WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO THE
COMPANY, BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE (1)
BUSINESS DAY OF RECEIPT OF SUCH REQUEST. IF MAKING SUCH A REQUEST, PLEASE
DIRECT IT TO: LSB INDUSTRIES, INC., 16 SOUTH PENNSYLVANIA, POST OFFICE BOX 754,
OKLAHOMA CITY, OKLAHOMA 73101; ATTENTION: DAVID M. SHEAR, VICE PRESIDENT AND
SECRETARY (405-235-4546).
The following documents previously filed by the Company with the SEC pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act") are hereby
incorporated by reference into this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1992, including Amendment No. 1 filed on Form 8 on April 30, 1993, and
Amendment No. 2 filed on Form 10K/A on May 13, 1993;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1993;
3. The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993;
4. The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993; and,
5. The Company's Current Report on Form 8-K, dated December 3, 1993.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date of the Special Meeting
shall be deemed to be incorporated by reference into this Proxy Statement.
Any statement contained 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 to the extent that a statement contained
herein or in any other subsequently filed
-56-
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.
OTHER MATTERS
As of the date of this Proxy Statement, neither the Board of Directors nor
management knows of any other matters which will be presented for consideration
at the Special Meeting. However, if any other business should properly come
before the Special Meeting, the persons named in the enclosed proxy (or their
substitutes) will have discretionary authority to take such other action as
shall be in accordance with their best judgment.
February ____, 1994.
By order of the Board of Directors,
David M. Shear
Vice President, General Counsel
and Secretary
-57-
EXHIBIT "A"
STOCK PURCHASE AGREEMENT
among
FOURTH FINANCIAL CORPORATION,
as Purchaser
and
LSB INDUSTRIES INC.,
and
PRIME FINANCIAL CORPORATION,
as Sellers
Dated as of January __, 1994
TABLE OF CONTENTS
Page #
------
ARTICLE I. Definitions ........................................... 1
-----------
Section 1.1 Definitions............................................ 1
Section 1.2 Accounting Terms....................................... 8
Section 1.3 Use of Defined Terms................................... 8
ARTICLE II. Sale and Transfer of Stock: Closing.................... 8
-----------------------------------
Section 2.1 Sale of the Shares..................................... 8
Section 2.2 Purchase Price......................................... 8
Section 2.3 Additional Adjustments to Purchase Price............... 10
Section 2.4 Post-Closing Adjustments............................... 11
Section 2.5 Closing................................................ 11
Section 2.6 Closing Deliveries..................................... 11
Section 2.7 Option to Acquire Certain Loans........................ 12
Section 2.8 Retained Assets and Retained Corporations.............. 12
ARTICLE III. Agreements of the Parties.............................. 13
-------------------------
Section 3.1 Agreement of Fourth.................................... 13
Section 3.2 Agreements of Sellers.................................. 14
ARTICLE IV. Representations and Warranties......................... 19
------------------------------
Section 4.1 Representations and Warranties of Sellers.............. 19
Section 4.2 Representations and Warranties of Fourth............... 28
ARTICLE V. Closing Conditions..................................... 30
------------------
Section 5.1 Conditions to Obligations of Fourth.................... 30
Section 5.2 Conditions to Obligations of Sellers................... 32
ARTICLE VI. Termination of Agreement............................... 34
------------------------
Section 6.1 Mutual Consent; Termination Date....................... 34
Section 6.2 Election by Fourth..................................... 34
Section 6.3 Election by Sellers.................................... 34
ARTICLE VII. Indemnification........................................ 35
---------------
Section 7.1 Effect of Closing...................................... 35
Section 7.2 General Indemnification................................ 35
Section 7.3 Procedure.............................................. 36
Section 7.4 Survival of Representations and Warranties............. 37
Section 7.5 Special Indemnification................................ 38
Section 7.6 Separate Indemnification for Environmental Matters..... 38
Section 7.7 Director and Officer Indemnification................... 39
- i -
ARTICLE VIII. Miscellaneous.......................................... 40
-------------
Section 8.1 Expenses............................................... 40
Section 8.2 Notices................................................ 40
Section 8.3 Time................................................... 40
Section 8.4 Law Governing.......................................... 40
Section 8.5 Entire Agreement; Amendment............................ 40
Section 8.6 Successors and Assigns................................. 41
Section 8.7 Cover, Table of Contents, and Headings................. 41
Section 8.8 Counterparts........................................... 41
Section 8.9 No Third Party Beneficiaries........................... 41
Section 8.10 Severability........................................... 41
EXHIBITS
Exhibit "A" Form of Housley Goldberg & Kantarian, P.C. legal opinion
Exhibit "B" Form of Foulston and Siefkin legal opinion
Exhibit "C" Form of Lease -- Equity Tower
Exhibit "D" Form of Lease -- Portland
Exhibit "E" Form of Real Estate Contract -- Retained Assets
Exhibit "F" Form of Bank Merger Agreement
- ii -
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of January __, 1994, among
FOURTH FINANCIAL CORPORATION, a Kansas corporation ("Fourth"), LSB INDUSTRIES,
INC., a Delaware corporation ("LSB"), and PRIME FINANCIAL CORPORATION, an
Oklahoma corporation ("Prime").
W I T N E S S E T H: That,
-------------------
WHEREAS, Fourth desires to acquire all, and not less than all, of the
issued and outstanding capital stock of all classes of Equity Bank for Savings,
F.A. (the "Bank") and to immediately thereafter merge the Bank into Fourth's
subsidiary, BANK IV Oklahoma, National Association ("BANK IV"), subject to and
pursuant to the terms of this Agreement; and
WHEREAS, LSB owns all of the issued and outstanding capital stock of
all classes of Prime and Prime owns all of the issued and outstanding capital
stock of the Bank; and
WHEREAS, each party hereto believes that the proposed acquisition by
Fourth of Bank and he merger of the Bank into BANK IV pursuant to the terms and
conditions of this Agreement would be desirable and in their respective best
interests;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions. The following terms as used in this Agreement
-----------
shall have the following meanings unless the context otherwise requires.
- 1 -
"This Agreement" refers to this Stock Purchase Agreement and all
exhibits hereto and all amendments hereto.
"Bank" means Equity Bank for Savings, F.A., a savings bank organized
under the laws of the United States.
"BANK IV" means BANK IV Oklahoma, National Association, a national
banking association.
"Bank Holding Company Act" means the federal Bank Holding Company Act
of 1956, as amended (12 U.S.C. (S) 1841 et seq.), or any successor federal
-- ---
statute, and the rules and regulations of the Board promulgated thereunder, all
as the same may be in effect at the time.
"Bank Merger Agreement" means the Agreement to Merge, substantially
in the form of Exhibit "F" hereto, pursuant to which the Bank will be merged
into BANK IV at the Closing immediately following the Purchase.
"Bank Stock" means common stock of the Bank, par value $.01 per
share.
"Board" means the Board of Governors of the Federal Reserve System or
any successor governmental entity which may be granted powers currently
exercised by the Board of Governors.
"Closing" shall mean the purchase and sale of the Shares and the
consummation of the Merger immediately thereafter.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder, all as the same may be in effect
at the time.
"Comptroller" means the United States Comptroller of the Currency or
any successor governmental agency which may be granted powers currently
exercised by the Comptroller of the Currency.
- 2 -
"Corporations" means collectively the Bank and all of the following
of its Subsidiaries: Credit Card Center, Inc., Equity Financial Service Corp.,
and United BankCard, Inc.; and "Corporation" means any one of them.
"Disclosure Statement" means the Disclosure Statement prepared by
Sellers and delivered by Sellers to Fourth prior to the execution and delivery
of this Agreement by Fourth.
"Effective Time" means the date and time on which the Purchase is
effected as more fully defined in this Agreement.
"Environmental Liabilities" means all losses, costs, expenses,
claims, demands, liabilities, or obligations of whatever kind or otherwise,
based upon an Environmental Law relating to:
(i) any environmental matter or condition, including, but not
limited to, on-site or off-site contamination, and regulation of
chemical substances or products;
(ii) fines, penalties, judgments, awards, settlements,
legal or administrative proceedings, damages, losses, claims,
demands, and response, remedial or inspection costs and expenses
arising under Environmental Laws;
(iii) financial responsibility under any Environmental Law
for cleanup costs or corrective actions, including for any removal,
remedial or other response actions, and for any natural resource
damage; and
(iv) any other compliance, corrective, or remedial action
required under any Environmental law.
"Environmental Law" means any provision of Law relating to any
environmental matters or conditions, Hazardous Materials, pollution, or
protection of the environment, including, but not limited to, on-site and
off-site contamination, and regulation of chemical substances or products,
emissions, discharges, release, or threatened release of contaminants,
chemicals, or industrial, toxic, radioactive, or Hazardous Materials or wastes
into the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
- 3 -
handling of Hazardous Materials, pollutants, contaminants, chemicals, or
industrial, toxic, radioactive, or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder, all as the same
may be in effect at the time.
"Facilities" means any real property, leaseholds, or other interests
owned by the Bank or any of the Corporations and/or any buildings, plants,
structures, or equipment of any of the Corporations, but shall not include any
real property, leaseholds, or other interests owned by any of the Retained
Corporations nor any of the Retained Assets other than the Equity Tower and the
Portland Building.
"Federal Deposit Insurance Act" means the Federal Deposit Insurance
Act, as amended, and the rules and regulations promulgated thereunder, all as
the same may be in effect at the time.
"FDIC" means the Federal Deposit Insurance Corporation or any
successor agency.
"Financial Statements" refers to all of the financial statements
described in clause h of Section 4.1 and clause h of Section 5.1 of this
Agreement.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis.
"Hazardous Materials" means and includes: (i) any hazardous
substance or toxic material (excluding any lawful product in customary
quantities for use in the Bank's or other occupant's ordinary course of business
which contains such substance or material), pollutant, contaminant, toxic
material, or hazardous waste as defined in any state, federal, or local
Environmental Law; (ii) waste oil and petroleum products; and (iii) any
asbestos, asbestos containing material, urea formaldehyde or material which
contains urea formaldehyde.
- 4 -
"Indemnifying Losses" has the meaning set forth in Section 7.2 of
this Agreement.
"Indemnitee" and "Indemnities" shall have the meanings set forth in
Section 7.2 of this Agreement.
"Law" or "Laws" means all applicable statutes, laws, ordinances,
regulations, orders, writs, injunctions, or decrees of the United States of
America, any state or commonwealth, or any subdivision thereof, or of any court
or governmental department, agency, commission, board, bureau, or other
instrumentality.
"Litigation" means any proceeding, claim, lawsuit, and/or
investigation being conducted or, to the best of the knowledge of the person or
corporation making the representation, threatened before any court or other
tribunal, including, but not limited to, proceedings, claims, lawsuits, and/or
investigations, under or pursuant to any occupational safety and health,
banking, antitrust, securities, tax, or other Laws, or under or pursuant to any
contract, agreement, or other instrument.
"LSB" means LSB Industries, Inc., a Delaware corporation.
"Merger" means the merger of the Bank into BANK IV at the Closing
immediately following the Purchase.
"OREO Properties" means any interest in any real or personal property
owned by the Bank or any other corporation acquired through foreclosure or
otherwise in connection with collecting a loan or lease.
"OTS" means the Office of Thrift Supervision of the United States
Treasury and any successor agency which may be granted powers currently
exercised by the Office of Thrift Supervision.
"Permitted Contract" means a contract or agreement, written or oral,
between the Bank or another of the Corporations, on the one hand, and a person
other than a customer of the Bank or another financial institution, on the other
hand, which (i) was entered into in the ordinary course of business, (ii) may be
- 5 -
terminated by the Bank after the Effective Time on no more than 60 days' prior
notice, (iii) provides for a payment of no more than $5,000 in any calendar
month by the Bank or a Corporation, and (iv) provides for no payment upon
termination in excess of $5,000.
"Permitted Encumbrances" means with respect to any asset:
(a) liens for taxes not past due;
(b) mechanics' and materialmen's liens for services or
materials for which is not past due; and
(c) minor defects, encumbrances, and irregularities in
title which do not, in the aggregate, materially diminish the value
of an asset or materially impair the use of an asset for the purposes
for which it is or is intended to be used.
"Portland Building" means the real property and improvements thereon
owned by the Bank, excluding certain improvements described in Exhibit "D"
hereto, at 5700 N. Portland, Oklahoma City, Oklahoma.
"Purchase" means the purchase at the closing of all of the Shares
from Sellers by Fourth pursuant to this Agreement.
"Purchase Price" has the meaning set forth in Section 2.2 of this
Agreement as adjusted in accordance with Section 2.3 of this Agreement.
"Required Approvals" means the approval, consent, or non-objection,
as the case may be, of the Board, the OTS, the Comptroller, and all other
governmental or self-governing agencies, boards, departments, and bodies whose
approval, consent, or non-action is required in order to consummate the Purchase
and the Merger and the retention by BANK IV of all of the Corporations engaged
in banking or thrift-related activities and their operations in substantially
their present form except as specifically otherwise provided in this Agreement,
which approvals, consents, and non-objections shall have become final and
nonappealable without any appeal or other form of review having been initiated
and as to which all required waiting periods shall have expired.
- 6 -
"Retained Assets" means collectively (i) the loan and all related
rights and agreements on the books of the Bank secured by the Equity Tower
building (the "Equity Tower"), (ii) all OREO Properties, (iii) the Portland
Building, (iv) receivables sold to the Bank pursuant to various purchase
agreements dated March 8, 1988, and (v) such other assets that Sellers elect to
acquire from the Bank pursuant to the provisions of Section 2.7 hereof; and
"Retained Asset" means any one of the Retained Assets.
"Retained Corporations" means all of the following wholly owned
Subsidiaries of the Bank all of the capital stock of each of which is to be
purchased by LSB or Prime prior to the Effective Time: Northwest Financial
Corporation, Northwest Energy Enterprises, Inc., and Northwest Capital
Corporation; and "Retained Corporation" means any one of them.
"Securities Portfolio" means (i) all equity securities other than
investments in Subsidiaries, (ii) all mortgage-backed securities (as defined by
Section 5(c)(1)(R) of the Home Owners' Loan Act), (iii) all government
securities (as defined by Section 5(c)(1)(F) of the Home Owners' Loan Act),
and (iv) all obligations of or fully insured as to principal and interest by the
United States, owned by the Bank as of the Effective Time, whether held for sale
or otherwise.
"Sellers" means LSB and Prime collectively.
"Shares" means collectively all of the 100,000 shares of Bank Stock
being purchased and sold pursuant to this Agreement.
"Subsidiary" means any corporation fifty percent or more of the
common stock or other form of equity of which shall be owned, directly or
indirectly, by another corporation.
"Tangible Book Value of the Bank" means the aggregate consolidated
stockholders' equity of the Bank, calculated in accordance with GAAP, less the
amounts in the following accounts: purchased mortgage servicing rights (account
number 1797), goodwill (account number 1799), and United BankCard goodwill
(account number 1305).
- 7 -
"Time Deposits" means all deposit liabilities shown on the Bank's
records as time deposits.
1.2. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP consistent with that applied
in the preparation of the financial statements submitted pursuant to this
Agreement, and all financial statements submitted pursuant to this Agreement
shall be prepared in all material respects in accordance with such principles.
1.3. Use of Defined Terms. All terms defined in this Agreement shall have
--------------------
the defined meanings when used in any other agreement, document, or certificate
made or delivered pursuant to this Agreement, unless the context otherwise
requires.
ARTICLE II
SALE AND TRANSFER OF STOCK; CLOSING
2.1. Sale of the Shares. Subject to the terms and conditions of this
------------------
Agreement, at the Closing, Sellers shall sell, transfer, and deliver to Fourth,
and Fourth shall purchase, all of the Shares for the Purchase Price.
2.2. Purchase Price. (a) The Purchase Price for all of the Shares shall be
--------------
the sum of:
(i) the Tangible Book Value of the Bank at the Effective Time;
(ii) $9,300,000 with respect to the Bank' s credit card
receivables;
(iii) one percent of the aggregate unpaid principal balance at the
Effective Time of loans secured by fixed-rate mortgages having original
terms of 15 years or less, excluding loans originated after October 31,
1993;
(iv) six percent of the aggregate unpaid principal balance at the
Effective Time of loans secured by fixed rate mortgages having original
terms of more
- 8 -
than 15 years but not more than 30 years, excluding loans originated after
October 31, 1993;
(v) two percent of the aggregate unpaid principal balance at the
Effective Time of loans secured by variable rate mortgages, excluding loans
originated after October 31, 1993;
(vi) the amount of unamortized discount on the mortgages included
in (iii), (iv), and (v) above;
(vii) 0.65% of the aggregate unpaid principal balance at the
Effective Time of loans serviced by Bank prior to March 1, 1993 on which
the Bank performs mortgage servicing (other than loans serviced for the
account of Bank), one percent of such balance on such loans originated on
or after March 1, 1993 secured by fixed or adjustable rate mortgages of
original terms of at least ten but not more than 15 years, and 1.25% of
such balance on such loans originated on or after March 1, 1993, secured by
fixed or adjustable rate mortgages having original terms of more than 15
but not more than 30 years;
(viii) the aggregate net amount, either positive or negative, by
which the Bank's loan loss reserve account (including its unallocated loan
loss reserve) would have had to be adjusted at the Effective Time under
normal prudent banking practice had such loan loss reserve at such time
been only $2,700,000,to reflect aggregate changes of at least $500,000
occurring subsequent to October 31, 1993 in the quality of commercial and
energy loans held by the Bank; provided, that no such change in the quality
--------
of a loan shall be included in this calculation to the extent such change
has been reflected in the calculation of the Tangible Book Value of the
Bank at the Effective Time, or if such change is less than $25,000. If the
parties are unable to agree on any aspects of the calculations provided for
in this subparagraph (viii) after good faith negotiations, such disputes
shall be resolved by the Ernst & Young accounting firm whose determination
shall be final absent manifest error. The resolution of any such dispute
shall not delay the Closing.
(ix) to the extent not otherwise reflected in the calculations of
the tangible Book Value of the Bank, the amount, either positive or
negative, by which the aggregate fair market value of the Bank's Securities
- 9 -
Portfolio at the Effective Time differs from the aggregate book value of
the Securities Portfolio on such date;
(x) $11,000,000, with respect to the Bank's deposit balances;
(xi) $10,500,000 with respect to the value to Fourth of the Bank's
net operating loss;
(xii) the difference, positive or negative, between the aggregate
book value of all of the Bank's Time Deposits at the Effective Time and the
aggregate value of such deposits after repricing them to the Treasury yield
curve at the Effective Time; and
(xiii) $1,400,000, representing the aggregate premiums attributable
to the Sayre, Clinton, Thomas, and Beaver branches of the Bank.
2.3. Additional Adjustments to Purchase Price. (a) The percentages
----------------------------------------
specified in subparagraphs (iii) and (iv) of Section 2.2 were calculated using
the following yields and spreads as of August 31, 1993:
15 year 30 year
------- -------
Bank's average portfolio yield 7.44% 8.79%
FNMA required 30-day yield 6.19% 6.66%
----- -----
Spread 1.35% 1.25%
If, at the Effective Time, either of such spread has fluctuated by more than
0.25%, the applicable percentages in subparagraph (iii) and (iv) will be
adjusted up or down by 1/4 of one percent for each full 1/8 of one percent
change in the spread, in the case of loans with an original term of 15 years or
less, and by 3/8 of one percent for each full 1/8 of one percent change in the
spread, in the case of loans with an original term of more than 15 but not more
than 30 years.
(b) The amount of the Purchase Price will be increased by the aggregate
amount, if any, the Tangible Book Value of the Bank at the Effective Time has
been reduced by any restructuring charge or charges that the Bank shall have
recorded on its books as the result of the anticipated effects of the Purchase,
none of which the Bank shall be obligated to take, and all of which shall have
been approved in advance in writing by Fourth to the extent permitted by Law.
- 10 -
2.4. Post-Closing Adjustments. Unless otherwise specifically provided
------------------------
herein, each component of the Purchase Price shall be calculated as of the
Effective Time; provided, however, that if any element of the Purchase Price
cannot be calculated accurately as of the Effective Time, such items shall be
calculated as of the end of the month preceding the Effective Time. Any element
of the Purchase Price so calculated shall be adjusted to reflect the accurate
amount as of the Effective Time and Sellers and Fourth agree to enter into
mutually agreeable arrangements for the final adjustment and the payment or
repayment of the net amount thereof with interest from the Effective Time at
four percent per year within five business days after Sellers deliver to Fourth
a written statement setting forth in reasonable detail all proposed price
adjustments and the basis of calculating each.
2.5. Closing. The Closing shall take place at the offices of Foulston &
-------
Siefkin, 700 Fourth Financial Center, Wichita, Kansas, at 10:00 a.m., or at such
other time or place as the parties may agree, on a date selected by Fourth upon
giving reasonable notice to Sellers, which, unless otherwise agreed, shall be on
the 15th day (or the closest business day if the 15th is not a business day) of
the month in which the final Regulatory Approval is obtained and in which all
required waiting periods expire if such earliest legal closing date is during
the first 15 days of the month and on the last business day of the month if the
earliest legal closing date occurs after the 15th day of a month. The parties
agree to exert their best efforts to cause the Closing to occur on or before
June 30, 1994.
2.6. Closing Deliveries. At the Closing:
------------------
a. Sellers shall deliver to Fourth:
(i) certificates representing all of the Shares, endorsed for
transfer to Fourth, free and clear of all encumbrances, liens,
security interests, claims, and equities whatsoever;
(ii) such other documents including officers' certificates as
may be required by this Agreement or reasonably requested by Fourth;
and
(iii) the opinion of Housley Goldberg & Kantarian, P.C., counsel
to Sellers and the Bank, substantially in the form of Exhibit "A"
hereto.
- 11 -
b. Fourth shall deliver to Sellers:
(i) immediately available funds in the total amount of the
Purchase Price;
(ii) such documents including officers' certificates as may be
required by this Agreement or reasonably requested by Sellers; and
(iii) the opinion of Foulston & Siefkin, counsel to Fourth,
substantially in the form of Exhibit "B" hereto.
c. Bank and __________________ shall execute and deliver a real
estate lease substantially in the form of Exhibit "C" hereto pursuant to
which Bank will lease from certain _____________ first-floor and other
space in the Equity Tower in Oklahoma City for a ten-year term, with
renewal options and options to rent additional space in such building.
d. Bank and LSB shall execute and deliver a real estate lease
substantially in the form of Exhibit "D" hereto pursuant to which Bank will
lease from LSB the Portland Building.
Immediately following the Purchase, the Bank shall be merged into
BANK IV pursuant to the Bank Merger Agreement.
2.7. Option to Acquire Certain Loans. Sellers shall have the option, but
-------------------------------
not the obligation, to acquire any loan owned by the Bank that has been charged
off or written down for a purchase price equal to the net book value of each
loan that has been written down and for a purchase price of $1.00 in the case of
each loan that has been charged off.
2.8. Retained Assets, Retained Corporations, and Certain Loans. Subject to
---------------------------------------------------------
all of the closing conditions set forth in Sections 5.1 and 5.2 having occurred
and continuing in effect, Sellers shall purchase the Retained Assets from the
Bank immediately prior to the Effective Time for the aggregate book value
thereof as of the Effective Time (or $1.00 in the case of
- 12 -
each loan that has been written off), and Sellers shall purchase all of the
capital stock of all of the Retained Corporations from the Bank not later than
the business day immediately preceding the Effective Time for the aggregate book
value thereof as of such date. Each such purchase shall be effected by the
payment to the Bank of immediately available funds. All sales by the Bank of
OREO Properties shall be pursuant to a real estate contract substantially in the
form of Exhibit "E" hereto.
ARTICLE III
AGREEMENTS OF THE PARTIES
3.1. Agreements of Fourth.
--------------------
a. Prior to the Effective Time, Fourth, separately and with Sellers,
shall use its best efforts in good faith to take or cause to be taken as
promptly as practicable all such steps as shall be necessary to obtain all
of the Required Approvals.
b. Fourth shall promptly prepare and file all applications necessary
to obtain the Required Approvals and shall afford Sellers at least four
days' opportunity to review and comment upon the drafts of such
applications prior to the filing thereof.
c. Fourth shall observe the confidentiality obligations set forth in
Section 3.2.c, below.
d. Fourth shall consult with Sellers prior to issuing any press
release or other planned public statement regarding the subject matter of
this Agreement or the termination thereof as to the contents of such press
release or statement.
e. Fourth agrees to take such action as may be necessary to cause
BANK IV to be well capitalized upon the consummation of the transactions
contemplated by this Agreement at and immediately following the Effective
Time.
- 13 -
f. Fourth agrees to provide such information as LSB may reasonably
request in connection with the preparation of material for the conduct of a
meeting of LSB's stockholders to approve this Agreement, and such
information furnished by Fourth will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
g. Following the Closing, in the event Sellers or any of their
Subsidiaries, officers, directors, or affiliates shall be called upon to
provide an indemnity pursuant to the provisions of this Agreement, or
should otherwise be called upon to take or defend against legal action with
respect to matters occurring prior to the Effective Time, Fourth shall
permit Sellers to examine (subject to reasonable limitations) the former
records of the Bank or the Corporations.
3.2. Agreements of Sellers.
---------------------
a. Prior to the Closing, except with respect to those commitments
binding as of the date of this Agreement described in an exhibit to the
Disclosure Statement, or as otherwise provided in this Agreement, Sellers
shall not, without the prior written consent of Fourth which shall not
unreasonably be withheld, permit any of the Corporations to:
(1) Amend its articles or certificate of incorporation, bylaws,
or other charter documents, make any change in its authorized,
issued, or outstanding capital stock, grant any stock options or
right to acquire shares of any class of its capital stock or any
security convertible into any class of capital stock, purchase,
redeem, retire, or otherwise acquire (otherwise than in a fiduciary
capacity) any shares of any class of its capital stock or any
security convertible into any class of its capital stock, or agree to
do any of the foregoing;
- 14 -
(2) Declare, set aside, or pay any dividend or other distribution
in respect of any class of its capital stock;
(3) Adopt, enter into, or amend materially any employment
contract or any bonus, stock option, profit sharing, pension,
retirement, incentive, or similar employee benefit program or
arrangement or grant any salary or wage increase, except (a) normal
individual increases in compensation to employees in accordance with
established employee procedures of the Corporations; (b) the Fourth
Financial Corporation Acquisition Severance Schedule previously
furnished to Seller; and (c) severance agreements to be performed by
Sellers without any obligation of the Bank or Fourth;
(4) Incur any indebtedness for borrowed money (except for federal
funds, repurchase agreements entered into in the ordinary and usual
course of business, deposits received by the Bank, endorsement, for
collection or deposit, of negotiable instruments received in the
ordinary and usual course of business, and issuance of letters of
credit by the Bank in the ordinary and usual course of business),
assume, guarantee, endorse, or otherwise as an accommodation become
liable or responsible for obligations of any other individual, firm,
or corporation;
(5) Pay or incur any obligation or liability, absolute or
contingent, other than liabilities incurred in the ordinary and usual
course of business of the Corporations;
(6) Except for transactions in the ordinary and usual course of
business of the Bank, mortgage, pledge, or subject to lien or other
encumbrance any of its properties or assets;
(7) Except for transactions in the ordinary and usual course of
business of the Bank (including, without limitation, sales of assets
acquired by the Bank in the course of collecting loans) or as
permitted by this Agreement, sell or transfer any of its properties
or assets or cancel, release, or assign any indebtedness owed to it
or any claims held by it;
- 15 -
(8) Make any investment of a capital nature in excess of $25,000
for any one item or group of similar items either by the purchase of
stock or securities (not including bonds or collateralized mortgage
obligations purchased in the ordinary and usual course of business by
the Bank), contributions to capital, property transfers, or
otherwise, or by the purchase of any property or assets of any other
individual, firm, or corporation other than certain planned
improvements being made to the Bank's Classen and Portland branches;
(9) Enter into any other agreement not in the ordinary and usual
course of business;
(10) Merge or consolidate with any other corporation, acquire any
stock (except in a fiduciary capacity), solicit any offers for any
Bank Stock, or a substantial portion of the assets of any of the
Corporations or, except in the ordinary course of business, acquire
any assets of any other person, corporation, or other business
organization, or enter into any discussions with any person
concerning, or agree to do, any of the foregoing;
(11) Own at the Effective Time any bonds, notes, loans, or other
investment securities of any kind which are not expressly enumerated
in the definition of "Securities Portfolio" in Section 1.1 of this
Agreement; or
(12) Except as permitted or contemplated by this Agreement, enter
into any transaction or take any action which would, if effected
prior to the Effective Time, constitute a material breach of any of
the representations, warranties, or covenants contained in this
Agreement.
b. Except as otherwise provided in this Agreement, prior to the
Effective Time, each Seller shall use its reasonable best efforts to cause
each of the Corporations to conduct its respective business in the ordinary
and usual course as heretofore conducted and to use its reasonable best
efforts (1) to preserve its business and business organization intact, (2)
to keep available to BANK IV the services of the present officers
- 16 -
and employees of the Bank, (3) to preserve the good will of customers and
others having business relations with the Bank, (4) to maintain its
properties in customary repair, working order and condition (reasonable
wear and tear excepted), (5) to comply in all material respects with all
Laws applicable to it and the conduct of its businesses, (6) to keep in
force at not less than their present limits all existing policies of
insurance, (7) to make no material changes in the customary terms and
conditions upon which it does business, (8) to continue its current
practice of selling loans secured by fixed rate mortgages on a
servicing-retained basis, (9) to duly and timely file all reports, tax
returns, and other material documents required to be filed with federal,
state, local and other authorities, and (10) unless it is contesting the
same in good faith and has established reasonable reserves therefor, to pay
when required to be paid all material taxes indicated by tax returns so
filed or otherwise lawfully levied or assessed upon it or any of its
properties and to withhold or collect and pay to the proper governmental
authorities or hold in separate bank accounts for such payment all taxes
and other assessments which it believes in good faith to be required by law
to be so withheld or collected.
c. Prior to the Effective Time, Sellers shall cause the
Corporations, to the extent permitted by Law, to give Fourth and its
counsel and accountants full access, during normal business hours and upon
reasonable notice, to their respective properties, books, and records, and
to furnish Fourth during such period with all such information concerning
their affairs as Fourth may reasonably request. Nothing contained in the
Disclosure Statement shall be deemed adequate to disclose an exception to a
representation or warranty made in this Agreement unless the Disclosure
Statement identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail, and without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made in this Agreement (unless
the representation or warranty has to do with the existence of the document
or other item itself). Except for matters disclosed in the Disclosure
Statement, the availability or actual delivery of information about the
Corporations to Fourth shall not affect the covenants, representations, and
warranties of Sellers contained in
- 17 -
this Agreement. Except for information disclosed in the course of
obtaining Required Approvals, Fourth shall treat as confidential all
confidential information disclosed to it by Sellers or the Corporations in
the same manner as Fourth treats similar confidential information of its
own and, if this Agreement is terminated, Fourth shall continue to treat
all such confidential information obtained through such disclosure and not
otherwise known to Fourth or already in the public domain, as confidential
and shall return such documents theretofore delivered by Sellers to Fourth
as Sellers shall request.
d. Sellers shall cause the Corporations, separately and jointly
with each other and with Fourth, to each use reasonable efforts in good
faith to take or cause to be taken as promptly as practicable all such
steps as shall be necessary to obtain all Required Approvals as promptly as
practicable.
e. Sellers agree not to sell, pledge, encumber, or otherwise
hypothecate or transfer any shares of Bank Stock prior to the Effective
Time.
f. At the Closing, the Bank, as lessee, and ________ and LSB, as
lessors, shall execute and deliver real estate leases substantially in
the form of Exhibits "C" and "D," respectively to this Agreement.
g. Sellers agree to cause the Corporations to cooperate with Fourth
in Fourth's efforts to obtain current title evidence or insurance,
environmental assessment reports, and surveys on such of the Corporations'
real properties as Fourth may desire.
h. Sellers will take, and will cause the Bank to take, all such
corporate action as may be required to authorize, execute, and perform the
Bank Merger Agreement.
- 18 -
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1. Representations and Warranties of Sellers. Except as disclosed in the
-----------------------------------------
Disclosure Statement, Sellers jointly and severally represent and warrant to
Fourth as follows:
a. Organization, Good Standing, and Authority. Each Seller is a
------------------------------------------
savings and loan holding company duly registered pursuant to the federal
Home Owners' Loan Act. Each of the Corporations is a corporation or savings
bank duly organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation, and each has all requisite
corporate power and authority to conduct its business as it is now
conducted, to own its properties and assets, and to lease properties used
in its business. None of the Corporations is in violation of its charter
documents or bylaws, or of any applicable Law in any material respect, or
in default in any material respect under any material agreement, indenture,
lease, or other document to which it is a party or by which it is bound.
The deposits of the Bank are insured by the FDIC to the extent provided by
the Federal Deposit Insurance Act and the Bank has paid all assessments and
filed all reports required to be filed under the Federal Deposit Insurance
Act of which failure to do so would have a material adverse effect upon the
Bank.
b. Binding Obligations; Due Authorization. This Agreement
--------------------------------------
constitutes the valid and binding obligation of each Seller, enforceable
against it in accordance with the terms hereof, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other
similar laws and equitable principles affecting creditors' rights
generally.
c. Absence of Default. The execution and the delivery of this
------------------
Agreement, the sale of the Shares, and the consummation of the other
transactions contemplated hereby, and the fulfillment of the terms hereof
will not (1) conflict with, or result in a breach of the terms, conditions,
or provisions of, or constitute a default under the organizational
documents or bylaws of any of
- 19 -
the Corporations or under any agreement or instrument under which any of
the Corporations or either Seller is obligated, or (2) violate any Law to
which any of the Corporations or any Seller is subject.
d. Subsidiaries. LSB is the owner of all of the issued and
------------
outstanding capital stock of all classes of Prime. The only Subsidiaries of
the Bank are the following:
Name State of Incorporation
---- ----------------------
Northwest Financial Corporation Oklahoma
Northwest Energy Enterprises, Inc. Oklahoma
Credit Card Center, Inc. Oklahoma
Equity Financial Service Corp. Oklahoma
United BankCard, Inc. Oklahoma
Northwest Capital Corporation Oklahoma
e. Capitalization. The Bank is authorized to issue 1,000,000
--------------
shares of capital stock, par value S.01 per share, of which 100,000 shares
are issued and outstanding. Prime is the owner, free and clear of all
encumbrances, liens, security interests, and claims whatsoever, of all
100,000 shares of Bank Stock. The capitalization of each of the Bank's
Subsidiaries excluding the Retained Corporations, is as follows:
Number of Shares
----------------
Name Par Value Issued Outstanding
---- --------- ------ -----------
Credit Card center, Inc. $ 10.00 6,700 5,200
Equity Financial Service
Corp. 1.00 1,000 1,000
United BankCard, Inc. 1,000.00 250 250
f. Charter Documents. True and correct copies of the charter
-----------------
documents and bylaws of each of the Corporations, with all amendments
thereto, are included in the Disclosure Statement as Exhibits "E-1" to
"E-8."
g. Options, Warrants, and Other Rights. None of the Corporations has
-----------------------------------
outstanding any options, warrants, or rights of any kind requiring it to
sell or issue to
- 20 -
anyone any capital stock of any class and none of the Corporations has
agreed to issue or sell any additional shares of its capital stock.
h. Financial Statements. Included in the Disclosure Statement as
--------------------
Exhibits "H-1" through "H-6" are copies of the following financial
statements, all of which are true and complete in all material respects
and have been prepared in all material respects in accordance with GAAP and
all applicable regulatory accounting principles consistently followed
throughout the periods indicated, subject in the case of interim financial
statements, to normal recurring year-end adjustments (the effect of which
will not, individually or in the aggregate, be materially adverse) and the
absence of notes (which if presented would not differ materially from those
included in the most recent year-end financial statements):
(1) Audited Consolidated Financial Statements of the Bank as of
December 31, 1992, and 1991, and for the fiscal years then ended with
auditors' report thereon and notes thereto, which have been examined
by Ernst & Young, independent certified public accountants;
(2) Thrift Financial Reports filed by the Bank with the OTS for
the quarters ended December 31, 1992, March 31, 1993, June 30, 1993,
and September 30, 1993; and
(3) Unaudited financial statements of the Bank as of October 31,
1993 and for the period then ended.
As soon as practicable between the date hereof and the Effective Time,
Sellers will deliver to Fourth copies of monthly operating statements of
the Bank and of all reports filed by any of the Corporations with any
regulatory agencies. The books of account of each of the Corporations and
each of the Financial Statements fairly and correctly reflect and, when
delivered, will reflect in all material respects in accordance with GAAP
and all applicable rules and regulations of regulatory agencies applied on
a consistent basis, the respective financial conditions and results of
operations of each of the Corporations (except for the absence in the
monthly operating statements of the Bank of certain information
- 21 -
and footnotes normally included in financial statements prepared in
accordance with GAAP). There have been, and prior to the Effective Time
there will be, no material adverse changes in the financial condition of
the Bank from December 31, 1992, other than changes made in the usual and
ordinary conduct of the businesses of the Corporations, none of which has
been or will be materially adverse and all of which have been or will be
recorded in the books of account of the Corporations; and except as
specifically permitted by this Agreement, there have been, and prior to the
Effective Time there will be, no substantial adverse changes in the
respective businesses, assets, properties, or liabilities, absolute or
contingent, of any of the Corporations, or in their respective condition,
financial or otherwise, from the date of the most recent of the Financial
Statements that has been delivered to Fourth on the date hereof other than
changes occurring in the usual and ordinary conduct of the business of the
Corporations, none of which has been or will be materially adverse and all
of which have been or will be recorded in the respective books of account
of the Corporations. None of the Corporations has any contingent
liabilities, other than letters of credit and similar obligations of the
Bank incurred in the ordinary course of business, that are not described in
or reserved against in the Financial Statements listed above.
i. Real Properties. Exhibit "I" to the Disclosure Statement
---------------
is a complete list of all real estate owned or leased by any of the
Corporations. Each Corporation has good and marketable title in fee simple
to all lands and buildings described in the Disclosure Statement as being
owned by it, free and clear of all liens, encumbrances, and charges, except
for Permitted Encumbrances. All leases of real property to which any of the
Corporations is a party as lessee, complete copies of each of which with
all amendments thereto are included in Exhibit "I" to the Disclosure
Statement, are each valid and enforceable in accordance with their
respective terms except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar Laws and
equitable principles affecting creditors' rights generally, and there has
been no material default by any party thereto. No zoning ordinance
prohibits, interferes with, or materially impairs the usefulness of any of
the Facilities owned or used by any Corporation for the purposes for which
it is now being used; and all the
- 22 -
Facilities owned or leased by any of the Corporations are in good operating
condition and repair, normal wear and tear excepted.
j. Personal Property. Each of the Corporations has good and
-----------------
marketable title to all of the machinery, equipment, materials, supplies,
and other property of every kind, tangible or intangible, contained in its
offices and other facilities or shown as assets in its records and books of
account, free and clear of all liens, encumbrances, and charges. All leases
of personal property to which any of the Corporations is a party as lessee
are valid and enforceable in accordance with their terms, and there has
been no material default by any party thereto. The material items of
personal property owned or leased by any of the Corporations are generally
in good operating condition, normal wear and tear excepted.
k. Taxes. LSB, Prime, the Bank, the Corporations, and the
-----
Retained Corporations are members of the same "affiliated group" (the
"Group"), as defined in Section 1504(a)(1) of the Code. Each member of the
Group has filed or caused to be filed, or a filing was made on its behalf,
all tax returns and reports required to have been filed by or for it, and
all material information set forth in such returns or reports is accurate
and complete. Each member of the Group has paid or made adequate provision
for all taxes, additions to tax, penalties, and interest for all periods
covered by those returns or reports. There are no material unpaid taxes,
additions to tax, penalties, or interest due and payable by any member of
the Group, except for taxes and any such related liabilities being
contested in good faith and disclosed in Exhibit "K" to the Disclosure
Statement. Each member of the Group has collected or withheld all amounts
required to be collected or withheld by it for any taxes, and all such
amounts have been paid to the appropriate governmental agencies or set
aside in appropriate accounts for future payment when due. Each member of
the Group is in material compliance with, and its records contain all
information and documents (including, without limitation, IRS Forms W-9)
necessary to comply in all material respects with applicable information
reporting and tax withholding requirements under federal, state, and local
laws, rules, and regulations, and such records identify with specificity
- 23 -
all accounts subject to backup withholding. The Financial Statements
fully and properly reflect, as of the dates thereof, the accrued taxes,
additions to tax, penalties, and interest. No extension of time for the
assessment of deficiencies for any years is in effect. No member of the
Group has any knowledge of any unassessed tax deficiency proposed or
threatened against any of them.
1. Contracts. Other than Permitted Contracts and agreements with
---------
customers of the Bank and with financial institutions entered into by the
Bank in the ordinary course of its banking business, attached to the
Disclosure Statement as Exhibit "L" is a list of all material contracts and
other agreements and arrangements, both written and oral, to which Bank or
any of the other Corporations is a party and which involve $10,000 or more,
which affect or pertain to the operation of their respective businesses. To
the knowledge of Sellers, all parties thereto have in all material respects
performed, and are in good standing with respect to, all the material
obligations required to be performed under all such contracts and other
agreements and arrangements, and no obligation with respect thereto is
overdue. All of the material agreements of the Corporations, including
without limitation the agreements disclosed in writing pursuant to this
clause (1), are valid, binding, and enforceable in accordance with their
terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws and equitable principles
affecting creditors' rights generally. Except as otherwise noted in Exhibit
"L" to the Disclosure Statement, no material contract, lease, or other
agreement or arrangement to which either Bank or one of the other
Corporations is a party or as to which any of their assets is subject
requires the consent of any third party in connection with this Agreement.
Except as described in Exhibit "L" to the Disclosure Statement, neither any
Corporation nor any Seller has any knowledge of any threatened cancellation
of, any outstanding disputes or default under, or of any basis for any
claim of breach or default of, any material lease, contract, or other
agreement or arrangement to which any of the Corporations is a party.
Except for Permitted Contracts and except as set forth in Exhibit "L" to
the Disclosure Statement, neither the Bank nor any of the other
Corporations is a party to:
- 24 -
(1) Any contract for the purchase or sale of any materials, or
supplies which contains any escalator, renegotiation, or
redetermination clause or which commits it for a fixed term;
(2) Any contract of employment with any officer or employee not
terminable at will without liability on account of such termination;
(3) Any management or consultation agreement not terminable at
will without liability on account of such termination;
(4) Any license, royalty, or union agreement, or loan agreement
in which any of the Corporations is the borrower;
(5) Any contract, accepted order, or commitment for the purchase
or sale of materials, services, or supplies having a total remaining
contract price in excess of $10,000;
(6) Any contract containing any restrictions on any party thereto
competing with the Bank, any of the other Corporations, or any other
person;
(7) Any other agreement which materially affects the business,
properties, or assets of either Bank or one of the other
Corporations, or which was entered into other than in the ordinary
and usual course of business; or
(8) Any letter of credit or commitment to make any loan or group
of loans to related parties in an amount in excess of $500,000.
None of LSB, Prime, or any of the Corporations has any knowledge based upon
which it has formed a conclusion that a material loss is reasonably
anticipated with respect to any of the agreements described in clause "1."
m. Labor Relations; Employees; ERISA. None of the Corporations is a
---------------------------------
party to or affected by any collective bargaining agreement, nor is any
Corporation a party to any pending or, to the knowledge of Sellers,
threatened labor dispute, organizational efforts, or labor negotiations.
Each of the Corporations has
- 25 -
complied in all material respects with all applicable Laws relating to the
employment of labor, including, but not limited to, the provisions thereof
relating to wages, hours, collective bargaining, payment of social security
taxes, and equal employment opportunity, the violation of which would have
a materially adverse impact on their respective businesses. None of the
Corporations is liable for any arrears of wages or any taxes or penalties
for failure to comply with any of the foregoing in an amount which would
have a material adverse effect on the Bank or any of the Corporations. None
of the Corporations has any written or oral retirement, pension, profit
sharing, stock option, bonus, or other employee benefit plan or practice
other than group health and accident insurance. None of the Corporations
has violated any of the provisions of ERISA, and none of them has engaged
in any "prohibited transactions" as such term is defined in Section 406 of
ERLSA in an amount which would have a material adverse effect on the Bank
or the Corporations. There is no employee of any of the Corporations whose
employment is governed by a written or oral employment agreement for a
specific term of employment.
n. Government Authorizations. Each of the Corporations has all
-------------------------
permits, charters, licenses, orders, and approvals of every federal, state,
local, or foreign governmental or regulatory body required in order to
permit it to carry on its business substantially as presently conducted
except where the absence thereof would not have a material adverse effect
on the Bank or the affected Corporation. All such licenses, permits,
charters, orders, and approvals are in full force and effect, and, to the
knowledge of the Corporations and Seller, no suspension or cancellation of
any of them is threatened and none of the Corporations knows of any fact or
circumstance that will materially interfere with or materially adversely
affect the renewal of any of such licenses, permits, charters, orders, or
approvals; and none of such permits, charters, licenses, orders, and
approvals will be affected by the consummation of the transactions
contemplated by this Agreement.
o. Insurance. Exhibit "O" to the Disclosure Statement is a complete
---------
list of all insurance policies presently in effect and in effect during the
past three years. All the insurance policies and bonds currently
- 26 -
maintained by any of the Corporations are in full force and effect.
p. Litigation. Exhibit "P" to the Disclosure Statement contains a
----------
true and complete list and brief description of all pending or, to the
knowledge of any of the Corporations or any Seller, threatened, Litigation
to which any of the Corporations is or would be a party or to which any of
their assets is or would be subject. Except as described on Exhibit "P" to
the Disclosure Statement, none of the Corporations is a party to any
Litigation other than routine litigation commenced by the Bank to enforce
obligations of borrowers in which no counterclaims for any material amounts
of money have been asserted or, to the knowledge of the Corporations or any
Seller, threatened.
q. Brokers or Finders. Except for an agreement with Lazard Freres &
------------------
Co., whose fee will be paid by LSB, no broker, agent, finder, consultant,
or other party (other than legal and accounting advisors) has been retained
by either of the Sellers or any of the Corporations or is entitled to be
paid based upon any agreements, arrangements, or understandings made by
either of the Sellers or any of the Corporations in connection with any of
the transactions contemplated by this Agreement.
r. Environmental Compliance. To Sellers' knowledge, each of the
------------------------
Corporations is in material compliance with all relevant Environmental Laws
and none of the Corporations has any material Environmental Liabilities.
None of the Facilities is now being used or, to the best of either Seller's
knowledge, has at any time in the past ever been used for the storage
(whether permanent or temporary), by any of the Corporations, or to the
knowledge of either Seller, by third parties, disposal, or handling of any
Hazardous Materials, nor are any Hazardous Materials located in, on, under,
or at any of the Facilities. No Corporation has received any notice of
material violation of any Environmental Law, or any notice of any material
potential Environmental Liabilities with respect to any of the Facilities
or to any other properties and assets in which any Corporation has had an
interest.
- 27 -
s. Employment of Aliens. Each Corporation is in material compliance
--------------------
with the Immigration and Control Act of 1986.
t. Notes and Leases. All promissory notes and leases owned by the
----------------
Bank or any other Corporation at the Effective Time will represent bona
fide indebtedness or obligations to the Bank and are and will be fully
enforceable in accordance with their terms without valid set-offs or
counterclaims, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar Laws and equitable principles
affecting creditors' rights generally; provided, however, no representation
-------- -------
or warranty is made in this Agreement as to the collectibility of such
notes and leases.
u. Updating of Representations and Warranties. Between the date
------------------------------------------
hereof and the Effective Time, Sellers will promptly disclose to Fourth in
writing any information of which either of them has actual knowledge (1)
concerning any event that would render any representation or warranty of
Sellers untrue if made as to the date of such event, (2) which renders any
information set forth in this Agreement or the Disclosure Statement no
longer correct in all material respects, or (3) which arises after the date
hereof and which would have been required to be included in this Agreement
or Disclosure Statement if such information had existed on the date hereof.
v. True at Effective Time. Except as otherwise specifically provided
-----------------------
in this Agreement, all of the representations and warranties of Sellers set
forth above will be true and correct at the Effective Time with the same
force and effect as though such representations and warranties had been
made at the Effective Time.
4.2. Representations and Warranties of Fourth. Fourth represents and
----------------------------------------
warrants to Sellers as follows:
a. Organization, Good Standing, and Authority. Fourth is a
------------------------------------------
corporation duly organized, validly existing, and in good standing under
the laws of the State of Kansas, and has all requisite corporate power and
- 28 -
authority to conduct its business as it is now conducted, to own its
properties and assets, and to lease properties used in its business. Fourth
is not in violation of its charter documents or bylaws, or of any
applicable Law in any material respect, or in default in any material
respect under any material agreement, indenture, lease, or other document
to which it is a party or by which it is bound.
b. Binding Obligations; Due Authorization. This Agreement
--------------------------------------
constitutes the valid and binding obligations of Fourth, enforceable
against it in accordance with its terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
and equitable principles affecting creditors' rights generally. The
execution, delivery, and performance of this Agreement and the transactions
contemplated hereby have been duly authorized by the board of directors of
Fourth.
c. Absence of Default. None of the execution or the delivery of this
------------------
Agreement, the consummation of the transactions contemplated hereby, or the
fulfillment of the terms hereof, will (1) conflict with, or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under the charter documents or bylaws of Fourth or under any agreement or
instrument under which Fourth is obligated, or (2) violate any Law to which
it is subject.
d. Brokers or Finders. No broker, agent, finder, consultant, or
------------------
other party (other than legal and accounting advisors) has been retained by
Fourth or is entitled to be paid based upon any agreements, arrangements,
or understandings made by Fourth in connection with any of the transactions
contemplated by this Agreement.
e. Required Approvals. Fourth knows of no reason that would
------------------
preclude obtaining the Required Approvals in a timely manner, but various
persons have the right to object to the granting of Required Approvals and
the various governmental agencies involved can be expected to conduct
various types of economic and other
- 29 -
analysis, any one of which may cause a delay or denial of a requested
approval.
f. Capitalization of the Bank. Fourth will contribute such
--------------------------
additional capital to BANK IV as may be necessary in order for BANK IV to
be well capitalized following consummation of the Purchase, the Merger, and
the other transactions contemplated or permitted by this Agreement. Fourth
has sufficient capital resources to be able to make such additional capital
contribution and to perform its obligations under this Agreement.
ARTICLE V
CLOSING CONDITIONS
5.1. Conditions to Obligations of Fourth. The obligations of Fourth to
-----------------------------------
purchase the Shares shall be subject to the following conditions which may, to
the extent permitted by Law, be waived by Fourth at its option:
a. Absence of Litigation. No order, judgment, or decree shall be
---------------------
outstanding restraining or enjoining consummation of the purchase of the
Shares, the Merger, or any of the other transactions permitted or
contemplated by this Agreement; and no Litigation shall be pending or
threatened in which it is sought to restrain or prohibit the purchase of
the Shares, the Merger, or any of the other transactions permitted or
contemplated by this Agreement or to obtain other substantial monetary or
other relief against one or more of the parties hereto in connection with
this Agreement.
b. Regulatory Approvals. All Required Approvals shall have been
--------------------
procured (and shall continue to be in effect) and all other requirements
prescribed by Law shall have been satisfied.
c. Minimum Tangible Book Value of Bank. The Tangible Book Value of
-----------------------------------
the Bank as of the Effective Time, without taking into account any
restructuring charges described in Section 2.3(b) of this Agreement, shall
be not less than $41,000,000. Such amount shall be
- 30 -
substantiated by the total consolidated stockholder's equity of the Bank as
reflected in the books of record and balance sheets of the Bank. The
unaudited balance sheet of the Bank as of the most recent practical date
but not earlier than the end of the month immediately preceding the
Effective Time shall be reviewed by Ernst & Young in accordance with the
statement standards for accounting and review services of the American
Institute of Certified Public Accountants and the review report of such
accounting firm, addressed to Fourth, shall accompany said balance sheet
and shall expressly state that such report may be relied upon by Fourth.
d. Opinion of Counsel. Fourth shall have received the opinion of
------------------
Housley Goldberg & Kantarian, P.C., counsel to the Corporations and
Sellers, substantially in the form of Exhibit "A" hereto.
e. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of the Sellers contained in this Agreement shall have been
true and correct in all material respects on the date made and shall be
true and correct in all material respects at the Effective Time as though
made at such time, excepting any changes occurring in the ordinary course
of business, none of which shall have been materially adverse, and
excepting any changes contemplated or permitted by this Agreement. Sellers
shall have performed all of their obligations under this Agreement.
f. Certificates. Sellers shall have delivered to Fourth a
------------
certificate, in form and substance satisfactory to Fourth, dated the
Effective Time and signed by the chief executive officer and chief
financial officer of each of the Corporations, certifying in such detail as
Fourth may reasonably request the fulfillment of the foregoing conditions.
g. Resignations. Sellers shall have delivered to Fourth the written
------------
resignations, effective at the Effective Time, of those officers and
directors of the Bank and the other Corporations as Fourth shall have
requested at least two business days prior to the Effective Time.
- 31 -
h. 1993 Audit Report. Seller shall have delivered to Fourth a copy
-----------------
of the Bank's audited consolidated Financial Statements as of December 31,
1993 and for the year then ended, with auditor's report thereon and notes
thereto.
i. Lease of Equity Tower and Portland Building. The Bank shall have
-------------------------------------------
entered into leases as lessee of the Equity Tower and the Portland
Building, substantially in the form of Exhibits "C" and "D" hereto,
respectively.
j. Satisfactory Environmental Reports. Fourth shall have received
----------------------------------
environmental assessment reports covering all of the Facilities, in form
and substance reasonably satisfactory to Fourth, which do not cause Fourth
reasonably to conclude that there are any material Environmental
Liabilities associated with any of the Facilities.
5.2. Conditions to Obligations of Sellers. The obligation of Sellers to
------------------------------------
sell the Shares and to consummate the transactions contemplated hereby shall be
subject to the following conditions which may, to the extent permitted by Law,
be jointly waived by Sellers at their option:
a. General. Each of the conditions specified in clauses a and b of
-------
Section 5.1 shall have occurred and be continuing.
b. Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of Fourth contained in this Agreement shall have been true
and correct in all material respects on the date made and shall be true and
correct in all material respects at the Effective Time as though made at
such time. Fourth shall have duly performed all of its obligations under
this Agreement.
c. Minimum Purchase Price. The Purchase Price shall be not less than
----------------------
$92,000,000, which minimum amount shall be reduced by the amount of the
option price described in Section 7.5 if such option has been exercised by
Sellers.
- 32 -
d. Fairness Opinion. LSB shall have received by January 31, 1994,
----------------
a written opinion from Lazard Freres & Co. to the effect that the Purchase
Price is fair to Sellers from a financial point of view.
e. Opinion of Counsel. Sellers shall have received the opinion of
------------------
Foulston & Siefkin, counsel to Fourth, substantially in the form of Exhibit
"B" hereto.
f. Certificates. Fourth shall have delivered to Sellers a
------------
certificate, in form and substance reasonably satisfactory to Sellers,
dated the Effective time and signed by the chief executive officer and
chief financial officer of Fourth, certifying in such detail as Sellers may
reasonably request, the accuracy of the representations and warranties
and the fulfillment of the covenants of Fourth hereunder.
g. LSB's Stockholder Approval. The stockholders of LSB shall have
--------------------------
approved this Agreement and the Purchase.
h. Change in Treasury regulations. The United States Department of
------------------------------
the Treasury shall not have finally adopted the proposed changes to the
Treasury Regulations, at Sec. 1.1502-33 ( 56FR47379, Sept. 19. 1993,
revised 57FR53550, Nov. 12, 1992, revised, 57FR62251, Dec. 30, 1992), nor
shall have any other change in the Law occurred with the effect, in the
reasonable judgment of Sellers based upon the advice of their tax advisors,
that the tax basis of LSB or Prime in the Bank Stock shall be significantly
reduced.
i. Conveyance of Retained Corporations and Retained Assets. On or
-------------------------------------------------------
before the Effective Time, all of the Retained Assets and all of the Bank's
interests in the Retained Corporations shall have been transferred to
Sellers or their designee or designees as provided in this Agreement.
- 33 -
ARTICLE VI
TERMINATION OF AGREEMENT
6.1. Mutual Consent; Termination Date. This Agreement shall
--------------------------------
terminate at any time when the parties hereto mutually agree in writing. This
Agreement may also be terminated at the election of either Sellers (acting
jointly) or Fourth, upon written notice from the party electing to terminate
this Agreement to the other party if, without fault on the part of the party
electing to terminate this Agreement, there has been a denial of a Required
Approval or the imposition of one or more terms (not including a requirement to
divest a single branch of the Bank not located in Oklahoma City) reasonably
deemed onerous by Fourth or Sellers as a condition to obtaining a Regulatory
Approval. Unless extended by written agreement of the parties, this Agreement
shall terminate if all conditions to the obligations of the parties hereto have
not occurred on or before June 30, 1994.
6.2. Election by Fourth. This Agreement shall terminate at
------------------
Fourth's election, upon written notice from Fourth to Sellers if any one or more
of the following events shall occur and shall not have been remedied to the
satisfaction of Fourth within 30 days after written notice is delivered to
Seller: (a) there shall have been any uncured material breach of any of the
obligations, covenants, or warranties of the Sellers hereunder; or (b) there
shall have been any written representation or statement furnished by the Sellers
hereunder which at the time furnished is false or misleading in any material
respect in relation to the size and scope of the transactions contemplated by
this Agreement.
6.3 Election by Sellers. This Agreement shall terminate at the
-------------------
election of Sellers (acting jointly) upon written notice from Sellers to Fourth
if any one or more of the following events shall occur and shall not have been
remedied to its satisfaction within 30 days after written notice is delivered to
Fourth: (a) there shall have been any uncured material breach of any of the
obligations, covenants, or warranties of Fourth hereunder; or (b) there shall
have been any written representation or statement furnished by Fourth hereunder
which at the time furnished is false or misleading in any material respect in
relation to the size and scope of the transactions contemplated by this
Agreement.
- 34 -
ARTICLE VII
INDEMNIFICATION
7.1. Effect of Closing. Except as provided in this Section, closing
-----------------
of the transactions contemplated by this Agreement shall not prejudice any claim
for damages which any of the parties hereto may have hereunder in law or in
equity, due to an uncured material default in observance or the due and timely
performance of any of the covenants and agreements herein contained or for the
material breach of any warranty or representation hereunder, unless such
observance, performance, warranty, or representation is specifically waived in
writing by the party making such claim. If any warranty or representation
contained herein is or becomes untrue or breached in any material respect (other
than by reason of any willful misrepresentation or breach of warranty) and such
breach or misrepresentation is promptly communicated to the other parties in
writing prior to the Effective Time, such non-breaching parties shall have the
right (jointly in the case of Sellers), at their sole option, either to waive
such misrepresentation or breach in writing or to terminate this Agreement, but
in either such event, the breaching parties shall not be liable to the other
parties for any such damages, costs, expenses, or otherwise by reason of such
breach or misrepresentation. If such non-breaching parties elect to close the
transactions contemplated by this Agreement notwithstanding the written
communication of such breach or misrepresentation, they shall be deemed to have
waived such breach or misrepresentation in writing. Similarly, if Fourth
receives an environmental assessment report on the Facilities pursuant to
Section 5.1(j) indicating the existence of any Environmental Liability and
elects to close the transactions contemplated by this Agreement, it shall be
deemed to have waived all right to indemnification with respect thereto.
7.2. General Indemnification. Subject to the limitations on the
-----------------------
liability of Sellers contained in Section 7.1 and this Section 7.2, Sellers
shall be jointly and severally liable for, and shall defend, save, indemnify,
and hold harmless Fourth, BANK IV, the Corporations, and their respective
successors, officers, directors, employees, and agents, and each of them
(hereinafter individually referred to as an "Indemnitee" and collectively as
"Indemnitees") against and with respect to any losses, liabilities, claims,
diminution in value, litigation, demands, damages, costs, charges, reasonable
legal fees, suits, actions, proceedings, judgments, expenses, or any other
losses (herein collectively referred to as "Indemnifying Losses") that may be
sustained, suffered, or incurred by, or obtained against, any
- 35 -
Indemnitee arising from or by reason of the material uncured breach or
nonfulfillment of any of the warranties, agreements, or representations made by
the Sellers, in this Agreement; provided, however that the liability of Sellers
-------- -------
to defend, save, indemnify, and hold harmless any of the Indemnities for any
liabilities, claims, or demands indemnified under this Section 7.2 (but not
under Section 7.5 or 7.6) or any damages, costs, charges, reasonable legal fees,
suits, actions, proceedings, or judgments received, incurred, filed, or entered
thereon, shall be limited to the amount by which all such liabilities, claims,
and demands so discovered or made, and all damages, costs, charges, reasonable
legal fees, suits, actions, proceedings, judgments, expenses, and other losses
recovered, incurred, filed, or entered thereon or in connection therewith,
exceed $1,000,000 in the aggregate, net of income tax effect and such liability
shall not exceed $25,000,000. Indemnities shall be obligated to exhaust all
reasonably available remedies as a condition to being indemnified hereunder but
not as a condition to giving notice pursuant to Sections 7.3 and 7.4. It is
agreed that the indemnification obligations of Sellers hereunder shall be solely
for the benefit of the Indemnities and may not be enforced by any insurer under
any subrogation or similar agreement or arrangement or by any governmental
agency except as a receiver for an Indemnitee.
7.3. Procedure. If any claim or demand shall be made or liability
---------
asserted against any Indemnitee, or if any Litigation, suit, action, or
administrative or legal proceedings shall be instituted or commenced in which
any Indemnitee is involved or shall be named as a defendant either individually
or with others, and if such Litigation, claim, demand, liability, suit, action,
or proceeding, if successfully maintained, will result in any Indemnifying
Losses as defined in Section 7.2, Fourth shall give Sellers written notice
thereof as soon as practicable but within 20 days (ten days in the case of legal
process) after it acquires knowledge thereof. If the Indemnifying Loss arises
otherwise, Fourth shall give notice to Sellers within 20 days of the discovery
of the basis therefor. If, within 20 days after the giving of such notice,
Fourth receives written notice from Sellers stating that Sellers dispute or
intend to defend against or prosecute, as the case may be, such claim, demand,
liability, suit, action, or proceeding, then Sellers shall have the joint right
to select counsel of their choice and to dispute or defend against, prosecute,
or settle such claim at their expense, and the Indemnities shall fully cooperate
with Sellers in such dispute, prosecution, defense or settlement so long as
Sellers are conducting such dispute, defense, or prosecution diligently and in
good faith. If no such notice of intent to dispute or defend is received by
Fourth within the aforesaid 20-day period, of if such
- 36 -
diligent and good faith defense is not being, or ceases to be, conducted, Fourth
shall have the right, directly or through one or more of the Indemnitees, to
dispute and defend against the claim, demand, or other liability at the cost and
expense of Sellers, to settle such claim, demand, or other liability, together
with interest or late charges thereon, and in either event to be indemnified as
provided in this Agreement so long as Fourth conducts such defense diligently
and in good faith. If any event shall occur that would entitle Indemnitees to a
right of indemnification hereunder, any loss, damage, or expense subject to
indemnification shall be the after-tax net loss to the Indemnitees (in excess of
$1,000,000 but not to exceed $25,000,000, as provided in the preceding section)
after due allowance for the income tax effect, if any, of amounts to be received
by the Indemnitees hereunder, insurance, or offsetting income or assets
resulting therefrom.
7.4. Survival of Representations and Warranties. Notwithstanding any
------------------------------------------
rule of law or provision of this Agreement to the contrary, the representations
and warranties of Seller contained in this Agreement shall survive the Closing
and the Purchase and the closing of the transactions described in this
Agreement; provided, however, that (except for the indemnification obligations
-------- -------
contained in Sections 7.6 hereof, as to which there shall be no time limit) no
claim for indemnification or breach of warranty under this Agreement shall be
valid unless an Indemnitee shall have given written notice of its assertion or
claim to Seller:
(a) within three years from the Effective Time in the case of a
claim for breach of any representation or warranty contained in Section
4.1.k of this Agreement;
(b) by the earlier of October 31, 1998 or 30 days after the date on
which the Internal Revenue Service completes its examination of Fourth's
1994 federal income tax return and gives Fourth written notice of any
proposed adjustments (excluding any periods for which LSB shall have agreed
to a tolling of any limitation period applicable to the assertion against
LSB or any member of the Group described in Section 4.1.k of any deficiency
by the Internal Revenue Service) in the case of a claim under Section 7.5
of this Agreement; and
(c) within two years of the Effective Time in all other cases.
- 37 -
7.5. Special Indemnification. Separate and apart from the indemnification
-----------------------
provisions in the preceding sections of this Article and not subject to the
deductibility and maximum liability provisions contained in Section 7.2, Sellers
jointly and severaly agree to indemnify BANK IV and Fourth from any reduction in
the aggregate amount of the Bank's net operating loss for federal income tax
purposes, below $64,000,000; provided, however, that such reduction results
solely from a reduction required by final action of the Internal Revenue Service
and made retroactive to the period prior to the Effective Time. The payment to
be made by Sellers shall be equal to the product of (a) the dollar amount of the
reduction required, and (b) a fraction, the numerator of which shall be
$10,500,000, and the denominator of which shall be $64,000,000. However, to the
extent that an adjustment merely postpones the related tax benefit to BANK IV or
Fourth to a later, reasonably ascertainable period, then such adjustment shall
not be subject to this special indemnification.
(b) If there is an audit or similar inquiry of the Internal Revenue
Service of any tax return which may have the effect of reducing the Bank's net
operating loss as of or for a period prior to the Closing, all parties to this
Agreement shall cooperate with each other as to the determination of the
adjustments under such audit, shall make available to each other as may
reasonably be requested all information, records, and documents until the
expiration of any applicable statute of limitations or extensions thereof.
7.6. Separate Indemnification for Environmental Matters.
---------------------------------------------------
(a) Separate and apart from the indemnification provided in the
preceding sections of this Article VII, and not subject to the $1,000,000
deductibility and $25,000,000 maximum liability provisions contained in
Section 7.2, Sellers shall be jointly and severally liable for, and shall
forever defend, save, indemnify, and hold harmless Fourth, Bank, and BANK
IV from and against, any and all Environmental Liabilities that may be
incurred or sustained by, or rendered against Fourth, Bank, or BANK IV
arising in any manner out of the direct or indirect ownership or operation
at any time by the Bank or by any of its current or former Subsidiaries of
any current or former Non-Bank Facility (as hereinafter defined). "Non-Bank
Facility" means any interest in real property, building, plant, structure,
or equipment which is not either (i) currently or formerly owned or
operated
- 38 -
by the Bank in the ordinary course of its banking business as a banking
facility, (ii) the Equity Tower, (iii) the Portland Building, or (iv) an
OREO Property.
(b) Sellers shall have the right and option, exercisable at any time
prior to the business day next preceding the Effective Time, by giving
written notice to Fourth, to elect to have the Purchase Price reduced by
$750,000 in consideration of the termination of Section 7.6(a) of this
Agreement, in which event the provisions of Section 7.6(a) shall thereupon
be of no further force and effect.
7.7. Director and Officer Indemnification. From and after the Effective
------------------------------------
Time, Fourth shall indemnify, defend, and hold harmless each person who is now,
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, an officer, director, or employee of any of the Corporations
(the "Bank Indemnified Parties") against all losses, claims, damages, costs,
expenses (including attorney's fees), liabilities, or judgments or amounts that
are paid in settlement (which settlement shall require the prior written consent
of Fourth, which consent shall not be unreasonably withheld) of or in connection
with any claim, action, suit, proceeding, or investigation (each a "Claim") in
which a Bank Indemnified Party is, or is threatened to be made, a party based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer, or employee of a Corporation if such Claim
pertains to any matter or fact arising, existing, or occurring prior to the
Effective Time (but excluding the transactions expressly contemplated by this
Agreement), regardless of whether such Claim is asserted or claimed prior to, or
at or after, the Effective Time (the "Indemnified Liabilities") to the full
extent required under applicable law in effect as of the date hereof or as
amended applicable to a time prior to the Effective Time or as required under
the Bank's charter and bylaws (and Fourth shall pay expenses in advance of the
final disposition of any such action or proceeding to each Bank Indemnified
Party to the full extent permitted by applicable law in effect as of the date
hereof or as amended applicable to a time prior to the Effective Time upon
receipt of any undertaking required by applicable law). Any Bank Indemnified
Party wishing to claim indemnification under this Section 7.7 upon learning of
any Claim, shall notify Fourth (but the failure so to notify Fourth shall not
relieve Fourth from any liability which it may have under this Section 7.7
except to the extent such failure materially prejudices Fourth) and shall
deliver to Fourth copies of all demand letters, notices, summonses, pleadings,
and other documents which
- 39 -
such party may have received relating to such Claim. The obligations of Fourth
described in this Section 7.7 continue in full force and effect, without any
amendment thereto, for a period of three years from the Effective Time;
provided, however, that all rights to indemnification in respect of any Claim
asserted or made within such period shall continue until the final disposition
of such Claim.
ARTICLE VIII
MISCELLANEOUS
8.1. Expenses. Whether or not the Purchase is effected and whether or not
--------
this Agreement is terminated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
8.2. Notices. All notices or other communications required or permitted
-------
hereunder shall be sufficiently given if personally delivered or if sent by
certified or registered mail, postage prepaid, return receipt requested,
addressed as follows: (a) If to Fourth, addressed to Ronald L. Baldwin,
Executive Vice President, Post Office Box 2360, Tulsa, Oklahoma 74101-2360; and
(b) if to the Seller, addressed to Tony M. Shelby, Senior Vice President, Post
Office Box 754, 16 South Pennsylvania, Oklahoma City, Oklahoma 73107, or to such
other person or such other address as shall have been furnished in writing in
the manner provided herein for giving notice.
8.3. Time. Time is of the essence of this Agreement.
----
8.4. Law Governing. This Agreement shall, except to the extent federal law
-------------
is applicable, be construed in accordance with and governed by the laws of the
State of Kansas, without regard to the principles of conflicts of laws thereof.
8.5. Entire Agreement; Amendment. This Agreement contains and
---------------------------
incorporates the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior negotiations,
agreements, letters of intent, and understandings. This Agreement may only be
amended by an instrument in writing duly executed by Fourth and Sellers and all
- 40 -
attempted oral waivers, modifications, and amendments shall be ineffective.
8.6. Successors and Assigns. The rights and obligations of the parties
----------------------
hereto shall inure to the benefit of and shall be binding upon the successors
and permitted assigns of each of them; provided, however, that this Agreement or
-------- -------
any of the rights, interests, or obligations hereunder may not be assigned by
any of the parties hereto without the prior written consent of the other parties
hereto.
8.7. Cover, Table of Contents, and Headings. The cover, table of
--------------------------------------
contents, and the headings of the sections and subsections of this Agreement are
for convenience of reference only and shall not be deemed to be a part hereof or
thereof or taken into account in construing this Agreement.
8.8. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but which together shall
constitute but one agreement.
8.9. No Third Party Beneficiaries. Except as specifically provided
----------------------------
herein, nothing in this Agreement shall entitle any person other than Sellers
and Fourth to any claim, cause of action, remedy, or right of any kind.
8.10. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
- 41 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed.
FOURTH FINANCIAL CORPORATION
By
-------------------------------------
Darrell G. Knudson,
Chairman of the Board
"Fourth"
PRIME FINANCIAL CORPORATION LSB INDUSTRIES, INC.
By By
------------------------- -----------------------
"Prime" "LSB"
"Sellers"
- 42 -
Draft of January 20, 1994
Form of Opinion
EXHIBIT "B"
January __, 1994
The Board of Directors
LSB Industries, Inc.
16 South Pennsylvania Avenue
Oklahoma City, Oklahoma 73107
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to LSB Industries, Inc. ("LSB") of the consideration to be received in
connection with the proposed purchase (the "Stock Purchase") by Fourth Financial
Corporation ("Fourth") of Equity Bank for Savings, F.A. (the "Bank"), after
giving effect to the purchase by LSB from the Bank of a mortgage loan secured by
the Equity Tower building and certain other assets (the "Retained Assets") and
certain special purpose subsidiaries (the "Retained Corporations"), pursuant to
the Stock Purchase Agreement dated as of January ___, 1994 (the "Agreement"),
among LSB and its wholly-owned subsidiary, Prime Financial Corporation
("Prime"), as sellers, and Fourth, as purchaser. As set forth more fully in the
Agreement, Fourth will purchase all of the issued and outstanding shares of
capital stock of the Bank from Prime for a purchase price (the "Purchase
Price"), calculated as provided in the Agreement, of approximately $92 million
in cash, subject to certain adjustments to reflect changes in the Bank's
consolidated statement of condition between the date hereof and the closing
date. LSB shall have no obligation to consummate the Agreement if the Purchase
Price is determined to be less than $92 million.
As an investment banker, we are continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
underwritings, distributions of securities and similar activities. We have
acted as financial advisor to LSB in connection with the Stock Purchase. In
connection therewith, we have been paid a fee of $75,000 and will be paid an
additional fee for our services as financial advisor which is contingent upon
the consummation of the Stock Purchase. In the course of our activities, we
have provided investment banking services to LSB from time to time, including
acting as managing underwriter of LSB's public offering of $3.25 Convertible
Exchangeable Class C Preferred Stock, Series 2 on May 19, 1993. We may, in the
ordinary course of our business, trade securities of LSB for
The Board of Directors
January __, 1994
Page 2
our own account or for the accounts of our customers and, thus,
may hold long or short positions in such securities at any time.
In connection with this opinion, we have reviewed, among other things, LSB's
Proxy Statement, dated February ___, 1994, relating to the Stock
Purchase; the Agreement; audited consolidated financial statements of the Bank
for the three years ended December 31, 1992; and certain financial and other
information regarding the Bank, including financial forecasts for the Bank,
which were furnished to us by LSB and the Bank or were publicly available. We
have held discussions with members of the senior management of the Bank with
respect to its past and current business operations and financial condition,
regulatory relationships and future prospects. We also have held discussions
with the independent auditors of the Bank regarding its financial and accounting
affairs. In addition, we have compared certain financial and stock market
information for the Bank with similar information for other companies the
securities of which are publicly traded, and reviewed the financial terms of
certain recent merger and acquisition transactions involving savings
institutions specifically and in other industries generally and performed such
other studies and analyses as we considered appropriate.
We have relied, without independent verification, upon the
accuracy and completeness of all of the financial and other information reviewed
by us for purposes of this opinion, and have not attempted independently to
verify any of such information. In that regard, we have not conducted a
physical inspection of any of the properties or assets of the Bank, nor have we
made or obtained any independent evaluation or appraisals of any properties,
assets or liabilities of the Bank. In addition ,we have assumed, with your
consent, that the financial forecasts furnished to us had been reasonably
prepared on a basis reflecting the best currently available judgments and
estimates of the Bank. This opinion does not address the relative merits of the
Stock Purchase as compared to any alternative business strategies that might
exist for LSB. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
It is understood that this letter is for the information of the Board of
Directors of LSB only, and may not be used for any other purpose or disclosed or
otherwise referred to without our prior written consent, except as may otherwise
be required by law or by a court of competent jurisdiction.
The Board of Directors
January __, 1994
Page 3
Based upon and subject to the foregoing, it is our view as investment bankers
that as of the date hereof the Purchase Price is fair, from a financial point of
view, to LSB.
Very truly yours,
"PRELIMINARY COPY"
LSB INDUSTRIES, INC. THIS PROXY IS
16 SOUTH PENNSYLVANIA PROXY SOLICITED BY THE
POST OFFICE BOX 754 FOR THE SPECIAL MEETING BOARD OF DIRECTORS
OKLAHOMA CITY, OKLAHOMA 73101 OF SHAREHOLDERS OF LSB INDUSTRIES, INC.
The undersigned hereby appoints Jack E. Golsen and Tony M. Shelby, and each of
them, the undersigned's proxy, with full power of substitution, to attend the
special meeting of the shareholders of LSB Industries, Inc. (the "Company") on
March __, 1994, at 11:00 a.m., Central Standard Time, at the Company's financial
center located at 4000 Northwest 39th Expressway, Oklahoma City, Oklahoma, and
at any adjournments or postponements of that meeting, and to vote the
undersigned's shares of Common Stock, Convertible Noncumulative Preferred Stock,
and 12% Series B Cumulative Convertible Preferred Stock as designated below.
(1) Approval of the Stock Purchase Agreement, dated January ____, 1994, as it
may be amended and supplemented from time to time (the "Acquisition
Agreement"), between the Company; Prime Financial Corporation, an
Oklahoma corporation and a wholly-owned subsidiary of the Company; and,
Fourth Financial Corporation, a Kansas corporation, and the sale of
Equity Bank for Savings, F.A. ("Equity Bank"), pursuant to the
Acquisition Agreement.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE ACQUISITION AGREEMENT AND THE SALE OF EQUITY BANK FOR SAVINGS,
F.A., PURSUANT TO THE ACQUISITION AGREEMENT.
(2) Approval of adjournment of the Special Meeting to solicit additional
proxies, if necessary.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE ADJOURNMENT OF THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES,
IF NECESSARY.
(3) In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THE PERSONS NAMED ABOVE WILL VOTE THE SHARES OF STOCK REPRESENTED BY THIS
PROXY IN ACCORDANCE WITH THE SPECIFICATIONS MADE IN ITEMS 1 AND 2. IF THE
UNDERSIGNED MAKES NO SPECIFICATION, THE PERSONS NAMED ABOVE WILL VOTE THE SHARES
"FOR" THE APPROVAL OF THE ACQUISITION AGREEMENT, THE SALE OF EQUITY BANK
PURSUANT TO THE ACQUISITION AGREEMENT, AND ADJOURNMENT OF THE SPECIAL MEETING,
IF NECESSARY.
Please sign exactly as your name appears below, date and return this Proxy
Card promptly, using the self-addressed, prepaid envelope enclosed for your
convenience. Please correct your address before returning this Proxy Card.
Persons signing in a fiduciary capacity should indicate that fact and give their
full title. If a corporation, please sign in the full corporate name by the
president or other authorized officer. If a partnership, please sign in the
partnership name by an authorized person. If joint tenants, both persons should
sign.
___________ _____________________________________________________
Date Name of Shareholder (Please print)
_____________________________________________________
New Address (Street, City State)
_____________________________________________________
Signature and Title
_____________________________________________________
Signature and Title
_____________________________________________________
Signature and Title
