SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended December 31, 2003

 

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 

 

Commission File Number 0-2525

 

Huntington Bancshares Incorporated

(Exact name of registrant as specified in its charter)

 

Maryland   31-0724920
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
Huntington Center, 41 S. High Street, Columbus, OH   43287
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code (614) 480-8300

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock - Without Par Value

(Title of class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). x Yes ¨ N o

 

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2003, determined by using a per share closing price of $19.51, as quoted by NASDAQ on that date, was $5,030,970,635. As of February 27, 2004, 229,374,834 shares of common stock without par value were outstanding.

 

Documents Incorporated By Reference

 

Part I and II of this Form 10-K incorporates by reference certain information from the registrant’s Annual Report to Shareholders for the period ended December 31, 2003.

 

Part III of this Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2004 Annual Shareholders’ Meeting.

 


 


HUNTINGTON BANCSHARES INCORPORATED

 

INDEX

 

Part I.

         

Item 1.

  

Business

   3

Item 2.

  

Properties

   15

Item 3.

  

Legal Proceedings

   15

Item 4.

  

Submission of Matters to a Vote of Security Holders

   15

Part II.

         

Item 5.

  

Market for Registrant’s Common Equity and Related Shareholder Matters

   15

Item 6.

  

Selected Financial Data

   16

Item 7.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   16

Item 7A.

  

Quantitative and Qualitative Disclosures About Market Risk

   16

Item 8.

  

Financial Statements and Supplementary Data

   16

Item 9.

  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

   16

Item 9A.

  

Controls and Procedures

   16

Part III.

         

Item 10.

  

Directors and Executive Officers of the Registrant

   17

Item 11.

  

Executive Compensation

   17

Item 12.

  

Security Ownership of Certain Beneficial Owners and Management

   17

Item 13.

  

Certain Relationships and Related Transactions

   17

Item 14.

  

Principal Accounting Fees and Services

   17

Part IV.

         

Item 15.

  

Exhibits, Financial Statement Schedules, and Reports on Form 8-K

   17

Signatures

        19

 


Huntington Bancshares Incorporated  

 

Part I

 

 
Item 1:
Business

 

Huntington Bancshares Incorporated (Huntington or the company) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through its subsidiaries, Huntington is engaged in providing full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, and discount brokerage services, as well as underwriting credit life and disability insurance, and selling other insurance and financial products and services. The Huntington National Bank (the Bank), organized in 1866, is Huntington’s only bank subsidiary. At December 31, 2003, Huntington Bank had 162 banking offices in Ohio, 114 banking offices in Michigan, 25 banking offices in West Virginia, 22 banking offices in Indiana, 12 banking offices in Kentucky, 3 private banking offices in Florida, one foreign office in the Cayman Islands and one foreign office in Hong Kong. Selected financial services, including those of Huntington Mortgage Group, a division of Huntington Bank, are also conducted in other states including Arizona, Florida, Georgia, Maryland, New Jersey, Pennsylvania, and Tennessee. Foreign banking activities, in total or with any individual country, are not significant to the operations of Huntington. At December 31, 2003, Huntington and its subsidiaries had 7,983 full-time equivalent employees.

 

A discussion of Huntington’s lines of business can be found in its Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference. The financial statement results for each line of business can be found in Note 17 of the Notes to Consolidated Financial Statements included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

Competition is intense in most of the markets Huntington serves. Huntington competes on price and service with other banks and financial companies such as savings and loans, credit unions, finance companies, mortgage banking companies, insurance companies, and brokerage firms. Competition could intensify in the future as a result of industry consolidation, the increasing availability of products and services from non-banks, greater technological developments in the industry, and banking reform. For example, financial services reform legislation enacted in 1999 eliminated the long-standing Glass-Steagall Act restrictions on securities activities of bank holding companies and banks. The legislation, among other things, permits securities and insurance firms to engage in banking activities under specified conditions.

 

On January 27, 2004, Huntington announced the signing of a definitive agreement to merge with Unizan Financial Corp. (Unizan), a financial holding company based in Canton, Ohio, with assets of $2.7 billion at December 31, 2003. Under the terms of the agreement, Unizan shareholders will receive 1.1424 shares of Huntington common stock, on a tax-free basis, for each share of Unizan. The merger is expected to close late in the second quarter of 2004, subject to applicable regulatory approvals and Unizan shareholder approval.

 

Regulatory Matters

 

To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to such statutory or regulatory provisions.

 

General

 

As a financial holding company, Huntington is subject to examination and supervision by the Board of Governors of the Federal Reserve System (FRB). Huntington is required to file with the FRB reports and other information regarding its business operations and the business operations of its subsidiaries. It is also required to obtain FRB approval prior to acquiring, directly or indirectly, ownership or control of voting shares of any bank, if, after such acquisition, it would own or control more than 5% of the voting stock of such bank.

 

Pursuant to the GLB Act, however, Huntington may engage in, or own or control companies that engage in, any activities determined by the FRB to be financial in nature or incidental to activities financial in nature, or complementary to financial activities, provided that such complementary activities do not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. The GLB Act designated various lending, advisory, insurance underwriting, securities underwriting, dealing and market-making, and merchant banking activities (as well as those activities previously approved for bank holding companies by the FRB) as financial in nature, and authorized by the FRB,

 

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in coordination with the Office of the Comptroller of the Currency (OCC), to determine that additional activities are financial in nature or incidental to activities that are financial in nature. Except for the acquisition of a savings association, Huntington may commence any new financial activity with notice to the FRB within 30 days subsequent to the commencement of the new financial activity.

 

The Bank is subject to examination and supervision by the OCC. Its deposits are insured by the Bank Insurance Fund (BIF) of the Federal Deposit Insurance Corporation (FDIC). Huntington’s non-bank subsidiaries are also subject to examination and supervision by the FRB (or, in the case of non-bank subsidiaries of the Bank, by the OCC), and examination by other federal and state agencies, including, in the case of certain securities and investment management activities, regulation by the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers.

 

In addition to the impact of federal and state regulation, the Bank and non-bank subsidiaries of Huntington are affected significantly by the actions of the FRB as it attempts to control the money supply and credit availability in order to influence the economy.

 

Holding Company Structure

 

Huntington is a financial holding company with one national bank subsidiary, Huntington National Bank and numerous non-bank subsidiaries. See Exhibit 21 for a list of Huntington’s subsidiaries. The Bank is subject to affiliate transaction restrictions under federal laws, which limit the transfer of funds by the subsidiary bank to the parent and any non-bank subsidiary of the parent, whether in the form of loans, extensions of credit, investments, or asset purchases. Such transfers by a subsidiary bank to its parent corporation or to any individual non-bank subsidiary of the parent are limited to 10% of the subsidiary bank’s capital and surplus and, with respect to such parent together with all such non-bank subsidiaries of the parent, to an aggregate of 20% of the subsidiary bank’s capital and surplus. Furthermore, such loans and extensions of credit are required to be secured within specified amounts. In addition, all affiliate transactions must be conducted on terms and under circumstances that are substantially the same as such transactions with unaffiliated entities.

 

As a matter of policy, the FRB expects a bank holding company to act as a source of financial and managerial strength to each of its subsidiary banks and to commit resources to support each such subsidiary bank. Under the source of strength policy, the FRB may require a bank holding company to make capital injections into a troubled subsidiary bank, and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. A capital injection may be required at times when Huntington does not have the resources to provide it. Any loans by a holding company to its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. Moreover, in the event of a bank holding company’s bankruptcy, any commitment by such holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

 

Federal law permits the OCC to order the pro rata assessment of shareholders of a national bank whose capital stock has become impaired, by losses or otherwise, to relieve a deficiency in such national bank’s capital stock. This statute also provides for the enforcement of any such pro rata assessment of shareholders of such national bank to cover such impairment of capital stock by sale, to the extent necessary, of the capital stock owned by any assessed shareholder failing to pay the assessment. Huntington, as the sole shareholder of the Bank, is subject to such provisions. Moreover, the claims of a receiver of an insured depository institution for administrative expenses and the claims of holders of deposit liabilities of such an institution are accorded priority over the claims of general unsecured creditors of such an institution, including the holders of the institution’s note obligations, in the event of a liquidation or other resolution of such institution. Claims of a receiver for administrative expenses and claims of holders of deposit liabilities of the Bank (including the FDIC, as the subrogee of such holders) would receive priority over the holders of notes and other senior debt of the Bank in the event of a liquidation or other resolution and over the interests of Huntington as sole shareholder of the Bank.

 

Dividend Restrictions

 

Dividends from the Bank are the primary source of funds for payment of dividends to Huntington’s shareholders. In the year ended December 31, 2003, Huntington declared cash dividends to its shareholders of $153.5 million. There are, however, statutory limits on the amount of dividends that the Bank can pay to Huntington without regulatory approval.

 

The Bank may not, without prior regulatory approval, pay a dividend in an amount greater than its undivided profits. In addition, the prior approval of the OCC is required for the payment of a dividend by a national bank if the total of all dividends declared in a calendar year would exceed the total of its net income for the year combined with its retained net income for the two preceding years. Under these provisions and in accordance with the above-described formula, the Bank

 

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could, without regulatory approval, declare dividends to Huntington in 2004 of approximately $332.7 million plus an additional amount equal to its net profits during 2004.

 

If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such authority may require, after notice and hearing, that such bank cease and desist from such practice. The FRB and the OCC have issued policy statements that provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings.

 

FDIC Insurance

 

The Bank was classified by the FDIC as a “well-capitalized” institution in the highest supervisory subcategory and was therefore not obliged under FDIC assessment practices to pay deposit insurance premiums in 2003, either on its deposits insured by the BIF or on that portion of its deposits acquired from savings and loan associations and insured by the Savings and Loan Association Insurance Fund (SAIF). As a result of restatements in 2003 of its financial statements for 2002 and 2001, the Bank would have been classified by the FDIC as an adequately capitalized institution in the second highest supervisory subcategory. Neither “well-capitalized” nor adequately capitalized institutions are obliged currently to pay deposit insurance premiums. Although not currently subject to FDIC assessments for insurance premiums, the Bank is required to make payments for the servicing of obligations of the Financing Corporation (FICO) that were issued in connection with the resolution of savings and loan associations, so long as such obligations remain outstanding.

 

The FDIC may alter its assessment practices in the future if required by developments affecting the resources of the BIF or the SAIF. Assessment practices may also be altered if pending legislative initiatives involving the merger of the BIF and the SAIF, as well as other changes, become law.

 

Capital Requirements

 

The FRB has issued risk-based capital ratio and leverage ratio guidelines for bank holding companies such as Huntington. The risk-based capital ratio guidelines establish a systematic analytical framework that makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures into explicit account in assessing capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Under the guidelines and related policies, bank holding companies must maintain capital sufficient to meet both a risk-based asset ratio test and a leverage ratio test on a consolidated basis. The risk-based ratio is determined by allocating assets and specified off-balance sheet commitments into four weighted categories, with higher weighting being assigned to categories perceived as representing greater risk. A bank holding company’s capital (as described below) is then divided by total risk weighted assets to yield the risk-based ratio. The leverage ratio is determined by relating core capital (as described below) to total assets adjusted as specified in the guidelines. The Bank is subject to substantially similar capital requirements.

 

Generally, under the applicable guidelines, a financial institution’s capital is divided into two tiers. Institutions that must incorporate market risk exposure into their risk-based capital requirements may also have a third tier of capital in the form of restricted short-term subordinated debt. “Tier 1”, or core capital, includes common equity, noncumulative perpetual preferred stock (excluding auction rate issues), and minority interests in equity accounts of consolidated subsidiaries, less both goodwill and, with certain limited exceptions, all other intangible assets. Bank holding companies, however, may include cumulative preferred stock in their Tier 1 capital, up to a limit of 25% of such Tier 1 capital. “Tier 2”, or supplementary capital, includes, among other things, cumulative and limited-life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and lease losses, subject to certain limitations. “Total capital” is the sum of Tier 1 and Tier 2 capital.

 

The FRB and the other federal banking regulators require that all intangible assets, with certain limited exceptions, be deducted from Tier 1 capital. Under the FRB’s rules the only types of intangible assets that may be included in (i.e., not deducted from) a bank holding company’s capital are originated or purchased mortgage servicing rights, non-mortgage servicing assets, and purchased credit card relationships, provided that, in the aggregate, the total amount of these items included in capital does not exceed 100% of Tier 1 capital.

 

Under the risk-based guidelines, financial institutions are required to maintain a risk-based ratio (total capital to risk-weighted assets) of 8%, of which 4% must be Tier 1 capital. The appropriate regulatory authority may set higher capital requirements when an institution’s circumstances warrant.

 

Under the leverage guidelines, financial institutions are required to maintain a leverage ratio (Tier 1 capital to adjusted total assets, as specified in the guidelines) of at least 3%. The 3% minimum ratio is applicable only to financial institutions that meet certain specified criteria, including excellent asset quality, high liquidity, low interest rate exposure,

 

5


and the highest regulatory rating. Financial institutions not meeting these criteria are required to maintain a minimum Tier 1 leverage ratio of 4%.

 

Special minimum capital requirements apply to equity investments in nonfinancial companies. The requirements consist of a series of marginal capital charges that increase within a range from 8% to 25% as a financial institution’s over-all exposure to equity investments increases as a percentage of its Tier 1 capital.

 

Failure to meet applicable capital guidelines could subject the financial institution to a variety of enforcement remedies available to the federal regulatory authorities. These include limitations on the ability to pay dividends, the issuance by the regulatory authority of a capital directive to increase capital, and the termination of deposit insurance by the FDIC, as well as the measures described below under “Prompt Corrective Action” as applicable to “under-capitalized” institutions.

 

To be considered “well capitalized” under the regulatory framework for “Prompt Corrective Action”, the ratios must be at least 6.00% for Tier 1 risk-based capital ratio, 10.00% for Total risk-based capital ratio, and 5.00% for Tier 1 leverage capital. As of December 31, 2003, the ratios for Huntington were 8.53%, 11.95%, and 7.98%, respectively. In addition, the ratios for the Bank at December 31, 2003, were 6.36%, 10.65%, and 6.01%, respectively. Both Huntington and the Bank had regulatory capital ratios in excess of the levels established for “well-capitalized” institutions at December 31, 2003.

 

The risk-based capital standards of the FRB, the OCC, and the FDIC specify that evaluations by the banking agencies of a bank’s capital adequacy will include an assessment of the exposure to declines in the economic value of the bank’s capital due to changes in interest rates. These banking agencies issued a joint policy statement on interest rate risk describing prudent methods for monitoring such risk that rely principally on internal measures of exposure and active oversight of risk management activities by senior management.

 

Prompt Corrective Action

 

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) requires federal banking regulatory authorities to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. For these purposes, FDICIA establishes five capital tiers: “well-capitalized”, “adequately-capitalized”, “under-capitalized”, “significantly under-capitalized”, and “critically under-capitalized”.

 

An institution is deemed to be “well-capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level for any capital measure. An institution is deemed to be “adequately-capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and, generally, a Tier 1 leverage ratio of 4% or greater and the institution does not meet the definition of a “well-capitalized” institution. An institution that does not meet one or more of the “adequately-capitalized” tests is deemed to be “under-capitalized”. If the institution has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a Tier 1 leverage ratio that is less than 3%, it is deemed to be “significantly under-capitalized”. Finally, an institution is deemed to be “critically under-capitalized” if it has a ratio of tangible equity, as defined in the regulations, to total assets that is equal to or less than 2%.

 

FDICIA generally prohibits a depository institution from making any capital distribution, including payment of a cash dividend or paying any management fee to its holding company if the depository institution would thereafter be “under-capitalized”. “Under-capitalized” institutions are subject to growth limitations and are required to submit a capital restoration plan. If any depository institution subsidiary of a holding company is required to submit a capital restoration plan, the holding company would be required to provide a limited guarantee regarding compliance with the plan as a condition of approval of such plan by the appropriate federal banking agency. If an “under-capitalized” institution fails to submit an acceptable plan, it is treated as if it is “significantly under-capitalized”. “Significantly under-capitalized” institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately-capitalized”, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically under-capitalized” institutions may not, beginning 60 days after becoming “critically under-capitalized”, make any payment of principal or interest on their subordinated debt. In addition, “critically under-capitalized” institutions are subject to appointment of a receiver or conservator within 90 days of becoming so classified.

 

Under FDICIA, a depository institution that is not “well-capitalized” is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market. As a result of restatements in 2003 of its financial statements for 2002 and 2001, the Bank could have been classified under FDICIA as “adequately capitalized” but not “well-capitalized”. The Bank, however, restored itself to “well-capitalized” status by the

 

6


end of the second quarter 2003, and, therefore, the FDICIA’s brokered deposit rule did not adversely affect the ability of the Bank to accept brokered deposits. Under the regulatory definition of brokered deposits, the Bank had $1.8 billion of such deposits at December 31, 2003.

 

Gramm-Leach-Bliley Act of 1999

 

The United States Congress in 1999 enacted major financial services modernization legislation, known as the “Gramm-Leach-Bliley Act of 1999” (GLB Act), which was signed into law on November 12, 1999. Under the GLB Act, banks are no longer prohibited by the Glass-Steagall Act from associating with, or having management interlocks with, a business organization engaged principally in securities activities. By qualifying as a new entity known as a “financial holding company”, a bank holding company may acquire new powers not otherwise available to it. In order to qualify, a bank holding company’s depository subsidiaries must all be both “well-capitalized” and well managed, and must meet their Community Reinvestment Act obligations. The bank holding company must also declare its intention to become a financial holding company to the FRB and certify that its depository subsidiaries meet the capitalization and management requirements. The repeal of the Glass-Steagall Act and the availability of new powers both became effective on March 11, 2000, and Huntington became a financial holding company on March 13, 2000.

 

Financial holding company powers relate to “financial activities” that are determined by the FRB, in coordination with the Secretary of the Treasury, to be financial in nature, incidental to an activity that is financial in nature, or complementary to a financial activity (provided that the complementary activity does not pose a safety and soundness risk). The statute itself defines certain activities as financial in nature, including but not limited to underwriting insurance or annuities; providing financial or investment advice; underwriting, dealing in, or making markets in securities; merchant banking, subject to significant limitations; insurance company portfolio investing, subject to significant limitations; and any activities previously found by the FRB to be closely related to banking.

 

National and state banks are permitted under the GLB Act (subject to capital, management, size, debt rating, and Community Reinvestment Act qualification factors) to have “financial subsidiaries” that are permitted to engage in financial activities not otherwise permissible. However, unlike financial holding companies, financial subsidiaries may not engage in insurance or annuity underwriting; developing or investing in real estate; merchant banking (for at least five years); or insurance company portfolio investing. Other provisions of the GLB Act establish a system of functional regulation for financial holding companies and banks involving the Securities and Exchange Commission, the Commodity Futures Trading Commission, and state securities and insurance regulators; deal with bank insurance sales and title insurance activities in relation to state insurance regulation; prescribe consumer protection standards for insurance sales; and establish minimum federal standards of privacy to protect the confidentiality of the personal financial information of consumers and regulate its use by financial institutions. Federal bank regulatory agencies continued to issue a variety of proposed, interim, and final rules during the year 2003 for the implementation of the GLB Act.

 

Recent Regulatory Developments

 

Possible authority for financial holding companies to engage in real estate brokerage and property management services remained under consideration by federal banking regulators at the end of 2003. However, renewal of a statutory moratorium on implementation of regulations granting such authority passed one house of Congress and was pending in the other house at the end of the year. It is not possible at present to assess the likelihood of ultimate adoption of final regulations.

 

Changes in the federal deposit insurance program were recommended during 2003 by the FDIC and in the federal budget. A deposit insurance reform bill that would, among other things, merge the BIF and the SAIF, increase and index deposit insurance coverage, give the FDIC flexibility in setting premium assessments, and replace a fixed deposit reserve ratio with a reserve range, was passed by the House of Representatives in April 2003, but no action on the subject was taken by the Senate during the remainder of the year. It is not possible to predict if deposit insurance reform legislation will be enacted, or if enacted, what its effect will be on Huntington.

 

Federal banking regulators continued their preparations for the expected issuance in mid-2004 by the Basel Committee on Banking Supervision of final “Basel II” regulatory capital guidelines, which would mandate changes for large banks in the way in which their risk-based capital requirements are calculated. The guidelines are widely believed to likely permit significant reductions in levels of required capital for such banks. It is uncertain at the present time if Huntington will be either required or permitted to make changes in its regulatory capital structure in accordance with Basel II guidelines.

 

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Business Risks

 

Huntington, like other financial companies, is subject to a number of risks, many of which are outside of Management’s control, though Management strives to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk that loan and lease customers or other counter parties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect Huntington’s financial condition or results of operation, (3) liquidity risk, which is the risk that Huntington and / or the Bank will have insufficient cash or access to cash to meet its operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.

 

In addition to the other information included or incorporated by reference into this report, readers should carefully consider that the following important factors, among others, could materially impact Huntington’s business, future results of operations, and future cash flows.

 

(1) Credit Risk:

 

Huntington extends credit to a variety of customers based on internally set standards and the judgment of Management. Huntington manages the credit risk it takes through a program of underwriting standards that it follows, the review of certain credit decisions, and an on-going process of assessment of the quality of the credit it has already extended. There can be no assurance that Huntington’s credit standards and its on-going process of credit assessment will protect Huntington from significant credit losses.

 

Huntington takes credit risk by virtue of funding loans and leases, purchasing non-governmental securities, extending loan commitments and letters of credit, and being counterparties to off-balance sheet financial instruments such as interest rate and foreign exchange derivatives.

 

Huntington’s exposure to credit risk is managed through the use of consistent underwriting standards that emphasize “in-market” lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. The credit administration function employs risk management techniques to ensure that loans and leases adhere to corporate policy and problem loans and leases are promptly identified. These procedures provide Management with the information necessary to implement policy adjustments where necessary, and to take proactive corrective actions. In 2003, Management continued to focus on commercial lending to customers with existing or potential relationships within Huntington’s primary markets.

 

At December 31, 2003, Huntington’s total credit exposure was $22.4 billion, consisting of $21.1 billion of loans and direct financing leases and $1.3 billion of operating lease assets. Of the $22.4 billion total credit exposure, 27.7%, or $6.2 billion, represented exposure to the automobile financing sector with $4.9 billion representing loans and direct financing leases and $1.3 billion representing automobile operating lease assets. A key corporate objective has been to lower the total risk exposure to automobile loans and leases. While this exposure presented 28% of credit exposure at December 31, 2003, this was down from 33.0% at December 31, 2002. The next largest credit exposure sector was to commercial real estate loans, which totaled $4.2 billion at December 31, 2003, and represented 18.6% of total credit exposure, and 19.8% of total loans and leases. There was no other concentration of lending to a particular industry or group of industries that would be considered a concentration of lending risk.

 

For further discussion about Huntington’s management of credit risk, see “Credit Risk” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference. There can be no assurance that Huntington’s credit standards and its on-going process of credit assessment will protect Huntington from significant credit losses.

 

Huntington’s loans, leases, and deposits are focused in five states and adverse economic conditions in those states, in particular, could negatively impact results from operations, cash flows, and financial condition.

 

Concentration of credit risk can also arise with respect to loans and leases when the borrowers are located in the same geographical region. Huntington’s customers with loan and/or deposit balances at December 31, 2003, were located predominantly in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Because of the concentration of loans, leases, and deposits in these states, in the event of adverse economic conditions in these states, Huntington could experience more difficulty in attracting deposits and experience higher rates of loss and delinquency on its loans and leases than if the loans and leases were more geographically diversified. Adverse economic conditions and other factors, such as political or business developments or natural hazards that may affect these states, may reduce demand for credit or fee-based products and could negatively affect real estate and other collateral values, interest rate levels, and the availability of credit to refinance loans at or prior to maturity.

 

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(2) Market Risk:

 

Huntington could experience losses on its residual values related to its automobile lease portfolio.

 

At December 31, 2003, Huntington had a $3.2 billion automobile lease portfolio, comprised of $1.9 billion of direct financing leases and $1.3 billion of operating lease assets. Inherently, automobile lease portfolios are subject to residual risk, which arises when the market price of the leased vehicle at the end of the lease term is below the estimated residual value at the time the lease is originated. This situation arises due to a decline in used car market values. For further discussion about Huntington’s management of lease residual risk, see “Lease Residual Risk” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

Changes in interest rates could negatively impact Huntington’s financial condition and results of operations.

 

Huntington’s results of operations depend substantially on net interest income, the difference between interest earned on interest-earning assets (such as investments, loans, and direct financing leases) and interest paid on interest-bearing liabilities (such as deposits and borrowings). Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. Conditions such as inflation, recession, unemployment, money supply, and other factors beyond Management’s control may also affect interest rates. If Huntington’s interest-earning assets mature or reprice more quickly than interest-bearing liabilities in a given period, a decrease in market interest rates could adversely affect net interest income. Likewise, if interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a given period, an increase in market interest rates could adversely affect net interest income.

 

At December 31, 2003, Huntington’s commercial and industrial commercial real estate construction loans, automobile loans and leases, and operating leases totalled $12.2 billion. Of this total group of loans and leases, 49% had variable interest rates and 51% had fixed interest rates. Fixed-rate loans and leases increase Huntington’s exposure to interest rate risk in a rising rate environment because interest-bearing liabilities would be subject to repricing before assets become subject to repricing. Adjustable-rate loans and leases decrease these risks associated with changes in interest rates but involve other risks, such as the inability of borrowers to make higher payments in an increasing interest rate environment. At the same time, for secured loans, the marketability of the underlying collateral may be adversely affected by higher interest rates. In a declining interest rate environment, there may be an increase in prepayments on loans as the borrowers refinance their loans at lower interest rates. Under these circumstances, Huntington’s results of operations could be negatively impacted.

 

When evaluating short-term interest rate risk exposure, the primary measurement represents scenarios that model a 200 basis point increasing (decreasing) parallel shift in rates over the next twelve-month period versus rates implied by the current yield curve. At the end of 2003, that scenario modeled net interest income to be approximately 0.5% lower than the internal forecast of net interest income using the baseline scenario. This position is well within the board of directors’ 4.0% policy limit for change in net interest income given a +/- 200 basis point change in rates.

 

Changes in interest rates also can affect the value of loans and other assets, including retained interests in securitizations, mortgage and non-mortgage servicing rights, and Huntington’s ability to realize gains on the sale of assets. A portion of Huntington’s earnings results from transactional income. Examples of this type of earnings result from gains on sales of loans and other real estate owned. This type of income can vary significantly from quarter-to-quarter and year-to-year based on a number of different factors, including the interest rate environment. An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans and leases may lead to an increase in non-performing assets and a reduction of discount accreted into income, which could have a material adverse effect on Huntington’s results of operations and cash flows. For further discussion, see “Loan Sales and Securitizations” in the Notes to Consolidated Financial Statements included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

Although fluctuations in market interest rates are neither completely predictable nor controllable, Huntington’s Asset and Liability Management Committee (ALCO) meets periodically to monitor Huntington’s interest rate sensitivity position and oversee its financial risk management by establishing policies and operating limits. For further discussion, see “Interest Rate Risk” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

9


(3) Liquidity Risk:

 

If Huntington is unable to borrow funds through access to capital markets, it may not be able to meet the cash flow requirements of its depositors and borrowers, or meet the operating cash needs of Huntington to fund corporate expansion and other activities.

 

Liquidity policies and limits are established by the board of directors, with operating limits set by ALCO, based upon analyses of the ratio of loans to deposits and percentage of assets funded with non-core or wholesale funding. ALCO regularly monitors the overall liquidity position of the Bank and the parent company to ensure that various alternative strategies exist to cover unanticipated events that could affect liquidity. Liquidity is the ability to meet cash flow needs on a timely basis at a reasonable cost. The liquidity of the Bank is used to make loans and leases and to repay deposit liabilities as they become due or are demanded by customers. The Bank’s ALCO establishes policies and monitors guidelines to diversify the Bank’s wholesale funding sources to avoid concentrations in any one market source. Wholesale funding sources include Federal funds purchased, securities sold under repurchase agreements, non-core deposits, and medium- and long-term debt, which includes a domestic bank note program and a Euronote program. The Bank is also a member of the Federal Home Loan Bank of Cincinnati (FHLB), which provides funding through advances to its members that are collateralized with mortgage-related assets.

 

Huntington maintains a portfolio of securities that can be used as a secondary source of liquidity. There are other sources of liquidity should they be needed. These sources include the sale or securitization of loans, the ability to acquire additional national market, non-core deposits, additional collateralized borrowings such as FHLB advances, the issuance of debt securities, and the issuance of preferred or common securities in public or private transactions. The Bank also can borrow through the Federal Reserve’s discount window.

 

If Huntington were unable to access any of these funding sources when needed, it might be unable to meet the needs of its customers, which could adversely impact Huntington’s financial condition, its results of operations, cash flows, and its level of regulatory-qualifying capital. For further discussion, see “Liquidity” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

If Huntington’s credit rating were downgraded, its ability to access funding sources may be negatively impacted or eliminated and Huntington’s liquidity and the market price of its common stock could be adversely impacted.

 

Credit ratings by the three major credit rating agencies are an important component of the company’s liquidity profile. Among other factors, the credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of Management, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the company’s ability to access a broad array of wholesale funding sources. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets, but also the cost of these funds. In addition, certain financial on- and off-balance sheet arrangements contain credit rating triggers that could increase funding needs if a negative rating change occurs. Letter of credit commitments for marketable securities, interest rate swap collateral agreements, and certain asset securitization transactions contain credit rating provisions.

 

10


As a result of a formal SEC investigation announced June 26, 2003, Standard and Poor’s rating agency placed the company’s debt ratings on “Credit Watch Negative” pending completion of the investigation. As a precautionary measure, Management increased the volume of long-term wholesale borrowings, while reducing overnight Federal Funds borrowings. The cost of short-term borrowings has not been materially affected by the downgrade, although at least one investor has reduced exposure limits as a result of this action by a rating agency. This action had no adverse impact on rating triggers inherent in financial contracts. Management believes that sufficient liquidity exists to meet the funding needs of the Bank and the parent company. Credit ratings as of December 31, 2003 for the parent company and the Bank were:

 

      
Senior
Unsecured
Notes


   Subordinated
Notes


   Short Term

   Outlook

Huntington Bancshares Incorporated

                   

Moody’s Investor Service

   A2    A3    P1    Negative

Standard & Poor’s Corporation

   A-    BBB+    A2    Credit Watch Negative

Fitch Ratings

   A    A-    F1    Stable

The Huntington National Bank

                   

Moody’s Investor Service

   A1    A2    P1    Negative

Standard & Poor’s Corporation

   A    A-    A1    Credit Watch Negative

Fitch Ratings

   A    A-    F1    Stable

 

Huntington relies on certain funding sources such as large corporate deposits, public fund deposits, federal funds, Euro deposits, FHLB advances, and bank notes. Although not contractually tied to credit ratings, Huntington’s ability to access these funding sources may be impacted by negative changes in credit ratings. In the case of public funds or FHLB advances, a credit downgrade also may trigger a requirement that Huntington pledge additional collateral against outstanding borrowings.

 

A downgraded credit rating by any of the three credit rating agencies could negatively affect Huntington’s common stock price and accelerate the timing of the pass through of cash flows from obligors to its securitization trusts. In addition, if the unsecured senior debt of the Bank falls below BBB+ or Baa1, a Servicer Downgrade Event automatically occurs, which will trigger an early amortization event in Huntington’s largest securitization. At that point, Huntington would no longer be permitted to sell additional loans to the trust.

 

At December 31, 2003, Huntington provided letters of credit for approximately $983 million of taxable and tax-exempt notes and bonds. Huntington Capital Corporation (HCC), a consolidated subsidiary of Huntington, acts as the remarketing agent for approximately $580 million of the outstanding issues. These obligations are currently owned by a variety of money market funds that have the right to put these bonds back to HCC for remarketing every seven days. A lower credit rating could impact HCC’s ability to remarket these instruments. A short-term rating downgrade may cause these obligations to be put back to HCC for subsequent remarketing or inclusion into HCC holdings. Letter of credit issuance for the purpose of credit enhancement of bond issues may be impacted.

 

(4) Operational Risk:

 

Huntington has significant competition in both attracting and retaining deposits and in originating loans and leases.

 

Competition is intense in most of the markets Huntington serves. Huntington competes on price and service with other banks and financial companies such as savings and loans, credit unions, finance companies, mortgage banking companies, insurance companies and brokerage firms. Competition could intensify in the future as a result of industry consolidation, the increasing availability of products and services from non-banks, greater technological developments in the industry, and banking reform.

 

Management maintains internal operational controls and Huntington has invested in technology to help it process large volumes of transactions. However, there can be no assurance that Huntington will be able to continue processing at the same or higher levels of transactions. If Huntington’s system of internal controls should fail to work as expected, if its systems were to be used in an unauthorized manner, or if employees were to subvert the system of internal controls, significant losses to Huntington could occur.

 

Huntington processes large volumes of transactions on a daily basis and is exposed to numerous types of operational risk. Operational risk resulting from inadequate or failed internal processes, people, and systems includes the risk of fraud by employees or persons outside Huntington, the execution of unauthorized transactions by employees, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes the potential legal actions that could arise as a result of the operational deficiency or as a result of noncompliance with applicable regulatory standards.

 

Huntington establishes and maintains systems of internal operational controls that provide Management with timely and accurate information about its level of operational risk. While not foolproof, these systems have been designed to manage operational risk at appropriate, cost effective levels. Huntington has also established procedures that are designed to ensure that policies relating to conduct, ethics, and business practices are followed. From time to time,

 

11


Huntington experiences losses from operational risk, including the effects of operational errors, and these losses are recorded as non-interest expense.

 

While Management continually monitors and improves its system of internal controls, data processing systems, and corporate-wide processes and procedures, there can be no assurance that Huntington will not suffer such losses in the future.

 

Huntington’s acquisitions may not meet income expectations and/or cost savings levels or may not be integrated within timeframes originally anticipated. Huntington may encounter unforeseen difficulties, including unanticipated integration problems and business disruption in connection with its acquisitions. Acquisitions could also dilute stockholder value and adversely affect operating results.

 

On January 27, 2004, Huntington announced the signing of a definitive agreement to merge with Unizan Financial Corp. (Unizan) a financial holding company based in Canton, Ohio, with $2.7 billion of assets at December 31, 2003. Under the terms of the agreement, Unizan shareholders will receive 1.1424 shares of Huntington common stock, on a tax-free basis, for each share of Unizan. Based on the $23.10 closing price of Huntington’s common stock on January 26, 2004, this represented a price of $26.39 per Unizan share, and valued the transaction at approximately $587 million. The merger was unanimously approved by both boards and is expected to close late in the second quarter, pending customary regulatory approvals, as well as Unizan shareholder approval.

 

During 2002, Huntington acquired Haberer Investment Advisor, Inc. (Haberer), a Cincinnati-based registered investment advisory firm with approximately $500 million in assets under management. Huntington paid cash to Haberer shareholders and issued 202,695 shares of common stock from treasury. Also during 2002, Huntington acquired LeaseNet Group, Inc. (LeaseNet), a $90 million leasing company located in Dublin, Ohio. Huntington paid cash to LeaseNet shareholders and issued 835,035 shares of common stock from treasury. In addition, Huntington holds 544,357 common shares in escrow, to be released to LeaseNet’s shareholders contingent upon the achievement of certain performance levels. Both of these acquisitions were accounted for using the purchase method of accounting.

 

The proposed merger with Unizan presents several risks. The completion of any merger, including the proposed merger with Unizan, is dependent on, among other things, receipt of shareholder and regulatory approvals, the timing of which cannot be predicted with precision and which may not be received at all. Additionally, a merger may be more expensive to complete than anticipated, as a result of unexpected factors or events and the anticipated cost savings of a merger may take longer to be realized or may not be achieved in their entirety. The integration of acquired businesses and operations with those of Huntington, including systems conversions, may take longer than anticipated, may be more costly than anticipated and may have unanticipated adverse results relating to Huntington’s existing businesses or the businesses acquired. Further, decisions to sell or close units or otherwise change the business mix of either company may adversely impact combined results. Moreover, Huntington may be unable to identify, negotiate, or finance future acquisitions successfully. Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities, or amortization expenses.

 

The extended disruption of vital infrastructure could negatively impact Huntington’s business, results of operations, and financial condition.

 

Huntington’s operations depend upon, among other things, its infrastructure, including its equipment and facilities. Extended disruption of its vital infrastructure by fire, power loss, natural disaster, telecommunications failure, computer hacking or viruses, terrorist activity or the domestic and foreign response to such activity, or other events outside of Huntington’s control could have a material adverse impact on the financial services industry as a whole and on Huntington’s business, results of operations, cash flows, and financial condition in particular. To mitigate this risk, Huntington has established a business recovery plan.

 

Huntington’s financial statements must conform to accounting principles generally accepted in the United States (GAAP), which require Management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from those estimates.

 

The preparation of financial statements in conformity with GAAP requires Management to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in its financial statements. An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Huntington’s financial statements include estimates related to accruals of income and expenses and determination of fair values or carrying values of certain, but not all, assets and liabilities. These estimates are based on information available to Management at the time the estimates are made. Factors involved in these estimates could change

 

12


in the future leading to a change of those estimates, which could be material to Huntington’s results of operations or financial condition.

 

For further discussion, see “Critical Accounting Policies and Use of Significant Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

New, or changes in existing, tax, accounting, and regulatory laws, regulations, rules, standards, policies, and interpretations could significantly impact strategic initiatives, results of operations, cash flows, and financial condition.

 

The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a financial company’s shareholders. These regulations may sometimes impose significant limitations on operations. The significant federal and state banking regulations that affect Huntington are described in this report under the heading “Regulatory Matters.” These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time. Events that may not have a direct impact on Huntington, such as the bankruptcy of major U.S. companies, have resulted in legislators, regulators, and authoritative bodies, such as the Financial Accounting Standards Board, the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and various taxing authorities responding by adopting and/or proposing substantive revisions to laws, regulations, rules, standards, policies, and interpretations. International capital standards developed in the framework of the Basel Committee on Banking Supervision may also affect the competitive environment for United States banks. The nature, extent, and timing of the adoption of significant new laws and regulations, or changes in or repeal of existing laws and regulations may have a material impact on Huntington’s business and results of operations; however, it is impossible to predict at this time the extent to which any such adoption, change, or repeal would impact Huntington.

 

The OCC may impose dividend payment and other restrictions on the Bank, which would impact Huntington’s ability to pay dividends to its shareholders or repurchase its stock.

 

The OCC is the primary regulatory agency that examines the Bank, its subsidiaries, and their respective activities. Under certain circumstances, including any determination that the activities of the Bank or its subsidiaries constitute an unsafe and unsound banking practice, the OCC has the authority by statute to restrict the Bank’s ability to transfer assets, make distributions to its shareholder, and redeem preferred securities.

 

Under applicable statutes and regulations, dividends by a national bank may be paid out of current or retained net profits, but a national bank is prohibited from declaring a cash dividend on shares of its common stock out of net profits until the surplus fund equals the amount of capital stock or, if the surplus fund does not equal the amount of capital stock, until certain amounts from net profits are transferred to the surplus fund. Moreover, the prior approval of the OCC is required for the payment of a dividend if the total of all dividends declared by a national bank in any calendar year would exceed the total of its net profits for the year combined with its net profits for the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred securities.

 

Payment of dividends could also be subject to regulatory limitations if the Bank became under-capitalized for purposes of the OCC prompt corrective action regulations. Under-capitalized is currently defined as having a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 4.0%, or a core capital, or leverage, ratio of less than 4.0%. The Bank’s inability to pay dividends to Huntington would negatively impact Huntington’s ability to pay dividends to its shareholders and repurchase its stock.

 

At December 31, 2003, the Bank was in compliance with all regulatory capital requirements and considered to be “well-capitalized”. As of that date, its total risk-based capital ratio was 10.65%, its Tier 1 risk-based capital ratio was 6.36%, and its Tier 1 leverage capital ratio was 6.01%. Management intends to maintain the Bank’s capital ratios in excess of the “well-capitalized” levels under the OCC’s regulations. Management cannot guarantee, however, that it will be able to maintain the capital ratios for the Bank in excess of “well-capitalized” levels.

 

For further discussion, see “Bank Liquidity” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

13


The Federal Reserve Board may require Huntington to commit capital resources to support the Bank.

 

The FRB, which examines Huntington and its non-bank subsidiaries, has a policy stating that a bank holding company is expected to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank. Under the source of strength doctrine, the FRB may require a bank holding company to make capital injections into a troubled subsidiary bank, and may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to such a subsidiary bank. A capital injection may be required at times when the holding company may not have the resources to provide it, and therefore may be required to borrow the funds. Any loans by a holding company to its subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. Moreover, in the event of a bank holding company’s bankruptcy, any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more difficult and expensive and will adversely impact the holding company’s results of operations and cash flows.

 

Management does not foresee the need to make capital injections to the Bank under the source of strength doctrine in the foreseeable future.

 

If either of Huntington’s Real Estate Investment Trust (REIT) affiliates fail to qualify as a REIT, Huntington will be subject to a higher consolidated effective tax rate.

 

Huntington Preferred Capital, Inc. (HPCI) and Huntington Preferred Capital II, Inc. (HPC-II) operate as REITs for federal income tax purposes. HPCI and HPC-II are consolidated subsidiaries of Huntington that were established to acquire, hold, and manage mortgage assets and other authorized investments to generate net income for distribution to their shareholders.

 

Qualification as a REIT involves application of specific provisions of the Internal Revenue Code relating to various asset tests. A REIT must satisfy six asset tests quarterly: (1) 75% of the value of the REIT’s total assets must consist of real estate assets, cash and cash items, and government securities; (2) not more than 25% of the value of the REIT’s total assets may consist of securities, other than those includible under the 75% test; (3) not more than 5% of the value of its total assets may consist of securities of any one issuer, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; (4) not more than 10% of the outstanding voting power of any one issuer may be held, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; (5) not more than 10% of the total value of the outstanding securities of any one issuer may be held, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; and (6) a REIT cannot own securities in one or more taxable REIT subsidiaries which comprise more than 20% of its total assets. At December 31, 2003, HPCI had met all of the quarterly asset tests.

 

Also, a REIT must annually satisfy two gross income tests: (1) 75% of its gross income must be from qualifying income closely connected with real estate activities; and (2) 95% of its gross income must be derived from sources qualifying for the 75% test plus dividends, interest and gains from the sale of securities. In addition, a REIT must distribute 90% of the REIT’s taxable income for the taxable year, excluding any net capital gains, to maintain its non-taxable status for federal income tax purposes. As of December 31, 2003, HPCI had met all annual income and distribution tests. If these REIT affiliates fail to meet any of the required provisions for REITs, HPCI or HPC II will no longer qualify as a REIT and the resulting tax consequences would increase Huntington’s effective tax rate.

 

Huntington could be held responsible for environmental liabilities of properties acquired through foreclosure of loans secured by real estate.

 

In the event that Huntington is forced to foreclose on a defaulted commercial mortgage and/or residential mortgage loan to recover its investment in the mortgage loan, Huntington may be subject to environmental liabilities in connection with the underlying real property, which could exceed the value of the real property. Although Huntington exercises due diligence to discover potential environmental liabilities prior to the acquisition of any property through foreclosure, hazardous substances or wastes, contaminants, pollutants, or their sources may be discovered on properties during Huntington’s ownership or after a sale to a third party. There can be no assurance that Huntington would not incur full recourse liability for the entire cost of any removal and clean-up on an acquired property, that the cost of removal and clean-up would not exceed the value of the property, or that Huntington could recover any of the costs from any third party.

 

Huntington is currently under investigation by the SEC, the final results of which are unknown.

 

On June 26, 2003, Huntington announced that the Securities and Exchange Commission (SEC) staff is conducting a formal investigation. The SEC investigation began following Huntington’s announcement on April 16, 2003, that it intended to restate its financial statements in order to reclassify its accounting for automobile leases from the direct

 

14


financing lease method to the operating lease method, and following allegations by a former Huntington employee regarding certain aspects of Huntington’s accounting and financial reporting practices, including the recognition of automobile loan and lease origination fees and costs, as well as certain year-end reserves. The investigation is ongoing and Huntington believes that the actions it has taken to date have addressed all known accounting issues. The final results of the investigation, however, are not known at the time of this filing and therefore, the impact to Huntington’s financial condition, results of operations, and cash flows is not known.

 

Guide 3 Information

 

Information required by Industry Guide 3 relating to statistical disclosure by bank holding companies is contained in the information incorporated by reference in response to Items 7 and 8 of this report.

 

Available Information

 

Huntington makes available free of charge on its Internet website its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after those reports have been electronically filed or submitted to the SEC. These filings can be accessed under the “Investor Relations” link found in the “About Us” section of Huntington’s website at huntington.com. These filings are also accessible on the SEC’s website at www.sec.gov.

 

 
Item 2:
Properties

 

The headquarters of Huntington and the Bank are located in the Huntington Center, a thirty-seven-story office building located in Columbus, Ohio. Of the building’s total office space available, Huntington leases approximately 39%. The lease term expires in 2015, with nine five-year renewal options for up to 45 years but with no purchase option. The Bank has an indirect minority equity interest in the building. Huntington’s other major properties consist of a thirteen-story and a twelve-story office building, both of which are located adjacent to the Huntington Center; a twenty-one story office building, known as the Huntington Building, located in Cleveland, Ohio; an eighteen-story office building in Charleston, West Virginia; a three-story office building located in Holland, Michigan; a Business Service Center in Columbus, Ohio, which serves as Huntington’s primary operations and data center; The Huntington Mortgage Group’s building, located in the greater Columbus area; an office complex located in Troy, Michigan; and two data processing and operations centers located in Ohio. The office buildings above serve as regional administrative offices occupied predominantly by Huntington’s Regional and Private Financial Group lines of business. The Dealer Sales line of business is primarily located in a three-story office building located in Columbus Ohio. Of these properties, Huntington owns the thirteen-story and twelve-story office buildings, and the Business Service Center. All of the other major properties are held under long-term leases. In 1998, Huntington entered into a sale/leaseback agreement that included the sale of 51 of its locations. The transaction included a mix of branch banking offices, regional offices, and operational facilities, including certain properties described above, which Huntington will continue to operate under a long-term lease.

 

 
Item 3:
Legal Proceedings

 

Information required by this item is set forth in Notes 25 and 26 of Notes to Consolidated Financial Statements included in Huntington’s 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

 
Item 4:
Submission of Matters to a Vote of Security Holders

 

Not Applicable.

 

 

Part II

 

 
Item 5:
Market for Registrant’s Common Equity and Related Shareholder Matters

 

The common stock of Huntington Bancshares Incorporated is traded on the NASDAQ Stock Market under the symbol “HBAN”. The stock is listed as “HuntgBcshr” or “HuntBanc” in most newspapers. As of February 27, 2004, Huntington had 27,764 shareholders of record.

 

Information regarding the high and low sale prices of Huntington Common Stock and cash dividends declared on such shares, as required by this item, is set forth in Table 27 entitled “Quarterly Stock Summary, Key Ratios and Statistics, and Capital Data” included in the 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference. Information regarding restrictions on dividends, as required by this item, is set

 

15


forth in Item 1 “Business-Regulatory Matters-Dividend Restrictions” and in Notes 16 and 29 of Notes to Consolidated Financial Statements of the Annual Report to Shareholders which is incorporated into this report by reference.

 

Huntington did not sell any unregistered equity securities during the year ended December 31, 2003. Neither Huntington nor any “affiliated purchaser” (as defined by Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) repurchased any equity securities of Huntington in any month within the fourth quarter ended December 31, 2003.

 

 
Item 6:
Selected Financial Data

 

Information required by this item is set forth in Table 1 included in the 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

 
Item 7:
Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Information required by this item is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

 
Item 7a:
Quantitative and Qualitative Disclosures About Market Risk

 

Information required by this item is set forth in the caption “Interest Rate Risk” and “Liquidity” included in the 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

 
Item 8:
Financial Statements and Supplementary Data

 

Information required by this item is set forth in the Independent Auditor’s Report, Consolidated Financial Statements and Notes and Selected Quarterly Income Statements included in the 2003 Annual Report to Shareholders, portions of which are filed as exhibit 13 to this report and incorporated herein by reference.

 

 
Item 9:
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

 

On February 18, 2004, the Audit/Risk Committee of Huntington’s Board of Directors dismissed Ernst & Young LLP as Huntington’s independent auditors and appointed Deloitte & Touche LLP as Huntington’s independent auditors for 2004. Ernst & Young LLP’s dismissal is effective on March 5, 2004. The change was the result of a competitive bidding process involving several accounting firms.

 

The audit reports of Ernst & Young LLP on the consolidated financial statements of Huntington and its subsidiaries as of the end of the fiscal years ended December 31, 2003 and 2002, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles, except that its audit report for 2003 was modified to reflect a change in Huntington’s method of accounting for variable interest entities in 2003 in accordance with FASB Interpretation No. 46, Consolidation of Variable Interest Entities and its audit report for 2002 was modified to reflect a change in Huntington’s method of accounting for amortization of goodwill in 2002 in accordance with FASB Statement No. 142, Goodwill and Other Intangible Assets.

 

During Huntington’s two most recent fiscal years ended December 31, 2003, and the subsequent interim period through March 5, 2004, there were no disagreements between Huntington and Ernst & Young LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure (within the meaning of Item 304(a)(1)(iv) of Regulation S-K) and there were no reportable events (as defined by Item 304(a)(1)(v) of Regulation S-K.

 

Also during Huntington’s two most recent fiscal years ended December 31, 2003, and the subsequent interim period through March 5, 2004, neither Huntington nor anyone on its behalf consulted with Deloitte & Touche LLP regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

 

 
Item 9A:
Controls and Procedures

 

Huntington’s Management, with the participation of its Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of Huntington’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon such evaluation, Huntington’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, Huntington’s disclosure controls and procedures are effective.

 

16


There have not been any changes in Huntington’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2003 to which this report relates that have materially affected, or are reasonably likely to materially affect, Huntington’s internal  
control over financial reporting.

 

Part III

 

 
Item 10:
Directors and Executive Officers of The Registrant

 

Information required by this item is set forth under the captions “Election of Directors”, “Corporate Governance”, “Executive Officers of Huntington’s”, and “Section 16(a) Beneficial Ownership Reporting Compliance” of Huntington’s 2004 Proxy Statement, which is expected to be filed on or about March 16, 2004, and is incorporated herein by reference.

 

 
Item 11:
Executive Compensation

 

Information required by this item is set forth under the captions “Executive Compensation” and “Director Compensation” of Huntington’s 2004 Proxy Statement, which is expected to be filed on or about March 16, 2004, and is incorporated herein by reference.

 

 
Item 12:
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Information required by this item is set forth under the caption “Ownership of Voting Stock” and in a table entitled “Equity Compensation Plan Information” of Huntington’s 2004 Proxy Statement, which is expected to be filed on or about March 16, 2004, and is incorporated herein by reference.

 

 
Item 13:
Certain Relationships and Related Transactions

 

Information required by this item is set forth under the caption “Transactions With Directors and Executive Officers” of Huntington’s 2004 Proxy Statement, which is expected to be filed on or about March 16, 2004, and is incorporated herein by reference.

 

 
Item 14:
Principal Accounting Fees and Services

 

Information required by this item is set forth under the caption “Proposal to Ratify the Appointment of Independent Auditors” of Huntington’s 2004 Proxy Statement, which is expected to be filed on or about March 16, 2004, and is incorporated herein by reference.

 

 

Part IV

 

 
Item 15:
Exhibits, Financial Statement Schedules, and Reports on Form 8-K

 

(a) The following documents are filed as part of this report:

 

  (1) The report of independent auditors and consolidated financial statements appearing in Huntington’s 2003 Annual Report to Shareholders on the pages indicated below are incorporated by reference in Item 8.

 

      
Annual
Report Page


Independent Auditor’s Report

   97

Consolidated Balance Sheets as of December 31, 2003 and 2002

   98

Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001

   99

Consolidated Statements of Changes in Shareholders Equity For the years ended December 31, 2003, 2002 and 2001

   100

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001

   101

Notes to Consolidated Financial Statements

   102 – 140

 

17


  (2) Huntington is not filing separately financial statement schedules because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or the notes thereto.

 

  (3) The exhibits required by this item are listed in the Exhibit Index of this Form 10-K. The management contracts and compensation plans or arrangements required to be filed as exhibits to this Form 10-K are listed as Exhibits 10(a) through 10(p) in the Exhibit Index.

 

(b) The following reports on Form 8-K were filed during the fourth quarter of 2003:

 

  (1) Form 8-K, dated October 15, 2003, filed under Items 5, 7, and 12, reporting earnings for the three and nine months ended September 30, 2003, and related matters.

 

  (2) Form 8-K, dated November 13, 2003, filed under Item 9, announcing Huntington’s participation on that date in the 2003 Financial Services Conference hosted by Sandler O’Neill and Partners, L.P.

 

(c) The exhibits to this Form 10-K begin on page 20.

 

(d) See Item 15(a)(2) above.

 

18


 
Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 5th day of March, 2004.

 

HUNTINGTON BANCSHARES INCORPORATED

(Registrant)

 

By:  

/s/ Thomas E. Hoaglin

      By:  

/s/ Michael J. McMennamin

   
         
   

Thomas E. Hoaglin

Chairman, President, Chief Executive Officer, and Director

(Principal Executive Officer)

         

Michael J. McMennamin

Vice Chairman, Chief Financial Officer, and Treasurer

(Principal Financial Officer)

 

         
            By:  

/s/ John D. Van Fleet

               
               

John D. Van Fleet

Senior Vice President and Controller

(Principal Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 5th day of March, 2004.

 

 

Raymond J. Biggs *

     

David L. Porteous *


     

Raymond J. Biggs

Director

     

David L. Porteous

Director

         

Don M. Casto, III *

     

Kathleen H. Ransier *


     

Don M. Casto, III

Director

     

Kathleen H. Ransier

Director

         

Michael J. Endres *

         

     

Michael J. Endres

Director

     

Robert H. Schottenstein

Director

         

John B. Gerlach, Jr. *

     

George A Skestos *


     

John B. Gerlach, Jr.

Director

     

George A Skestos

Director

         

David P. Lauer *

         

     

David P. Lauer

Director

     

Lewis R. Smoot, Sr.

Director

         

Wm. J. Lhota *

         

       

Wm. J. Lhota

Director

       

 

* /s/ Michael J. McMennamin

         

       

Michael J. McMennamin

Attorney-in-fact for each of the persons indicated

       

 

19


 

Exhibit Index

 

This document incorporates by reference the documents listed below that Huntington has previously filed with the SEC. The SEC allows Huntington to incorporate by reference information in this document. The information incorporated by reference is considered to be a part of this document, except for any information that is superseded by information that is included directly in this document.

 

This information may be read and copied at the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an internet world-wide web site that contains reports, proxy statements and other information about issuers, like Huntington, who file electronically with the SEC. The address of the site is http://www.sec.gov . The reports and other information filed by Huntington with the SEC are also available at Huntington’s internet world-wide web site. The address of the site is http://www.huntington.com . Except as specifically incorporated by reference into this Annual Report on Form 10-K, information on those web sites is not part of this proxy statement/prospectus. You also should be able to inspect reports, proxy statements and other information about Huntington at the offices of the Nasdaq National Market at 33 Whitehall Street, New York, New York.

 

2.   Agreement and Plan of Merger, dated January 27, 2004, by and between Unizan Financial Corp. and Huntington Bancshares Incorporated.
3(i)(a).   Articles of Restatement of Charter, Articles of Amendment to Articles of Restatement of Charter, and Articles Supplementary — previously filed as Exhibit 3(i) to Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference.
  (i)(b).   Articles of Amendment to Articles of Restatement of Charter — previously filed as Exhibit 3(i)(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference.
  (ii)(a).   Amended and Restated Bylaws as of July 16, 2002 — previously filed as Exhibit 3(ii) to Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, and incorporated herein by reference.
4.(a).   Instruments defining the Rights of Security Holders — reference is made to Articles Fifth, Eighth, and Tenth of Articles of Restatement of Charter, as amended and supplemented. Instruments defining the rights of holders of long-term debt will be furnished to the Securities and Exchange Commission upon request.
  (b).   Rights Plan, dated February 22, 1990, between Huntington Bancshares Incorporated and The Huntington National Bank (as successor to The Huntington Trust Company, National Association) — previously filed as Exhibit 1 to Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on February 22, 1990, and incorporated herein by reference.
  (c).   Amendment No. 1 to the Rights Agreement, dated August 16, 1995— previously filed as Exhibit 4(b) to Form 8-K, dated August 16, 1995, and incorporated herein by reference.
10.   Material contracts:
  (a).      *   Tier I Executive Agreement for certain executive officers — previously filed as Exhibit 10(a) to Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
  (b).      *   Tier II Executive Agreement for certain executive officers — previously filed as Exhibit 10(b) to Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
  (c).      *   Schedule identifying material details of Executive Agreements, substantially similar to Exhibits 10(a) and 10(b).
  (d)(1). *   Huntington Bancshares Incorporated Amended and Restated Incentive Compensation Plan, effective for performance cycles beginning on or after January 1, 1999 — previously filed as Exhibit 10(e) to Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
  (d)(2). *   First Amendment to the Huntington Bancshares Incorporated Amended and Restated 1999 Incentive Compensation Plan — previously filed as Exhibit 10(g) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.

 

20


  (d)(3). *    Second Amendment to the Huntington Bancshares Incorporated Amended and Restated 1999 Incentive Compensation Plan — previously filed as Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and incorporated herein by reference.
  (e).      *    Restated Huntington Supplemental Retirement Income Plan — previously filed as Exhibit 10(n) to Annual Report on Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.
  (f).      *    Deferred Compensation Plan and Trust for Directors — reference is made to Exhibit 4(a) of Post-Effective Amendment No. 2 to Registration Statement on Form S-8, Registration No. 33-10546, filed with the Securities and Exchange Commission on January 28, 1991, and incorporated herein by reference.
  (g)(1). *    Deferred Compensation Plan and Trust for Huntington Bancshares Incorporated Directors — reference is made to Exhibit 4(a) of Registration Statement on Form S-8, Registration No. 33-41774, filed with the Securities and Exchange Commission on July 19, 1991, and incorporated herein by reference.
  (g)(2). *    First Amendment to Huntington Bancshares Incorporated Deferred Compensation Plan and Trust for Huntington Bancshares Incorporated Directors – previously filed as Exhibit 10(q) to Quarterly Report 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference.
  (h).      *    Executive Deferred Compensation Plan of Huntington Bancshares Incorporated (as amended and restated as of October 9, 2002).
  (i)(1). *    The Huntington Supplemental Stock Purchase and Tax Savings Plan and Trust (as amended and restated as of February 9, 1990) — previously filed as Exhibit 4(a) to Registration Statement on Form S-8, Registration No. 33-44208, filed with the Securities and Exchange Commission on November 26, 1991, and incorporated herein by reference.
  (i)(2). *    First Amendment to The Huntington Supplemental Stock Purchase and Tax Savings Plan and Trust Plan — previously filed as Exhibit 10(o)(2) to Annual Report on Form 10-K for the year ended December 31, 1997, and incorporated herein by reference.
  (j)(1). *    1990 Stock Option Plan — reference is made to Exhibit 4(a) of Registration Statement on Form S-8, Registration No. 33-37373, filed with the Securities and Exchange Commission on October 18, 1990, and incorporated herein by reference.
  (j)(2). *    First Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan — previously filed as Exhibit 10(q)(2) to Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference.
  (j)(3). *    Second Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan — previously filed as Exhibit 10(n)(3) to Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
  (j)(4). *    Third Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan — previously filed as Exhibit 10(b) to Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.
  (j)(5). *    Fourth Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan — previously filed as Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.
  (j)(6). *    Fifth Amendment to Huntington Bancshares Incorporated 1990 Stock Option Plan — previously filed as Exhibit 10(b) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.
  (k)(1). *    Amended and Restated 1994 Stock Option Plan — previously filed as Exhibit 10(r) to Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.

 

21


 
  (k)(2). *    First Amendment to Huntington Bancshares Incorporated 1994 Stock Option Plan — previously filed as Exhibit 10(a) to Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.
  (k)(3). *    First Amendment to Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan — previously filed as Exhibit 10(c) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.
  (k)(4). *    Second Amendment to Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan — previously filed as Exhibit 10(d) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.
  (k)(5). *    Third Amendment to Huntington Bancshares Incorporated Amended and Restated 1994 Stock Option Plan — previously filed as Exhibit 10(e) to Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.
  (l)(1). *    Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan — previously filed as Exhibit 10(r) to Quarterly Report 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference.
  (l)(2). *    First Amendment to the Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan — previously filed as Exhibit 10(h) to Quarterly Report 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.
  (l)(3). *    Second Amendment to the Huntington Bancshares Incorporated 2001 Stock and Long-Term Incentive Plan — previously filed as Exhibit 10(i) to Quarterly Report 10-Q for the quarter ended March 31, 2002, and incorporated herein by reference.
  (m).   *    Employment Agreement, dated February 15, 2004, between Huntington Bancshares Incorporated and Thomas E. Hoaglin.
  (n)     *    Huntington Investment and Tax Savings Plan — reference is made to Exhibit 4(a) of Post-effective Amendment No. 1 to Registration Statement on Form S-8, Registration 33-46327, previously filed with the Securities and Exchange Commission on April 1, 1998.
  (o)     *    Huntington Bancshares Incorporated Employee Stock Incentive Plan (incorporating changes made by first amendment to Plan) – reference is made to Exhibit 4(a) of Registration Statement on Form S-8, Registration 333-75032, previously filed with the Securities and Exchange Commission on December 13, 2001.
  (p)     *    Second Amendment to Huntington Bancshares Incorporated Employee Stock Incentive Plan — previously filed as Exhibit 10(s) to Annual Report on Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
12.    Ratio of Earnings to Fixed Charges.
13.    Portions of Huntington’s 2003 Annual Report to Shareholders.
14.    Code of Business Conduct and Ethics, adopted January 14, 2003, is available on Huntington’s website at http://www.investquest.com/iq/h/hban/main/cg/cg.htm#top.
16.    Letter Regarding Change in Certifying Accountants.
21.    Subsidiaries of the Registrant.
23.    Consent of Ernst & Young LLP, Independent Auditors.
24    Power of Attorney.
31.1    Sarbanes-Oxley Act 302 Certification – Chief Executive Officer.

 

22


31.2    Sarbanes-Oxley Act 302 Certification – Chief Financial Officer.
32.1    Sarbanes-Oxley Act 906 Certification—Chief Executive Officer.
32.2    Sarbanes-Oxley Act 906 Certification—Chief Financial Officer.

* Denotes management contract or compensatory plan or arrangement.

 

23

 

 

Exhibit 2

 

AGREEMENT AND PLAN OF MERGER

 

by and between

 

Unizan Financial Corp.

 

and

 

Huntington Bancshares Incorporated

 


 

DATED AS OF JANUARY 27, 2004

 

 


TABLE OF CONTENTS

 

 
     ARTICLE I     
     THE MERGER     
1.1.    The Merger    1
1.2    Effective Time    2
1.3    Effects of the Merger    2
1.4    Conversion of Unizan Common Stock    2
1.5    Huntington Common Stock    3
1.6    Unizan Stock Options    3
1.7    Certificate of Incorporation of Huntington    4
1.8    Bylaws of Huntington    4
1.9    Tax Consequences    4
1.10    Dissenting Shares    4
     ARTICLE II     
     EXCHANGE OF SHARES     
2.1    Huntington to Make Shares Available    5
2.2    Exchange of Shares    5
     ARTICLE III     
     REPRESENTATIONS AND WARRANTIES OF UNIZAN     
3.1    Corporate Organization    7
3.2    Capitalization    8
3.3    Authority; No Violation    9
3.4    Consents and Approvals    9
3.5    Reports    10
3.6    Financial Statements    10
3.7    Broker’s Fees    11
3.8    Absence of Certain Changes or Events    11
3.9    Legal Proceedings    12
3.10    Taxes and Tax Returns    13
3.11    Employees    13
3.12    SEC Reports    17
3.13    Compliance with Applicable Law    17
3.14    Certain Contracts    18
3.15    Agreements with Regulatory Agencies    19
3.16    Interest Rate Risk Management Instruments    19
3.17    Undisclosed Liabilities    20
3.18    Environmental Liability    20
3.19    Real Property    20

 

ii


 
 
 
3.20    State Takeover Laws    21
3.21    Reorganization    21
3.22    Opinions    21
3.23    Internal Controls    21
3.24    Insurance    21
3.25    Unizan Information    22
     ARTICLE IV     
     REPRESENTATIONS AND WARRANTIES OF HUNTINGTON     
4.1    Corporate Organization    22
4.2    Capitalization    22
4.3    Authority, No Violation    23
4.4    Consents and Approvals    24
4.5    Reports    24
4.6    Financial Statements    25
4.7    Broker’s Fees    25
4.8    Absence of Certain Changes or Events    25
4.9    Legal Proceedings    25
4.10    Taxes and Tax Returns    26
4.11    SEC Reports    26
4.12    Compliance with Applicable Law    26
4.13    Agreements with Regulatory Agencies    27
4.14    Interest Rate Risk Management Instruments    27
4.15    Undisclosed Liabilities    28
4.16    Environmental Liability    28
4.17    Reorganization    28
4.18    Internal Controls    28
4.19    Huntington Information    28
     ARTICLE V     
     COVENANTS RELATING TO CONDUCT OF BUSINESS     
5.1    Conduct of Businesses Prior to the Effective Time    29
5.2    Unizan Forbearances    29
5.3    Huntington Forbearances    32
     ARTICLE VI     
     ADDITIONAL AGREEMENTS     
6.1    Regulatory Matters    33
6.2    Access to Information    34
6.3    Shareholder Approvals    34
6.4    Legal Conditions to Merger    35
6.5    Affiliates    35

 

iii


 
 
 
6.6    Nasdaq Approval    35
6.7    Employee Matters    35
6.8    Indemnification; Directors’ and Officers’ Insurance    36
6.9    Additional Agreements    38
6.10    Advice of Changes    38
6.11    Dividends    38
6.12    Exemption from Liability Under Section 16(b)    38
6.13    No Solicitation    39
6.14    Transition    41
6.15    Directorship    41
     ARTICLE VII     
     CONDITIONS PRECEDENT     
7.1    Conditions to Each Party’s Obligation To Effect the Merger    41
7.2    Conditions to Obligations of Huntington    42
7.3    Conditions to Obligations of Unizan    43
     ARTICLE VIII     
     TERMINATION AND AMENDMENT     
8.1    Termination    44
8.2    Effect of Termination    46
8.3    Termination Fee    46
8.4    Amendment    47
8.5    Extension; Waiver    47
     ARTICLE IX     
     GENERAL PROVISIONS     
9.1    Closing    47
9.2    Nonsurvival of Representations, Warranties and Agreements    47
9.3    Expenses    47
9.4    Notices    48
9.5    Interpretation    48
9.6    Counterparts    49
9.7    Entire Agreement    49
9.8    Governing Law    49
9.9    Publicity    49
9.10    Assignment; Third Party Beneficiaries    49
Exhibit A – Form of Affiliate Letter     

 

iv

 


INDEX OF DEFINED TERMS

 

     Section

Acquisition Proposal

   6.13(a)

Agreement

   Preamble

Alternative Transaction

   6.13(a)

Articles of Merger

   1.2

Assumed Stock Option

   1.6(a)

Average Closing Price

   8.1(g)

Bank Index

   8.1(g)

BHC Act

   3.1(b)

Business day

   8.1(g)

Certificate

   1.4(b)

Certificate of Merger

   1.2

Closing

   9.1

Closing Date

   9.1

Code

   Recitals

Confidentiality Agreement

   6.2(b)

Credit Facilities

   5.2(f)

Determination Date

   8.1(g)

Dissenting Shareholder

   1.10

Dissenting Shares

   1.10

DPC Common Shares

   1.4(a)

Effective Time

   1.2

Effective Date

   1.2

ERISA

   3.11(c)

Exchange Act

   3.6

Exchange Agent

   2.1

Exchange Fund

   2.1

Exchange Ratio

   1.4(a)

Fill Option

   8.1(g)

Final Index Price

   8.1(g)

Federal Reserve Board

   3.4

Form S-4

   3.4

GAAP

   3.1(c)

Governmental Entity

   3.4

HSR Act

   3.4

Huntington

   Preamble

Huntington 10-Q

   4.6

Huntington Benefit Plans

   6.7(a)

Huntington Charter

   4.1(b)

Huntington Common Stock

   1.4(a)

Huntington Disclosure Schedule

   Art. IV

Huntington Preferred Stock

   4.2(a)

Huntington Ratio

   8.1(g)

Huntington Regulatory Agreement

   4.13

 

v


Huntington Reports

   4.11

Huntington Starting Price

   8.1(g)

Huntington Stock Plans

   4.2(a)

Huntington Subsidiary

   3.1(c)

Huntington 2002 10-K

   4.6

Indebtedness

   3.14

Indemnified Parties

   6.8(a)

Index Ratio

   8.1(g)

Initial Index Price

   8.1(g)

Injunction

   7.1(e)

Instruments of Indebtedness

   3.14(a)

IRS

   3.10(a)

Proxy Statement

   3.4

Leased Properties

   3.19(c)

Leases

   3.19(b)

Liens

   3.2(b)

Material Adverse Effect

   3.1(c)

Maximum Amount

   6.8(b)

Merger

   Recitals

Merger Consideration

   1.1(b)

MGCL

   1.1(a)

Nasdaq

   2.2(e)

OCC

   3.4

OGCL

   1.1(a)

Other Regulatory Approvals

   3.4

Owned Properties

   3.19(a)

Regulatory Agencies

   3.5

Requisite Regulatory Approvals

   7.1(c)

SBA

   3.4

SEC

   3.4

Section 16 Information

   6.12

Securities Act

   3.8(e)

SRO

   3.4

Subsidiary

   3.1(c)

Surviving Corporation

   Recitals

Takeover Statutes

   3.20

Tax(es)

   3.10(b)

Third Party Leases

   3.19(d)

Trust Account Common Shares

   1.4(a)

Unizan

   Preamble

Unizan 10-Q

   3.6

Unizan Articles

   3.1(b)

Unizan Benefit Plans

   3.11(a)

Unizan Code

   3.1(b)

Unizan Common Stock

   1.4(a)

Unizan Disclosure Schedule

   Art. III

 

vi


Unizan DRIP

   1.6(c)

Unizan ERISA Affiliate

   3.11(c)

Unizan ESPP

   1.6(c)

Unizan Insiders

   6.12

Unizan Material Contracts

   3.14(a)

Unizan Recommendation

   6.3

Unizan Regulatory Agreement

   3.15

Unizan Reports

   3.12

Unizan Shareholder Meeting

   6.3

Unizan Stock Plans

   1.6(a)

Unizan Stock Purchase Plans

   1.6(c)

Unizan Stock Option

   1.6(a)

Unizan Subsidiary

   3.1(c)

Unizan 2002 10-K

   3.6

 

vii


AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER, dated as of January 27, 2004 (this “ Agreement ”), by and between Unizan Financial Corp., an Ohio corporation (“ Unizan ”), and Huntington Bancshares Incorporated, a Maryland corporation (“ Huntington ”).

 

W I T N E S S E T H:

 

WHEREAS, the Boards of Directors of Unizan and Huntington have determined that it is in the best interests of their respective companies and their shareholders and stockholders to consummate the strategic business combination transaction provided for in this Agreement in which Unizan will, on the terms and subject to the conditions set forth in this Agreement, merge with and into Huntington (the “ Merger ”), so that Huntington is the surviving corporation in the Merger (sometimes referred to in such capacity as the “ Surviving Corporation ”); and

 

WHEREAS, for Federal income Tax purposes, it is intended that the Merger shall qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”), and this Agreement is intended to be and is adopted as a “plan of reorganization” for purposes of Sections 354 and 361 of the Code; and

 

WHEREAS, the parties desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions to the Merger.

 

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

 

ARTICLE I

 

THE MERGER

 

1.1 The Merger . (a) Subject to the terms and conditions of this Agreement, in accordance with the Ohio General Corporation Law (the “ OGCL ”) and the Maryland General Corporation Law (the “ MGCL ”), at the Effective Time, Unizan shall merge with and into Huntington. Huntington shall be the Surviving Corporation in the Merger, and shall continue its corporate existence under the laws of the State of Maryland. As of the Effective Time, the separate corporate existence of Unizan shall cease.

 

(b) Huntington may at any time change the method of effecting the combination (including by providing for the merger of Unizan and a wholly owned subsidiary of Huntington), and Unizan shall cooperate in such efforts, including by entering into an appropriate amendment to this Agreement (to the extent such amendment only changes the method of effecting the business combination and does not substantively affect this Agreement or the rights and obligations of the parties or their respective shareholders hereunder); provided ,

 

1


however , that no such change shall (i) alter or change the amount or kind of consideration to be issued to holders of the capital stock of Unizan as provided for in this Agreement (the “ Merger Consideration ”), (ii) adversely affect the Tax treatment of Unizan’s shareholders as a result of receiving the Merger Consideration or the Tax treatment of either party pursuant to this Agreement or (iii) materially impede or delay consummation of the transactions contemplated by this Agreement.

 

1.2 Effective Time . The Merger shall become effective as set forth in the articles of merger (the “ Articles of Merger ”) that shall be filed with the Maryland State Department of Assessments and Taxation and the certificate of merger (the “ Certificate of Merger ”) that shall be filed with the Secretary of State of the State of Ohio on or before the Closing Date. The term “ Effective Time ” shall be the date and time when the Merger becomes effective as set forth in the Articles of Merger and the Certificate of Merger. “ Effective Date ” shall mean the date on which the Effective Time occurs.

 

1.3 Effects of the Merger . At and after the Effective Time, the Merger shall have the effects set forth in Section 1701.72 of the OGCL and Section 3-114 of the MGCL.

 

1.4 Conversion of Unizan Capital Stock . At the Effective Time, by virtue of the Merger and without any action on the part of Huntington, Unizan or the holder of any of the following securities:

 

(a) Subject to Section 2.2(e) , each share of the common stock, without par value, of Unizan issued and outstanding immediately prior to the Effective Time (“ Unizan Common Stock ”), except for shares of Unizan Common Stock owned by Unizan or Huntington (other than shares of Unizan Common Stock held in trust accounts, managed accounts and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties (any such shares, “ Trust Account Common Shares ”) and other than shares of Unizan Common Stock held, directly or indirectly, by Unizan or Huntington in respect of a debt previously contracted (any such shares, “ DPC Common Shares ”)) and for Dissenting Shares (as defined in Section 1.10 ), shall be converted into the right to receive 1.1424 shares (the “ Exchange Ratio ”) of common stock, without par value, of Huntington (together with the preferred share purchase rights attached thereto issued pursuant to that certain Rights Agreement (the “ Rights Agreement ”), dated as of February 22, 1990, by and between Huntington and The Huntington National Bank, as successor to The Huntington Trust Company, N.A., as rights agent, as amended, “ Huntington Common Stock ”).

 

(b) All of the shares of Unizan Common Stock converted into the right to receive Huntington Common Stock (as defined in Section 1.4(a) ) pursuant to this Article I shall no longer be outstanding and shall automatically be cancelled and shall cease to exist as of the Effective Time, and, subject to Section 1.10 , each certificate previously representing any such shares of Unizan Common Stock (each a “ Certificate ”) shall thereafter represent only the right to receive (A) a certificate representing the number of whole shares of Huntington Common Stock and (B) cash in lieu of fractional shares into which the shares of Unizan Common Stock represented by such Certificate have been converted pursuant to this Section 1.4 and Section 2.2(e) . Certificates previously representing shares of Unizan Common Stock shall be exchanged for certificates representing whole shares of Huntington Common Stock and cash in

 

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lieu of fractional shares issued in consideration therefor upon the surrender of such Certificates in accordance with Section 2.2 , without any interest thereon. If, prior to the Effective Time, the outstanding shares of Huntington Common Stock or Unizan Common Stock shall have been increased, decreased, changed into or exchanged for a different number or kind of shares or securities as a result of a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in capitalization, an appropriate and proportionate adjustment shall be made to the Exchange Ratio.

 

(c) Notwithstanding anything in the Agreement to the contrary, at the Effective Time, all shares of Unizan Common Stock that are owned by Unizan or Huntington (other than Trust Account Shares and DPC Shares) shall be cancelled and shall cease to exist and no stock of Huntington or other consideration shall be delivered in exchange therefor.

 

1.5 Huntington Common Stock . At and after the Effective Time, each share of Huntington capital stock issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding and shall not be affected by the Merger.

 

1.6 Unizan Stock Plans . (a) Effective as of the Effective Time, each then outstanding option to purchase shares of Unizan Common Stock (each a “ Unizan Stock Option ”), pursuant to the equity-based compensation plans identified on Schedule 3.11(a) (the “ Unizan Stock Plans ”), granted to any current or former employee or director of, or consultant to, Unizan or any of its subsidiaries shall be assumed by Huntington and shall be converted into an option to purchase a number of shares of Huntington Common Stock (rounded to the nearest whole share) (an “ Assumed Stock Option ”) equal to (i) the number of shares of Unizan Common Stock subject to such Unizan Stock Option immediately prior to the Effective Time multiplied by (ii) the Exchange Ratio; and the per share exercise price for Huntington Common Stock issuable upon the exercise of such Assumed Stock Option shall be equal to (i) the exercise price per share of Unizan Common Stock at which such Unizan Stock Option was exercisable immediately prior to the Effective Time divided by (ii) the Exchange Ratio (rounded to the nearest whole cent); provided , however , that in the case of any Unizan Stock Option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code, the conversion formula shall be adjusted, if necessary, to comply with Section 424(a) of the Code. Except as otherwise provided herein, the Assumed Stock Options shall be subject to the same terms and conditions (including expiration date, vesting and exercise provisions) as were applicable to the corresponding Unizan Stock Options immediately prior to the Effective Time.

 

(b) Huntington has taken all corporate actions necessary to reserve for issuance a sufficient number of shares of Huntington Common Stock upon the exercise of the Assumed Stock Options. On or as soon as practicable following the Closing, Huntington shall file a registration statement on an appropriate form or a post-effective amendment to a previously filed registration statement under the Securities Act with respect to the issuance of the shares of Huntington Common Stock subject to the Assumed Stock Options and shall use its reasonable efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such equity awards remain outstanding.

 

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(c) Unizan shall take such action as is necessary to (i) cause the exercise (as of a date that is no later than the earlier of the expiration of the current purchase period and three business days prior to the Effective Date) of each outstanding purchase right under the Unizan Employee Stock Purchase Plan (the “ Unizan ESPP ”); (ii) provide that no further purchase period shall commence under the Unizan ESPP following such date; provided , however , that such exercise and cessation of further purchase periods shall be conditioned upon the consummation of the Merger; (iii) provide that participation in the Unizan ESPP shall be limited to those employees who were participants on the date hereof; and (iv) provide that participants as of the date hereof may not increase their payroll deduction election or purchase elections from those in effect on the date hereof. On such new exercise date, Unizan shall apply the funds credited as of such date under the Unizan ESPP within each participant’s payroll withholding account to the purchase of shares of Unizan Common Stock in accordance with the terms of the Unizan ESPP. In addition, Unizan shall take such action as is necessary to provide that as of no later than three business days prior to the Effective Date no further shares of Unizan Common Stock will be purchased under the Unizan Automatic Dividend Reinvestment Plan (the “ Unizan DRIP ” and, together with the Unizan ESPP, the “ Unizan Stock Purchase Plans ”); provided , however , that such cessation of further purchases shall be conditioned upon the consummation of the Merger. Immediately prior to and effective as of the Effective Time and subject to the consummation of the Merger, Unizan shall terminate the Unizan Stock Purchase Plans.

 

1.7 Certificate of Incorporation of Huntington . At the Effective Time, the Huntington Charter (as defined in Section 4.1(b) ) shall be the certificate of incorporation of the Surviving Corporation until thereafter amended in accordance with applicable law.

 

1.8 Bylaws of Huntington . At the Effective Time, the Huntington Bylaws shall be the Bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law.

 

1.9 Tax Consequences . It is intended that the Merger shall constitute a “reorganization” within the meaning of Section 368(a) of the Code, and that this Agreement shall constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code.

 

1.10 Dissenting Shares . No outstanding shares of Unizan Common Stock as to which rights have been asserted pursuant to Section 1701.75 of the OGCL and duly perfected in accordance therewith and not effectively withdrawn (“ Dissenting Shares ”) shall be converted into or represent a right to receive the Huntington Common Stock in the Merger, and the holder thereof shall be entitled only to such rights as are granted by the OGCL. Unizan shall give Huntington (i) prompt notice upon receipt by Unizan of the assertion of any such rights and of withdrawals thereof (any holder of such shares, a “ Dissenting Shareholder ”) and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands or notices. Unizan shall not, without the prior written consent of Huntington, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands. If any Dissenting Shareholder shall effectively withdraw or lose (through failure to perfect or otherwise) his right to such payment, such holder’s shares of the Unizan Common Stock shall be converted into a right to receive shares of Huntington Common Stock in accordance with Section 1.4(a) and the other applicable provisions of this Agreement.

 

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ARTICLE II

 

EXCHANGE OF SHARES

 

2.1 Huntington to Make Shares Available . As promptly as practicable following the Effective Time, Huntington shall deposit, or shall cause to be deposited, with a bank or trust company Subsidiary of Huntington, or another bank or trust company reasonably acceptable to each of Unizan and Huntington (the “ Exchange Agent ”), for the benefit of the holders of Certificates, for exchange in accordance with this Article II , certificates representing the shares of Huntington Common Stock, and cash in lieu of any fractional shares (such cash and certificates for shares of Huntington Common Stock, together with any dividends or distributions with respect thereto, being referred to as the “ Exchange Fund ”), to be issued pursuant to Section 1.4 and paid pursuant to Section 2.2(e) in exchange for outstanding shares of Unizan Common Stock (other than Dissenting Shares).

 

2.2 Exchange of Shares . (a) As soon as practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of one or more Certificates (except to the extent representing Dissenting Shares) a letter of transmittal in customary form as prepared by Huntington and reasonably acceptable to Unizan (which shall specify, among other things, that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificates in exchange for certificates representing the shares of Huntington Common Stock and any cash in lieu of fractional shares into which the shares of Unizan Common Stock represented by such Certificate or Certificates shall have been converted pursuant to this Agreement. Upon proper surrender of a Certificate or Certificates for exchange and cancellation to the Exchange Agent, together with such properly completed letter of transmittal, duly executed, the holder of such Certificate or Certificates shall be entitled to receive in exchange therefor, as applicable, (i) a certificate representing the number of whole shares of Huntington Common Stock to which such holder of Unizan Common Stock shall have become entitled pursuant to the provisions of Article I , (ii) a check representing the amount of any cash in lieu of fractional shares which such holder has the right to receive in respect of the Certificate or Certificates surrendered pursuant to the provisions of this Article II , and (iii) a check representing the amount of any dividends or distributions then payable pursuant to Section 2.2(b)(i) , and the Certificate or Certificates so surrendered shall forthwith be cancelled. No interest will be paid or accrued on any cash in lieu of fractional shares or on any unpaid dividends and distributions payable to holders of Certificates.

 

(b) No dividends or other distributions declared with respect to Huntington Common Stock shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with this Article II . After the surrender of a Certificate in accordance with this Article II , the record holder thereof shall be entitled to receive (i) the amount of dividends or other distributions with a record date after the Effective Time theretofore paid, without any interest thereon, with respect to the whole shares of Huntington Common Stock represented by such Certificate and (ii), at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender, with respect to shares of Huntington Common Stock represented by such Certificate.

 

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(c) If any certificate representing shares of Huntington Common Stock is to be issued in a name other than that in which the Certificate or Certificates surrendered in exchange therefor is or are registered, it shall be a condition to the issuance thereof that the Certificate or Certificates so surrendered shall be properly endorsed (or accompanied by an appropriate instrument of transfer) and otherwise in proper form for transfer, and that the person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other Taxes required by reason of the issuance of a certificate representing shares of Huntington Common Stock in any name other than that of the registered holder of the Certificate or Certificates surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

 

(d) After the Effective Time, there shall be no transfers on the stock transfer books of Unizan of the shares of Unizan Common Stock that were issued and outstanding immediately prior to the Effective Time other than to settle transfers of Unizan Common Stock that occurred prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be cancelled and exchanged for certificates representing shares of Huntington Common Stock as provided in this Article II .

 

(e) Notwithstanding anything to the contrary contained in this Agreement, no certificates or scrip representing fractional shares of Huntington Common Stock shall be issued upon the surrender of Certificates for exchange, no dividend or distribution with respect to Huntington Common Stock shall be payable on or with respect to any fractional share, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a stockholder of Huntington. In lieu of the issuance of any such fractional share, Huntington shall pay to each former shareholder of Unizan who otherwise would be entitled to receive such fractional share an amount in cash (rounded to the nearest cent) determined by multiplying (i) the average of the closing-sale prices of Huntington Common Stock on the Nasdaq National Market (the “ Nasdaq ”) as reported by The Wall Street Journal for the five full Nasdaq trading days immediately preceding (but not including) the date on which the Effective Time occurs by (ii) the fraction of a share (rounded to the nearest thousandth when expressed in decimal form) of Huntington Common Stock to which such holder would otherwise be entitled to receive pursuant to Section 1.4 .

 

(f) Any portion of the Exchange Fund that remains unclaimed by the shareholders of Unizan as of the first anniversary of the Effective Time shall be paid to Huntington. Any former shareholders of Unizan who have not theretofore complied with this Article II shall thereafter look only to Huntington for payment of the shares of Huntington Common Stock, cash in lieu of any fractional shares and any unpaid dividends and distributions on the Huntington Common Stock deliverable in respect of each share of Unizan Common Stock, as the case may be, such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Huntington, Unizan, the Exchange Agent or any other person shall be liable to any former holder of shares of Unizan Common Stock for any amount delivered in good faith to a public official pursuant to applicable abandoned property, escheat or similar laws.

 

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(g) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if reasonably required by Huntington, the posting by such person of a bond in such amount as Huntington may determine is reasonably necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Huntington Common Stock and any cash in lieu of fractional shares deliverable in respect thereof pursuant to this Agreement.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF UNIZAN

 

Except as disclosed in a correspondingly numbered section of the disclosure schedule (the “ Unizan Disclosure Schedule ”) delivered by Unizan to Huntington prior to the execution of this Agreement, Unizan hereby represents and warrants to Huntington as follows:

 

3.1 Corporate Organization .

 

(a) Unizan is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. Unizan has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary.

 

(b) Unizan is duly registered as a financial holding company under the Bank Holding Company Act of 1956, as amended (the “ BHC Act ”). True and complete copies of the Amended and Restated Articles of Incorporation of Unizan (the “ Unizan Articles ”) and the Amended Code of Regulations of Unizan (the “ Unizan Code ”), as in effect as of the date of this Agreement, have previously been made available to Huntington.

 

(c) Each of Unizan’s Subsidiaries (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted, except in each of (i) – (iii) as would not be reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan. As used in this Agreement, (i) the word “ Subsidiary ” when used with respect to either party, means any bank, corporation, partnership, limited liability company or other organization, whether incorporated or unincorporated, that is consolidated with such party for financial reporting purposes under U.S. generally accepted accounting principles (“ GAAP ”), and the terms “ Unizan Subsidiary ” and “ Huntington Subsidiary ” shall mean any direct or indirect Subsidiary of Unizan or Huntington, respectively, and (ii) the term “ Material Adverse Effect ” means, with respect to Huntington, Unizan or the Surviving Corporation, as the case may be, a material adverse effect

 

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on (A) the business, results of operations or financial condition of such party and its Subsidiaries (as defined above) taken as a whole ( provided , however , that, with respect to this clause (A), Material Adverse Effect shall not be deemed to include effects to the extent resulting from (1) changes, after the date hereof, in generally accepted accounting principles or regulatory accounting requirements applicable to banks or savings associations and their holding companies generally, (2) changes, after the date hereof, in laws, rules or regulations of general applicability or interpretations thereof by courts or Governmental Entities (as defined in Section 3.4 ), (3) actions or omissions of Huntington or Unizan taken with the prior written consent of the other or required hereunder, (4) changes, after the date hereof, in general economic or market conditions affecting banks or their holding companies generally, (5) the payment of regular quarterly cash dividends by Unizan in accordance with Section 5.2 or (6) public disclosure of the transactions contemplated hereby), or (B) the ability of such party to timely consummate the transactions contemplated by this Agreement.

 

3.2 Capitalization . (a) The authorized capital stock of Unizan consists of 100,000,000 shares of Unizan Common Stock, of which, as of the date hereof, 21,713,267.3 shares were issued and outstanding. As of the date hereof, 409,802.2 shares of Unizan Common Stock were held in Unizan’s treasury. As of the date hereof, no shares of Unizan Common Stock were reserved for issuance except for 1,489,856.6 shares of Unizan Common Stock reserved for issuance upon the exercise of Unizan Stock Options issued pursuant to the Unizan Stock Plans. All of the issued and outstanding shares of Unizan Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date hereof, except pursuant to this Agreement and the Unizan Stock Plans, Unizan does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Unizan Common Stock or any other equity securities of Unizan or any securities representing the right to purchase or otherwise receive any shares of Unizan Common Stock. Unizan has provided Huntington with a true and complete list of all the Unizan Stock Options outstanding under the Unizan Stock Plans as of January 24, 2004, the number of shares subject to each such Unizan Stock Option, the grant date of each such Unizan Stock Option, the vesting schedule of each such Unizan Stock Option and the exercise price for each such Unizan Stock Option; since January 24, 2004 through the date hereof, Unizan has not issued or awarded, or authorized the issuance or award of, any options, restricted stock or other equity-based awards under the Unizan Stock Plans.

 

(b) All of the issued and outstanding shares of capital stock or other equity ownership interests of each Subsidiary of Unizan are owned by Unizan, directly or indirectly, free and clear of any material liens, pledges, charges and security interests and similar encumbrances (other than Liens for property Taxes not yet due and payable and in the case of depository institution Subsidiaries of a Party, pledges to secure deposits, “ Liens ”), and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable (subject to 12 U.S.C. §§ 55) and free of preemptive rights. No such Subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such Subsidiary.

 

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3.3 Authority; No Violation . (a) Unizan has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of Unizan. The Board of Directors of Unizan has determined that this Agreement and the transactions contemplated hereby are in the best interests of Unizan and its shareholders and has directed that this Agreement and the transactions contemplated by this Agreement be submitted to Unizan’s shareholders for adoption at a duly held meeting of such shareholders and, except for the approval of this Agreement and the transactions contemplated by this Agreement by the affirmative vote of the holders of two-thirds of the outstanding shares of Unizan Common Stock entitled to vote at such meeting, no other corporate proceedings on the part of Unizan are necessary to approve this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Unizan and (assuming due authorization, execution and delivery by Huntington) constitutes the valid and binding obligation of Unizan, enforceable against Unizan in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies).

 

(b) Neither the execution and delivery of this Agreement by Unizan nor the consummation by Unizan of the transactions contemplated hereby, nor compliance by Unizan with any of the terms or provisions of this Agreement, will (i) violate any provision of the Unizan Articles or the Unizan Code or (ii) assuming that the consents, approvals and filings referred to in Section 3.4 are duly obtained and/or made, (A) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or Injunction (as defined in Section 7.1(e) ) applicable to Unizan, any of its Subsidiaries or any of their respective properties or assets or (B) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Unizan or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Unizan or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except for such violations, conflicts, breaches or defaults with respect to clause (ii) that are not reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan.

 

3.4 Consents and Approvals . Except for (i) the filing of applications and notices, as applicable, with the Board of Governors of the Federal Reserve System (the “ Federal Reserve Board ”) under the BHC Act and the Federal Reserve Act, as amended, and approval of such applications and notices, and, in connection with the merger of the national bank Subsidiaries of Unizan and Huntington, the filing of applications and notices, as applicable, with the Office of the Comptroller of the Currency (the “ OCC ”), and approval of such applications and notice, (ii) the filing of any required applications or notices with any foreign or state banking, insurance or other regulatory authorities and approval of such applications and notices (the “ Other Regulatory Approvals ”), (iii) the filing with the Securities and Exchange Commission (the “ SEC ”) of a Proxy Statement in definitive form relating to the meetings of

 

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Unizan’s shareholders to be held in connection with this Agreement and the transactions contemplated by this Agreement (the “ Proxy Statement ”) and of a registration statement on Form S-4 (the “ Form S-4 ”) in which the Proxy Statement will be included as a prospectus, and declaration of effectiveness of the Form S-4, (iv) the filing of the Articles of Merger with the Maryland Department of Assessments and Taxation pursuant to the MGCL and the issuance by the Maryland Secretary of a Certificate of Merger and the filing of the Certificate of Merger with the Secretary of State of the State of Ohio pursuant to the OGCL, (v) any notices to or filings with the Small Business Administration (the “ SBA ”), (vi) any notices or filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), (vii) any consents, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of broker-dealers, investment advisers or transfer agents and the rules and regulations thereunder and of any applicable industry self-regulatory organization (“ SRO ”), and the rules of the Nasdaq, or that are required under consumer finance, mortgage banking and other similar laws, (viii) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of Huntington Common Stock pursuant to this Agreement, (ix) the approval of this Agreement by the requisite vote of shareholders of Unizan and (x) filings, if any, required as a result of the particular status of Huntington, no consents or approvals of or filings or registrations with any court, administrative agency or commission or other governmental authority or instrumentality (each a “ Governmental Entity ”) are necessary in connection with (A) the execution and delivery by Unizan of this Agreement and (B) the consummation by Unizan of the Merger and the other transactions contemplated by this Agreement.

 

3.5 Reports . Unizan and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 2000 with (i) the Federal Reserve Board, (ii) the Federal Deposit Insurance Corporation, (iii) any state regulatory authority, (iv) the SEC, (v) any foreign regulatory authority and (vi) any SRO (collectively, “ Regulatory Agencies ”), and all other reports and statements required to be filed by them since January 1, 2000, including any report or statement required to be filed pursuant to the laws, rules or regulations of the United States, any state, any foreign entity, or any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by a Regulatory Agency in the ordinary course of the business of Unizan and its Subsidiaries, no Regulatory Agency has initiated or has pending any proceeding or, to the knowledge of Unizan, investigation into the business or operations of Unizan or any of its Subsidiaries since January 1, 2000. There (i) is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations or inspections of Unizan or any of its Subsidiaries and (ii) has been no formal or informal inquiries by, or disagreements or disputes with, any Regulatory Agency with respect to the business, operations, policies or procedures of Unizan since January 1, 2000.

 

3.6 Financial Statements . Unizan has previously made available to Huntington copies of (i) the consolidated balance sheet of Unizan and its Subsidiaries as of December 31, 2000, 2001 and 2002, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended as reported in Unizan’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (as amended prior to the date

 

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hereof, the “ Unizan 2002 10-K ”) filed with the SEC under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), accompanied by the audit report of Crowe, Chizek and Company LLP, independent public accountants with respect to Unizan for the year ended December 31, 2002, and accompanied by the audit report of PricewaterhouseCoopers LLP, independent public accountants with respect to Unizan for the years ended December 31, 2000 and 2001, and (ii) the unaudited consolidated balance sheet of Unizan and its Subsidiaries as of September 30, 2002 and 2003, and the related consolidated statements of income, changes in shareholders equity and cash flows of the three- and nine-month periods then ended, as reported in Unizan’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (the “ Unizan 10-Q ”). The December 31, 2002 consolidated balance sheet of Unizan (including the related notes, where applicable) fairly presents in all material respects the consolidated financial position of Unizan and its Subsidiaries as of the date thereof, and the other financial statements referred to in this Section 3.6 (including the related notes, where applicable) fairly present in all material respects the results of the consolidated operations and changes in shareholders equity and consolidated financial position of Unizan and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth, subject to normal year-end audit adjustments in amounts consistent with past experience in the case of unaudited statements; each of such statements (including the related notes, where applicable) complies in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been prepared in all material respects in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of Unizan and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.

 

3.7 Broker’s Fees . Neither Unizan nor any Unizan Subsidiary nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any broker’s fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement, other than Sandler O’Neill & Partners, L.P.; and a true and complete copy of the agreement with respect to such engagement is included in Section 3.7 of the Unizan Disclosure Schedule.

 

3.8 Absence of Certain Changes or Events . Except for liabilities incurred in connection with this Agreement or as publicly disclosed in the Unizan Reports (as defined in Section 3.12 ) filed prior to the date of this Agreement, since September 30, 2003, Unizan and its Subsidiaries have conducted their respective businesses, in all material respects, only in the ordinary course and there has not been:

 

(a) any Material Adverse Effect with respect to Unizan;

 

(b) any issuance or awards of Unizan Stock Options, restricted shares or other equity-based awards in respect of Unizan Common Stock to any director, officer or employee of Unizan or any of its Subsidiaries;

 

(c) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of Unizan’s capital stock,

 

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other than regular quarterly cash dividends not in excess of $0.135 per share on Unizan Common Stock and regular cash distributions on the 9.875% Capital Securities, Series A, of BFOH Capital Trust I in the amounts and at the times required by the Amended and Restated Declaration of Trust of BFOH Capital Trust I;

 

(d) (i) any granting by Unizan or any of its Subsidiaries to any current or former director, officer or employee of any increase in compensation, bonus or other benefits, except for (x) normal annual increases in base salary to employees who are not current or former directors or officers that were made in the ordinary course of business consistent with past practice, (y) as required from time to time by governmental legislation affecting wages and (z) as required by the terms of plans or arrangements existing prior to such date and described in Section 3.11 of the Unizan Disclosure Schedule, (ii) any granting by Unizan or any of its Subsidiaries to any such current or former director, officer or employee of any increase in severance or termination pay, or (iii) any entry by Unizan or any of its Subsidiaries into, or any amendment of, any employment, deferred compensation, consulting, severance, termination or indemnification agreement with any such current or former director, officer or employee;

 

(e) other than as described in the public reports of Unizan filed prior to the date hereof with the SEC pursuant to the Securities Act of 1933, as amended (the “ Securities Act ”) or the Exchange Act, any (i) change in any material respect in accounting methods, principles or practices by Unizan affecting its assets, liabilities or business, other than changes after the date hereof to the extent required by a change in GAAP or regulatory accounting principles, or (ii) Tax election or change in or revocation of any Tax election, amendment to any Tax return, closing agreement with respect to Taxes, or settlement or compromise of any income Tax liability by Unizan or its Subsidiaries;

 

(f) any material change in its investment or risk management or other similar policies; or

 

(g) any agreement or commitment (contingent or otherwise) to do any of the foregoing.

 

3.9 Legal Proceedings . (a) Except as set forth in Section 3.9 of the Unizan Disclosure Schedule, which contains a true and current summary description of any pending and, to Unizan’s knowledge, threatened litigation, action, suit, proceeding, investigation or arbitration material to Unizan and its Subsidiaries, taken as a whole, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedies requested as of the date hereof, no action, demand, charge, requirement or investigation by any Governmental Entity and no litigation, action, suit, proceeding, investigation or arbitration by any individual, partnership, corporation, trust, joint venture, organization or other entity (collectively, “ Person ”) or Governmental Entity that is material to Unizan and its Subsidiaries, taken as a whole, in each case with respect to Unizan or any of its Subsidiaries or any of their respective properties or permits, licenses or authorizations, is pending or, to the knowledge of Unizan, threatened.

 

(b) There is no material Injunction, judgment, or regulatory restriction (other than those of general application that apply to similarly situated financial or bank holding

 

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companies or their Subsidiaries) imposed upon Unizan, any of its Subsidiaries or the assets of Unizan or any of its Subsidiaries.

 

3.10 Taxes and Tax Returns . (a) Each of Unizan and its Subsidiaries has duly filed all federal, state, foreign and local information returns and Tax returns required to be filed by it on or prior to the date of this Agreement (all such returns being accurate and complete in all material respects) and has duly paid or made provision for the payment of all Taxes that have been incurred or are due or claimed to be due from it by federal, state, foreign or local taxing authorities other than (i) Taxes that are not yet delinquent or are being contested in good faith, have not been finally determined and have been adequately reserved against or (ii) information returns, Tax returns or Taxes as to which the failure to file, pay or make provision for is not reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan. The federal income Tax returns of Unizan and its Subsidiaries have been examined by the Internal Revenue Service (the “ IRS ”) for all years to and including 1999 and any liability with respect thereto has been satisfied or any liability with respect to deficiencies asserted as a result of such examination is covered by adequate reserves. There are no material disputes pending, or claims asserted, for Taxes or assessments upon Unizan or any of its Subsidiaries for which Unizan does not have adequate reserves. Neither Unizan nor any of its Subsidiaries is a party to or is bound by any Tax sharing, allocation or indemnification agreement or arrangement (other than such an agreement or arrangement exclusively between or among Unizan and its Subsidiaries). Within the past five years, neither Unizan nor any of its Subsidiaries has been a “distributing corporation” or a “controlled corporation” in a distribution intended to qualify under Section 355(a) of the Code. There is and will be no disallowance of a deduction under Section 162(m) of the Code on any Tax Return filed or to be filed by Unizan or its Subsidiaries for employee remuneration of any amount paid or payable by Unizan or any of its Subsidiaries under any contract, plan, program or arrangement or understanding.

 

(b) As used in this Agreement, the term “ Tax ” or “ Taxes ” means (i) all federal, state, local, and foreign income, excise, gross receipts, gross income, ad valorem , profits, gains, property, capital, sales, transfer, use, payroll, employment, severance, withholding, duties, intangibles, franchise, backup withholding, and other taxes, charges, levies or like assessments together with all penalties and additions to tax and interest thereon and (ii) any liability for Taxes described in clause (i) under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law).

 

3.11 Employee Benefits . For purposes hereof, the following terms shall have the following meaning:

 

“Controlled Group Liability” means any and all liabilities (i) under Title IV of ERISA, (ii) under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of a failure to comply with the continuation coverage requirements of Section 601 et seq. of ERISA and Section 4980B of the Code, and (v) under corresponding or similar provisions of foreign laws or regulations.

 

A “Unizan Benefit Plan” means any employee benefit plan, program, policy, practices, or other arrangement providing benefits to any current or former employee, officer or director of Unizan or any of its Subsidiaries or any beneficiary or dependent thereof that is

 

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sponsored or maintained by Unizan or any of its Subsidiaries or to which Unizan or any of its Subsidiaries contributes or is obligated to contribute, whether or not written, including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control or fringe benefit plan, program or policy.

 

“Unizan ERISA Affiliate” means, with respect to any entity, trade or business, any other entity, trade or business that is, or was at the relevant time, a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes or included the first entity, trade or business, or that is, or was at the relevant time, a member of the same “controlled group” as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.

 

“Employment Agreement” means a contract, offer letter or agreement of Unizan or any of its Subsidiaries with or addressed to any individual who is rendering or has rendered services thereto as an employee or consultant pursuant to which Unizan or any of its Subsidiaries has any actual or contingent liability or obligation to provide compensation and/or benefits in consideration for past, present or future services.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.

 

“Multiemployer Plan” means any “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA.

 

“Plan” means any Unizan Benefit Plan other than a Multiemployer Plan.

 

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA.

 

(a) Section 3.11(a) of the Unizan Disclosure Schedule includes a complete list of all material Unizan Benefit Plans and all Employment Agreements.

 

(b) With respect to each Plan, Unizan has delivered to Huntington a true, correct and complete copy of: (i) each writing constituting a part of such Plan, including without limitation all plan documents, employee communications, benefit schedules, trust agreements, and insurance contracts and other funding vehicles; (ii) the most recent Annual Report (Form 5500 Series) and accompanying schedule, if any; (iii) the current summary plan description and any material modifications thereto, if any (in each case, whether or not required to be furnished under ERISA); (iv) the most recent annual financial report, if any; (v) the most recent actuarial report, if any; and (vi) the most recent determination letter from the IRS, if any. Unizan has delivered or made available to Huntington a true, correct and complete copy of each Employment Agreement. Except as specifically provided in the foregoing documents delivered to Huntington, there are no amendments to any Plan or Employment Agreement that have been

 

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adopted or approved nor has Unizan or any of its Subsidiaries undertaken to make any such amendments or to adopt or approve any new Plan or Employment Agreement.

 

(c) All contributions required to be made to any Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the financial statements. Each Unizan Benefit Plan that is an employee welfare benefit plan under Section 3(1) of ERISA either (i) is funded through an insurance company contract and is not a “welfare benefit fund” within the meaning of Section 419 of the Code or (ii) is unfunded.

 

(d) With respect to each Unizan Benefit Plan, Unizan and its Subsidiaries have complied, and are now in compliance, in all material respects, with all provisions of ERISA, the Code and all laws and regulations applicable to such Unizan Benefit Plans. Each Plan has been administered in all material respects in accordance with its terms. There is not now, nor do any circumstances exist that could give rise to, any requirement for the posting of security with respect to a Plan or the imposition of any lien on the assets of Unizan or any of its Subsidiaries under ERISA or the Code. Section 3.11(c) of the Unizan Disclosure Schedule identifies each Plan that is intended to be a “qualified plan” within the meaning of Section 401(a) of the Code (“Qualified Plans”). The Internal Revenue Service has issued a favorable determination letter with respect to each Qualified Plan and the related trust that has not been revoked, and there are no existing circumstances and no events have occurred that could adversely affect the qualified status of any Qualified Plan or the related trust. No trust funding any Plan is intended to meet the requirements of Code Section 501(c)(9). None of Unizan and its Subsidiaries nor any other person, including any fiduciary, has engaged in any “prohibited transaction” (as defined in Section 4975 of the Code or Section 406 of ERISA), which could subject any of the Unizan Benefit Plans or their related trusts, Unizan, any of its Subsidiaries or any person that Unizan or any of its Subsidiaries has an obligation to indemnify, to any material tax or penalty imposed under Section 4975 of the Code or Section 502 of ERISA.

 

(e) With respect to each Plan that is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there does not exist any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not waived; (ii) the fair market value of the assets of such Plan equals or exceeds the actuarial present value of all accrued benefits under such Plan (whether or not vested) on a termination basis; (iii) no reportable event within the meaning of Section 4043(c) of ERISA for which the 30-day notice requirement has not been waived has occurred, and the consummation of the transactions contemplated by this agreement will not result in the occurrence of any such reportable event; (iv) all premiums to the Pension Benefit Guaranty Corporation have been timely paid in full; (v) no liability (other than for premiums to the PBGC) under Title IV of ERISA has been or is expected to be incurred by Unizan or any of its Subsidiaries; and (vi) the PBGC has not instituted proceedings to terminate any such Plan and, to Unizan’s knowledge, no condition exists that presents a risk that such proceedings will be instituted or which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any such Plan.

 

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(f) Except as set forth in Section 3.11(g) of the Unizan Disclosure Schedule: (i) no Unizan Benefit Plan is a Multiemployer Plan or a plan that has two or more contributing sponsors at least two of whom are not under common control, within the meaning of Section 4063 of ERISA (a “Multiple Employer Plan”); (ii) none of Unizan and its Subsidiaries nor any of their respective Unizan ERISA Affiliates has, at any time during the last six years, contributed to or been obligated to contribute to any Multiemployer Plan or Multiple Employer Plan; and (iii) none of Unizan and its Subsidiaries nor any Unizan ERISA Affiliates has incurred any Withdrawal Liability that has not been satisfied in full. There does not now exist, nor do any circumstances exist that could result in, any Controlled Group Liability that would be a liability of Unizan or any of its Subsidiaries following the Closing. Without limiting the generality of the foregoing, neither Unizan nor any of its Subsidiaries, nor any of their respective Unizan ERISA Affiliates, has engaged in any transaction described in Section 4069 or Section 4204 or 4212 of ERISA.

 

(g) Except for any such benefits described in Section 3.11(g) of the Unizan Disclosure Schedule with respect to the individuals listed thereon, Unizan and its Subsidiaries have no liability for life, health, medical or other welfare benefits to former employees or beneficiaries or dependents thereof, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA and at no expense to Unizan and its Subsidiaries. Unizan and each of its Subsidiaries has reserved the right to amend, terminate or modify at any time all plans or arrangements providing for retiree health or life insurance coverage.

 

(h) Section 3.11(i) of the Unizan Disclosure Schedule sets forth (i) an accurate and complete description of each provision of any Plan or Employment Agreement under which the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby could (either along or in conjunction with any other event) result in, cause the accelerated vesting, funding or delivery of, or increase the amount or value of, any payment or benefit to any employee, officer or director of Unizan or any of its Subsidiaries, or could limit the right of Unizan or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Unizan Benefit Plan or related trust or any Employment Agreement or related trust, and (ii) the maximum amount of the “excess parachute payments” within the meaning of Section 280G of the Code that could become payable by Unizan or any of its Subsidiaries in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

 

(i) No labor organization or group of employees of Unizan or any of its Subsidiaries has made a pending demand for recognition or certification, and there are no representation or certification proceedings or petitions seeking a representation proceeding presently pending or threatened to be brought or filed, with the National Labor Relations Board or any other labor relations tribunal or authority. Each of Unizan and its Subsidiaries is in compliance with all applicable laws and collective bargaining agreements respecting employment and employment practices, terms and conditions of employment, wages and hours and occupational safety and health.

 

(j) Each individual who renders services to Unizan or any of its Subsidiaries who is classified by Unizan or such Subsidiary, as applicable, as having the status of an

 

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independent contractor or other non-employee status for any purpose (including for purposes of taxation and tax reporting and under Unizan Benefit Plans) is properly so characterized. Unizan, its Subsidiaries and each member of their respective business enterprises has complied with the Worker Adjustment and Retraining Notification Act and all similar state, local and foreign laws.

 

(k) All Unizan Benefit Plans subject to the laws of any jurisdiction outside of the United States (i) have been maintained in accordance with all applicable requirements, (ii) if they are intended to qualify for special tax treatment meet all requirements for such treatment, and (iii) if they are intended to be funded and/or book-reserved are fully funded and/or book reserved, as appropriate, based upon reasonable actuarial assumptions.

 

3.12 SEC Reports . Unizan has previously made available to Huntington an accurate and complete copy of each (i) final registration statement, prospectus, report, schedule and definitive proxy statement filed since January 1, 2000 by Unizan with the SEC pursuant to the Securities Act or the Exchange Act (the “ Unizan Reports ”), and prior to the date of this Agreement and (ii) communication mailed by Unizan to its shareholders since January 1, 2000 and prior to the date of this Agreement, and no such Unizan Report or communication, as of the date of such Unizan Report or communication, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. Since January 1, 2000, as of their respective dates, all Unizan Reports filed under the Securities Act and the Exchange Act complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto.

 

3.13 Compliance with Applicable Law . (a) Unizan and each of its Subsidiaries hold all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to each, and have complied in all respects with and are not in default in any respect under any, applicable law, statute, order, rule, regulation, policy or guideline of any Governmental Entity relating to Unizan or any of its Subsidiaries, except where the failure to hold such license, franchise, permit or authorization or such noncompliance or default is not reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan. Unizan Bank, N.A., is “well-capitalized” and “well-managed” under applicable regulatory definitions, and its examination rating under the Community Reinvestment Act of 1977 is “satisfactory” or better.

 

(b) Except as is not reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan, Unizan and each Unizan Subsidiary have properly administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents, applicable state and federal law and regulation and common law. None of Unizan, any Unizan Subsidiary, or any director, officer or employee of Unizan or of any Unizan Subsidiary, has committed any breach of trust or fiduciary duty with respect to any such fiduciary account that is reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan, and, except as would not be reasonably likely to have, either individually or in the aggregate, a

 

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Material Adverse Effect on Unizan, and the accountings for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.

 

3.14 Certain Contracts . (a) Except as set forth in the exhibit index for Unizan’s Annual Report on Form 10-K for the year ended December 31, 2002 or as permitted pursuant to Section 5.2 or as set forth on Section 3.14 of Unizan Disclosure Schedule, neither Unizan nor any of its Subsidiaries is a party to or bound by (i) any agreement relating to the incurring of Indebtedness (as defined below) by Unizan or any of its Subsidiaries in an amount in excess in the aggregate of $250,000 (collectively, “ Instruments of Indebtedness ”), (ii) any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC), (iii) any non-competition or exclusive dealing agreement, or any other agreement or obligation which purports to limit or restrict in any respect (A) the ability of Unizan or its Subsidiaries to solicit customers or (B) the manner in which, or the localities in which, all or any portion of the business of Unizan and its Subsidiaries or, following consummation of the transactions contemplated by this Agreement, Huntington and its Subsidiaries, is or would be conducted, (iv) any agreement providing for the indemnification by Unizan or a Subsidiary of Unizan of any Person other than customary agreements with directors or officers of Unizan or its Subsidiaries or with vendors providing goods or services to Unizan or its Subsidiaries where the potential indemnity obligations thereunder are not reasonably expected to be material to Unizan, (v) any joint venture or partnership agreement material to Unizan, (vi) any agreement that grants any right of first refusal or right of first offer or similar right or that limits or purports to limit the ability of Unizan or any of its Subsidiaries to own, operate, sell, transfer, pledge or otherwise dispose of any assets or business, (vii) any contract or agreement providing for any payments that are conditioned, in whole or in part, on a change of control of Unizan or any of its Subsidiaries, (viii) any collective bargaining agreement, (ix) any employment agreement (other than agreements terminable by Unizan or any Subsidiary of Unizan on not more than 30 days’ notice without penalty and which will not in any respect be affected by a change of control of Unizan), with, or any agreement or arrangement that contains any severance pay or post-employment liabilities or obligations (other than as required by law) to, any current or former director, officer or employee of Unizan or its Subsidiaries, (x) any agreement regarding any agent bank or other similar relationships with respect to lines of business, (xi) any agreement that contains a “most favored nation” clause or other term providing preferential pricing or treatment to a third party, (xii) any agreement material to Unizan and its Subsidiaries, taken as a whole, pertaining to the use of or granting any right to use or practice any rights under any Intellectual Property, whether Unizan is the licensee or licensor thereunder, (xiii) any agreements pursuant to which Unizan or any of its Subsidiaries leases any real property, (xiv) any contract or agreement material to Unizan and its Subsidiaries, taken as a whole, providing for the outsourcing or provision of servicing of customers, technology or product offerings of Unizan or its Subsidiaries, and (xv) any contract or other agreement not made in the ordinary course of business which (A) is material to Unizan and its Subsidiaries taken as a whole or (B) which would reasonably be expected to materially delay the consummation of the Merger or any of the transactions contemplated by this Agreement (the agreements, contracts and obligations of the type described in clauses (i) through (xv) being referred to herein as “ Unizan Material Contracts ”).

 

(b) Each Unizan Material Contract is valid and binding on Unizan (or, to the extent a Subsidiary of Unizan is a party, such Subsidiary) and, to the knowledge of Unizan, any

 

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other party thereto and is in full force and effect. Neither Unizan nor any of its Subsidiaries is in breach or default under any Unizan Material Contract except where any such breach or default would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Unizan. Neither Unizan nor any Subsidiary of Unizan knows of, or has received notice of, any violation or default under (nor, to the knowledge of Unizan, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Unizan Material Contract by any other party thereto except where any such violation or default would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Unizan. Prior to the date hereof, Unizan has made available to Huntington true and complete copies of all Unizan Material Contracts. There are no provisions in any Instrument of Indebtedness that provide any restrictions on the repayment of the outstanding Indebtedness thereunder, or that require that any financial payment (other than payment of outstanding principal and accrued interest) be made in the event of the repayment of the outstanding Indebtedness thereunder prior to expiration. For purposes of this Section 3.14 and elsewhere through this Agreement, “ Indebtedness ” of a person shall mean (i) all obligations of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes and similar instruments, (iii) all leases of such person capitalized pursuant to GAAP, and (iv) all obligations of such person under sale-and-lease back transactions, agreements to repurchase securities sold and other similar financing transactions.

 

3.15 Agreements with Regulatory Agencies . Neither Unizan nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been ordered to pay any civil money penalty by, or has been since January 1, 2000, a recipient of any supervisory letter from, or since January 1, 2000, has adopted any policies, procedures or board resolutions at the request or suggestion of any Regulatory Agency or other Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business, other than those of general application that apply to similarly situated financial holding companies or their Subsidiaries (each item in this sentence, whether or not set forth in the Unizan Disclosure Schedule, a “ Unizan Regulatory Agreement ”), nor has Unizan or any of its Subsidiaries been advised since January 1, 2000 by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Unizan Regulatory Agreement.

 

3.16 Interest Rate Risk Management Instruments . Except as would not be reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan, (i) all interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements, whether entered into for the account of Unizan or for the account of a customer of Unizan or any of its Subsidiaries, were entered into in the ordinary course of business consistent with past practice and in accordance with prudent banking practice and applicable rules, regulations and policies of any Regulatory Authority and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations of Unizan or one of its Subsidiaries enforceable against it in accordance with their terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and are in full force

 

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and effect, (ii) its Subsidiaries have duly performed their obligations thereunder to the extent that such obligations to perform have accrued, and, (iii) to Unizan’s knowledge, there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder.

 

3.17 Undisclosed Liabilities . Except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Unizan included in the Unizan 10-Q (including any notes thereto) and for liabilities incurred in the ordinary course of business consistent with past practice since September 30, 2003, since such date, neither Unizan nor any of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due) that has had or is reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan.

 

3.18 Environmental Liability . There are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that are reasonably likely to result in the imposition, on Unizan of any liability or obligation arising under common law or under any local, state or federal environmental statute, regulation or ordinance including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, pending or threatened against Unizan, which liability or obligation is reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan. To the knowledge of Unizan, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on Unizan. Unizan is not subject to any agreement, order, judgment, decree, letter or memorandum by or with any Governmental Entity or third party imposing any liability or obligation with respect to the foregoing that is reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Unizan.

 

3.19 Real Property .

 

(a) Each of Unizan and its Subsidiaries has good title free and clear of all Liens to all real property owned by such entities (the “ Owned Properties ”), except for Liens that do not materially detract from the present use of such real property.

 

(b) A true and complete copy of each agreement pursuant to which Unizan or any of its Subsidiaries leases any real property (such agreements, together with any amendments, modifications and other supplements thereto, collectively, the “ Leases ”) has heretofore been made available to Huntington. Each Lease is valid, binding and enforceable against Unizan or its applicable Subsidiary in accordance with its terms and is in full force and effect (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies). There are no defaults by Unizan or any of its Subsidiaries, as applicable, under any of the Leases which, in the aggregate, would result in the termination of such Leases and a Material Adverse Effect on Unizan. The consummation of the transactions contemplated by this Agreement will not cause defaults under the Leases, except for any such default which would not individually or in the aggregate, have a Material Adverse Effect on Unizan.

 

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(c) The Owned Properties and the properties (the “ Leased Properties ”) leased pursuant to the Leases constitute all of the real estate on which Unizan and its Subsidiaries maintain their facilities or conduct their business as of the date of this Agreement, except for locations the loss of which would not result in a Material Adverse Effect on Unizan.

 

(d) A true and complete copy of each agreement pursuant to which Unizan or any of its Subsidiaries leases real property to a third party (such agreements, together with any amendments, modifications and other supplements thereto, collectively, the “ Third Party Leases ”) has heretofore been made available to Huntington. Each Third Party Lease is valid, binding and enforceable in accordance with its terms and is in full force and effect (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies). There are no existing defaults by the tenant under any Third Party Lease which, in the aggregate, would result in the termination of such Third Party Leases except for any such default which would not reasonably be expected to result in a Material Adverse Effect on Unizan.

 

3.20 State Takeover Laws . The Board of Directors of Unizan has approved this Agreement and the transactions contemplated hereby as required to render inapplicable to such agreements and transactions the provisions of Chapter 1704 and Section 1707.043 of the OGCL, Article VIII of the Unizan Articles and all other similar “takeover” or “interested shareholder” law (any such laws, “ Takeover Statutes ”).

 

3.21 Reorganization . As of the date of this Agreement, Unizan is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

 

3.22 Opinions . Prior to the execution of this Agreement, Unizan has received an opinion from Sandler O’Neill & Partners, L.P. to the effect that as of the date thereof and based upon and subject to the matters set forth therein, the Exchange Ratio is fair to the shareholders of Unizan from a financial point of view. Such opinion has not been amended or rescinded as of the date of this Agreement.

 

3.23 Internal Controls . None of Unizan or its Subsidiaries’ records, systems, controls, data or information are recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of it or its Subsidiaries or accountants except as would not, individually or in the aggregate, reasonably be expected to result in a materially adverse effect on the system of internal accounting controls described in the next sentence. Unizan and its Subsidiaries have devised and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

 

3.24 Insurance . Unizan and its Subsidiaries are insured with reputable insurers against such risks and in such amounts as its management reasonably has determined to be prudent in accordance with industry practices.

 

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3.25 Unizan Information . The information relating to Unizan and its Subsidiaries contained in the Proxy Statement and the Form S-4, or that is provided by Unizan or its representatives for inclusion in any other document filed with any other Regulatory Agency in connection with the transactions contemplated by this Agreement, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they are made, not misleading. The Proxy Statement (except for such portions thereof that relate only to Huntington or any of its Subsidiaries) will comply in all material respects with the provisions of the Exchange Act and the rules and regulations thereunder.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF HUNTINGTON

 

Except as disclosed in a correspondingly numbered section of the disclosure schedule (the “ Huntington Disclosure Schedule ”) delivered by Huntington to Unizan prior to the execution of this Agreement, Huntington hereby represents and warrants to Unizan as follows:

 

4.1 Corporate Organization . (a) Huntington is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. Huntington has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary.

 

(b) Huntington is duly registered as a financial holding company under the BHC Act. True and complete copies of the Articles of Restatement of Charter, as amended (the “ Huntington Charter ”) and Bylaws of Huntington, as in effect as of the date of this Agreement, have previously been made available to Unizan.

 

(c) Each Huntington Subsidiary (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) is duly qualified to do business and in good standing in all jurisdictions (whether Federal, state, local or foreign) where its ownership or leasing of property or the conduct of its business requires it to be so qualified, and (iii) has all requisite corporate power and authority to own or lease its properties and assets and to carry on its business as now conducted, except in each of (i) – (iii) as would not be reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington.

 

4.2 Capitalization . (a) The authorized capital stock of Huntington consists of 500,000,000 shares of Huntington Common Stock, of which, as of the date hereof, 229,057,890 shares were issued and outstanding, and 6,617,808 shares of preferred stock, no par value (the “ Huntington Preferred Stock ”), of which, as of the date hereof, no shares were issued and outstanding. As of the date hereof, no more than 28,808,365 shares of Huntington Common Stock were held in Huntington’s treasury. As the date hereof, no shares of Huntington Common Stock or Huntington Preferred Stock were reserved for issuance, except for 19,946,505 shares reserved for issuance upon exercise of options issued pursuant to employee and director stock

 

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plans of Huntington in effect as of the date of this Agreement (the “ Huntington Stock Plans ”). All of the issued and outstanding shares of Huntington Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date hereof, except pursuant to this Agreement, the Rights Agreement and the Huntington Stock Plans, Huntington does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Huntington Common Stock or any other equity securities of Huntington or any securities representing the right to purchase or otherwise receive any shares of Huntington Common Stock. The shares of Huntington Common Stock to be issued pursuant to the Merger will be duly authorized and validly issued and, at the Effective Time, all such shares will be fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof.

 

(b) All of the issued and outstanding shares of capital stock or other equity ownership interests of each “significant subsidiary” (as such term is defined under Regulation S-X of the SEC) of Huntington are owned by Huntington, directly or indirectly, free and clear of any Liens, and all of such shares or equity ownership interests are duly authorized and validly issued and are fully paid, nonassessable (subject to 12 U.S.C. §§ 55) and free of preemptive rights. No such significant subsidiary has or is bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of capital stock or any other equity security of such subsidiary or any securities representing the right to purchase or otherwise receive any shares of capital stock or any other equity security of such subsidiary.

 

4.3 Authority; No Violation . (a) Huntington has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of Huntington. The Board of Directors of Huntington has determined that this Agreement and the transactions contemplated hereby are in the best interests of Huntington and its stockholders and no other corporate proceedings on the part of Huntington are necessary to approve this Agreement to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Huntington and (assuming due authorization, execution and delivery by Unizan) constitutes the valid and binding obligation of Huntington, enforceable against Huntington in accordance with its terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies).

 

(b) Neither the execution and delivery of this Agreement by Huntington, nor the consummation by Huntington of the transactions contemplated hereby, nor compliance by Huntington with any of the terms or provisions of this Agreement, will (i) violate any provision of the Huntington Charter or the Huntington Bylaws, or (ii) assuming that the consents, approvals and filings referred to in Section 4.4 are duly obtained and/or made, (A) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or Injunction applicable to Huntington, any of its Subsidiaries or any of their respective properties or assets or (B) violate, conflict with, result in a breach of any provision of or the loss of any benefit under, constitute a

 

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default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of or a right of termination or cancellation under, accelerate the performance required by, or result in the creation of any Lien upon any of the respective properties or assets of Huntington or any of its Subsidiaries under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Huntington or any of its Subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except for such violations, conflicts, breaches or defaults with respect to clause (ii) that are not reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington.

 

4.4 Consents and Approvals . Except for (i) the filing of applications and notices, as applicable, with the Federal Reserve Board under the BHC Act and the Federal Reserve Act, as amended, and approval of such applications and notices, and, in connection with the merger of the national bank Subsidiaries of Unizan and Huntington, the filing of applications and notices, as applicable, with the OCC and approval of such applications and notice, (ii) the Other Regulatory Approvals, (iii) the filing with the SEC of the Proxy Statement and the filing and declaration of effectiveness of the Form S-4, (iv) the filing of the Articles of Merger with the Maryland Department of Assessments and Taxation pursuant to the MGCL and the issuance by the Maryland Secretary of a Certificate of Merger and the filing of the Certificate of Merger with the Secretary of State of the State of Ohio pursuant to the OGCL, (v) any notices to or filings with the SBA, (vi) any notices or filings under the HSR Act, (vii) any consents, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of federal and state securities laws relating to the regulation of broker-dealers, investment advisers or transfer agents, and the rules of the Nasdaq, or that are required under consumer finance, mortgage banking and other similar laws, (viii) such filings and approvals as are required to be made or obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of the shares of Huntington Common Stock pursuant to this Agreement, and (ix) filings, if any, required as a result of the particular status of Unizan, no consents or approvals of or filings or registrations with any Governmental Entity are necessary in connection with (A) the execution and delivery by Huntington of this Agreement and (B) the consummation by Huntington of the Merger and the other transactions contemplated by this Agreement.

 

4.5 Reports . Huntington and each of its Subsidiaries have timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since January 1, 2000 with the Regulatory Agencies, and all other reports and statements required to be filed by them since January 1, 2000, including any report or statement required to be filed pursuant to the laws, rules or regulations of the United States, any state, any foreign entity, or any Regulatory Agency, and have paid all fees and assessments due and payable in connection therewith. Except for normal examinations conducted by a Regulatory Agency in the ordinary course of the business of Huntington and its Subsidiaries, no Regulatory Agency has initiated or has pending any proceeding or, to the knowledge of Huntington, investigation into the business or operations of Huntington or any of its Subsidiaries since January 1, 2000. There (i) is no unresolved violation, criticism, or exception by any Regulatory Agency with respect to any report or statement relating to any examinations or inspections of Huntington or any of its Subsidiaries, and (ii) has been no formal or informal inquiries by, or disagreements or disputes with, any Regulatory Agency with respect to the business, operations, policies or procedures of Huntington since January 1, 2000.

 

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4.6 Financial Statements . Huntington has previously made available to Unizan copies of (i) the consolidated balance sheet of Huntington and its Subsidiaries as of December 31, 2000, 2001 and 2002, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended as reported in Huntington’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (as amended prior to the date hereof, the “ Huntington 2002 10-K ”) filed with the SEC under the Exchange Act, accompanied by the audit report of Ernst & Young LLP, independent public accountants with respect to Huntington, and (ii) the unaudited consolidated balance sheet of Huntington and its Subsidiaries as of September 30, 2002 and 2003, and the related consolidated statements of income, changes in shareholders’ equity and cash flows of the three and nine month periods then ended, as reported in Huntington’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (the “ Huntington 10-Q ”). The December 31, 2002 consolidated balance sheet of Huntington (including the related notes, where applicable) fairly presents in all material respects the consolidated financial position of Huntington and its Subsidiaries as of the date thereof, and the other financial statements referred to in this Section 4.6 (including the related notes, where applicable) fairly present in all material respects the results of the consolidated operations and changes in shareholders’ equity and consolidated financial position of Huntington and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth, subject to normal year-end audit adjustments in amounts consistent with past experience in the case of unaudited statements; each of such statements (including the related notes, where applicable) complies in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto; and each of such statements (including the related notes, where applicable) has been prepared in all material respects in accordance with GAAP consistently applied during the periods involved, except, in each case, as indicated in such statements or in the notes thereto. The books and records of Huntington and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.

 

4.7 Broker’s Fees . Neither Huntington nor any Huntington Subsidiary nor any of their respective officers or directors has employed any broker or finder or incurred any liability for any brokers fees, commissions or finder’s fees in connection with the Merger or related transactions contemplated by this Agreement, other than Keefe, Bruyette & Woods, Inc., all of the fees and expenses of which shall be the sole responsibility of Huntington.

 

4.8 Absence of Certain Changes or Events . Except as publicly disclosed in Huntington Reports (as defined in Section 4.11 ) filed prior to the date of this Agreement, from September 30, 2003 through and including the date of this Agreement, (i) Huntington and the Huntington Subsidiaries have carried on their respective businesses in all material respects in the ordinary course, and (ii) there has not been any Material Adverse Effect with respect to Huntington.

 

4.9 Legal Proceedings . (a) Except as set forth in Section 4.9 of the Huntington Disclosure Schedule, there is no, and there is, to Huntington’s knowledge, no threatened, litigation, action, suit, proceeding, investigation or arbitration material to Huntington and its Subsidiaries, taken as a whole, and no action, demand, charge, requirement or investigation by any Governmental Entity and no litigation, action, suit, proceeding,

 

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investigation or arbitration by any Person or Governmental Entity that is material to Huntington and its Subsidiaries, taken as a whole, in each case with respect to Huntington or any of its Subsidiaries or any of their respective properties or permits, licenses or authorizations, is pending or, to the knowledge of Huntington, threatened.

 

(b) There is no material Injunction, judgment, or regulatory restriction (other than those of general application that apply to similarly situated financial or bank holding companies or their Subsidiaries) imposed upon Huntington, any of its Subsidiaries or the assets of Huntington or any of its Subsidiaries.

 

4.10 Taxes and Tax Returns . Each of Huntington and its Subsidiaries has duly filed all federal, state, foreign and local information returns and Tax returns required to be filed by it on or prior to the date of this Agreement (all such returns being accurate and complete in all material respects) and has duly paid or made provision for the payment of all Taxes that have been incurred or are due or claimed to be due from it by federal, state, foreign or local taxing authorities other than (i) Taxes or other governmental charges that are not yet delinquent or are being contested in good faith, have not been finally determined and have been adequately reserved against, or (ii) information returns, Tax returns or Taxes as to which the failure to file, pay or make provision for is not reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington.

 

4.11 SEC Reports . Huntington has previously made available to Unizan an accurate and complete copy of each (i) final registration statement, prospectus, report, schedule and definitive Proxy Statement filed since January 1, 2000 by Huntington with the SEC pursuant to the Securities Act or the Exchange Act (the “ Huntington Reports ”) and prior to the date of this Agreement and (ii) communication mailed by Huntington to its stockholders since January 1, 2000 and prior to the date of this Agreement, and no such Huntington Report or communication, as of the date of such Huntington Report or communication, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances in which they were made, not misleading, except that information as of a later date (but before the date of this Agreement) shall be deemed to modify information as of an earlier date. Since January 1, 2000, as of their respective dates, all Huntington Reports filed under the Securities Act and the Exchange Act complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto.

 

4.12 Compliance with Applicable Law . (a) Huntington and each of its Subsidiaries hold all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to each, and have complied in all respects with and are not in default in any respect under any, applicable law, statute, order, rule, regulation, policy or guideline of any Governmental Entity relating to Huntington or any of its Subsidiaries, except where the failure to hold such license, franchise, permit or authorization or such noncompliance or default is not reasonably likely to, either individually or in the aggregate, have a Material Adverse Effect on Huntington. The Huntington National Bank is “well-capitalized” and “well-managed” under applicable regulatory definitions, and its examination rating under the Community Reinvestment Act of 1977 is “satisfactory” or better.

 

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(b) Except as is not reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington, Huntington and each Huntington Subsidiary have properly administered all accounts for which it acts as a fiduciary, including accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing documents, applicable state and federal law and regulation and common law. None of Huntington, any Huntington Subsidiary, or any director, officer or employee of Huntington or of any Huntington Subsidiary, has committed any breach of trust or fiduciary duty with respect to any such fiduciary account that is reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington, and, except as would not be reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington and the accountings for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.

 

4.13 Agreements with Regulatory Agencies . Neither Huntington nor any of its Subsidiaries is subject to any cease-and-desist or other order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been since January 1, 2000, a recipient of any supervisory letter from, or has been ordered to pay any civil money penalty by, or since January 1, 2000, has adopted any policies, procedures or board resolutions at the request or suggestion of any Regulatory Agency or other Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business, other than those of general application that apply to similarly situated financial holding companies or their Subsidiaries (each, whether or not set forth in the Huntington Disclosure Schedule, a “ Huntington Regulatory Agreement ”), nor has Huntington or any of its Subsidiaries been advised since January 1, 2000, by any Regulatory Agency or other Governmental Entity that it is considering issuing, initiating, ordering or requesting any such Huntington Regulatory Agreement.

 

4.14 Interest Rate Risk Management Instruments . Except as would not be reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington, (i) all interest rate swaps, caps, floors and option agreements and other interest rate risk management arrangements, whether entered into for the account of Huntington or for the account of a customer of Huntington or one of its Subsidiaries, were entered into in the ordinary course of business consistent with past practice and in accordance with prudent banking practice and applicable rules, regulations and policies of any Regulatory Authority and with counterparties believed to be financially responsible at the time and are legal, valid and binding obligations of Huntington or one of its Subsidiaries enforceable against it in accordance with their terms (except as may be limited by bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the rights of creditors generally and the availability of equitable remedies), and are in full force and effect, (ii) each of its Subsidiaries have duly performed their obligations thereunder to the extent that such obligations to perform have accrued, and (iii) to Huntington’s knowledge, there are no breaches, violations or defaults or allegations or assertions of such by any party thereunder.

 

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4.15 Undisclosed Liabilities . Except for those liabilities that are reflected or reserved against on the consolidated balance sheet of Huntington included in the Huntington 10-Q (including any notes thereto) and for liabilities incurred in the ordinary course of business consistent with past practice since September 30, 2003, since such date, neither Huntington nor any of its Subsidiaries has incurred any liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due) that, either individually or in the aggregate, has had or is reasonably likely to have, a Material Adverse Effect on Huntington.

 

4.16 Environmental Liability . There are no legal, administrative, arbitral or other proceedings, claims, actions, causes of action, private environmental investigations or remediation activities or governmental investigations of any nature seeking to impose, or that are reasonably likely to result in the imposition, on Huntington of any liability or obligation arising under common law or under any local, state or federal environmental statute, regulation or ordinance including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, pending or threatened against Huntington, which liability or obligation is reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington. To the knowledge of Huntington, there is no reasonable basis for any such proceeding, claim, action or governmental investigation that would impose any liability or obligation that would be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on Huntington. Huntington is not subject to any agreement, order, judgment, decree, letter or memorandum by or with any Governmental Entity or third party imposing any liability or obligation with respect to the foregoing that is reasonably likely to have, either individually or in the aggregate, a Material Adverse Effect on Huntington.

 

4.17 Reorganization . As of the date of this Agreement, Huntington is not aware of any fact or circumstance that could reasonably be expected to prevent the Merger from qualifying as a “reorganization” within the meaning of Section 368(a) of the Code.

 

4.18 Internal Controls . None of Huntington or its Subsidiaries’ records, systems, controls, data or information are recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of it or its Subsidiaries or accountants except as would not, individually or in the aggregate, reasonably be expected to result in a materially adverse effect on the system of internal accounting controls described in the next sentence. Huntington and its Subsidiaries have devised and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

 

4.19 Huntington Information . The information relating to Huntington and its Subsidiaries that is provided by Huntington for inclusion in the Proxy Statement and the Form S-4, or the information relating to Huntington and its Subsidiaries that is provided by Huntington or its representatives for inclusion in any other document filed with any other Regulatory Agency in connection with the transactions contemplated by this Agreement, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements

 

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therein, in light of the circumstances in which they are made, not misleading. The Form S-4 will comply with the provisions of the Securities Act and the rules and regulations thereunder in all material respects.

 

ARTICLE V

 

COVENANTS RELATING TO CONDUCT OF BUSINESS

 

5.1 Conduct of Businesses Prior to the Effective Time . During the period from the date of this Agreement to the Effective Time, except as expressly contemplated or permitted by this Agreement (including the Unizan Disclosure Schedule), Unizan shall, and shall cause each of its Subsidiaries to (i) conduct its business in the ordinary course in all material respects, (i) use reasonable best efforts to maintain and preserve intact its business organization, employees and advantageous business relationships and retain the services of its key officers and key employees and (iii) take no action that would adversely affect or materially delay the ability of the parties to obtain any necessary approvals of any Regulatory Agency or other Governmental Entity required for the transactions contemplated hereby or to perform its covenants and agreements under this Agreement or to consummate the transactions contemplated hereby or thereby.

 

5.2 Unizan Forbearances . During the period from the date of this Agreement to the Effective Time, except as set forth in Section 5.2 of the Unizan Disclosure Schedule and except as expressly contemplated or permitted by this Agreement, Unizan shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Huntington:

 

(a) (i) other than dividends and distributions by a direct or indirect Subsidiary of Unizan to Unizan or any direct or indirect wholly owned Subsidiary of Unizan, declare, set aside or pay any dividends on, make any other distributions in respect of, or enter into any agreement with respect to the voting of, any of its capital stock (except for regular quarterly cash dividends not to exceed $0.135 per share on Unizan Common Stock), (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of, or in substitution for, shares of its capital stock, except upon the exercise of Unizan Stock Options that are outstanding as of the date hereof in accordance with their present terms, or (iii) purchase, redeem or otherwise acquire any shares of capital stock or other securities of Unizan or any of its Subsidiaries, or any rights, warrants or options to acquire any such shares or other securities (other than the issuance of Unizan Common Stock upon the exercise of Unizan Stock Options that are outstanding as of the date hereof in accordance with their present terms);

 

(b) issue, deliver, sell, pledge or otherwise encumber or subject to any Lien any shares of its capital stock, any other voting securities, including any restricted shares of Unizan Common Stock, or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities, including any Unizan Stock Options (other than the issuance of Unizan Common Stock upon the exercise of Unizan Stock Options that are outstanding as of the date hereof in accordance with their present terms);

 

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(c) amend its certificate of incorporation, by-laws or other comparable organizational documents;

 

(d) (i) acquire or agree to acquire by merging or consolidating with, or by purchasing any assets or any equity securities of, or by any other manner, any business or any Person, or otherwise acquire or agree to acquire any assets except in the ordinary course of business or (ii) open, close, sell or acquire any branches;

 

(e) sell, lease, license, mortgage or otherwise encumber or subject to any Lien, or otherwise dispose of any of its properties or assets other than securitizations and other transactions in the ordinary course of business and consistent with past practices or create any security interest in such assets or properties;

 

(f) except for borrowings having a maturity of not more than 30 days under existing credit facilities (or renewals, extensions or replacements therefor that do not provide for any termination fees or penalties, prohibit pre-payments or provide for any pre-payment penalties, or contain any like provisions limiting or otherwise affecting the ability of Unizan or its applicable Subsidiaries or successors from terminating or pre-paying such facilities, or contain financial terms less advantageous than existing credit facilities, and as they may be so renewed, extended or replaced, (“ Credit Facilities ”)) that are incurred in the ordinary course of business consistent with past practice and with respect to which Unizan consults with Huntington on a basis not less frequently than weekly, or for borrowings under Credit Facilities or other lines of credit or refinancing of indebtedness outstanding on the date hereof in additional amounts not to exceed $2,500,000, incur any Indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for the obligations of any Person (other than Unizan or any wholly owned Subsidiary thereof), or, other than in the ordinary course of business, make any loans, advances or capital contributions to, or investments in, any Person other than its wholly owned Subsidiaries and as a result of ordinary advances and reimbursements to employees and endorsements of banking instruments;

 

(g) change in any material respect its accounting methods (or underlying assumptions), principles or practices affecting its assets, liabilities or business, including any reserving, renewal or residual method, practice or policy, in each case, in effect on the date hereof, except as required by changes in GAAP or regulatory accounting principles;

 

(h) change in any material respects its investment or risk management or other similar policies of Unizan or any of its Subsidiaries;

 

(i) make, change or revoke any material Tax election, amend any material Tax return, change any method of Tax accounting in any material respect, settle any material liability for Taxes, or surrender any right to claim a material refund of Taxes;

 

(j) other than in the ordinary course of business, terminate or waive any material provision of any material agreement, contract or obligation (collectively, “ Contracts ”) other than normal renewals of Contracts without materially adverse changes, additions or deletions of terms, or enter into or renew any agreement or contract or other binding obligation of Unizan or its Subsidiaries containing (i) any restriction on the ability of Unizan and its

 

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Subsidiaries to conduct its business as it is presently being conducted or (ii) any restriction on Unizan or its Subsidiaries engaging in any type or activity or business;

 

(k) (i) incur any capital expenditures in excess of $50,000 individually or $250,000 in the aggregate or (ii) enter into any agreement obligating Unizan to spend more than $50,000 individually or $250,000 in the aggregate;

 

(l) except as required by agreements or instruments in effect on the date hereof, alter in any material respect, or enter into any commitment to alter in any material respect, any interest material to Unizan and its Subsidiaries, taken as a whole, in any corporation, association, joint venture, partnership or business entity in which Unizan directly or indirectly holds any equity or ownership interest on the date hereof (other than any interest arising from any foreclosure, settlement in lieu of foreclosure or troubled loan or debt restructuring in the ordinary course of business consistent with past practice);

 

(m) Except for payments described in Section 5.2(m) of the Unizan Disclosure Schedule (i) grant to any current or former director, officer, employee, consultant or other service provider of Unizan or its Subsidiaries any increase in compensation or other benefits or pay any discretionary compensation or severance, except for annual salary or wage increases to employees in the ordinary course consistent with past practice (which increases do not exceed 5.0% of any applicable employee’s current salary or wage or 2.5% in the aggregate for all employees) or as required by the terms existing prior to the date hereof of plans or arrangements described in Section 3.11 of the Unizan Disclosure Schedule, (ii) grant to any such current or former director, officer, employee, consultant or service provider any increase in severance or termination pay, (iii) establish, or increase the compensation or benefits provided under (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, restricted stock awards or similar instruments), or otherwise amend or clarify, any Unizan Benefit Plan or Employment Agreement, except as required by applicable law, (iv) modify any Unizan Stock Option or other equity-based award, (v) make any discretionary contributions or payments to any trust or other funding vehicle or pay any discretionary premiums in respect of benefits under any Unizan Benefit Plan or Employment Agreement, (vi) accelerate the payment or vesting of any payment or benefit provided or to be provided to any director, officer, employee, consultant or other service provider or otherwise pay any amounts not due such individual, (vii) enter into any new or amend any existing employment or consulting agreement with any director, officer, employees, consultants or service provider or hire retain the services of any such person, or (viii) establish, adopt or enter into any collective bargaining agreement;

 

(n) agree or consent to any material agreement or material modifications of existing agreements with any Governmental Entity in respect of the operations of its business, except as required by law;

 

(o) pay, discharge, settle or compromise any claim, action, litigation, arbitration, suit, investigation or proceeding, other than any such payment, discharge, settlement or compromise in the ordinary course of business consistent with past practice that involves solely money damages in an amount not in excess of $50,000 individually or $100,000 in the

 

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aggregate, and that does not create precedent for other pending or potential claims, actions, litigation, arbitration or proceedings;

 

(p) issue any broadly distributed communication of a general nature to Employees (including general communications relating to benefits and compensation) or customers without the prior approval of Huntington (which will not be unreasonably delayed or withheld), except for communications in the ordinary course of business that do not relate to the Merger or other transactions contemplated hereby;

 

(q) take any action, or fail to take any action, which action or failure to act would be reasonably expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code;

 

(r) take any action that would materially impede or delay the ability of the parties to obtain any necessary approvals of any Regulatory Agency or other Governmental Entity required for the transactions contemplated hereby;

 

(s) take any action that is intended or is reasonably likely to result in any of its representations or warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger set forth in Article VII not being satisfied or in a violation of any provision of this Agreement, except, in every case, as may be required by applicable law; or

 

(t) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by this Section 5.2 .

 

5.3 Huntington Forbearances . During the period from the date of this Agreement to the Effective Time, except as expressly contemplated or permitted by this Agreement, Huntington shall not, and shall not permit any of its Subsidiaries to, without the prior written consent of Unizan, (i) amend, repeal or otherwise modify any provision of the Huntington Charter or the Huntington Bylaws (other than those that would not be adverse to Unizan or its shareholders or those that would not impede Huntington’ ability to consummate the transactions contemplated hereby, and other than any provisions relating to the preferred stock of Huntington), (ii) take any action, or fail to take any action, which action or failure to act would be reasonably expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code, (iii) take any action that would materially impede or delay the ability of the parties to obtain any necessary approvals of any Regulatory Agency or other Governmental Entity required for the transactions contemplated hereby, (iv) take any action that is intended or is reasonably likely to result in any of its representations or warranties set forth in this Agreement being or becoming untrue in any material respect at any time prior to the Effective Time, or in any of the conditions to the Merger set forth in Article VII not being satisfied or in a violation of any provision of this Agreement, except, in every case, as may be required by applicable law or (v) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by this Section 5.3 .

 

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ARTICLE VI

 

ADDITIONAL AGREEMENTS

 

6.1 Regulatory Matters . (a) Huntington and Unizan shall promptly prepare and file with the SEC the Proxy Statement and Huntington shall promptly prepare and file with the SEC the Form S-4, in which the Proxy Statement will be included as a prospectus. Each of Huntington and Unizan shall use their reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing, and Unizan shall thereafter mail or deliver the Proxy Statement to its shareholders. Huntington shall also use its reasonable best efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry out the transactions contemplated by this Agreement, and Unizan shall furnish all information concerning Unizan and the holders of Unizan Common Stock as may be reasonably requested in connection with any such action.

 

(b) The parties shall cooperate with each other and use their respective reasonable best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, to obtain as promptly as practicable all permits, consents, approvals and authorizations of all third parties and Governmental Entities that are necessary or advisable to consummate the transactions contemplated by this Agreement (including the Merger), and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such Governmental Entities. Unizan and Huntington shall have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to Unizan or Huntington, as the case may be, and any of their respective Subsidiaries, which appear in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties shall act reasonably and as promptly as practicable. The parties shall consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated by this Agreement.

 

(c) Each of Huntington and Unizan shall, upon request, furnish to the other all information concerning itself, its Subsidiaries, directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement, the Form S-4 or any other statement, filing, notice or application made by or on behalf of Huntington, Unizan or any of their respective Subsidiaries to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement.

 

(d) Each of Huntington and Unizan shall promptly advise the other upon receiving any communication from any Governmental Entity consent or approval of which is required for consummation of the transactions contemplated by this Agreement that causes such party to believe that there is a reasonable likelihood that any Requisite Regulatory Approval will not be obtained or that the receipt of any such approval may be materially delayed.

 

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6.2 Access to Information . (a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, each of Unizan and Huntington shall, and shall cause each of its Subsidiaries to, afford to the officers, employees, accountants, counsel and other representatives of the other, reasonable access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records, and, during such period, the parties shall, and shall cause its Subsidiaries to, make available to the other party all other information concerning its business, properties and personnel as the other may reasonably request. Unizan shall, and shall cause each of its Subsidiaries to, provide to Huntington a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws or federal or state banking laws (other than reports or documents that such party is not permitted to disclose under applicable law). Neither Unizan nor Huntington nor any of their Subsidiaries shall be required to provide access to or to disclose information where such access or disclosure would jeopardize the attorney-client privilege of such party or its Subsidiaries or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties shall make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.

 

(b) All information and materials provided pursuant to this Agreement shall be subject to the provisions of the Confidentiality Agreement entered into between the parties as of December 19, 2003 (the “ Confidentiality Agreement ”). Nothing in this Agreement shall prohibit the disclosure of the tax treatment and tax structure, as those terms are used in Treasury Regulation Section 1.6011-4, of the transactions contemplated by this Agreement (but no other details about the matters covered by this Agreement, including without limitation the identities of the parties) from and after the date of the public announcement by the parties of this Agreement and the Merger.

 

(c) No investigation by either of the parties or their respective representatives shall affect the representations and warranties of the other set forth in this Agreement.

 

6.3 Shareholder Approval . Unizan shall call a meeting of its shareholders to be held as soon as reasonably practicable for the purpose of obtaining the requisite shareholder approval required in connection with this Agreement and the Merger (the “ Unizan Shareholder Meeting ”), and shall use its reasonable best efforts to cause such meeting to occur as soon as reasonably practicable. The Board of Directors of Unizan shall recommend to Unizan’s shareholders the approval and adoption of this Agreement, the Merger and the other transactions contemplated hereby (the “ Unizan Recommendation ”); provided , however , that Unizan’s Board of Directors shall not be required to make such Unizan Recommendation to the extent provided in Section 6.13 . Notwithstanding any Change in Unizan Recommendation, unless otherwise directed in writing by Huntington, this Agreement and the Merger shall be submitted to the shareholders of Unizan at the Unizan Shareholders Meeting for the purpose of approving the Agreement and the Merger and nothing contained herein shall be deemed to relieve Unizan of such obligation, provided , however , that if the Board of Directors of Unizan shall have effected a Change in Unizan Recommendation in accordance with this Agreement, then in submitting this Agreement to Unizan’s shareholders, the Board of Directors of Unizan may submit this Agreement to Unizan’s shareholders without recommendation (although the resolutions adopting

 

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this Agreement and the Plan of Merger as of the date hereof may not be rescinded or amended), in which event the Board of Directors of Unizan may communicate the basis for its lack of a recommendation to Unizan’s shareholders in the Proxy Statement or an appropriate amendment or supplement thereto to the extent required by law.

 

6.4 Legal Conditions to Merger . Each of Huntington and Unizan shall, and shall cause its Subsidiaries to, use their reasonable best efforts (i) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements that may be imposed on such party or its Subsidiaries with respect to the Merger and, subject to the conditions set forth in Article VII , to consummate the transactions contemplated by this Agreement, and (ii) to obtain (and to cooperate with the other party to obtain) any material consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party that is required to be obtained by Unizan or Huntington or any of their respective Subsidiaries in connection with the Merger and the other transactions contemplated by this Agreement.

 

6.5 Affiliates . Unizan shall use its reasonable best efforts to cause each director, executive officer and other person who is an “affiliate” (for purposes of Rule 145 under the Securities Act) of Unizan to deliver to Huntington, as soon as practicable after the date of this Agreement, and prior to the date of the meeting of the Unizan shareholders to be held pursuant to Section 6.3 , a written agreement, in the form of Exhibit A .

 

6.6 Nasdaq Approval . Huntington shall cause the shares of Huntington Common Stock to be issued in the Merger to be approved for quotation on the Nasdaq, subject to official notice of issuance, prior to the Effective Time.

 

6.7 Employee Matters . (a) From and after the Effective Time, the employees of Unizan who are employed by the Surviving Corporation as of the Effective Time (the “ Assumed Employees ”) and who remain employed with the Surviving Corporation during such period will be offered participation and coverage under employee benefit plans that are comparable, on an aggregate basis, to the plans generally in effect for similarly situated employees of Huntington and its Subsidiaries (“ Huntington Benefit Plans ”); provided , that continued participation and coverage following the Effective Time under the employee benefit plans of Unizan and its Subsidiaries as of immediately prior to the Effective Time shall be deemed to satisfy the obligations under this sentence, it being understood that the Assumed Employees may commence participating in the Huntington Benefit Plans on different dates following the Effective Time with respect to different Huntington Benefit Plans. Notwithstanding any provision of this Section 6.7(a) to the contrary, from and after the Effective Time, each Assumed Employee (other than those with individual agreements providing for severance or “change of control” benefits) shall be eligible for participation in Huntington’ Transition Pay Plan in accordance with the terms thereof, as such terms may be amended from time to time, which shall be the exclusive source of severance benefits in connection with the Merger (other than as provided under individual agreements providing for severance or “change of control” benefits, which agreements are listed in Section 6.7 of the Unizan Disclosure Schedule).

 

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(b) To the extent permitted by applicable law or the terms of any applicable insurance policies, Huntington shall cause each Huntington Benefit Plan in which Assumed Employees are eligible to participate to take into account for purposes of eligibility, vesting and benefit accruals under the Huntington Benefit Plans (other than benefit accruals under any of Huntington’ defined benefit pension plans including any supplemental defined benefit plans) the service of such employees with Unizan and its Subsidiaries (and any predecessor entities) to the same extent as such service was credited for such purpose by Unizan and its Subsidiaries, provided , howeve r, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits with respect to the same period of service or with respect to newly implemented plans for which prior service is not taken into account; provided , further , that for purposes of calculating benefits and determining an Assumed Employee’s years of service under Huntington’ Transition Pay Plan, service with Huntington shall be measured commencing with the most recent hire date by Unizan and its Subsidiaries (including any predecessor employers). Nothing herein shall limit the ability of Huntington or the Surviving Corporation to amend or terminate any of the Unizan Benefit Plans or Huntington Benefits Plans in accordance with their terms at any time.

 

(c) At and following the Effective Time, Huntington will cause the Surviving Corporation to honor the obligations of Unizan or any of its Subsidiaries as of the Effective Time under the provisions of the Employment Agreements that are set forth on Section 6.7(c) of the Unizan Disclosure Schedule between and among Unizan or any of its Subsidiaries, on the one hand, and any current or former officer, director, consultant or employee of Unizan or any of its Subsidiaries, on the other hand, provided that this provision shall not prevent the Surviving Corporation from amending, suspending or terminating any such agreements to the extent permitted by the respective terms of such agreement.

 

(d) If Assumed Employees become eligible to participate in a medical, dental or health plan of Huntington or its Subsidiaries, Huntington shall cause each such plan to (i) waive any preexisting condition limitations to the extent such conditions are covered under the applicable medical, health or dental plans of Huntington, (ii) honor under such plans any deductible, co-payment and out-of-pocket expenses incurred by such employees and their beneficiaries during the portion of the calendar year prior to such participation and (iii) waive any waiting period limitation or evidence of insurability requirement which would otherwise be applicable to such employee on or after the Effective Time for the year in which the Effective Time occurs, in each case to the extent such employee had satisfied any similar limitation or requirement under an analogous medical dental or health plan of Unizan prior to the Effective Time for the year in which the Effective Time or participation in such medical, dental or health plan of Huntington, as applicable, occurs.

 

(e) Huntington will consider in good faith the recommendations of Mr. Mann with respect to retention payments to key Unizan employees in order to maintain continuity of management in connection with the Merger.

 

6.8 Indemnification; Directors’ and Officers’ Insurance . (a) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including any such claim, action, suit, proceeding or investigation in which any individual who is now, or has been at any time prior to the date of this Agreement, or who

 

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becomes prior to the Effective Time, a director, officer or employee of Unizan or any of its Subsidiaries or who is or was serving at the request of Unizan or any of its Subsidiaries as a director, officer, employee or agent of another person (the “ Indemnified Parties ”), 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, or pertaining to (i) the fact that he is or was a director, officer or employee of Unizan or any of its Subsidiaries or (ii) this Agreement or any of the transactions contemplated by this Agreement, whether asserted or arising before or after the Effective Time, the parties shall cooperate and use their best efforts to defend against and respond thereto. From and after the Effective Time, Huntington shall indemnify and hold harmless, as and to the fullest extent currently provided under applicable law, the Unizan Articles, the Unizan Code and any agreement set forth in Section 6.8 of the Unizan Disclosure Schedule, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reimbursement for reasonable fees and expenses incurred in advance of the final disposition of any claim, suit, proceeding or investigation upon receipt of any undertaking required by applicable law), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation.

 

(b) Huntington shall use its reasonable best efforts to cause the individuals serving as officers and directors of Unizan or any of its Subsidiaries immediately prior to the Effective Time to be covered for a period of six years from the Effective Time by the directors’ and officers’ liability insurance policy maintained by Unizan ( provided that Huntington may substitute therefor policies of at least the same coverage and amounts containing terms and conditions that are not less advantageous than such policy) with respect to acts or omissions occurring prior to the Effective Time that were committed by such officers and directors in their capacity as such; provided , that in no event shall Huntington be required to expend more than 200% per year of coverage of the amount currently expended by Unizan per year of coverage as of the date of this Agreement (the “Maximum Amount”) to maintain or procure insurance coverage pursuant hereto, and (iii) if notwithstanding the use of reasonable best efforts to do so, Huntington is unable to maintain or obtain the insurance called for by this Section 6.8 , Huntington shall obtain as much comparable insurance as available for the Maximum Amount, and (iv) such Indemnified Parties may be required to make reasonable application and provide reasonable and customary representations and warranties to Huntington’s insurance carrier for the purpose of obtaining such insurance, comparable in nature and scope to the applications, representations and warranties required of persons who are officers and directors of Huntington as of the date hereof.

 

(c) Huntington acknowledges and agrees that it shall assume, effective as of the Effective Time, the indemnification and other obligations of Unizan set forth in Section 7.9 of that certain Agreement of Merger and Plan of Reorganization, dated as of September 5, 2001, by and among UNB Corp. (which was subsequently renamed Unizan Financial Corp.), The United National Bank & Trust Company, BancFirst Ohio Corp. and The First National Bank of Zanesville, N.A., as amended.

 

(d) The provisions of this Section 6.8 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives.

 

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6.9 Additional Agreements . In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement (including any merger between a Subsidiary of Huntington, on the one hand, and a Subsidiary of Unizan, on the other) or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of either party to the Merger, the proper officers and directors of each party and their respective Subsidiaries shall take all such necessary action as may be reasonably requested by, and at the sole expense of, Huntington.

 

6.10 Advice of Changes . Each of Huntington and Unizan shall promptly advise the other of any change or event (i) having or reasonably likely to have a Material Adverse Effect on it or (ii) that it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained in this Agreement; provided , however , that no such notification shall affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement; provided further that a failure to comply with this Section 6.10 shall not constitute the failure of any condition set forth in Article VII to be satisfied unless the underlying Material Adverse Effect or material breach would independently result in the failure of a condition set forth in Article VI to be satisfied.

 

6.11 Dividends . After the date of this Agreement, Unizan shall coordinate with Huntington the declaration of any dividends in respect of Unizan Common Stock and the record dates and payment dates relating thereto such that holders of Unizan Common Stock shall not receive two dividends, or fail to receive one dividend, for any quarter with respect to their shares of Unizan Common Stock and any shares of Huntington Common Stock any such holder receives in exchange therefor in the Merger.

 

6.12 Exemption from Liability Under Section 16(b) . Huntington and Unizan agree that, in order to most effectively compensate and retain Unizan Insiders (as defined below) in connection with the Merger, both prior to and after the Effective Time, it is desirable that Unizan Insiders not be subject to a risk of liability under Section 16(b) of the Exchange Act to the fullest extent permitted by applicable law in connection with the conversion of shares of Unizan Common Stock and Unizan Stock Options into shares of Huntington Common Stock and Assumed Stock Options, as applicable, in the Merger, and for that compensatory and retentive purpose agree to the provisions of this Section 6.12 . Assuming that Unizan delivers to Huntington the Section 16 Information (as defined below) in a timely fashion, the Board of Directors of Huntington, or a committee of Non-Employee Directors thereof (as such term is defined for purposes of Rule 16b-3(d) under the Exchange Act), shall adopt a resolution providing that the receipt by Unizan Insiders of Huntington Common Stock in exchange for shares of Unizan Common Stock, and of options on Huntington Common Stock upon conversion of options on Unizan Common Stock, in each case pursuant to the transactions contemplated by this Agreement and to the extent such securities are listed in the Section 16 Information, are intended to be exempt from liability pursuant to Section 16(b) under the Exchange Act. “ Section 16 Information ” shall mean information accurate in all material respects regarding Unizan Insiders, the number of shares of Unizan Common Stock held by each such Unizan Insider and expected to be exchanged for Huntington Common Stock in the Merger, and the number and description of the options on Unizan Common Stock held by each such Unizan Insider and expected to be converted into options on Huntington Common Stock in connection with the

 

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Merger; provided that the requirement for a description of any Unizan Stock Options shall be deemed to be satisfied if copies of all Unizan Stock Plans, and forms of agreements evidencing grants thereunder, under which such Unizan Stock Options have been granted, have been made available to Huntington. “ Unizan Insiders ” shall mean those officers and directors of Unizan who are subject to the reporting requirements of Section 16(a) of the Exchange Act and who are listed in the Section 16 Information.

 

6.13 No Solicitation .

 

(a) None of Unizan, its Subsidiaries or any officer, director, employee, agent or representative (including any investment banker, financial advisor, attorney, accountant or other retained representative) of Unizan or any of its Subsidiaries shall directly or indirectly (i) solicit, initiate or encourage or facilitate (including by way of furnishing information) or take any other action designed to facilitate any inquiries or proposals regarding any merger, share exchange, consolidation, sale of assets, sale of shares of capital stock (including, without limitation, by way of a tender offer) or similar transactions involving Unizan or any of its Subsidiaries that, if consummated, would constitute an Alternative Transaction (any of the foregoing inquiries or proposals being referred to herein as an “ Acquisition Proposal ”), (ii) participate in any discussions or negotiations regarding an Alternative Transaction or (iii) enter into any agreement regarding any Alternative Transaction. Notwithstanding the foregoing, the Board of Directors of Unizan shall be permitted, prior to the meeting of Unizan shareholders to be held pursuant to Section 6.3 , and subject to compliance with the other terms of this Section 6.13 and to first entering into a confidentiality agreement with the person proposing such Acquisition Proposal on terms substantially similar to, and no less favorable to Unizan than, those contained in the Confidentiality Agreement, to (A) consider and participate in discussions and negotiations with respect to a bona fide Acquisition Proposal received by Unizan, and (B) withdraw, modify or qualify the Unizan Recommendation, in each case if and only to the extent that the Board of Directors of Unizan reasonably determines in good faith (after consultation with outside legal counsel) that failure to do so would cause it to violate its fiduciary duties.

 

As used in this Agreement, “ Alternative Transaction ” means any of (i) a transaction pursuant to which any person (or group of persons) other than Huntington or its affiliates, directly or indirectly, acquires or would acquire more than 25 percent of the outstanding shares of Unizan Common Stock or outstanding voting power or of any new series or new class of preferred stock that would be entitled to a class or series vote with respect to the Merger, whether from Unizan or pursuant to a tender offer or exchange offer or otherwise, (ii) a merger, share exchange, consolidation or other business combination involving Unizan (other than the Merger), (iii) any transaction pursuant to which any person (or group of persons) other than Huntington or its affiliates acquires or would acquire control of assets (including for this purpose the outstanding equity securities of subsidiaries of Unizan and securities of the entity surviving any merger or business combination including any of Unizan’s Subsidiaries) of Unizan, or any of its subsidiaries representing more than 25 percent of the fair market value of all the assets, net revenues or net income of Unizan and its subsidiaries, taken as a whole, immediately prior to such transaction, or (iv) any other consolidation, business combination, recapitalization or similar transaction involving Unizan or any of its subsidiaries, other than the transactions contemplated by this Agreement, as a result of which the holders of shares of Unizan Common Stock immediately prior to such transaction do not, in the aggregate, own at

 

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least 75 percent of each of the outstanding shares of common stock and the outstanding voting power of the surviving or resulting entity in such transaction immediately after the consummation thereof in substantially the same proportion as such holders held the shares of Unizan Common Stock immediately prior to the consummation thereof.

 

(b) Unizan shall notify Huntington promptly (but in no event later than 24 hours) after receipt of any Acquisition Proposal, or any material modification of or material amendment to any Acquisition Proposal, or any request for nonpublic information relating to Unizan or any of its Subsidiaries or for access to the properties, books or records of Unizan or any Subsidiary by any Person or entity that informs the Board of Directors of Unizan or any Subsidiary that it is considering making, or has made, an Acquisition Proposal. Such notice to Huntington shall be made orally and in writing, and shall indicate the identity of the Person making the Acquisition Proposal or intending to make or considering making an Acquisition Proposal or requesting non-public information or access to the books and records of Unizan or any Subsidiary, and the material terms of any such Acquisition Proposal or modification or amendment to an Acquisition Proposal. Unizan shall keep Huntington fully informed, on a current basis, of any material changes in the status and any material changes or modifications in the terms of any such Acquisition Proposal, indication or request. Unizan shall also promptly, and in any event within 24 hours, notify Huntington, orally and in writing, if it enters into discussions or negotiations concerning any Acquisition Proposal in accordance with Section 6.13(a) .

 

(c) Nothing contained in this Section 6.13 shall prohibit Unizan or its Subsidiaries from taking and disclosing to its shareholders a position required by Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act.

 

(d) Unizan and its Subsidiaries shall immediately cease and cause to be terminated any existing discussions or negotiations with any Persons (other than Huntington) conducted heretofore with respect to any of the foregoing, and shall use reasonable best efforts to cause all Persons other than Huntington who have been furnished confidential information regarding Unizan in connection with the solicitation of or discussions regarding an Acquisition Proposal within the 12 months prior to the date hereof promptly to return or destroy such information. Unizan agrees not to, and to cause its Subsidiaries not to, release any third party from the confidentiality and standstill provisions of any agreement to which Unizan or its Subsidiaries is or may become a party, and shall immediately take all steps necessary to terminate any approval that may have been heretofore given under any such provisions authorizing any person to make an Acquisition Proposal.

 

(e) Unizan shall ensure that the officers, directors and all employees, agents and representatives (including any investment bankers, financial advisors, attorneys, accountants or other retained representatives) of Unizan or its Subsidiaries are aware of the restrictions described in this Section 6.13 as reasonably necessary to avoid violations thereof. It is understood that any violation of the restrictions set forth in this Section 6.13 by any officer, director, employee, agent or representative (including any investment banker, financial advisor, attorney, accountant or other retained representative) of Unizan or its Subsidiaries, at the direction or with the consent of Unizan or its Subsidiaries, shall be deemed to be a breach of this Section 6.13 by Unizan.

 

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6.14 Transition . (a) Commencing following the date hereof, Huntington and Unizan shall, and shall cause their respective Subsidiaries to, use their reasonable best efforts to facilitate the integration of Unizan and its Subsidiaries with the businesses of Huntington and its Subsidiaries to be effective as of the Closing Date or such later date as may be determined by Huntington. Without limiting the generality of the foregoing, from the date hereof through the Closing Date and consistent with the performance of their day-to-day operations and the continuous operation of Unizan and its Subsidiaries in the ordinary course of business, Unizan shall cause the employees and officers of Unizan and its Subsidiaries, including the Bank, to use their reasonable best efforts to provide support, including support from its outside contractors, and to assist Huntington in performing all tasks, including equipment installation, reasonably required to result in a successful integration at the Closing or such later date as may be determined by Huntington.

 

(b) Huntington and Unizan agree to consult with respect to their litigation and real estate valuation policies and practices and Unizan shall make such modifications or changes to its policies and practices, if any, and at such date prior to the Effective Time, as Huntington shall reasonably request. Unizan shall continue to utilize its existing loan policies and practices (including loan classifications and levels of reserves); provided , however , that Unizan shall not unreasonably withhold or delay its consent to any reasonable request by Huntington that Unizan make modifications or changes thereto and Unizan shall make such changes promptly after granting any such consent or at such later date as the parties may agree. Huntington and Unizan shall also consult with respect to the character, amount and timing of restructuring charges to be taken by each of them in connection with the transactions contemplated hereby, and shall take such charges as Huntington shall reasonably request. No party’s representations, warranties and covenants contained in this Agreement shall be deemed to be untrue or breached in any respect for any purpose as a consequence of any modifications or changes to such policies and practices which may be undertaken on account of this Section 6.14 .

 

6.15 Directorship . Huntington shall increase the size of its Board of Directors, to the extent necessary, and shall appoint to its Board of Directors one additional director selected by Huntington from the current Unizan Board of Directors (who shall be reasonably acceptable to Unizan), with such appointment to be effective as of the Effective Time, with the intent being that such new director would serve a term ending no earlier than the 2007 annual shareholder meeting.

 

ARTICLE VII

 

CONDITIONS PRECEDENT

 

7.1 Conditions to Each Party’s Obligation To Effect the Merger . The respective obligations of the parties to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions:

 

(a) Shareholder Approval . This Agreement shall have been approved and adopted by the requisite affirmative vote of the holders of Unizan Common Stock entitled to vote thereon.

 

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(b) Nasdaq Listing . The shares of Huntington Common Stock to be issued to the holders of Unizan Common Stock upon consummation of the Merger shall have been authorized for quotation on the Nasdaq, subject to official notice of issuance.

 

(c) Regulatory Approvals . All regulatory approvals set forth in Sections 3.4 and 4.4 required to consummate the transactions contemplated by this Agreement, including the Merger, shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired (all such approvals and the expiration of all such waiting periods being referred as the “ Requisite Regulatory Approvals ”).

 

(d) Form S-4 . The Form S-4 shall have become effective under the Securities Act and no stop order suspending the effectiveness of the Form S-4 shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC.

 

(e) No Injunctions or Restraints; Illegality . No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an “ Injunction ”) preventing the consummation of the Merger or any of the other transactions contemplated by this Agreement shall be in effect. No statute, rule, regulation, order, Injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity that prohibits or makes illegal consummation of the Merger.

 

7.2 Conditions to Obligations of Huntington . The obligation of Huntington to effect the Merger is also subject to the satisfaction, or waiver by Huntington, at or prior to the Effective Time, of the following conditions:

 

(a) Representations and Warranties . The representations and warranties of Unizan set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct as of such date); provided , however , that no representation or warranty of Unizan shall be deemed untrue or incorrect for purposes hereunder as a consequence of the existence of any fact, event or circumstance inconsistent with such representation or warranty, unless such fact, event or circumstance, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty of Unizan, has had or would reasonably be expected to result in a Material Adverse Effect on Unizan, disregarding for these purposes (i) any qualification or exception for, or reference to, materiality in any such representation or warranty and (ii) any use of the terms “material,” “materially,” “in all material respects,” “Material Adverse Effect” or similar terms or phrases in any such representation or warranty; and Huntington shall have received a certificate signed on behalf of Unizan by the Chief Executive Officer or the Chief Financial Officer of Unizan to the foregoing effect.

 

(b) Performance of Obligations of Unizan . Unizan shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date; and Huntington shall have received a certificate signed on behalf of Unizan by the Chief Executive Officer or the Chief Financial Officer of Unizan to such effect.

 

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(c) Federal Tax Opinion . Huntington shall have received the opinion of its counsel, Wachtell, Lipton, Rosen & Katz, in form and substance reasonably satisfactory to Huntington, dated the Closing Date, substantially to the effect that, on the basis of facts, representations and assumptions set forth in such opinion that are consistent with the state of facts existing at the Effective Time, the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. In rendering such opinion, counsel may require and rely upon representations contained in certificates of officers of Unizan and Huntington, reasonably satisfactory in form and substance to it.

 

7.3 Conditions to Obligations of Unizan . The obligation of Unizan to effect the Merger is also subject to the satisfaction or waiver by Unizan at or prior to the Effective Time of the following conditions:

 

(a) Representations and Warranties . The representations and warranties of Huntington set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Time as though made on and as of the Effective Time (except that representations and warranties that by their terms speak specifically as of the date of this Agreement or another date shall be true and correct as of such date); provided , however , that no representation or warranty of Huntington shall be deemed untrue or incorrect for purposes hereunder as a consequence of the existence of any fact, event or circumstance inconsistent with such representation or warranty, unless such fact, event or circumstance, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty of Huntington, has had or would reasonably be expected to result in a Material Adverse Effect on Huntington, disregarding for these purposes (i) any qualification or exception for, or reference to, materiality in any such representation or warranty and (ii) any use of the terms “material,” “materially,” “in all material respects,” “Material Adverse Effect” or similar terms or phrases in any such representation or warranty; and Unizan shall have received a certificate signed on behalf of Huntington by the Chief Executive Officer or the Chief Financial Officer of Huntington to the foregoing effect.

 

(b) Performance of Obligations of Huntington . Huntington shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Unizan shall have received a certificate signed on behalf of Huntington by the Chief Executive Officer or the Chief Financial Officer of Huntington to such effect.

 

(c) Federal Tax Opinion . Unizan shall have received the opinion of its counsel, Black, McCuskey, Souers & Arbaugh, in form and substance reasonably satisfactory to Unizan, dated the Closing Date, substantially to the effect that, on the basis of facts, representations and assumptions set forth in such opinion that are consistent with the state of facts existing at the Effective Time, the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Code. In rendering such opinion, counsel may require and rely upon representations contained in certificates of officers of Unizan and Huntington, reasonably satisfactory in form and substance to it.

 

43


ARTICLE VIII

 

TERMINATION AND AMENDMENT

 

8.1 Termination . This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the shareholders of Unizan or Huntington:

 

(a) by mutual consent of Unizan and Huntington in a written instrument, if the Board of Directors of each so determines by a vote of a majority of the members of its respective entire Board of Directors;

 

(b) by either the Board of Directors of Unizan or the Board of Directors of Huntington if any Governmental Entity that must grant a Requisite Regulatory Approval has denied approval of the Merger and such denial has become final and nonappealable or any Governmental Entity of competent jurisdiction shall have issued a final and nonappealable order permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement;

 

(c) by either the Board of Directors of Unizan or the Board of Directors of Huntington if the Merger shall not have been consummated on or before the first anniversary of the date of this Agreement unless the failure of the Closing to occur by such date shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth in this Agreement;

 

(d) by either the Board of Directors of Huntington or the Board of Directors of Unizan if there shall have been a breach of any of the covenants or agreements or any of the representations or warranties set forth in this Agreement on the part of Unizan, in the case of a termination by Huntington, or Huntington, in the case of a termination by Unizan, which breach, either individually or in the aggregate, would result in, if occurring or continuing on the Closing Date, the failure of the conditions set forth in Section 7.2 or 7.3 , as the case may be, and which is not cured within 45 days following written notice to the party committing such breach or by its nature or timing cannot be cured within such time period;

 

(e) by either the Board of Directors of Huntington or the Board of Directors of Unizan if Unizan shall have failed to obtain the requisite affirmative vote in favor of approving and adopting this Agreement from the holders of Unizan Common Stock entitled to vote thereon at the Unizan Shareholder Meeting; provided that the right of Unizan to terminate this Agreement pursuant to this Section 8.1(e) shall not be available to it if it has failed to comply in all material respects with its obligations under Section 6.3 or 6.13 ;

 

(f) By the Board of Directors of Huntington if Unizan has (i) failed to make the Unizan Recommendation or has modified or qualified such recommendation in a manner adverse to Huntington, (ii) failed to substantially comply with its obligations under Section 6.3 or 6.13 or (iii) recommended or endorsed an Alternative Transaction; or

 

(g) by Unizan, if the Unizan Board of Directors so determines by the vote of a majority of all of its members, by giving written notice to Huntington not later than the end of

 

44


the second Business day next following the Determination Date, in the event that, as of the Determination Date, both of the following conditions are satisfied:

 

(i) the Average Closing Price shall be less than 80% of the Huntington Starting Price; and

 

(ii) (A) the number obtained by dividing the Average Closing Price by the Huntington Starting Price (such number, the “ Huntington Ratio ”) is less than (B) the number obtained by dividing the Final Index Price by the Initial Index Price and subtracting 0.15 from such quotient (such number, the “ Index Ratio ”).

 

If Unizan elects to exercise its termination right pursuant to this Section 8.1(g), it shall give written notice to Huntington. During the five-business-day period commencing with its receipt of such notice, Huntington may, at its option (the “ Fill Option ”), adjust the Exchange Ratio to equal the lesser of (i) a number equal to a quotient (rounded to the nearest one-ten-thousandth), the numerator of which is the product of 0.80, the Huntington Starting Price and the Exchange Ratio (as then in effect) and the denominator of which is the Average Closing Price, and (ii) a number equal to a quotient (rounded to the nearest one-ten-thousandth), the numerator of which is the Index Ratio multiplied by the Exchange Ratio (as then in effect) and the denominator of which is the Huntington Ratio. If Huntington makes an election contemplated by the preceding sentence within such five-day period, it shall give prompt written notice to Unizan of such election and the revised Exchange Ratio, whereupon no termination shall have occurred pursuant to this Section 8.1(g) and this Agreement shall remain in effect in accordance with its terms (except as the Exchange Ratio shall have been so modified), and any references in this Agreement to “ Exchange Ratio ” shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to this Section 8.1(g).

 

For purposes of this Section 8.1(g), the following terms shall have the meanings set forth below:

 

Average Closing Price ” of the Huntington Common Stock shall mean the arithmetic mean of the daily closing sales prices per share of Huntington Common Stock reported on the Nasdaq National Market (as reported by the Wall Street Journal or, if not reported thereby, another authoritative source) for the five consecutive full Nasdaq trading days ending at the close of trading on the Determination Date (with a proportionate adjustment in the event that the outstanding shares of common stock of Huntington shall be changed into a different number of shares by reason of any stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares or similar transaction between the date of the Agreement and the Determination Date).

 

Business day ” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the State of Ohio are authorized or obligated by law to close.

 

45


Determination Date ” means the date on which the last Requisite Regulatory Approval shall have been obtained, without regard to any requisite waiting period, or, if later, on the date ten Business Days prior to the Closing Date.

 

Final Index Price ” means the arithmetic mean of the daily closing values of the S&P Bank Index (Bloomberg: S5BANKX) (the “ Bank Index ”) for the five trading days utilized in calculating the Average Closing Price.

 

Initial Index Price ” means $354.67, the closing value of the Bank Index on January 26, 2004.

 

Huntington Starting Price ” means $23.10, the closing sale price per share of Huntington Common Stock reported on the Nasdaq National Market on January 26, 2004.

 

8.2 Effect of Termination . In the event of termination of this Agreement by either Unizan or Huntington as provided in Section 8.1 , this Agreement shall forthwith become void and have no effect, and none of Unizan, Huntington, any of their respective Subsidiaries or any of the officers or directors of any of them shall have any liability of any nature whatsoever under this Agreement, or in connection with the transactions contemplated by this Agreement, except that (i) Sections 6.2(b) , 8.2 , 8.3 , 9.2 , 9.3 , 9.8 and 9.9 shall survive any termination of this Agreement, and (ii) notwithstanding anything to the contrary contained in this Agreement, neither Unizan nor Huntington shall be relieved or released from any liabilities or damages arising out of its willful breach of any provision of this Agreement.

 

8.3 Termination Fee . (a) In the event that (A) a bona fide Acquisition Proposal shall have been communicated to or otherwise made known to the shareholders, senior management or Board of Directors of Unizan, or any person shall have publicly announced an intention (whether or not conditional) to make an Acquisition Proposal, after the date of this Agreement, which Acquisition Proposal shall not have been irrevocably withdrawn prior to the Unizan Shareholder Meeting, (B) thereafter this Agreement is terminated by either Huntington or Unizan pursuant to Section 8.1(e), by Huntington pursuant to Section 8.1(f) or by Huntington pursuant to Section 8.1(d) as a result of a willful breach by Unizan and (C) prior to the date that is eighteen (18) months after the date of such termination Unizan consummates an Alternative Transaction or enters into any letter of intent, agreement in principle, acquisition agreement or other similar agreement related to an Alternative Transaction, then Unizan shall on the date an Alternative Transaction is consummated or any such letter executed or agreement entered into, pay Huntington a fee equal to $20,000,000 (twenty million dollars) by wire transfer of same day funds.

 

(b) Unizan acknowledges that the agreements contained in this Section 8.3 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, Huntington would not enter into this Agreement; accordingly, if Unizan fails promptly to pay the amount due pursuant to this Section 8.3, and, in order to obtain such payment, Huntington commences a suit which results in a judgment against Unizan for the fee set forth in this Section 8.3, Unizan shall pay to Huntington its costs and expenses (including attorneys’ fees and expenses) in connection with such suit, together with interest on the amount

 

46


of the fee at the rate on six-month U.S. Treasury obligations plus 300 basis points in effect on the date such payment was required to be made.

 

8.4 Amendment . Subject to compliance with applicable law and Section 1.1(b) , this Agreement may be amended by the parties, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with Merger by the shareholders of Unizan or Huntington; provided , however , that after any approval of the transactions contemplated by this Agreement by the shareholders of Unizan, there may not be, without further approval of such shareholders, any amendment of this Agreement governed by Section 1701.79(E) of the OGCL. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.

 

8.5 Extension; Waiver . At any time prior to the Effective Time, the parties, by action taken or authorized by their respective Board of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other party, (ii) waive any inaccuracies in the representations and warranties contained in this Agreement and (iii) waive compliance with any of the agreements or conditions contained in this Agreement; provided , however , that after any approval of the transactions contemplated by this Agreement by the shareholders of Unizan and Huntington, there may not be, without further approval of such shareholders, any extension or waiver of this Agreement or any portion hereof that reduces the amount or changes the form of the consideration to be delivered to the holders of Unizan Common Stock under this Agreement, other than as contemplated by this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party, but such extension or waiver or failure to insist on strict compliance with an obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.

 

ARTICLE IX

 

GENERAL PROVISIONS

 

9.1 Closing . On the terms and subject to conditions set forth in this Agreement, the closing of the Merger (the “ Closing ”) shall take place at 10:00 a.m. on a date and at a place to be specified by the parties, which date shall be no later than five business days after the satisfaction or waiver (subject to applicable law) of the latest to occur of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied or waived at the Closing), unless extended by mutual agreement of the parties (the “ Closing Date ”).

 

9.2 Nonsurvival of Representations, Warranties and Agreements . None of the representations, warranties, covenants and agreements set forth in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except for Sections 6.8 and 6.9 .

 

9.3 Expenses . All costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the party incurring such expense; provided , however , that the costs and expenses of printing and mailing

 

47


the Proxy Statement, and all filing and other fees paid to the SEC in connection with the Merger, shall be borne equally by Unizan and Huntington.

 

9.4 Notices . All notices and other communications in connection with this Agreement shall be in writing and shall be deemed given if delivered personally, sent via facsimile (with confirmation), mailed by registered or certified mail (return receipt requested) or delivered by an express courier (with confirmation) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):

 

(a) if to Unizan, to:

 

Unizan Financial Corp.

220 Market Ave. South

Canton, Ohio 44702

Attention: Roger L. Mann

Facsimile: (330) 438-1811

 

with a copy to:

 

Black, McCuskey, Souers & Arbaugh

1000 Unizan Plaza

220 Market Ave. S.

Canton, Ohio 44702

Attention: Todd S. Bundy, Esq

Facsimile: (330) 456-5756

 

and

 

(b) if to Huntington, to:

 

Huntington Bancshares Incorporated

41 South High Street

Columbus, Ohio 43287

 

Attention: Richard A. Cheap, Esq.

                  General Counsel and Secretary

Facsimile: (614) 480-5485

 

Wachtell, Lipton, Rosen & Katz

51 West 52 nd Street

New York, New York 10019

Attention: Edward D. Herlihy, Esq.

Facsimile: (212) 403-2000

 

9.5 Interpretation . When a reference is made in this Agreement to Articles, Sections, Exhibits or Schedules, such reference shall be to a Article or Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or

 

48


“including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The Unizan Disclosure Schedule and the Huntington Disclosure Schedule, as well as all other schedules and all exhibits hereto, shall be deemed part of this Agreement and included in any reference to this Agreement. This Agreement shall not be interpreted or construed to require any person to take any action, or fail to take any action, if to do so would violate any applicable law.

 

9.6 Counterparts . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other party, it being understood that each party need not sign the same counterpart.

 

9.7 Entire Agreement . This Agreement (including the documents and the instruments referred to in this Agreement), together with the Confidentiality Agreement, constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement, other than the Confidentiality Agreement.

 

9.8 Governing Law . This Agreement shall be governed and construed in accordance with the internal laws of the State of Ohio applicable to contracts made and wholly-performed within such state, without regard to any applicable conflicts of law principles.

 

9.9 Publicity . Neither Unizan nor Huntington shall, and neither Unizan nor Huntington shall permit any of its Subsidiaries to, issue or cause the publication of any press release or other public announcement with respect to, or otherwise make any public statement concerning, the transactions contemplated by this Agreement without the prior consent (which consent shall not be unreasonably withheld) of Huntington, in the case of a proposed announcement or statement by Unizan, or Unizan, in the case of a proposed announcement or statement by Huntington; provided , however , that either party may, without the prior consent of the other party (but after prior consultation with the other party to the extent practicable under the circumstances) issue or cause the publication of any press release or other public announcement to the extent required by law or by the rules and regulations of the Nasdaq.

 

9.10 Assignment; Third Party Beneficiaries . Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned by either of the parties (whether by operation of law or otherwise) without the prior written consent of the other party. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by each of the parties and their respective successors and assigns. Except as otherwise specifically provided in Section 6.8 , this Agreement (including the documents and instruments referred to in this Agreement) is not intended to and does not confer upon any person other than the parties hereto any rights or remedies under this Agreement.

 

Remainder of Page Intentionally Left Blank

 

49


IN WITNESS WHEREOF, Unizan and Huntington have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.

 

UNIZAN FINANCIAL CORP.

By:  

/s/    Roger L. Mann        

   

Name:

 

Roger L. Mann

Title:

 

President and Chief Executive Officer

 

HUNTINGTON BANCSHARES

INCORPORATED

By:  

/s/    Thomas E. Hoaglin        

   

Name:

 

Thomas E. Hoaglin

Title:

 

Chairman, President and Chief Executive Officer

 

Signature Page to Agreement and Plan of Merger

 

50


Form of Affiliate Letter

 

Huntington Bancshares Incorporated

41 South High Street

Columbus, Ohio 43287

 

Ladies and Gentlemen:

 

I have been advised that as of the date hereof I may be deemed to be an “affiliate” of Unizan Financial Corp., an Ohio corporation (“ Unizan ”), as the term “affiliate” is defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the “ Rules and Regulations ”) of the Securities and Exchange Commission (the “ Commission ”) under the Securities Act of 1933, as amended (the “ Act ”). I have been further advised that pursuant to the terms of the Agreement and Plan of Merger dated as of January 27, 2004 (the “ Merger Agreement ”), by and between Huntington Bancshares Incorporated, a Maryland corporation (“ Huntington ”), and Unizan, Unizan shall be merged with and into Huntington (the “ Merger ”) and each share of the common stock, without par value, of Unizan (“ Unizan Common Stock ”) shall be converted into the right to receive 1.1424 shares of common stock, without par value, of Huntington (“ Huntington Common Stock ”). All terms used in this letter but not defined herein shall have the meanings ascribed thereto in the Merger Agreement.

 

I represent, warrant and covenant to Huntington that in the event I receive any Huntington Common Stock as a result of the Merger:

 

(a) I shall not make any sale, transfer or other disposition of Huntington Common Stock in violation of the Act or the Rules and Regulations.

 

(b) I have carefully read this letter and the Merger Agreement and discussed its requirements and other applicable limitations upon my ability to sell, transfer or otherwise dispose of Huntington Common Stock to the extent I believed necessary with my counsel or counsel for Unizan.

 

(c) I have been advised that the issuance of Huntington Common Stock to me pursuant to the Merger will be registered with the Commission under the Act on a Registration Statement on Form S-4. However, I have also been advised that, since at the time the Merger will be submitted for a vote of the shareholders of Unizan I may be deemed to have been an affiliate of Unizan and the distribution by me of Huntington Common Stock has not been registered under the Act, I may not sell, transfer or otherwise dispose of Huntington Common Stock issued to me in the Merger unless (i) such sale, transfer or other disposition has been registered under the Act, (ii) such sale, transfer or other disposition is made in conformity with the volume and other limitations of Rule 145 promulgated by the Commission under the Act, or (iii) in the opinion of counsel reasonably acceptable to Huntington, such sale, transfer or other disposition is otherwise exempt from registration under the Act.

 

(d) I understand that Huntington is under no obligation to register the sale, transfer or other disposition of Huntington Common Stock by me or on my behalf under the Act or to take

 

51


any other action necessary in order to make compliance with an exemption from such registration available.

 

(e) I also understand that stop transfer instructions will be given to Huntington’s transfer agents with respect to Huntington Common Stock and that there will be placed on the certificates for Huntington Common Stock issued to me, or any substitutions therefor, a legend stating in substance:

 

“The securities represented by this certificate have been issued in a transaction to which Rule 145 promulgated under the Securities Act of 1933 applies and may only be sold or otherwise transferred in compliance with the requirements of Rule 145 or pursuant to a registration statement under said act or an exemption from such registration.”

 

(f) I also understand that unless the transfer by me of my Huntington Common Stock has been registered under the Act or is a sale made in conformity with the provisions of Rule 145, Huntington reserves the right to put the following legend on the certificates issued to my transferee:

 

“The shares represented by this certificate have not been registered under the Securities Act of 1933 and were acquired from a person who received such shares in a transaction to which Rule 145 promulgated under the Securities Act of 1933 applies. The shares have been acquired by the holder not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act of 1933 and may not be sold, pledged or otherwise transferred except in accordance with an exemption from the registration requirements of the Securities Act of 1933.”

 

It is understood and agreed that the legends set forth above shall be removed by delivery of substitute certificates without such legend, and/or the issuance of a letter to Huntington’s transfer agent removing such stop transfer instructions, and the above restrictions on sale will cease to apply, if (A) one year (or such other period as may be required by Rule 145(d)(2) under the Securities Act or any successor thereto) shall have elapsed from the Closing Date and the provisions of such Rule are then available to me; or (B) if two years (or such other period as may be required by Rule 145(d)(3) under the Securities Act or any successor thereto) shall have elapsed from the Effective Date and the provisions of such Rule are then available to me; or (C) I shall have delivered to Huntington (i) a copy of a letter from the staff of the Commission, or an opinion of counsel in form and substance reasonably satisfactory to Huntington, or other evidence reasonably satisfactory to Huntington, to the effect that such legend and/or stop transfer instructions are not required for purposes of the Securities Act or (ii) reasonably satisfactory evidence or representations that the securities represented by such certificates are being or have been transferred in a transaction made in conformity with the provisions of Rule 145 under the Securities Act or pursuant to an effective registration under the Securities Act.

 

52


I recognize and agree that the foregoing provisions also apply to (i) my spouse, (ii) any relative of mine or my spouse occupying my home, (iii) any trust or estate in which I, my spouse or any such relative owns at least 10% beneficial interest or of which any of us serves as trustee, executor or in any similar capacity and (iv) any corporate or other organization in which I, my spouse or any such relative owns at least 10% of any class of equity securities or of the equity interest.

 

It is understood and agreed that this Letter Agreement shall terminate and be of no further force and effect if the Merger Agreement is terminated in accordance with its terms.

 

Execution of this letter should not be construed as an admission on my part that I am an “affiliate” of Unizan as described in the first paragraph of this letter or as a waiver of any rights I may have to object to any claim that I am such an affiliate on or after the date of this letter.

 

Very truly yours,

By:

   
   
   

     Name:

 

Accepted this              day of

                     , 2004

 

Huntington Bancshares Incorporated

By:

   
   
   

Name:

Title:

 

53

 
 

Exhibit 10(h)

 

OCTOBER 9, 2002

 

EXECUTIVE DEFERRED COMPENSATION PLAN

 

OF

 

HUNTINGTON BANCSHARES INCORPORATED

 

EFFECTIVE OCTOBER 1, 2001

 

AMENDED AND RESTATED OCTOBER 1, 2002

 


EXECUTIVE DEFERRED COMPENSATION PLAN

OF HUNTINGTON BANCSHARES INCORPORATED

 

TABLE OF CONTENTS

 

          PAGE

ARTICLE 1 - DEFINITIONS

    

1.01

  

Accounts

   1

1.02

  

Beneficiary

   1

1.03

  

Bonus

   1

1.04

  

Bonus Deferral Agreement

   1

1.05

  

Bonus Deferrals

   1

1.06

  

Cash Deferral Account

   2

1.07

  

Change in Control

   2

1.08

  

Code

   2

1.09

  

Common Stock

   2

1.10

  

Common Stock Deferral Account

   2

1.11

  

Compensation

   2

1.12

  

Compensation Committee

   2

1.13

  

Corporation

   3

1.14

  

Deferrals

   3

1.15

  

Distribution Election Form

   3

1.16

  

Effective Date

   3

1.17

  

Eligible Employee

   3

1.18

  

ERISA

   3

1.19

  

Investment Funds

   3

1.20

  

Long-Term Incentive

   4

1.21

  

Long-Term Incentive Deferral Agreement

   4

1.22

  

Long-Term Incentive Deferrals

   4

1.23

  

Member

   4

1.24

  

Net Shares

   4

1.25

  

Plan

   4

1.26

  

Plan Year

   5

1.27

  

Restricted Stock Award

   5

1.28

  

Restricted Stock Deferral Agreement

   5

1.29

  

Restricted Stock Deferrals

   5

1.30

  

Salary Deferral Agreement

   5

1.31

  

Salary Deferrals

   5

1.32

  

Stock Option Deferral Account

   5

1.33

  

Stock Option Deferral Agreement

   6

1.34

  

Stock Option Deferrals

   6

1.35

  

Trust

   6

1.36

  

Valuation Date

   6

 


EXECUTIVE DEFERRED COMPENSATION PLAN

OF HUNTINGTON BANCSHARES INCORPORATED

 

TABLE OF CONTENTS

 

          PAGE

ARTICLE 2 - PARTICIPATION

    

2.01

  

Eligibility

   7

2.02

  

Participation

   8

ARTICLE 3 - CONTRIBUTIONS

    

3.01

  

Amount of Deferral Contributions

   13

3.02

  

Stock Option Exercise

   15

3.03

  

Investment of Accounts

   16

3.04

  

Valuation of Accounts

   17

3.05

  

Vesting of Account

   18

3.06

  

Individual Accounting

   19

ARTICLE 4 - PAYMENT OF ACCOUNT

    

4.01

  

Payment of Accounts

   20

4.02

  

Method of Payment

   20

4.03

  

Hardship Distributions

   22

4.04

  

Other Distributions

   22

4.05

  

Accelerated Tax Distributions

   23

4.06

  

Compensation Committee Deferral of Distributions

   23

4.07

  

Death Benefit

   23

4.08

  

Designation of Beneficiary

   24

ARTICLE 5 - CHANGE IN CONTROL

    

5.01

  

Definition of Change in Control

   25

5.02

  

Application in Change in Control

   26

5.03

  

Payments to and by the Trust

   27

5.04

  

Legal Fees and Expenses

   28

 


EXECUTIVE DEFERRED COMPENSATION PLAN

OF HUNTINGTON BANCSHARES INCORPORATED

 

TABLE OF CONTENTS

 

          PAGE

ARTICLE 6 - GENERAL PROVISIONS

    

6.01

  

Establishment of Rules

   29

6.02

  

Funding

   30

6.03

  

No Contract of Employment

   31

6.04

  

Facility of Payment

   31

6.05

  

Withholding Taxes

   32

6.06

  

Nonalienation

   32

6.07

  

Construction

   32

6.08

  

Limitations on Liability

   33

6.09

  

Administrative Expense

   33

6.10

  

Claims and Review Procedures

   33

6.11

  

Illegal or Invalid Provision

   35

6.12

  

Gender and Number

   36

6.13

  

Successors

   36

ARTICLE 7 - AMENDMENT OR TERMINATION

   37

 


EXECUTIVE DEFERRED COMPENSATION PLAN

OF HUNTINGTON BANCSHARES INCORPORATED

 

INTRODUCTION

 

This Executive Deferred Compensation Plan of Huntington Bancshares Incorporated is authorized by the Board of Directors of Huntington Bancshares Incorporated effective on and after October 1, 2001. The purpose of this Plan is to provide a means to defer receipt of compensation and current income tax liability thereon for selected managers and highly compensated employees in addition to the amounts that can be deferred under the Corporation’s qualified retirement plan.

 

This Plan is intended to constitute a nonqualified unfunded deferred compensation plan for a select group of management or highly compensated employees under Title I of the ERISA. All benefits payable under the Plan shall be paid out of the general assets of Huntington Bancshares Incorporated. Huntington Bancshares Incorporated may establish and fund a trust as provided herein in order to aid it in providing benefits due under the Plan.

 


EXECUTIVE DEFERRED COMPENSATION PLAN

OF HUNTINGTON BANCSHARES INCORPORATED

 

ARTICLE 1. DEFINITIONS

 

1.01 Accounts ” means the device used to measure and determine the amount of deferred compensation to be paid to a Member or Beneficiary under the Plan and may include the Cash Deferral Account, the Common Stock Deferral Account, and the Stock Option Deferral Account.

 

1.02 Beneficiary ” means the individual, trust or other recipient to whom a deceased Member’s benefits are payable, as provided in Section 4.07.

 

1.03 Bonus ” means any annual bonus or other similar bonus payable to an Eligible Employee and any other bonus payable to an Eligible Employee and designated by the Corporation through other program documents or otherwise as eligible for deferral under this Plan.

 

1.04 Bonus Deferral Agreement ” means the agreement entered into by the Member pursuant to Section 2.02 under which he elects to defer all or a portion of his Bonus under this Plan.

 

1.05 Bonus Deferrals ” means the amount of contributions credited to a Member’s Accounts under Section 3.01, with respect to his Bonus.

 

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1.06 Cash Deferral Account ” means the account credited with Salary Deferrals, cash Bonus Deferrals and cash Long-Term Incentive Deferrals and the earnings credited to that Account pursuant to Section 3.03.

 

1.07 Change in Control ” means the events described in Section 5.01.

 

1.08 Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

1.09 Common Stock ” means the Huntington Bancshares Incorporated common stock with no par value per share.

 

1.10 Common Stock Deferred Account ” means the account credited with Common Stock from deferred Common Stock in relation to Bonus Deferrals, Long-term Incentive Deferrals and Restricted Stock Deferrals and the dividend equivalents with respect to the Common Stock credited to that Account pursuant to Section 3.03.

 

1.11 Compensation ” means base salary or commissions earned by an Eligible Employee from the Corporation for each payroll period during a Plan Year, including any salary reduction contributions made under any plan maintained by the Corporation pursuant to Sections 401(k), 125 and 132(f) of the Code.

 

1.12 Compensation Committee ” means the Compensation and Stock Option Committee of the Board of Directors of the Corporation.

 

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1.13 Corporation ” means Huntington Bancshares Incorporated, a Maryland corporation, together with any and all subsidiaries, and any successor thereto as provided in Section 6.13. A subsidiary or subsidiaries means any corporation or other entity whose financial statements are consolidated with the Corporation.

 

1.14 Deferrals ” means collectively the Salary, Bonus, Long-Term Incentive, Restricted Stock and Net Shares, unless indicated otherwise.

 

1.15 Distribution Election Form ” means the form or forms completed by a Member to elect alternative payment options and/or alternative payout timing.

 

1.16 Effective Date ” means October 1, 2001.

 

1.17 Eligible Employee ” means a manager or highly compensated employee of the Corporation who has been selected by the Compensation Committee or its delegate to participate in this Plan as described in Section 2.01.

 

1.18 ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

1.19 Investment Funds ” mean such investment funds that the Corporation may, in its discretion, make available in determining the earnings (or losses) on a Member’s Cash Deferrals.

 

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1.20 Long-Term Incentive ” means any long-term award payable to an Eligible Employee by the Corporation and designated by the Corporation through other program documents or otherwise as eligible for deferral under this Plan.

 

1.21 Long-Term Incentive Deferral Agreement ” means the agreement entered into by the Member pursuant to Section 2.02 under which he elects to defer all or a portion of his Long-Term Incentive under this Plan.

 

1.22 Long-Term Incentive Deferrals ” means the amount of contributions credited to a Member’s Accounts under Section 3.01, with respect to his Long-Term Incentive.

 

1.23 Member ” means each Eligible Employee who has made the election described in Section 2.02.

 

1.24 Net Shares ” with respect to an election made pursuant to Section 3.02, means the difference between the number of shares of Common Stock subject to the stock option exercise and the number of shares of Common Stock delivered to satisfy the stock option exercise price, less any shares used to satisfy FICA or any other taxes due upon the option exercise as may be designated by the Corporation.

 

1.25 Plan ” means the Executive Deferred Compensation Plan of Huntington Bancshares Incorporated.

 

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1.26 Plan Year ” means the twelve (12)-month period beginning on any January 1; the first Plan Year shall begin October 1, 2001 and ends December 31, 2001.

 

1.27 Restricted Stock Award ” means any restricted stock awards of Common Stock payable to an Eligible Employee by the Corporation and designated by the Corporation through a restricted stock award document or otherwise as eligible for deferral under this Plan.

 

1.28 Restricted Stock Deferral Agreement ” means the agreement entered into by the Member pursuant to Section 2.02 under which he elects to defer all or a portion of his Restricted Stock Award under the Plan.

 

1.29 Restricted Stock Deferrals ” means the amount of contributions credited to a Member’s Accounts under Section 3.01, with respect to his Restricted Stock Award.

 

1.30 Salary Deferral Agreement ” means the agreement entered into by the Member pursuant to Section 2.02 under which he elects to defer all or a portion of his Compensation under this Plan.

 

1.31 Salary Deferrals ” means the amount of contributions credited to a Member’s Account under Section 3.01, with respect to his Compensation.

 

1.32 Stock Option Deferral Account ” means the account credited with the deferred Net Shares and the dividend equivalents with respect to those Net Shares credited to that Account pursuant to Section 3.03.

 

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1.33 Stock Option Deferral Agreement ” means the agreement entered into by the Member pursuant to Section 2.02 under which he elects to defer all or a portion of his Net Shares under this Plan.

 

1.34 Stock Option Deferrals ” means the amount of contributions credited to a Member’s Accounts under Section 3.01, with respect to his Net Shares.

 

1.35 Trust ” means the trust that may be established by the Corporation as provided in Section 6.02(b).

 

1.36 Valuation Date ” means the last business day of each calendar month. All distributions under the Plan shall be based upon the value of the Member’s Accounts as of the Valuation Date specified in Article 4 with respect to the distribution and shall include any contributions made by a Member, but not yet credited to the Member’s Accounts.

 

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ARTICLE 2. PARTICIPATION

 

2.01 Eligibility

 

  (a) In addition to a designation of eligibility to participate in this Plan contained in other Corporation programs for its managers and highly compensated employees, the Compensation Committee or its delegate, in its sole discretion, shall select from time-to-time either individually or by class, those managers and highly compensated employees of the Corporation who shall be eligible to participate in this Plan under Section 2.02. The Compensation Committee may select different employees or classes of employees to participate in the various Deferrals. The Compensation Committee shall make its selection from those managers and highly compensated employees who it deems to be in a select group of management or highly compensated employees as defined under Title I of ERISA. Said employees shall be notified of their eligibility for participation in the Plan by the Corporation as soon as practicable after the Compensation Committee has made its selection and, for purposes of authorizing any Deferrals under Section 3.01, in any event prior to the first day of eligibility after said employee is designated an Eligible Employee. An Eligible Employee may become a Member for any or all Deferrals he is eligible for under Section 3.01.

 

  (b)

In its sole discretion, the Compensation Committee may withdraw its approval for participation in the Plan for any Member at any time with respect to any future deferral opportunity whether or not a deferral election has been made by the Member. In the event of such withdrawal, the Member with existing Accounts will remain a Member in relation to the right to direct investment and elect distribution options from those Accounts. Such Member shall be notified of such withdrawal in

 

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writing as soon as practicable following such action. Notwithstanding the foregoing, in the event a Change in Control occurs, the Compensation Committee may not thereafter withdraw its participation approval for any Member.

 

2.02 Participation

 

  (a) Initial Plan Year.

 

  (i) Salary Deferrals will be available beginning in 2002 and to be effective must be made by an Eligible Employee by executing and delivering to the Corporation a Salary Deferral Agreement by December 31, 2001. The Salary Deferral Agreement shall apply to Compensation earned by the Eligible Employee in the payroll periods beginning after December 31, 2001.

 

  (ii) An election to become a Member and authorize a Bonus Deferral to be effective for a 2001 Bonus (payable in 2002) must be made by an Eligible Employee, by executing and delivering to the Corporation, an irrevocable Bonus Deferral Agreement by December 31, 2001.

 

  (iii) An election to become a Member and authorize a Long-Term Incentive Deferral to be effective for cycle eight (8) payments ending on December 31, 2002 payable in 2003 must be made by the Eligible Employee by executing and delivering to the Corporation an irrevocable Long-term Incentive Deferral Agreement as provided in Section 2.02(b)(iii).

 

  (iv)

Stock Option Deferral will be available beginning in 2003 and to be effective must be made by an Eligible Employee by executing and

 

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delivering to the Corporation a Stock Option Deferral Agreement as provided in Section 2.02(b)(iv).

 

  (b) Initial Participation for 2002 Plan Year and Thereafter.

 

  (i) In the case of a newly hired Eligible Employee or an employee who first becomes an Eligible Employee during a Plan Year, that Eligible Employee must execute and deliver to the Corporation a Salary Deferral Agreement within 30 days of notification of eligibility to participate in the Plan. Salary Deferrals will begin in the first full payroll period following receipt of the Salary Deferral Agreement.

 

  (ii) For purposes of Bonus Deferrals, the initial irrevocable Bonus Deferral Agreement must be executed and delivered to the Corporation before the later of the date established for current Members to submit their Plan Year Bonus Deferral Agreement or thirty (30) days after being designated an Eligible Employee, to apply to the Bonus attributable to that Plan Year, which becomes payable in the next following Plan Year. The Bonus Deferral Agreement for subsequent Plan Years may be changed in accordance with the procedures in paragraph (c)(ii) below. Notwithstanding the foregoing, in relation to any other bonus, the irrevocable Bonus Deferral Agreement must be made at such time and in such manner as established by the Corporation in its discretion.

 

  (iii)

For purposes of Long-Term Incentive Deferrals and for Restricted Stock Deferrals , the initial irrevocable Long-Term Incentive Deferral Agreement or Restricted Stock Deferral Agreement, as the case may be, must be executed and delivered to the Corporation before the later of the date

 

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established for current Members to submit their next plan year’s payment Deferral Agreement or thirty (30) days after being designated an Eligible Employee for purposes of the Long-Term Incentive Deferral and/or Restricted Stock Award Deferral.

 

  (iv) For purposes of Stock Option Deferrals effective initially in 2003, the initial Stock Option Deferral Agreement as it applies to a specific Common Stock option must be executed and delivered to the Corporation:

 

  (A) no later than December 31 of the Plan Year immediately preceding the Plan Year in which the Member will exercise such option, and

 

  (B) at least six (6) months before the exercise of the Common Stock option.

 

This Stock Option Deferral Agreement is irrevocable, but will only apply to the stock option(s) designated in the Agreement.

 

  (c) Continuing Participation.

 

  (i) After the initial year for eligibility, an Eligible Employee may authorize or change a previously authorized Salary Deferral for any Plan Year by executing and delivering to the Corporation a Salary Deferral Agreement at a date determined by the Corporation, but no later than December 31 of the Plan Year immediately preceding the Plan Year in which the Compensation would otherwise be paid to the Member. Once a Salary Deferral Agreement is made, it will remain in effect for that Plan Year and subsequent Plan Years until suspended or changed in accordance with these terms.

 

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  (ii) A Bonus Deferral Agreement must be executed for any Plan Year that a Bonus Deferral is desired. An irrevocable Bonus Deferral Agreement must be delivered to the Corporation prior to the last business day of March in order to defer that Plan Year’s Bonus, payable in the following Plan Year. A Bonus Deferral Agreement is irrevocable, but may be changed for subsequent Plan Years in accordance with these terms.

 

  (iii) A Long-Term Incentive Deferral Agreement must be executed for each payout year that a Long-Term Incentive Deferral is desired. The Long-Term Incentive Deferral Agreement must be delivered to the Corporation prior to the last business day of March of the year prior to the plan year of payment. This Long-Term Incentive Deferral Agreement is irrevocable, but will only apply to the Long-Term Incentive designated in the Agreement.

 

  (iv) A Restricted Stock Deferral Agreement must be executed for each payment that a Restricted Stock Deferral is desired. The Restricted Stock Deferral Agreement must be delivered to the Corporation more than six (6) months prior to the vesting in the Restricted Stock Award and in the Plan Year prior to the year in which the Restricted Stock Award vests. This Deferral Agreement is irrevocable, but will only apply to the Restricted Stock Award designated in the Agreement.

 

  (v) A Stock Option Deferral Agreement must be executed for each Common Stock option exercise that a Stock Option Deferral is desired. The Stock Option Deferral Agreement must be delivered to the Corporation:

 

  (A) no later than December 31 of the Plan Year immediately preceding the Plan Year in which the Member will exercise such option, and

 

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  (B) at least six (6) months before the exercise of the Common Stock option.

 

This Stock Option Deferral Agreement is irrevocable, but will only apply to the stock option(s) designated in the Agreement.

 

  (d) Participation Procedure. In order to commence participation in the Plan, an Eligible Employee must complete and timely deliver to the Corporation the following forms:

 

  (i) one or more of the Deferral Agreements referred to above;

 

  (ii) a Distribution Election Form which applies to one or more of the Accounts for which Deferrals are elected; and

 

  (iii) a Beneficiary Designation Form which applies to the Accounts.

 

  (e) Election Not to Defer. An Eligible Employee or Member may elect from time-to-time not to defer any amount he is eligible to defer hereunder without affecting the eligibility to defer at any time in the future as long as he remains an Eligible Employee.

 

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ARTICLE 3. CONTRIBUTIONS

 

3.01 Amount of Deferral Contributions

 

The amount of contributions to be recorded on the books of the Corporation on behalf of a Member’s Accounts pursuant to this Section 3.01 shall be equal to the total of the Deferrals described herein.

 

  (a) Salary Deferrals . For each payroll period beginning on or after the effective date of an Eligible Employee’s Salary Deferral Agreement, his Cash Deferral Account shall be credited with an amount of Salary Deferrals, if applicable. The amount of Salary Deferrals shall be equal to the designated percentage of Compensation elected by the Member in his Salary Deferral Agreement by agreeing to accept a reduction in Compensation equal to a stated whole percentage of Compensation per payroll period which is not less than five percent (5%) nor more than ninety (90%) of Compensation.

 

  (b) Bonus Deferral . The amount of Bonus Deferrals shall be elected by the Member by agreeing to accept a reduction in Bonus equal to a stated whole percentage in his Bonus Deferral Agreement for that year, which is not less than five percent (5%) or one hundred (100) shares of Common Stock nor more than ninety (90%) of Bonus.

 

  (c) Long-Term Incentive Deferral . The amount of a Long-Term Incentive Deferral shall be elected by the Member by agreeing to accept a reduction in the Long-Term Incentive equal to a stated whole percentage in the applicable Long-Term Incentive Deferral Agreement, which is not less than five percent (5%) or one hundred (100) shares of Common Stock nor more than one hundred percent (100%) of the Long-Term Incentive.

 

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  (d) Restricted Stock Deferral . The amount of a Restricted Stock Deferral shall be elected by the Member by agreeing to accept a reduction in the Restricted Stock Award equal to a stated whole percentage of his Common Stock covered in the applicable Restricted Stock Deferral Agreement, which is not less than one hundred (100) shares of Common Stock nor more than one hundred percent (100%) of the award (in whole shares).

 

  (e) Stock Option Deferral . The amount of a Stock Option Deferral shall be elected by the Member by agreeing to accept a reduction in Net Shares deliverable to him equal to a stated whole percentage of his Net Shares for that Stock Option Deferral Agreement, which is not less than one hundred (100) shares of Common Stock nor more than one hundred percent (100%) of the Net Shares (in whole shares).

 

  (f) The Corporation, in its sole discretion, may allow Deferrals in dollar amounts, or a combination of percentages and dollar amounts.

 

  (g) No election for Deferrals will be effective unless the cash amount or Common Stock amount payable to the Member to which the Deferral applies is sufficient to satisfy such election.

 

  (h) In no event shall the Deferrals of Compensation, Bonus, Long-Term Incentive, Common Stock or Net Shares be reduced below the amount required for federal, state and local tax and any other required or elected withholding amounts (including amounts elected under the Corporation’s various benefit plans).

 

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3.02 Stock Option Exercise

 

  (a) This Section describes the special procedures for deferring the delivery and receipt of Common Stock which a Member may receive from the exercise of a nonqualified stock option granted to the Member by the Corporation. The stock options are governed by the stock option plan under which they are granted. No stock options or shares of Common Stock are authorized to be issued under the Plan. A Member who elects to defer receipt of Common Stock issuable upon the exercise of stock options will have no rights as a stockholder of the Corporation with respect to allocations made to his Stock Option Deferral Account except the right to receive dividend equivalent allocations as hereafter described.

 

  (b)

A Member may elect to defer receipt of Net Shares of Common Stock resulting from a stock-for-stock exercise of an exercisable stock option issued to the Member by completing and submitting to the Corporation his Stock Option Deferral Agreement as provided in Section 2.02. The stock option exercise must occur on or prior to the expiration date of the stock option and must be accomplished by delivering Common Stock or using another acceptable method, such as, attestation, on or prior to the exercise date, shares of Common Stock which have been personally owned by the Member for at least six (6) months prior to the exercise date and have not been used in a stock swap in the prior six (6) months. A Member’s Stock Option Deferral Agreement shall not be effective if the stock option as to which the Member has made the deferral election terminates prior to the exercise date selected by the Member. If the Member dies or fails to deliver shares of Common Stock which have been personally owned by the Member at least six (6) months prior to the exercise date (and have not been used in a stock

 

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swap in the prior six (6) months) in payment of the exercise price, then the Stock Option Deferral Agreement shall not be effective. Only whole Net Shares may be deferred.

 

3.03 Investment of Accounts

 

  (a) The Accounts of each Member shall be credited with an additional amount of hypothetical net earnings (or losses) determined under this Section.

 

  (b) Except for the Common Stock Deferral Account and the Stock Option Deferral Account, each Member shall elect the manner in which his Accounts are to be credited with net earnings (and losses) by designating how the Accounts are to be invested on a hypothetical basis from among the Investment Funds. The election shall be made in writing on a form provided by the Corporation. An investment election shall be effective for the Valuation Date established by the Corporation following its receipt. Modifications may be made to investment elections on the same basis.

 

  (c) If the Corporation exercises its discretion to establish the Trust, it reserves the right to determine the amount of contributions to the Trust and the types of investments used, including, but not limited to, mutual funds, annuities and life insurance contracts.

 

  (d) Bonus Deferrals, Long-Term Incentive Deferrals, Restricted Stock Deferrals and Stock Option Deferrals of Common Stock may be maintained in their respective Accounts on the books of the Corporation or the Common Stock may be held in the Trust.

 

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3.04 Valuation of Accounts

 

  (a) On the first Valuation Date, the Member’s Accounts shall equal:

 

  (i) the amount of the Member’s Deferrals, if any, credited to the Member’s Accounts during the period from the Effective Date through the first Valuation Date; plus

 

  (ii) the proportionate share of the net earnings or losses, if any, since the Effective Date on the Investment Funds, made available in determining the net earnings or losses on a Member’s Deferrals;

 

  (iii) for purposes of the Common Stock valuation, all dividend equivalents payable in relation to Common Stock shall be credited in the form of additional whole and fractional shares of Common Stock since the Effective Date.

 

  (b) On each subsequent Valuation Date, the Member’s Accounts shall equal:

 

  (i) the Member’s Accounts balance as of the immediately preceding Valuation Date; plus

 

  (ii) the proportionate share of the net earnings or losses, if any, since the immediately preceding Valuation Date on the Investment Funds, made available in determining the net earnings or losses on a Member’s Deferrals; plus

 

  (iii) all dividend equivalents payable in relation to the Common Stock (credited in the form of additional shares) since the immediately preceding Valuation Date; plus

 

  (iv) the then value of the Member’s Deferrals, if any, credited since the immediately preceding Valuation Date; and less

 

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  (v) any payments or distributions made in accordance with the terms of the Plan from the Member’s Accounts since the immediately preceding Valuation Date.

 

  (c) The Corporation reserves the right to change from time-to-time the procedures used in valuing the Accounts or crediting (or debiting) the Accounts if it determines that such an action is justified in that it results in a more accurate reflection of the fair market value of assets. In the event of a conflict between the provisions of this Section and such new administrative procedures, those new administrative procedures shall prevail.

 

  (d) In the event that the Corporation determines that any recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Stock or other securities of the Corporation, issuance of warrants or other rights to purchase Common Stock or other securities of the Corporation, or other similar corporate transactions or events affects the Common Stock, an appropriate adjustment to the Member’s Common Stock Deferral Account and Stock Option Deferral Account shall be made to prevent reduction or enlargement of the Member’s benefits under the Plan.

 

3.05 Vesting of Account

 

The Member shall be fully vested in his Deferrals and earnings credited to his Accounts.

 

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3.06 Individual Accounting

 

The Corporation shall maintain, or cause to be maintained, records showing the individual balances of each of the Member’s Accounts. At least once a year, each Member shall be furnished with a statement setting forth the value of his Accounts.

 

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ARTICLE 4. PAYMENT OF ACCOUNT

 

4.01 Payment of Accounts

 

A Member shall be entitled to receive payment of his Accounts upon the Member’s termination of employment from the Corporation for any reason.

 

4.02 Method of Payment

 

  (a) Unless otherwise elected as provided hereinafter, payment of the Accounts shall be made in a single lump sum payment on or as soon as administratively possible following the Valuation Date for the month following the month in which the Member terminates employment.

 

  (b) In lieu of receiving an immediate lump sum payment, the Member may elect from time-to-time on a Distribution Election Form to receive his Accounts:

 

  (i) in annual installments over a period allowed by the Corporation ranging from two (2) to ten (10) years as follows:

 

  (A) with respect to Cash Deferral Accounts, annual cash payments calculated by multiplying (I) the balance in the Cash Deferral Account as of the Valuation Date on which such installment payment is being made, times (II) a fraction equal to the reciprocal of the number of years remaining in the annual installment period elected by the Member; and

 

  (B) with respect to Common Stock Deferral Accounts and Stock Option Deferral Accounts, approximately equal annual installments of Common Stock, or

 

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  (ii) in a lump sum payment or in installments as provided in subparagraph (i) above beginning as of a specified Valuation Date either before or after his termination of employment in accordance with terms established by the Corporation.

 

  (c) An installment payout election under paragraph (b) above is subject to the approval of the Corporation and to be effective must be made no later than:

 

  (i) the end of the Plan Year prior to the Plan Year in which the election will be effective; and

 

  (ii) at least six (6) months prior to the commencement payout date.

 

  (d) A Member may complete one Distribution Election Form at the time of the Member’s initial Deferral hereunder electing a date or dates on which any Member Deferrals will be distributed or begin to be distributed to the Member other than the Member’s termination of employment. The initial Deferral election period on the Distribution Election Form must be at least three (3) Plan Years from the Plan Year in which that Deferral occurs.

 

The Member may subsequently extend any Deferral payout date, if the Member’s subsequent Distribution Election Form is executed and delivered to the Corporation at least two (2) Plan Years prior to the then elected payout date.

 

  (e)

The Corporation may establish rules and procedures which allow a Member to complete a separate Distribution Election Form for each Account within the Member’s Accounts or for an amount in any one of his Accounts based on the value of separate Deferral Agreements. In either situation, the Corporation shall revise the Distribution Election Form procedures under paragraph (d) above to

 

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allow current and subsequent elections to apply to each Account or to amounts in the Accounts based on separate deferral agreements.

 

4.03 Hardship Distributions

 

The Corporation may, pursuant to rules adopted by it and applied in a uniform manner, accelerate the date of distribution of a Member’s Accounts (except the Common Stock Deferral Account and the Stock Option Deferral Account) because of hardship at any time. “Hardship” shall include an unforeseeable, severe financial condition resulting from (a) a sudden and unexpected illness or accident of the Member or his dependents (as defined in Section 152(a) of the Code); (b) loss of the Member’s property due to casualty; or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Member, but which may not be relieved through other available resources of the Member, as determined by the Corporation. The amount of the distribution may not be in excess of the amount of the financial need to satisfy the hardship, including any amounts necessary to pay any federal, state or local tax reasonably anticipated to result from the distribution.

 

4.04 Other Distributions

 

A Member shall be permitted to accelerate payment from his Accounts on or as soon as administratively possible following the Valuation Date coincident with or occurring after at least thirty (30) days written notice to the Corporation. Such payment shall be subject to a ten percent (10%) penalty reduction to the Accounts and the Member’s future Deferrals shall be suspended. The Member shall be permitted to reauthorize Deferrals for the Plan Year following the expiration of a twelve (12)-month period after said distribution, provided he still is an Eligible Employee.

 

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4.05 Accelerated Tax Distributions

 

In the event any Deferral is finally determined to be income taxable to the Eligible Employee prior to any distribution event hereunder, then the Account holding that Deferral shall be distributable to the Eligible Employee. The Eligible Employee shall notify the Corporation of the final determination of taxability and will provide all information required by the Corporation.

 

4.06 Compensation Committee Deferral of Distributions

 

The Compensation Committee may, in its sole discretion, defer payment to a future date of any otherwise scheduled distribution that would otherwise result in the loss of a corporate income tax deduction under Internal Revenue Code Section 162(m).

 

4.07 Death Benefit

 

If a Member dies before payment of the entire balance of his Accounts, an amount equal to the unpaid portion thereof as of the date of his death shall be made in a single lump sum payment to his Beneficiary on or as soon as administratively possible following the Valuation Date for the month following the month in which the Member dies.

 

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4.08 Designation of Beneficiary

 

Each Member shall file with the Corporation a written designation of one or more persons, trust or other recipient as the Beneficiary who shall be entitled to receive the amount, if any, payable from his Accounts under the Plan upon his death pursuant to this Section 4.07. A Member may, from time to time revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Corporation. The last such designation received by the Corporation shall be controlling; provided however, that no designation, or change or revocation thereof, shall be effective unless received by the Corporation prior to the Member’s death, and in no event shall it be effective as of a date prior to such receipt. If no such Beneficiary designation is in effect at the time of the Member’s death, or if no designated Beneficiary survives the Member, the Corporation shall distribute the Member’s benefits to the following persons in the following order of priority:

 

  (a) The Member’s surviving spouse;

 

  (b) The Member’s surviving children, in equal shares; or

 

  (c) The legal representative of the Member’s estate.

 

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ARTICLE 5. CHANGE IN CONTROL

 

5.01 Definition of Change in Control

 

Change in Control means any of the following events:

 

  (a) Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act as in effect as of the date of this Plan), other than the Corporation or any “person” who as of the Effective Date is a director or officer of the Corporation or whose shares of Common Stock of the Corporation are treated as “beneficially owned” (as such term is used in Rule 13d-3 of the Exchange Act as in effect as of the Effective Date) by any such director or officer, becomes the beneficial owner, directly or indirectly, of securities of the Corporation representing twenty-five percent (25%) or more of the combined voting power of the Corporation’s then outstanding securities;

 

  (b) Individuals who, as of the Effective Date, constitute the Board of Directors of the Corporation (the “incumbent board”) cease for any reason to constitute at least a majority of such Board of Directors, provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election, was approved by a vote of at least a majority of the directors comprising the “incumbent board” shall be considered as though such individual were a member of the “incumbent board,” but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” other than such Board of Directors;

 

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  (c) A merger or consolidation of the Corporation, other than a merger or consolidation in which the voting securities of the Corporation immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) fifty-one percent (51%) or more of the combined voting power of the Corporation or surviving entity immediately after the merger or consolidation with another entity;

 

  (d) A sale, exchange, lease, mortgage, pledge, transfer, or other disposition (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Corporation which shall include, without limitation, the sale of assets or earning power aggregating more than fifty percent (50%) of the assets or earning power of the Corporation on a consolidated basis;

 

  (e) A liquidation or dissolution of the Corporation;

 

  (f) A reorganization, reverse stock split, or recapitalization of the Corporation which would result in any of the foregoing; or

 

  (g) A transaction or series of related transactions having, directly or indirectly, the same effect as any of the foregoing.

 

5.02 Application in Change in Control

 

To the extent applicable, the provisions of this Article shall control and shall supersede any other provisions of the Plan to the extent inconsistent with the provisions of this Article.

 

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5.03 Payments to and by the Trust

 

If the Corporation determines that it is probable that a Change in Control may occur within the six (6)-month period immediately following the date of determination, or if a Change in Control in fact occurs in those situations where the Corporation has not otherwise made such a determination, the Corporation shall make a contribution to the Trust (if in existence at the date of determination or the date of the Change in Control, as the case may be) in accordance with the provisions of the Trust. Solely for purposes of determining the amount of such contribution (but in no way in limitation of the Corporation’s liability under the Plan as determined under other provisions of the Plan), the Corporation’s total liability under the Plan shall be equal to the value of all Accounts established under the Plan, which remain unpaid by the Corporation as of the date of determination or the date of the Change in Control, as the case may be, whether or not amounts are otherwise currently payable to Members or Beneficiaries under the Plan. All such contributions shall be made as soon as possible after the date of determination or of the Change in Control, as the case may be, and shall be made in cash and/or Common Stock. Further the Corporation may, in its discretion, make other contributions to the Trust from time-to-time for purposes of providing benefits hereunder, whether or not a Change in Control has occurred or may occur.

 

Notwithstanding the foregoing, any contributions to the Trust, as well as any net earnings or losses thereon, shall be at all times subject to the provisions of the Trust.

 

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5.04 Legal Fees and Expenses

 

The Corporation shall reimburse any Member or Beneficiary for all reasonable legal fees and expenses incurred by such Member or Beneficiary after the date of any Change in Control in seeking to obtain any right or benefit provided by the Plan.

 

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ARTICLE 6. GENERAL PROVISIONS

 

6.01 Establishment of Rules

 

The Corporation shall be responsible for providing for the general administration of the Plan and for carrying out the provisions of the Plan. The Corporation from time-to-time shall establish rules for the administration of the Plan and the transaction of its business. The Corporation shall have total and complete discretion to interpret the Plan, including, but not limited to, the discretion to:

 

  (a) determine all questions arising in the administration, interpretation and application of the Plan, including the power to construe and interpret the Plan;

 

  (b) decide all questions relating to an individual’s eligibility for benefits and the amounts thereof;

 

  (c) decide all facts relevant to the determination of eligibility for benefits or participation;

 

  (d) make such adjustments which it deems necessary or desirable to correct any arithmetical or accounting errors; and

 

  (e) determine the amount, form and timing of any distribution to be made hereunder.

 

In making its decision, the Corporation shall be entitled to, but need not rely upon, information supplied by a Member, Beneficiary, or representative thereof. The Corporation may correct any defect, supply any omission, or reconcile any inconsistency in such manner and to such extent as it shall deem necessary to carry out the purposes of this Plan. The Corporation’s decisions in such matters shall be binding and conclusive as to all parties. In providing for the administration of the Plan, the Corporation may delegate responsibilities for the operation and administration of the Plan by a written document or documents filed with the Plan records.

 

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6.02 Funding

 

  (a) All amounts payable in accordance with this Plan shall constitute a general unsecured obligation of the Corporation. Such amounts, as well as any administrative costs relating to the Plan, shall be paid out of the general assets of the Corporation, to the extent not paid by a grantor trust established pursuant to paragraph (b) below. To the extent the Member or any other person acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Corporation.

 

  (b) The Corporation may, for administrative reasons, establish a grantor trust for the benefit of Members participating in the Plan. The Corporation reserves the right to determine the amount of contributions to the Trust and the types of investments used, including, but not limited to, mutual funds, annuities and life insurance contracts. The assets of said trust will be held separate and apart from other Corporation funds, and shall be used exclusively for the purposes set forth in the Plan and the applicable trust agreement, subject to the following conditions:

 

  (i) the creation of said trust shall not cause the Plan to be other than “unfunded” for purposes of Title I of ERISA;

 

  (ii) the Corporation shall be treated as “grantor” of said trust for purposes of Section 677 of the Code; and

 

  (iii) said trust agreement shall provide that its assets may be used to satisfy claims of the grantor’s general creditors in the event of its insolvency, and the rights of such general creditors are enforceable by them under federal and state law.

 

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  (c) All Accounts under the Plan shall be for bookkeeping purposes only and shall not represent a claim against specific assets of the Corporation. Nothing contained in this Plan shall be deemed to create a trust of any kind or create any fiduciary relationship. Payments of amounts credited to Accounts under the Plan with respect to those Members and Beneficiaries for whom Trust contributions are made shall be made at the Corporation’s option by the Corporation or from the Trust in accordance with the terms of the Trust, but, to the extent not paid by the Corporation, shall be paid by the Trust.

 

6.03 No Contract of Employment

 

The establishment of the Plan shall not be construed as conferring any legal rights upon any person for a continuation of employment, nor shall it interfere with the rights of the Corporation to discharge any officer and to treat him without regard to the effect which such treatment might have upon him as a Member of the Plan.

 

6.04 Facility of Payment

 

In the event that the Corporation shall find that a Member is unable to care for his affairs because of illness or accident, the Corporation may direct that any benefit payment due him, unless claim shall have been made therefor by a duly appointed legal representative, be paid to his spouse, a child, a parent or other blood relative, or to a person with whom he resides, and any such payment so made shall be a complete discharge of the liabilities of the Plan therefor.

 

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6.05 Withholding Taxes

 

The Corporation shall have the right to deduct from each payment to be made under the Plan any required withholding taxes. In the event employment tax liability or state or local tax liability is assessed on amounts paid or payable under this Plan, the Corporation shall have the right to deduct from the payment or from the Member’s other Compensation any required employee portion of the employment tax liability or income tax withholding.

 

6.06 Nonalienation

 

Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to do shall be void, nor shall any such benefit be in any manner liable for or subject to garnishment, attachment, execution or levy, or liable for or subject to the debts, contracts, liabilities, engagements or torts of the Member or any liability for equitable distribution, alimony or other payments for the support of a spouse or former spouse, or for any other relative of any Member.

 

6.07 Construction

 

The Plan is intended to constitute an unfunded deferred compensation arrangement for a select group of management or highly compensated employees. Except to the extent superseded by Federal law, all rights hereunder shall be governed by and construed in accordance with the laws of the State of Ohio (including its statute or limitations provisions). The Plan shall be construed to effectuate its purpose and the Corporation’s intent that the Plan be exempt from ERISA, as amended and that amounts deferred hereunder not be subject to Federal income tax until distributed.

 

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Except as otherwise provided by law, any action to enforce a right or obligation hereunder shall be brought in a court of competent jurisdiction in the County of Franklin and State of Ohio.

 

6.08 Limitations on Liability

 

Notwithstanding any of the preceding provisions of the Plan, neither the Corporation nor any individual acting as employee or agent of the Corporation shall be liable to any Member, former Member or other person for any claim, loss, liability or expense incurred in connection with the Plan. The Corporation does not undertake any responsibility to any Member for the tax consequences of a particular Member’s election to defer income under this Plan.

 

6.09 Administrative Expense

 

All expenses of administering this Plan shall be paid by the Corporation and no part of the expenses or taxes on the Corporation shall be charged against any Member’s Accounts or any benefits distributed under the Plan.

 

6.10 Claims and Review Procedures

 

  (a) In accordance with any rules and procedures adopted by the Corporation, applications for benefits shall be submitted to the Corporation on a prescribed form signed by the Member or, in the case of a death benefit, by his Beneficiary.

 

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The Corporation shall, within 90 days after the receipt of a written claim, send written notification to the Participant or Beneficiary (referred to in the remainder of this Section as the “claimant”) as to its disposition, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial ninety (90)-day period. In no event shall such extension exceed a period of ninety (90) days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Corporation expects to render the final decision.

 

In the event the claim is wholly or partially denied, the written notification shall state the specific reason or reasons for the denial, include specific references to pertinent Plan provisions on which the denial is based, provide an explanation of any additional material or information necessary for the claimant to perfect the claim and a statement of why such material or information is necessary, and set forth the procedure by which the claimant may appeal the denial of the claim. If the claim has not been granted and notice is not furnished within the time period specified in the preceding paragraph, the claim shall be deemed denied for the purpose of proceeding to appeal in accordance with paragraph (b) below.

 

  (b)

In the event a claimant wishes to appeal the denial of his claim, he may request a review of such denial by making written application to the Corporation within sixty (60) days after receipt of the written notice of denial (or the date on which such claim is deemed denied if written notice is not received within the applicable time

 

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period specified in paragraph (a) above). Such claimant (or his duly authorized representative) may, upon written request to the Corporation, review documents which are pertinent to such claim, and submit in writing issues and comments in support of his position. Within sixty (60) days after receipt of the written appeal (unless an extension of time is necessary due to special circumstances or is agreed to by the parties, but in no event more than one hundred twenty (120) days after such receipt), the Corporation shall notify the claimant of its final decision. Such final decision shall be in writing and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. If an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the commencement of the extension. If the claim has not been granted and written notice is not provided within the time period specified above, the appeal shall be deemed denied.

 

  (c) If the claimant does not follow the procedures set forth in paragraphs (a) and (b) above, the claimant shall be deemed to have waived his right to appeal benefit determinations under the Plan. In addition, the decisions, actions, and records of the Corporation shall be conclusive and binding upon the Corporation and all persons having or claiming to have any right or interests in or under the Plan.

 

6.11 Illegal or Invalid Provision

 

In case any provision of the Plan shall be held illegal or invalid for any reason, such illegal or invalid provision shall not affect the remaining parts of the Plan, but the Plan shall be construed and enforced without regard to such illegal or invalid provision.

 

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6.12 Gender and Number

 

Except as otherwise indicated by context, masculine terminology used herein also includes the feminine, and terms used in the singular may also include the plural.

 

6.13 Successors

 

All obligations of the Corporation under the Plan shall be binding on any successor to the Corporation, whether the existence of such successor is the result of a direct or indirect purchase of all or substantially all of the business and/or assets of the Corporation, or a merger, consolidation or otherwise.

 

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ARTICLE 7. AMENDMENT OR TERMINATION

 

The Corporation reserves the right to modify or to amend, in whole or in part, or to terminate this Plan any time by action of its Compensation Committee, taken at a meeting held either in person or by telephone or other electronic means, or by unanimous written consent by lieu of a meeting. However, no modification or amendment of the Plan shall adversely affect the right of any Member to receive the benefits granted under the Plan by the Corporation in respect to such Member as of the date of modification or amendment.

 

If the Plan is terminated, payments from the Accounts of all Members and Beneficiaries shall be made as soon as administratively convenient in the form of monthly payments over a three (3)-year period; however, the Compensation Committee, in its sole discretion, may pay benefits in a lump sum.

 

Notwithstanding the foregoing, following a Change in Control no modification, amendment or termination of the Plan shall change the right of any Member to direct investments, to direct the investment forms, to make distribution elections whether in-service or at termination of service from those rights the Member had at the date of modification, amendment or termination, without the written consent of a majority in number of the Members, except when to comply with legal or regulatory requirements necessary to maintain the tax deferred status of any Deferrals.

 

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Exhibit 10(m)

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT made effective February 15, 2004 by and between H UNTINGTON B ANCSHARES I NCORPORATED , a Maryland corporation, with its principal office at the Huntington Center, 41 South High Street, Columbus, OH 43287 (“Huntington”) and T HOMAS E. H OAGLIN , residing at [Home Address] (“Executive”).

 

R E C I T A L S :

 

WHEREAS, Executive is employed by Huntington as Chairman, President and Chief Executive Officer of Huntington;

 

WHEREAS, Huntington desires to continue to employ Executive and secure for itself the continued services of Executive upon the terms and conditions specified herein; and

 

A G R E E M E N T :

 

NOW, THEREFORE, in consideration of such employment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

I. Employment Duties and Term .

 

A. Executive is employed as Huntington’s Chairman, President and Chief Executive Officer and shall perform such duties as Huntington through its Board of Directors from time to time shall determine; provided, however, that such duties shall be comparable to those ordinarily expected of the Chairman, President and Chief Executive Officer of Huntington. Executive shall devote substantially all of his time and effort to the performance of such duties. Executive shall serve as an officer of any of Huntington’s affiliate corporations, and as a director of Huntington and any of its affiliates if duly elected at any time or times during the term of this Agreement.

 

B. Executive’s employment and the initial term of this Agreement shall be for a period commencing on February 15, 2004 (“Commencement Date”), and ending on February 14, 2007 (“Termination Date”), unless terminated at an earlier date pursuant to an event described in Section III of this Agreement (referred to hereafter as the “employment period”). After the initial term, this Agreement shall be automatically renewed on February 15, 2007 for a term of three (3) years and, if not terminated as provided herein, every three (3) years thereafter unless either party gives the other party written notice at least 60 days prior to the Termination Date of such party’s intent not to renew the Agreement. During each subsequent renewal term, the Termination Date, as used herein, shall be the day following the third anniversary of the day on which the renewal term begins.

 

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II. Compensation .

 

Huntington agrees to pay to Executive and Executive agrees to accept the following amounts as compensation in full for his services in any capacity hereunder, including services as an officer, director or member of any committee or in the performance of other like duties assigned to him by the Board of Directors of Huntington.

 

A. Base Compensation . Huntington shall pay to Executive a base annual salary of not less than $800,000 payable in semi-monthly installments plus such increased base annual compensation that the Compensation Committee of the Board of Directors or the Board of Directors of Huntington may authorize as provided herein (the “Minimum Annual Base Salary”). The compensation of Executive shall be reviewed in good faith by both parties no less often than annually during the term and any renewal terms and may be increased by mutual consent, but in no event shall the annual base salary be less than the Minimum Annual Base Salary described above.

 

B. Participation in Huntington’s Incentive Compensation Plans. Executive will participate in Huntington’s Incentive Compensation Plan and Huntington’s 2001 Stock and Long-Term Incentive Plan (the “Stock Plan”), as in effect on the date hereof, as well as any amended and restated or successor plans (such plans shall be referred to hereinafter as the “Incentive Compensation Plans”).

 

C. Participation in Retirement Plan and Rights Under Other Agreements . Executive shall be entitled to certain rights and benefits as in effect on the date hereof under a) the Huntington Investment and Tax Savings Plan (the “401(k) Plan”), b) the Huntington Supplemental Stock Purchase and Tax Savings Plan (the “Supplemental Plan”) c) Huntington Bancshares Retirement Plan (the “Qualified Plan”), d) Huntington Bancshares Supplemental Retirement Income Plan (the “SRIP”) and e) the Executive Deferred Compensation Plan (the “Deferred Compensation Plan”). Executive’s rights and benefits under such plans shall continue in effect and shall not in any manner be altered or affected by this Agreement other than any increase in benefits as a result of the terms of this Agreement.

 

D. Other Fringe Benefits . In addition to the benefits provided for in subsections (B) and (C) of this Section II, Executive shall receive and enjoy other fringe benefits, including without limitation participation in or coverage under: the Tax and Financial Planning Services Program, transition pay plan, health care insurance (including any health care and dependent care flexible spending account plan), long term and short term disability insurance, group life insurance, business travel insurance, employee assistance plan, Section 125 premium only cafeteria plan and tuition reimbursement plan, paid vacations, paid reserved parking, paid initiation fees for memberships in country clubs and luncheon clubs (with Executive responsible for regular dues and assessments) designated by Executive, and payment of dues in those professional organizations designated by Executive. All such fringe benefits shall be comparable in scope and amount with Executive’s status as Chief Executive Officer and with those fringe benefits accorded prior chief executive officers of Huntington. In addition, Executive shall be

 

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entitled to reimbursement for all out-of-pocket expenses incurred by Executive in the performance of his duties hereunder, provided that such reimbursement shall be in accordance with Huntington’s then existing policy regarding the same.

 

E. Participation in Future Compensation, Retirement, and Fringe Benefit Plans . In addition to the benefits provided for in subsections (B), (C), and (D) of this Section II, Executive shall participate in and shall also receive and enjoy such other compensation, retirement, or fringe benefits which are now or in the future made available to executives of Huntington.

 

F. Discontinuance of Fringe Benefits . If at any time prior to the termination of Executive’s employment in accordance with the terms of this Agreement, Huntington shall for any reason discontinue or cause a material reduction in retirement or fringe benefits specified in subsections (C), (D) or (E) of this Section II, Huntington shall thereupon immediately, at its expense, provide Executive with individual coverage or benefits comparable to (and not less beneficial than) the benefits in existence prior to such discontinuance or material reduction until termination of this Agreement.

 

G. Security . Corporate officers in positions similar to that occupied by Executive have, by virtue of their position, been the target of terrorists acts, kidnapping, burglary, robbery, extortion, hijacking and other threats to the health, life, safety and property of similarly situated officers. In order to reduce the risk of harm to Executive, Executive shall be entitled to receive from time to time, if and whenever Executive, Huntington’s Director of Security and, to the extent utilized by Huntington, any independent security consultant determine, at Huntington’s expense, security services and protection as they determine to be appropriate under the circumstances. Such security services may include, but not by way of limitation: (a) at Executive’s customary residences, dedicated phone lines for audio, data and alarm transmission, fire, smoke, intrusion detection and alarm systems and devices, perimeter protection, including fences, gates and camera; and (b) the employment of one or more personal security escorts. In addition, Executive and Executive’s spouse when accompanied by Executive may utilize, to the extent feasible, corporate owned or leased aircraft. Executive’s personal use of such aircraft shall be taxable to Executive in accordance with applicable tax laws.

 

III. Termination .

 

A. Disability . If during the term of this Agreement Executive shall be unable to perform substantially his duties hereunder because of illness or other incapacity (referred to hereafter as “Disability”), and such Disability shall continue for a period of more than six (6) consecutive months in any twelve month period, Huntington shall thereafter have the right, on not less than forty-five (45) days written notice to Executive, to terminate this Agreement, in which case the date of termination shall be not less than the forty-fifth (45th) day following the date of written notice. In such event, in addition to any other benefits to which Executive would be entitled, Huntington shall be obligated to pay Executive his full compensation pursuant to Sections II (A) and (B) hereof up to the date of termination; thereafter

 

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Huntington shall be obligated to pay Executive an amount equal to two-thirds (2/3) of the base salary pursuant to Section II(A) hereof less any benefits which Executive receives during such period from any disability insurance program which Huntington may provide Executive. The compensation provided under this paragraph shall continue for the full period of Disability or until the Termination Date, whichever first occurs.

 

A determination of Disability shall be subject to the certification of a qualified medical doctor agreed to by Huntington and Executive or, in the event of Executive’s incapacity to designate a qualified medical doctor, by Executive’s legal representative. If Huntington and Executive fail to agree upon a qualified medical doctor, each party shall nominate a qualified medical doctor and the two doctors shall select a third doctor, who shall make the determination as to Disability.

 

Executive’s compensation and benefits described in Section II shall be reinstated in full upon his return to employment and the discharge of his full duties hereunder.

 

B. Death . In the event of Executive’s death during his employment hereunder, in addition to any other benefits to which any person would be entitled upon Executive’s death, his semi-monthly compensation under Section II(A) shall continue until the last day of the sixth full calendar month following the month in which his death occurs. Compensation to which Executive is entitled pursuant to Section II(B) hereof shall be paid pursuant to the terms of Huntington’s Incentive Compensation Plans. Executive’s compensation for the period following his death shall be paid to the beneficiary indicated on the Beneficiary Designation attached hereto as Exhibit A.

 

C. Voluntary Termination . Except as provided for in Section III(E) or (F), in the event Executive voluntarily terminates his employment, he shall cease to receive compensation as of the date of termination of his employment, except that to which he is then entitled pursuant to Huntington’s Incentive Compensation Plans.

 

D. Termination for Cause . In the event that the Board of Directors determines that Executive’s employment pursuant to this Agreement should be terminated for cause, Executive shall be entitled to receive only the compensation earned pursuant to Huntington’s Incentive Compensation Plans as of the date of termination. “Cause” means fraud, embezzlement, gross negligence, or willful misconduct by Executive in the performance of his duties or a material default by Executive of his duties hereunder. For purposes of this paragraph, no act or failure to act on Executive’s part shall be considered “willful” unless done or omitted to be done by him not in good faith and without reasonable belief that his action or omission was in the best interest of Huntington. If Huntington decides to terminate this Agreement as provided in this Section, Huntington will give Executive advance written notice of its intention to terminate this Agreement 30 days prior the termination.

 

E. Termination without Cause . In the event that the employment of Executive shall be terminated: (a) by the Board of Directors without cause, or (b) by Executive for Good Reason, Executive or his designated beneficiary, shall be entitled to his Minimum

 

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Annual Base Salary, participation in the Incentive Compensation Plans at not less than the target levels if actual performance is lower, retirement and fringe benefits all as provided in accordance with Section II herein (a) until the Termination Date or (b) if longer, for two years after such termination. For the purpose of this Agreement, “Good Reason” shall mean: (a) the withholding from Executive of the authority, duties, responsibilities and status which are consistent with Executive’s position as the Chairman, President and Chief Executive Officer of Huntington and its principal subsidiary The Huntington National Bank; (b) the removal of Executive from the Board of Directors of Huntington; or (c) the breach of this Agreement by Huntington.

 

F. Change of Control . In the event that Huntington shall have undergone a Change of Control, in lieu of any compensation otherwise provided under this Agreement, Executive shall be entitled to the benefits described in the Executive Agreement dated October 16, 2002 between Executive and Huntington or any amended or successor agreement (the “Executive Agreement”) upon the termination of his employment, either voluntarily by Executive or by Huntington for any reason except Executive’s Disability or death. For purposes of this Agreement “Change of Control” shall have the meaning defined in the Executive Agreement.

 

G. Mitigation . In the event Executive’s employment terminates as a result of a Disability as set forth in Section III(A) herein, Executive’s employment pursuant to this Agreement is terminated without cause, as set forth in Section III(E) herein, or Executive is terminated pursuant to a Change of Control, as set forth in Section III(F) herein, Executive shall have no duty to mitigate his damages by seeking other Employment, and Huntington shall not be entitled to set off against amounts payable hereunder any compensation which he may receive from future employment.

 

H. Health Care . Notwithstanding any other provisions of this Agreement or any other Agreement between Executive and Huntington, in the event that Executive’s employment hereunder terminates during the initial term or any renewal term of this Agreement other than as a result of or a termination for cause pursuant to Section III(D), Huntington will provide Executive health insurance coverage to Executive and his spouse, if any, which is comparable in terms of coverage, deductibles, co-payments and costs as the health care coverage provided to Executive during Executive’s employment with Huntington until the earlier of such time as Executive is entitled to health care coverage under another employer’s plan, Executive is eligible for Medicare or other comparable program, or Executive is entitled to health care insurance pursuant to any health care insurance plan provided by Huntington to retired employees.

 

IV. Executive’s Rights Under Certain Plans .

 

Notwithstanding anything contained herein, Huntington agrees that the benefits provided to Executive herein are not in lieu of any rights and privileges to which Executive may be entitled as an employee of Huntington under any retirement, pension, insurance,

 

5


hospitalization, or other plan which may now or hereafter be in effect, it being understood that, except to the extent currently provided in such plans, Executive shall have the same rights and privileges to participate in such plans or benefits as any other employee of Huntington.

 

If Executive shall be entitled to participate in any retirement or fringe benefit plan pursuant to the terms of this Agreement after the cessation of his employment and if the terms of any such retirement or fringe benefit plan do not permit continued participation by Executive after termination of employment, then Huntington will arrange for other coverage at Huntington’s expense providing substantially similar benefits in a manner which is tax neutral to Executive.

 

If continued participation in any retirement plan is not permitted by law or the terms of the plan, Huntington shall pay to Executive or, if applicable, his beneficiary, a supplemental benefit equal to the value on the date of termination of employment of the excess of (a) the after-tax benefit Executive would have been paid under such plan if he had continued to be covered as if Executive had earned compensation described under Section II above and had made contributions sufficient to earn the maximum matching contribution, if any, under such plan (less any amounts he would have been required to contribute), over (b) the after-tax benefit actually payable to or on behalf of the Executive under such plan. For purposes of determining the benefit under (a) in the preceding sentence, contributions deemed to be made under a defined contribution plan will be deemed to be invested in the same manner as Executive’s account under such plan at the time of termination of employment. Huntington shall pay such supplemental benefits (if any) in a lump sum within 60 days of the termination of employment.

 

V. Confidential Information .

 

Executive agrees to receive Confidential Information (defined below) of Huntington in confidence, and not to disclose to others, assist others in the application of, or use for his own gain, such information, or any part thereof, unless and until it has become public knowledge or has come into the possession of such other or others by legal and equitable means and other than as a result of disclosure by Executive. Executive further agrees that, upon termination of his employment with Huntington, all documents, records, notebooks, and similar repositories containing Confidential Information, including copies thereof, then in Executive’s possession, whether prepared by him or others, will be left with Huntington. For purposes of this Section V, “Confidential Information” means information disclosed to Executive or known by Huntington, not generally known in the business in which Huntington is or may become engaged, including, but not limited to, information about Huntington’s services, trade secrets, financial information, customer lists, books, records, memoranda, and other proprietary information of Huntington.

 

Executive further agrees that during the employment period he will devote substantially all of his time and effort to the performance of his duties hereunder and will refrain from engaging on his own behalf or on the behalf of a third party in any line of activities or business in which Huntington is or may become engaged.

 

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VI. Place of Performance .

 

In connection with his employment by Huntington, Executive shall not be required to relocate or transfer his principal residence and shall not be required to perform services which would make the continuance of his principal residence in Columbus, Ohio, unreasonably difficult or inconvenient for him. Huntington shall give Executive at least three months’ advance notice of any relocation of its principal executive offices to a location more than fifty miles from Executive’s principal residence in Columbus, Ohio. In the event that Executive shall thereupon elect to relocate his principal residence within fifty miles of the principal executive offices of Huntington, Huntington shall promptly pay (or reimburse Executive for) all reasonable relocation expenses incurred by Executive relating to a change of his principal residence in connection with any such relocation of Huntington’s principal executive offices. In the event that Executive shall not relocate his principal residence, he shall make himself available for performance in Columbus, Ohio, of the services described in Section I herein.

 

VII. Successors .

 

A. This Agreement shall inure to the benefit of and be binding upon Huntington, its successors and assigns, including without limitation, any person, partnership, or corporation which may acquire voting control of Huntington or all or substantially all of the Huntington’s assets and business, or which may be a party to any consolidation, merger, or other transaction that results in a Change of Control of Huntington.

 

B. This Agreement shall also inure to the benefit of and be binding on Executive, his heirs, successors, and legal representatives.

 

VIII. COBRA Continuation Coverage .

 

Notwithstanding any provision of this Agreement to the contrary, in the event of any qualifying event, as defined in Section 4980B of the Internal Revenue Code (the “Code”), Executive and his qualifying beneficiaries shall be entitled to continuation of health care coverage, as provided under Section 4980B of the Code. The foregoing is intended as a statement of Executive’s continuation coverage rights and is in no way intended to limit any greater rights of Executive or his qualified beneficiaries under this Agreement. If a greater benefit is available to Executive or his qualifying beneficiaries under this Agreement or otherwise, Executive or his qualified beneficiaries may forego continuation coverage and elect instead such greater benefit.

 

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IX. Indemnification .

 

Huntington, as provided for in its Articles of Association, shall indemnify Executive to the full extent of the general laws of the State of Maryland, now or hereafter in force, including the advance of expenses under procedures provided by such laws.

 

X. Savings Clause .

 

If any payments otherwise payable to the Executive under this Agreement are prohibited or limited by any statute or regulation in effect at the time the payments would otherwise be payable, including, without limitation, any regulation issued by the Federal Deposit Insurance Company (the “FDIC”) that limits executive change of control payments that can be made by an FDIC insured institution or its holding company if the institution is financially troubled (any such limiting statute or regulation a “Limiting Rule”):

 

(A) Huntington will use its best efforts to obtain the consent of the appropriate governmental agency (whether the FDIC or any other agency) to the payment by Huntington to the Executive of the maximum amount that is permitted (up to the amounts that would be due to the Executive absent the Limiting Rule); and

 

(B) the Executive will be entitled to elect to have apply, and therefore to receive benefits directly under, either (a) this Agreement (as limited by the Limiting Rule) or (b) any generally applicable Huntington severance, separation pay, and/or salary continuation plan that may be in effect at the time of the Executive’s termination.

 

Following any such election, the Executive will be entitled to receive benefits under this agreement or plan elected only if and to the extent the agreement or plan is applicable and subject to its specific terms.

 

XI. Forfeiture .

 

Notwithstanding any other provisions of this Agreement:

 

(A) If Huntington is required to prepare an accounting restatement due to material non-compliance of Huntington, as a result of misconduct, with any financial reporting requirement under the Federal securities laws, Executive shall reimburse Huntington for all amounts received under any Incentive Compensation Plans received from Huntington during the twelve (12) month period following the first public issuance or filing with the Securities and Exchange Commission (whichever first occurs) of the financial document embodying such financial reporting requirement; and any profits realized from the sale of securities of Huntington during that twelve (12) month period, unless the application of this provision has been exempted by the Securities and Exchange Commission.

 

8


(B) If the Compensation Committee of the Board of Directors of Huntington (the “Committee”) shall determine that Executive has engaged in a serious breach of conduct, the Committee may terminate any award under any Stock Plan or require Executive to repay any gain realized on the exercise of an award in accordance with the terms of the Stock Plan.

 

(C) If Executive is found guilty of misconduct by any judicial or administrative authority in connection with any (i) formal investigation by the Securities and Exchange Commission or (ii) other federal or state regulatory investigation, the Committee may require the repayment of any gain realized on the exercise of award under any Stock Plan without regard to the timing of the determination of misconduct in relation to the timing of the exercise of the award.

 

XII. Applicable Law .

 

This Agreement shall be governed in all respects by the laws of the State of Ohio.

 

XIII.XII. Notices .

 

All notices under this Agreement shall be in writing, and will be duly sent if sent by registered or certified mail to the respective parties’ addresses shown hereinabove, or such other addresses as the parties may hereafter designate in writing for such purpose.

 

XIV. Assignment .

 

Except as expressly provided herein, neither this Agreement nor any rights, benefits, or obligations hereunder may be assigned by Huntington or Executive without the prior written consent of the other.

 

XV. Waiver .

 

The failure by a party to exercise or enforce any of the terms or conditions of this Agreement will not constitute or be deemed a waiver of that party’s rights hereunder to enforce each and every term of this Agreement. The failure by a party to insist upon strict performance of any of the terms and provisions herein will not be deemed a waiver of any subsequent default in the terms or provisions herein.

 

XVI. Rights and Remedies Cumulative .

 

All rights and remedies of the parties hereunder are cumulative.

 

9


XVII. Divisibility .

 

The provisions of this Agreement are divisible. If any such provision shall be deemed invalid or unenforceable, it shall not affect the applicability or validity of any other provision of this Agreement, and if any such provision shall be deemed invalid or unenforceable as to any periods of time, territory, or business activities, such provision shall be deemed limited to the extent necessary to render it valid and enforceable.

 

XVIII. Captions and Titles .

 

Captions and titles have been used in this Agreement only for convenience and in no way define, limit, or describe the meaning of any Article or any part thereof.

 

XIV. Capitalized Terms .

 

Capitalized terms not otherwise defined herein have the meaning given in the Executive Agreement.

 

IN WITNESS WHEREOF, the parties have signed this Agreement which is effective immediately on the date and year first above written.

 

 

ATTEST

     

Huntington Bancshares Incorporated

       

By:

   

         

Richard A. Cheap, Secretary

         

Jay Gerlach

Chairman of the Compensation Committee

Of the Board of Directors

                 
               
               

Thomas E. Hoaglin

 

10

 
 
 

Exhibit 12

 

Ratio of Earnings to Fixed Charges

(Unaudited and Restated)

 

     Twelve Months Ended December 31,

 

(in thousands of dollars)


   2003

    2002

    2001

    2000

    1999

 

Earnings:

                                        

Income before taxes

   $ 523,987     $ 522,705     $ 95,477     $ 448,454     $ 602,325  
    


 


 


 


 


Add: Fixed charges, excluding interest on deposits

     179,903       169,788       299,872       398,214       356,563  
    


 


 


 


 


Earnings available for fixed charges, excluding interest on deposits

     703,890       692,493       395,349       846,668       958,888  

Add: Interest on deposits

     288,271       385,733       654,056       782,076       639,605  
    


 


 


 


 


Earnings available for fixed charges, including interest on deposits

   $ 992,161     $ 1,078,226     $ 1,049,405     $ 1,628,744     $ 1,598,493  
    


 


 


 


 


Fixed Charges:

                                        

Interest expense, excluding interest on deposits

   $ 168,499     $ 157,888     $ 285,445     $ 383,997     $ 344,635  

Interest factor in net rental expense

     11,404       11,900       14,427       14,217       11,928  
    


 


 


 


 


Total fixed charges, excluding interest on deposits

     179,903       169,788       299,872       398,214       356,563  

Add: Interest on deposits

     288,271       385,733       654,056       782,076       639,605  
    


 


 


 


 


Total fixed charges, including interest on deposits

   $ 468,174     $ 555,521     $ 953,928     $ 1,180,290     $ 996,168  
    


 


 


 


 


Ratio of Earnings to Fixed Charges

                                        

Excluding interest on deposits

     3.91 x     4.08 x     1.32 x     2.13 x     2.69 x

Including interest on deposits

     2.12 x     1.94 x     1.10 x     1.38 x     1.60 x

 

 
 

   

Exhibit 13

SELECTED FINANCIAL DATA

 

Table 1—Selected Financial Data

 


    

Year Ended December 31,


 

(in thousands of dollars, except per share amounts)


     2003

     2002

     2001

     2000

     1999

 

Total interest income

     $ 1,305,756      $ 1,293,195      $ 1,654,789      $ 1,833,388      $ 1,795,214  

Total interest expense

       456,770        543,621        939,501        1,163,278        982,370  

    


  


  


  


  


Net interest income

       848,986        749,574        715,288        670,110        812,844  

Provision for loan and lease losses

       163,993        194,426        257,326        61,464        70,335  

    


  


  


  


  


Net interest income after provision for loan and lease losses

       684,993        555,148        457,962        608,646        742,509  

    


  


  


  


  


Securities gains

       5,258        4,902        723        37,101        12,972  

Gain on sale of Florida operations

              182,470                       

Merchant Services gain

              24,550                       

Gains on sale of credit card portfolios

                                   108,530  

Non-interest income

       1,063,895        1,129,782        1,199,219        1,086,101        933,356  

Non-interest expense

       1,236,825        1,325,174        1,482,470        1,283,131        1,147,988  

Restructuring (releases) charges

       (6,666 )      48,973        79,957               46,791  

    


  


  


  


  


Income before income taxes

       523,987        522,705        95,477        448,717        602,588  

Income taxes

       138,294        198,974        (39,319 ) (2)      126,299        188,433  

    


  


  


  


  


Income before cumulative effect of change in accounting principle

       385,693        323,731        134,796        322,418        414,155  

Cumulative effect of change in accounting principle, net of tax (1)

       (13,330 )                            

    


  


  


  


  


Net Income

     $ 372,363      $ 323,731      $ 134,796      $ 322,418      $ 414,155  

    


  


  


  


  


Per Common Share (3)

                                              

Income before cumulative effect of change in accounting

principle—basic

     $ 1.68      $ 1.34      $ 0.54      $ 1.30      $ 1.63  

Net Income per common share—basic

       1.62        1.34        0.54        1.30        1.63  

Income before cumulative effect of change in accounting

principle—diluted

       1.67        1.33        0.54        1.29        1.62  

Net Income per common share—diluted

       1.61        1.33        0.54        1.29        1.62  

Cash dividends declared

       0.67        0.64        0.72        0.76        0.68  

Book value at year-end

       9.93        9.40        9.32        9.31        8.57  

Balance Sheet Highlights

                                              

    


  


  


  


  


Total assets (period end)

     $ 30,483,804      $ 27,527,932      $ 28,458,769      $ 28,534,567      $ 29,397,036  

Total long-term debt (period end) (4)

       5,534,979        3,233,801        2,722,332        3,363,126        4,001,827  

Average long-term debt (4)

       4,559,140        3,334,393        3,410,475        4,004,502        4,119,252  

Average shareholders’ equity

       2,196,348        2,238,761        2,330,968        2,191,788        2,091,720  

Average total assets

       28,942,770        26,033,243        28,091,603        28,550,540        28,634,986  

Key Ratios and Statistics

                                              

    


  


  


  


  


Margin Analysis—As a % of Average Earning Assets (5)

                                              

Interest income

       5.35 %      6.23 %      7.58 %      8.13 %      7.75 %

Interest expense

       1.86        2.61        4.29        5.13        4.22  

    


  


  


  


  


Net Interest Margin

       3.49 %      3.62 %      3.29 %      3.00 %      3.53 %

    


  


  


  


  


Return on average assets (6)

       1.33 %      1.24 %      0.48 %      1.13 %      1.45 %

Return on average shareholders’ equity (6)

       17.6        14.5        5.8        14.7        19.8  

Efficiency ratio

       63.9        65.6        79.2        70.5        62.1  

Dividend payout ratio (7)

       40.1        48.1        133.3        58.9        42.0  

Average shareholders’ equity to average assets

       7.59        8.60        8.30        7.68        7.30  

Effective tax rate

       26.4        38.1        (41.2 ) (2)      28.1        31.3  

Tangible equity to assets (period end)

       6.80        7.22        5.86        5.69        5.18  

Tier I risk-based capital ratio (period end)

       8.53        8.34        7.02        7.13        7.46  

Total risk-based capital ratio (period end)

       11.95        11.25        10.07        10.29        10.57  

Tier I leverage ratio

       7.98        8.51        7.16        6.85        6.64  

Other Data

                                              

    


  


  


  


  


Full-time equivalent employees

       7,983        8,177        9,743        9,693        9,516  

Domestic banking offices

       338        343        481        508        515  

 

(1) Due to the adoption of FASB Interpretation No. 46 for variable interest entities.
(2) Reflects a $32.5 million reduction related to the issuance of $400 million of REIT subsidiary preferred stock, of which $50 million was sold to the public.
(3) Adjusted for stock splits and stock dividends, as applicable.
(4) Excludes capital securities and Federal Home Loan Bank advances.
(5) Presented on a fully taxable equivalent basis assuming a 35% tax rate.
(6) Based on income before cumulative effect of change in accounting principle, net of tax.
(7) Based on diluted earnings per share before cumulative effect of change in accounting principle.

 


34   HUNTINGTON BANCSHARES INCORPORATED


 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

INTRODUCTION

 

Huntington Bancshares Incorporated (Huntington or the company) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through its subsidiaries, Huntington is engaged in providing full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, and discount brokerage services, as well as underwriting credit life and disability insurance, and selling other insurance and financial products and services. Huntington’s banking offices are located in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Selected financial services are also conducted in other states including Arizona, Florida, Georgia, Maryland, New Jersey, Pennsylvania, and Tennessee. Huntington has a foreign office in the Cayman Islands and a foreign office in Hong Kong. The Huntington National Bank (the Bank), organized in 1866, is Huntington’s only bank subsidiary.

 

The following discussion and analysis provides investors and others with information that Management believes to be necessary for an understanding of Huntington’s financial condition, changes in financial condition, results of operations, and cash flows, and should be read in conjunction with the financial statements, notes, and other information contained in this report.

 

F ORWARD -L OOKING S TATEMENTS

 

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements about Huntington. These include descriptions of products or services, plans or objectives of Management for future operations, including pending acquisitions, and forecasts of revenues, earnings, cash flows, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.

 

By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, those set forth under the heading “Business Risks” included in Item 1 of Huntington’s Annual Report on Form 10-K for the year ended December 31, 2003, and other factors described in this report and from time to time in other filings with the Securities and Exchange Commission.

 

Management encourages readers of this report to understand forward-looking statements to be strategic objectives rather than absolute forecasts of future performance. Forward-looking statements speak only as of the date they are made. Huntington does not update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events.

 

R ISK F ACTORS

 

Huntington, like other financial companies, is subject to a number of risks, many of which are outside of Management’s control, though Management strives to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk that loan and lease customers or other counter parties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect Huntington’s financial condition or results of operation, (3) liquidity risk, which is the risk that Huntington and / or the Bank will have insufficient cash or access to cash to meet operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The description of Huntington’s business contained in Item 1 of its Annual Report on Form 10-K for the year ended December 31, 2003, while not all inclusive, discusses a number of business risks that, in addition to the other information in this report, readers should carefully consider.

 

S ECURITIES AND E XCHANGE C OMMISSION I NVESTIGATION

 

On June 26, 2003, Huntington announced that the Securities and Exchange Commission (SEC) staff is conducting a formal investigation. The SEC investigation began following Huntington’s announcement on April 16, 2003, that it intended to restate its financial statements in order to reclassify its accounting for automobile leases from the direct financing lease method to the operating lease method, and following allegations by a former Huntington employee regarding certain aspects of Huntington’s accounting and

 


HUNTINGTON BANCSHARES INCORPORATED   35


 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

financial reporting practices, including the recognition of automobile loan and lease origination fees and costs, as well as certain year- end reserves. The investigation is ongoing and Huntington continues to cooperate fully with the SEC. To the best of its knowledge, Management believes that the actions it has taken to date have addressed all known accounting issues.

 

C RITICAL A CCOUNTING P OLICIES AND U SE OF S IGNIFICANT E STIMATES

   

Huntington’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of financial statements in conformity with GAAP requires Management to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in its financial statements. Note 1 of the Notes to Consolidated Financial Statements included in this report lists significant accounting policies used by Management in the development and presentation of Huntington’s financial statements. This discussion and analysis, the significant accounting policies, and other financial statement disclosures identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of the organization and its financial position, results of operations, and cash flows.

 

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this report should understand that estimates are made under facts and circumstances at a point in time, and changes in those facts and circumstances could produce actual results that differ from when those estimates were made. Management has identified the following as the most significant accounting estimates and their related application. This analysis is included to emphasize that estimates are used in connection with the critical and other accounting policies and to illustrate the potential effect on the financial statements if the actual amount were different from the estimated amount.

Allowance for loan and lease losses – At December 31, 2003, the allowance for loan and lease losses (ALLL) was $335.3 million. The ALLL represents Management’s estimate as to the level of a reserve considered appropriate to absorb inherent credit losses in the loan and lease portfolio. Many factors affect the ALLL, some quantitative, some subjective. Management believes the process for determining the ALLL considers the potential factors that could result in credit losses. However, the process includes judgmental elements and may be subject to significant change. To the extent actual outcomes differ from Management estimates, additional provision for credit losses could be required, which could adversely affect earnings or financial performance in future periods. A discussion about the process used to estimate the ALLL is presented in the Credit Risk section of Management’s Discussion and Analysis in this report.
Loan servicing rights – At December 31, 2003, there were $71.1 million of mortgage servicing rights and $17.7 million of automobile servicing rights included in other assets. No active market exists for Management to observe market prices for these financial instruments. To estimate fair values, Management estimates future prepayments on the loans serviced for others, future ancillary revenue, future costs to service these assets, and the appropriate discount rate to use. Note 7 of the Notes to Consolidated Financial Statements contains an analysis of the impact to the fair value of mortgage servicing rights to changes in the estimates used by Management. A discussion about the process used to estimate the fair value of mortgage servicing rights is presented in the non-interest income section of Management’s Discussion and Analysis in this report.
Lease residual values underlying operating leases – At December 31, 2003, there were $814.1 million of residual values related to operating lease assets reflected as a component of operating lease assets on the balance sheet. In March 2001, Huntington purchased two residual value insurance policies to mitigate the risk of declines in residual values. The first policy provides first dollar loss coverage on the portfolio of existing automobile leases at October 1, 2000 and has a cap on insured losses of $120 million. The second policy insures losses on new lease originations from October 2000 through April 2002 and has a cap of $50 million. On a quarterly basis, Management reviews the expected future residual value losses for leased automobiles covered by these two insurance policies taking into consideration the insurance policy caps on insured losses. As a result of that review, Management determines how much impairment, if any, needs to be recognized on these operating leases and whether the residual value should be adjusted prospectively. At December 31, 2003, Management believed the residual values of its leases properly reflected expected residual value losses. However, due to the existence of caps on insured losses within these two insurance policies, future increases in residual value losses in excess of these caps could negatively impact Huntington’s results from operations. Specifically, any residual losses exceeding the cap amounts would result in higher operating lease depreciation expense being recognized over the remaining life of the related leases. Further discussion about the process used to estimate the risk of residual value losses on operating leases is presented in the Market Risk section of Management’s Discussion and Analysis in this report. Notes 1 and 9 to the Notes of the Consolidated Financial Statements included in this report explain the accounting for operating lease assets in more detail.

 


36   HUNTINGTON BANCSHARES INCORPORATED


 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

DISCUSSION OF RESULTS

 

Summary

 

Huntington reported net income in 2003 of $372.4 million, or $1.61 per common share (diluted), up 15% and 21%, respectively, from 2002. Earnings in 2002 were $323.7 million, or $1.33 per common share (diluted), up from $134.8 million, or $0.54 per common share (diluted), in 2001. The returns on average common equity (ROE) for 2003, 2002, and 2001 were 17.6%, 14.5%, and 5.8%, respectively, with returns on average assets of 1.33%, 1.24%, and 0.48%, respectively (see Table 1).

 

The period 2001 to 2003 was one of significant transformation for the company. During 2001, the equity markets continued to weaken, economic activity started to slow appreciably after a decade-long expansion, and interest rates fell to historical lows. In addition, consumer confidence was shaken with the 9/11 terrorist attack. There was significant deterioration in both consumer and commercial credit quality trends due to these factors. These external factors influenced Huntington’s 2001 performance and its comprehensive strategic refocusing plan to improve competitiveness and long-term financial performance, which was announced in July 2001.

 

Actions taken to further the strategic plan included the hiring of new executive leadership as part of the first phase of building a new management team. The company’s basic business model was changed to one of local decision-making with a strategic refocusing on Midwest markets. As such, a decision was made to sell the Florida banking operations (see additional discussion below), consolidate banking offices outside of Florida, and use the capital generated to repurchase common stock, as well as reinvest in the business. Management refocused technology spending on investments to improve customer service, rather than making equity investments in technology companies, mostly e-commerce ventures, which had been the strategy in previous years. The quarterly common stock dividend was reduced 20%, and $80.0 million pre-tax in restructuring charges were taken to effect the changes.

 

The key element of the 2001 strategic refocusing plan was the decision to sell the Florida banking operations. There were several factors influencing this decision. First, the Florida banking offices and markets had no geographic or strategic connection to the company’s primary business of retail and commercial banking centered in Midwest markets. Second, while the Florida market for bank deposits was growing more rapidly than Midwest markets, the net interest margin in Florida was lower than that of the rest of the company, given the higher cost of deposits in that market. Third, to capitalize on the growth opportunities of the Florida market, a commercial banking capability needed to be developed on what was primarily a retail banking franchise. Management believed building this capability would have added significantly to operating expenses and further lowered the already low return on invested capital for several years in the future.

 

Earnings per common share (diluted) in 2001 were $0.54, down from $1.29 per common share (diluted) in 2000. Earnings in 2001 were significantly impacted by the actions described above, as well as a restructuring charge related to actions contemplated by the 2001 strategic refocusing plan. In addition, as a result of deteriorating consumer and commercial credit quality trends during the year, credit underwriting practices and policies were strengthened at the point of origination, and an aggressive credit quality review was initiated by Management. Earnings also were negatively impacted by higher loan loss provision expense, which had the effect of increasing the allowance for loan and lease losses (ALLL) as a percent of total loans and leases to 2.00% at the end of 2001 from 1.50% at the end of 2000.

 

Earnings per common share (diluted) in 2002 were $1.33, up from $0.54 in 2001. Earnings in 2002 were impacted by the completion of the sale of the Florida banking operations and restructuring of the company’s Merchant Services business, both of which resulted in significant gains. Capital from these gains, as well as the capital freed up by the sale of the Florida-related assets and liabilities, was used to repurchase 9% of common shares outstanding, and to reinvest in a number of activities including improvements in customer service technology, and the purchases of a small money management firm and a niche equipment leasing company. The Florida insurance operation was also sold, though this had no significant earnings impact. However, earnings were negatively impacted by additional restructuring charges as the 2001 strategic initiatives continued to be implemented. Deposits and loans increased, following prior-year performance of low growth. The level of non-performing assets (NPAs) was reduced significantly by year end. It was also a period in which interest rates declined significantly during the second half of the year, resulting in downward pressure on the net interest margin as interest rates on earning assets, both loans and investment securities, declined more rapidly than deposit rates. The yield on mortgage-backed securities declined sharply as the lower level of interest rates resulted in high prepayments on the underlying mortgages, with the resultant cash flow reinvested in lower-yielding earning assets.

 


HUNTINGTON BANCSHARES INCORPORATED   37


 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

Table 2—Selected Annual Income Statements

 


 

Year Ended December 31,



  2003

    2002

    2001

    2000

   1999

             Change from 2002

           Change from 2001

                

(in thousands of dollars, except per share amounts)


 
    Amount

    Percent

   
   Amount

    Percent

   
   
  

Total interest income

  $ 1,305,756     $ 12,561     1.0 %   $ 1,293,195    $ (361,594 )   (21.9 )%   $ 1,654,789     $ 1,833,388    $ 1,795,214

Total interest expense

    456,770       (86,851 )   (16.0 )     543,621      (395,880 )   (42.1 )     939,501       1,163,278      982,370

 


 


 

 

  


 

 


 

  

Net Interest Income

    848,986       99,412     13.3       749,574      34,286     4.8       715,288       670,110      812,844

Provision for loan and lease losses

    163,993       (30,433 )   (15.7 )     194,426      (62,900 )   (24.4 )     257,326       61,464      70,335

 


 


 

 

  


 

 


 

  

Net Interest Income After

                                                               

Provision for Loan and Lease Losses

    684,993       129,845     23.4       555,148      97,186     21.2       457,962       608,646      742,509

 


 


 

 

  


 

 


 

  

Operating lease income

    489,698       (167,376 )   (25.5 )     657,074      (34,659 )   (5.0 )     691,733       623,835      489,971

Service charges on deposit accounts

    167,840       14,276     9.3       153,564      (11,448 )   (6.9 )     165,012       161,426      156,783

Trust services

    61,649       (402 )   (0.6 )     62,051      1,753     2.9       60,298       53,613      52,030

Brokerage and insurance

    57,844       (8,999 )   (13.5 )     66,843      (12,191 )   (15.4 )     79,034       61,871      52,076

Mortgage banking

    58,180       26,147     81.6       32,033      (22,485 )   (41.2 )     54,518       32,772      52,960

Bank owned life insurance

    43,028       (95 )   (0.2 )     43,123      2,000     4.9       41,123       39,544      37,560

Other service charges and fees

    41,446       (1,442 )   (3.4 )     42,888      (5,329 )   (11.1 )     48,217       43,883      37,301

Gain on sales of automobile loans

    40,039       40,039     NM                NM                 

Gain on sale of branch offices

    13,112       13,112     NM                NM                 

Securities gains

    5,258       356     7.3       4,902      4,179     NM       723       37,101      12,972

Gain on sale of Florida operations

          (182,470 )   NM       182,470      182,470     NM                 

Merchant Services gain

          (24,550 )   NM       24,550      24,550     NM                 

Gains on sale of credit card portfolio