<PAGE>
As filed with the Securities and Exchange Commission on August 16, 1996
Registration No. 333-_______________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
MARKET FINANCIAL CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 6036 31-0462464
- ---------------- ---------------------------- ----------------------
(State or other (Primary Standard Industrial (I.R.S. employer
jurisdiction of Classification Code Number) identification number)
incorporation
or organization)
7522 HAMILTON AVENUE
MT. HEALTHY, OHIO 45231
(513) 521-9772
-------------------------------------------------------------
(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
JOHN T. LARIMER
MARKET FINANCIAL CORPORATION
7522 HAMILTON AVENUE
MT. HEALTHY, OHIO 45231
(513) 521-9772
--------------------------------------------------------
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
With copies to:
Cynthia A. Shafer
Kathleen M. Molinsky
Vorys, Sater, Seymour and Pease
Atrium Two, 221 East Fourth Street
Cincinnati, Ohio 45202
(513) 723-4000
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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<S> <C> <C> <C> <C>
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price aggregate offering Amount of
registered registered per share price(1) registration fee
- ----------------------------------------------------------------------------------------------------------
Common shares,
without par value 1,335,725 $10.00 $13,357,250 $4,606
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
CROSS REFERENCE SHEET
Showing the location in the Prospectus of the Items of Form S-1
<TABLE>
<CAPTION>
Form S-1 Item and Caption Prospectus Heading
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<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus. . . . . . . . . . . . . Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page, Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charge . . . . . . . . . . . . . . . . . . PROSPECTUS SUMMARY; RISK FACTORS
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . USE OF PROCEEDS
5. Determination of Offering Price . . . . . . . . . . . . . . . . . Cover Page; THE CONVERSION - Price and Number of
Common Shares to be Sold
6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders. . . . . . . . . . . . . . . . . . . . . Not Applicable
8. Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . Cover Page; THE CONVERSION - General;
- Subscription Offering;
- Community Offering;
- Marketing Plan
9. Description of Securities to be Registered. . . . . . . . . . . . DESCRIPTION OF AUTHORIZED SHARES
10. Interest of Names Experts and Counsel . . . . . . . . . . . . . . Not Applicable
11. Information with Respect to the Registrant
(a) Description of Business. . . . . . . . . . . . . . . . . . . THE BUSINESS OF THE ASSOCIATION
(b) Description of Property. . . . . . . . . . . . . . . . . . . THE BUSINESS OF THE ASSOCIATION - Properties
(c) Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . THE BUSINESS OF THE ASSOCIATION - Legal
Proceedings
(d) Market Price and Dividends . . . . . . . . . . . . . . . . . Cover Page; MARKET FOR COMMON SHARES;
DIVIDEND POLICY
(e) Financial Statements . . . . . . . . . . . . . . . . . . . . FINANCIAL STATEMENTS
(f) Selected Financial Data. . . . . . . . . . . . . . . . . . . SELECTED FINANCIAL INFORMATION AND OTHER
DATA
(g) Supplementary Financial Information. . . . . . . . . . . . . Not Applicable
(h) Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(j) Directors and Executive Officers . . . . . . . . . . . . . . MANAGEMENT
(k) Executive Compensation . . . . . . . . . . . . . . . . . . . MANAGEMENT - Compensation; and - Stock Benefit Plans
(l) Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . THE CONVERSION - Shares to be Purchased by
Management Pursuant to Subscription Rights
<CAPTION>
Form S-1 Item and Caption Prospectus Heading
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<S> <C>
(m) Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . .Not Applicable
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities. . . . . . . . .Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
MARKET FINANCIAL CORPORATION
(PROPOSED HOLDING COMPANY FOR THE MARKET BUILDING AND SAVING COMPANY)
MT. HEALTHY, OHIO
UP TO 1,161,500 COMMON SHARES, $10 PURCHASE PRICE PER SHARE
Market Financial Corporation, an Ohio corporation ("MFC"), is hereby
offering for sale up to 1,161,500 common shares, without par value (the "Common
Shares"), in connection with its acquisition of all of the capital stock to be
issued by The Market Building and Saving Company, an Ohio mutual savings and
loan association located in Mt. Healthy, Ohio (the "Association"), upon the
conversion of the Association from a mutual savings and loan association to a
permanent capital stock savings and loan association incorporated under Ohio law
(the "Conversion"). The consummation of the Conversion and the sale of the
Common Shares are subject to the approval of the Association's Plan of
Conversion (the "Plan") and the adoption of the Amended Articles of
Incorporation and the Amended Constitution by the members of the Association.
Based on an independent appraisal of the pro forma market value of the
Association, as converted, as of August 2, 1996, the aggregate purchase price of
the Common Shares offered in connection with the Conversion ranges from a
minimum of $8,585,000 to a maximum of $11,615,000 (the "Valuation Range"),
resulting in a range of 858,500 to 1,161,500 Common Shares at $10 per share.
See "THE CONVERSION - Pricing and Number of Common Shares to be Sold."
Applicable regulations permit MFC to offer additional Common Shares in an amount
not to exceed 15% above the maximum of the Valuation Range, which would permit
the issuance of up to 1,335,725 Common Shares with an aggregate purchase price
of $13,357,250. The actual number of Common Shares to be sold in connection
with the Conversion will be determined in the sole discretion of the Boards of
Directors of MFC and the Association and will be based upon the final valuation
of the Association, as determined by the independent appraiser upon the
completion of this offering.
(CONTINUED ON NEXT PAGE)
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES CERTAIN RISKS.
FOR A DISCUSSION OF SUCH RISKS AND OTHER FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS, SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS
PROSPECTUS.
THE COMMON SHARES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE OFFICE OF THRIFT
SUPERVISION (THE "OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC"),
THE DIVISION OF FINANCIAL INSTITUTIONS OF THE DEPARTMENT OF COMMERCE OF THE
STATE OF OHIO (THE "DIVISION"), OR THE SECURITIES COMMISSION OF ANY STATE, NOR
HAS THE SEC, THE OTS, THE FDIC, THE DIVISION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
THE COMMON SHARES BEING OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
FOR INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE CONVERSION INFORMATION
CENTER AT (513) ____-_______.
<TABLE>
<CAPTION>
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- ------------------------------------------------------------------------------------------------------
Subscription Estimated Expenses and Estimated Net
Price Underwriting Commissions (1) Proceeds (2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share Minimum $10.00 0.49 $9.51
Per share Mid-point $10.00 0.43 $9.57
Per share Maximum $10.00 0.39 $9.61
Per share Maximum, as adjusted (3) $10.00 0.35 $9.65
Total Minimum $8,585,000 $417,000 $8,168,000
Total Mid-point $10,100,000 $435,000 $9,665,000
Total Maximum $11,615,000 $453,000 $11,162,000
Total Maximum, as adjusted (3) $13,357,250 $473,000 $12,884,250
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expenses of the Conversion payable by the Association and MFC include
legal, accounting, appraisal, printing, mailing and miscellaneous expenses.
Such expenses also include sales commissions, estimated to be between
$93,000 and $149,000, and reimbursable expenses, not to exceed $25,000,
payable to Charles Webb & Company ("Webb") . Such sales commissions may be
deemed to be underwriting fees. See "THE CONVERSION - Marketing Plan."
Actual expenses may vary from the estimates. Webb will solicit
subscriptions for the Common Shares on a "best efforts" basis and has no
obligation to purchase any of the Common Shares.
(2) Includes the amount paid by the Market Financial Corporation Employee Stock
Ownership Plan (the "ESOP") in the form of a note payable to MFC in payment
for the Common Shares purchased by the ESOP. See "PRO FORMA DATA" and
"MANAGEMENT - Stock Benefit Plans -- Employee Stock Ownership Plan."
(3) Gives effect to the increase in the number of Common Shares sold in
connection with the Conversion of up to 15% above the maximum of the
Valuation Range. Such shares may be offered without the resolicitation of
persons who subscribe for Common Shares in the Subscription Offering and
the Community Offering (both of which are defined hereinafter). See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold."
CHARLES WEBB & COMPANY
The date of this Prospectus is __________, 1996.
<PAGE>
In accordance with the Plan, nontransferable subscription rights to
purchase Common Shares at a price of $10 per share are offered hereby in a
subscription offering (the "Subscription Offering"), subject to the rights and
restrictions established by the Plan, to (a) each account holder who, at the
close of business on December 31, 1994 (the "Eligibility Record Date"), had
deposit accounts with deposit balances, in the aggregate, of $50 or more (a
"Qualifying Deposit") with the Association (the "Eligible Account Holders"), (b)
the ESOP, (c) each account holder who, at the close of business on June 30, 1996
(the "Supplemental Eligibility Record Date"), had a Qualifying Deposit with the
Association (the "Supplemental Eligible Account Holders"), and (d) members of
the Association eligible to vote at the Special Meeting of Members of the
Association (the "Special Meeting") to be held at ____ _.m., Eastern Time, on
________, 1996, at __________________________________, Ohio ("Other Eligible
Members"). ALL SUBSCRIPTION RIGHTS TO PURCHASE COMMON SHARES IN THE
SUBSCRIPTION OFFERING ARE NONTRANSFERABLE AND WILL EXPIRE AT 4:30 P.M., EASTERN
TIME, ON ________, 1996 (THE "SUBSCRIPTION EXPIRATION DATE"), UNLESS EXTENDED BY
THE ASSOCIATION AND MFC FOR UP TO 45 DAYS TO __________, 1996. Persons found to
be transferring subscription rights will be subject to forfeiture of such rights
and possible further penalties imposed by the OTS. See "THE CONVERSION -
Subscription Offering."
To the extent that all of the Common Shares are not subscribed for in the
Subscription Offering, the remaining Common Shares are hereby offered
concurrently to the general public in a direct community offering in which
preference will be given to natural persons residing in Hamilton County, Ohio
(the "Community Offering"). See "THE CONVERSION - Community Offering." The
Board of Directors of MFC may terminate the Community Offering at any time after
subscriptions or orders for at least 858,500 Common Shares have been received
and in no event will the Community Offering extend beyond __________, 1996. See
"THE CONVERSION - Subscription Offering; Community Offering; and Marketing
Plan."
The Plan and federal regulations limit the number of Common Shares which
may be purchased by various categories of persons, including the limitation that
no person may purchase fewer than 25 shares, nor more than 2% of the Common
Shares sold in connection with the Conversion (26,715 Common Shares at the
maximum of the Valuation Range, as adjusted). Such limitation does not apply to
the ESOP. In addition, no person together with such person's Associates
(hereinafter defined) and persons Acting in Concert (hereinafter defined) with
such person, may purchase more than 4% of the Common Shares sold in connection
with the Conversion (53,429 Common Shares at the maximum of the Valuation Range,
as adjusted) in the Subscription Offering, or 2% in the Community Offering.
Subject to applicable OTS regulations, the limitations set forth in the Plan may
be changed at any time in the sole discretion of the Board of Directors of MFC
and the Association. See "THE CONVERSION - Limitations on Purchases of Common
Shares."
Common Shares may be subscribed for or ordered in the Offering by returning
the accompanying order form (the "Order Form"), along with full payment of the
purchase price per share for all Common Shares for which a subscription is made
or an order is submitted, so that it is received by the Association no later
than 4:30 p.m., Eastern Time, ________, 1996. See "THE CONVERSION - Use of
Order Forms." Payment may be made in cash, if delivered in person, or by check
or money order and will be held at the Association in a segregated account
insured by the FDIC up to the applicable limits and earning interest at the
Association's then current passbook savings account rate from the date of
receipt until the completion of the Conversion. Payment may also be made by
authorized withdrawal from an existing deposit account at the Association, the
amount of which will continue to earn interest until completion of the
Conversion at the rate normally in effect from time to time for such accounts.
See "THE CONVERSION - Payment for Common Shares."
AN EXECUTED ORDER FORM, ONCE RECEIVED BY MFC, MAY NOT BE MODIFIED, AMENDED
OR RESCINDED WITHOUT THE CONSENT OF MFC, UNLESS (I) THE COMMUNITY OFFERING IS
NOT COMPLETED WITHIN 45 DAYS AFTER THE SUBSCRIPTION EXPIRATION DATE, OR (II) THE
FINAL VALUATION OF THE ASSOCIATION, AS CONVERTED, IS LESS THAN $8,585,000 OR
MORE THAN $13,357,250. IF EITHER OF THOSE EVENTS OCCUR, PERSONS WHO HAVE
SUBSCRIBED FOR COMMON SHARES IN THE OFFERING WILL RECEIVE WRITTEN NOTICE THAT,
UNTIL A DATE SPECIFIED IN THE NOTICE, THEY HAVE A RIGHT TO AFFIRM, INCREASE,
DECREASE OR RESCIND THEIR SUBSCRIPTIONS. ANY PERSON WHO DOES NOT AFFIRMATIVELY
ELECT TO CONTINUE HIS SUBSCRIPTION OR ELECTS TO RESCIND HIS SUBSCRIPTION DURING
ANY SUCH EXTENSION WILL HAVE ALL OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST.
ANY PERSON WHO ELECTS TO DECREASE HIS SUBSCRIPTION DURING ANY SUCH EXTENSION
WILL HAVE THE APPROPRIATE PORTION OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST.
IN ADDITION, IF THE MAXIMUM PURCHASE LIMITATION IS INCREASED TO MORE THAN 2% OF
THE COMMON SHARES SOLD IN THE CONVERSION, PERSONS WHO HAVE SUBSCRIBED FOR 2% OF
THE COMMON SHARES WILL BE GIVEN THE OPPORTUNITY TO INCREASE THEIR SUBSCRIPTIONS.
THE CONVERSION OF THE ASSOCIATION FROM A MUTUAL SAVINGS AND LOAN
ASSOCIATION TO A PERMANENT CAPITAL STOCK SAVINGS AND LOAN ASSOCIATION IS
CONTINGENT UPON (I) THE APPROVAL OF THE PLAN AND THE ADOPTION OF THE AMENDED
ARTICLES OF INCORPORATION AND THE AMENDED CONSTITUTION BY THE ASSOCIATION'S
VOTING MEMBERS, (II) THE SALE OF THE REQUISITE NUMBER OF COMMON SHARES AND (III)
CERTAIN OTHER FACTORS. SEE "THE CONVERSION."
-ii-
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
MT. HEALTHY, OHIO
[Insert map]
-iii-
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS NOT COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY THE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
APPEARING ELSEWHERE IN THIS PROSPECTUS.
MARKET FINANCIAL CORPORATION
MFC was incorporated under Ohio law in April 1996 at the direction of the
Association for the purpose of purchasing all of the capital stock of the
Association to be issued in connection with the Conversion. MFC has not
conducted and will not conduct any business before the completion of the
Conversion, other than business related to the Conversion. Upon the
consummation of the Conversion, MFC will be a unitary savings and loan holding
company, the principal assets of which initially will consist of the capital
stock of the Association, a promissory note from the ESOP and the investments
made with the net proceeds retained from the sale of Common Shares in connection
with the Conversion. See "USE OF PROCEEDS."
The executive office of MFC is located at 7522 Hamilton Avenue, Mt.
Healthy, Ohio 45231, and its telephone number is (513) 521-9772.
THE MARKET BUILDING AND SAVING COMPANY
The Association is a mutual savings and loan association organized under
Ohio law in 1883 under the name "The Court Street Market Building and Saving
Company." In 1926, the Association adopted its current name. In 1960, the
Hilltop Savings and Loan Company of Mt. Healthy, Ohio, was merged into the
Association. The Cleves-North Bend Building and Loan Company ("Cleves-North
Bend") of North Bend, Ohio, was merged into the Association in 1994.
As an Ohio savings and loan association, the Association is subject to
supervision and regulation by the OTS and the Division. The Association is a
member of the Federal Home Loan Bank (the "FHLB") of Cincinnati, and the deposit
accounts of the Association are insured up to applicable limits by the Savings
Association Insurance Fund (the "SAIF") administered by the FDIC. See
"REGULATION."
The Association conducts business from its main office located at 7522
Hamilton Avenue, Mt. Healthy, Ohio, and its full-service branch office at 125
Miami Avenue, North Bend, Ohio. As a community-oriented institution, the
Association focuses on providing a high level of customer service to the
families and businesses located in the Mt. Healthy and North Bend communities.
The Association's strategy is to continue its historic commitment to one- to
four-family mortgage lending while maintaining strong asset quality and a high
level of capital.
The principal business of the Association is the origination of permanent
mortgage loans secured by first mortgages on one- to four-family residential
real estate located in Hamilton County, Ohio, the Association's primary market
area. The Association also originates a limited number of loans for the
construction of one- to four-family residences and permanent mortgage loans
secured by multifamily real estate (over four units) and nonresidential real
estate in its market area. See "THE BUSINESS OF THE ASSOCIATION - Lending
Activities." In addition to real estate lending, the Association originates a
limited number of loans secured by deposits at the Association. For liquidity
and interest rate risk management purposes, the Association invests in interest-
bearing deposits in other financial institutions, U.S. Government and agency
obligations and mortgage-backed securities. See "THE BUSINESS OF THE
ASSOCIATION - Investment Activities." Funds for lending and other investment
activities are obtained primarily from savings deposits, which are insured up to
applicable limits by the FDIC, and principal repayments on loans. See "THE
BUSINESS OF THE ASSOCIATION - Deposits and Borrowings."
THE CONVERSION
GENERAL. The Boards of Directors of MFC and the Association have
unanimously approved the Plan. The Plan provides for the conversion of the
Association from a mutual savings and loan association to a permanent capital
stock savings and loan association incorporated under the laws of the State of
Ohio. The OTS and the Division have approved the Plan, subject to the approval
of the Plan by the Association's voting members at the Special Meeting, and to
certain other conditions.
-1-
<PAGE>
THE SUBSCRIPTION OFFERING AND COMMUNITY OFFERING. Pursuant to the Plan,
subscription rights to purchase Common Shares at a price of $10 per share are
hereby offered to (a) each Eligible Account Holder, (b) the ESOP, (c) each
Supplemental Eligible Account Holder and (d) Other Eligible Members. See "THE
CONVERSION - Subscription Offering."
Concurrently with the Subscription Offering, MFC is hereby offering Common
Shares in the Community Offering, subject to certain limitations and to the
extent such shares remain available after the satisfaction of all subscriptions
received in the Subscription Offering. Preference will be given in the
Community Offering to natural persons residing in Hamilton County, Ohio. The
Boards of Directors of MFC and the Association have the right to reject, in
whole or in part, any order for Common Shares submitted in the Community
Offering. See "THE CONVERSION - Community Offering."
The Subscription Offering and Community Offering will terminate at, and
subscription rights will expire if not exercised by, 4:30 p.m., Eastern Time, on
________, 1996. If necessary, the Community Offering may be extended by MFC and
the Association to ________, 1996. Any extension of the Community Offering
beyond ________, 1996, would require the consent of the OTS and the Division.
If the Community Offering extends beyond _________, persons who have subscribed
for or ordered Common Shares in the Offering will receive a notice that they
have the right to affirm, increase, decrease or rescind their subscriptions or
orders for Common Shares. Persons who do not affirmatively elect to continue
their subscriptions or who elect to rescind their subscriptions during any such
extension will have all of their funds promptly refunded with interest. Persons
who elect to decrease their subscriptions will have the appropriate portion of
their funds promptly refunded with interest. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold." The sale of Common Shares pursuant to
subscriptions received in the Offering will be subject to the approval of the
Plan by the voting members of the Association at the Special Meeting, to the
determination by the Board of Directors of MFC and the Association of the total
number of Common Shares to be sold and to the satisfaction or waiver of certain
other conditions. See "THE CONVERSION - Subscription Offering; - Community
Offering; and - Pricing and Number of Common Shares to be Sold."
PURCHASE LIMITATIONS. The Plan authorizes the Boards of Directors of MFC
and the Association to establish limits on the amount of Common Shares which may
be purchased by various categories of persons. The Plan also permits the Boards
of Directors of MFC and the Association, subject to any required regulatory
approval and the requirements of applicable laws and regulations, to increase or
decrease such purchase limitations, in their sole discretion. Pursuant to such
authority, the Boards of Directors have established the preliminary limitation
that, generally, an Eligible Account Holder or Supplemental Eligible Account
Holder may purchase in the Subscription Offering a number of Common Shares equal
to the greater of (i) 2% of the total number of Common Shares to be sold in
connection with the Conversion (26,715 shares at the maximum of the Valuation
Range, as adjusted), or (ii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of Common Shares to be
sold in connection with the Conversion by a fraction, the numerator of which is
the amount of such Eligible Account Holder's or Supplemental Eligible Account
Holder's Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Eligible Account Holders or Supplemental Eligible
Account Holders, as the case may be. Other Eligible Members in the Subscription
Offering may purchase a number of Common Shares equal to up to 2% of the total
number of Common Shares sold in connection with the Conversion.
No person in the Subscription, however, together with his or her Associates
and other persons Acting in Concert Offering with him or her, may purchase more
than 4% of the Common Shares sold in connection with the Conversion (53,429
shares at the maximum of the Valuation Range, as adjusted). Such limitations do
not apply to the ESOP, which intends to purchase up to 8% of the Common Shares
sold in the Offering. The ESOP may purchase Common Shares if shares remain
available after satisfying the subscriptions of Eligible Account Holders up to
$11,615,000, the maximum of the Valuation Range. If the ESOP is unable to
purchase all or part of the Common Shares for which it subscribes, the ESOP may
purchase Common Shares on the open market or may purchase authorized but
unissued Common Shares from MFC. If the ESOP purchases authorized but unissued
Common Shares from MFC, such purchases could have a dilutive effect on the
interests of MFC's shareholders.
Each person in the Community Offering, together with such person's
Associates and other persons Acting in Concert with him or her, may purchase 2%
of the Common Shares to be sold in connection with the Conversion (26,715 shares
at the maximum of the Valuation Range, as adjusted). Subject to applicable
regulations, the purchase limitation may be increased or decreased after the
commencement of the Offering in the sole discretion of the Boards of Directors
of MFC
-2-
<PAGE>
and the Association. See "THE CONVERSION - Limitations on Purchases of Common
Shares" and "RESTRICTIONS ON ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED
ANTI-TAKEOVER PROVISIONS."
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS. OTS and Ohio regulations
provide that subscription rights are non-transferable. OTS regulations
specifically prohibit any person from transferring or entering into any
agreement or understanding before the completion of the Conversion to transfer
the ownership of the subscription rights issued in the Conversion or the shares
to be issued upon the exercise of such subscription rights. Persons attempting
to violate such provision may lose their rights to purchase Common Shares in the
Conversion and may be subject to penalties imposed by the OTS. Each person
exercising subscription rights will be required to certify that his or her
purchase of Common Shares is solely for the subscriber's own account and that
there is no agreement or understanding regarding the sale or transfer of such
Common Shares.
PARTICIPATION OF WEBB IN THE OFFERING. The Association and MFC have
retained Webb as a consultant and advisor in connection with the Offering. Webb
will also assist in soliciting subscriptions in the Subscription Offering and
Community Offering. Such solicitations will be made on a "best efforts" basis.
Webb is not obligated to purchase any of the Common Shares. See "THE CONVERSION
- - Marketing Plan."
PRICING OF THE COMMON SHARES. Keller & Company, Inc. ("Keller"), a
Columbus, Ohio, firm experienced in valuing thrift institutions, has prepared an
independent valuation of the estimated pro forma market value of the
Association, as converted. Keller was selected by the Board of Directors
because Keller has extensive experience in the valuation of thrift institutions,
particularly in the mutual-to-stock conversion context. Keller is certified by
the OTS as a mutual-to-stock conversion appraiser. The Association and Keller
have no relationship which would affect Keller's independence.
Keller's valuation of the estimated pro forma market value of the
Association, as converted, is $10,100,000 as of August 2, 1996 (the "Pro
Forma Value"). Based on the Pro Forma Value of the Association, the Valuation
Range established in accordance with the Plan is $8,585,000 to $13,357,250. MFC
will issue the Common Shares at a fixed price of $10 per share and, by dividing
the price per share into the aggregate pro forma value at the close of the
Offering, will determine the number of Common Shares to be issued.
In the event that Keller determines at the close of the Offering that the
aggregate pro forma value of the Association is higher or lower than the Pro
Forma Value, but is nevertheless equal to or greater than $8,585,000 or equal to
or less than $13,357,250, MFC will make an appropriate adjustment by raising or
lowering the total number of Common Shares to be sold in the Conversion
consistent with the final valuation. The total number of Common Shares to be
sold in the Conversion will be determined in the discretion of the Board of
Directors consistent with the final valuation. If, due to changing market
conditions, the final valuation is less than $8,585,000 or more than
$13,357,250, subscribers will be given notice of such final valuation and the
right to affirm, increase, decrease or rescind their subscriptions. Any person
who does not affirmatively elect to continue his subscription or elects to
rescind his subscription before the date specified in the notice will have all
of his funds promptly refunded with interest. Any person who elects to decrease
his subscription will have the appropriate portion of such person's funds
promptly refunded with interest. See "THE CONVERSION - Pricing and Number of
Common Shares to be Sold."
USE OF PROCEEDS. MFC will retain 50% of the net proceeds from the sale of
the Common Shares, or approximately $4.8 million at the mid-point of the
Valuation Range, including the value of a promissory note from the ESOP which
MFC intends to accept in exchange for the issuance of Common Shares to the ESOP.
Such proceeds will be used by MFC to fund the Market Financial Corporation
Recognition and Retention Plan (the "RRP") which is expected to purchase on the
open market a number of shares of MFC equal to up to 4% of the Common Shares
sold in connection with the Conversion and for general corporate purposes,
including payment of dividends, purchases of Common Shares and acquisitions of
other financial institutions.
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $4.8 million at the mid-point of the Valuation Range, will
be invested by MFC in the capital stock to be issued by the Association to MFC
as a result of the Conversion and will increase the regulatory capital of the
Association. Initially, the Association will invest such net proceeds in short-
term interest-bearing deposits. The Association hopes that such proceeds will
eventually be used to expand the Association's lending and investment
activities. See "USE OF PROCEEDS."
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<PAGE>
TAX CONSEQUENCES
The consummation of the Conversion is expressly conditioned upon the
receipt by MFC and the Association of a private letter ruling from the Internal
Revenue Service (the "IRS") and appropriate Ohio taxing authorities or an
opinion of counsel to the effect that, for federal income tax purposes, the
Conversion will constitute a tax-free reorganization as defined in Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). MFC and
the Association intend to proceed with the Conversion based upon an opinion
received from Vorys, Sater, Seymour and Pease that states, in part, that (1) no
gain or loss will be recognized by the Association in connection with the
Conversion or the receipt from MFC of proceeds from the sale of the Common
Shares, (2) assuming that the subscription rights received by deposit account
holders in connection with the Conversion have no ascertainable fair market
value, no gain or loss will be recognized to the deposit account holders of the
Association upon issuance to them of subscription rights or interests in the
Liquidation Account (hereinafter defined) and (3) no taxable income will be
realized by deposit account holders as a result of their exercise of such
subscription rights. Although the IRS could challenge the assumption that the
subscription rights have no ascertainable fair market value, MFC and the
Association have received an opinion from Keller supporting such assumption.
See "THE CONVERSION - Principal Effects of the Conversion -- Tax Consequences."
MARKET FOR COMMON SHARES
There is presently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefor, the potentially illiquid and
long-term nature of an investment in the Common Shares. See "RISK FACTORS -
Absence of Market of Common Shares."
MFC has received conditional approval from The Nasdaq Small Cap Market
("Nasdaq Small Cap") to have the Common Shares quoted on Nasdaq Small Cap under
the symbol "____" upon the completion of the Conversion, subject to certain
conditions which the Association and MFC believe will be satisfied, although no
assurance can be provided that the conditions will be met. One of the
conditions to the Nasdaq Small Cap listing is the commitment of at least two
brokerage firms to make a market in the Common Shares. Keefe, Bruyette & Woods,
Inc. ("KBW"), intends to make a market in the Common Shares but has no
obligation to do so. Webb does not intend to make a market in the Common
Shares.
The aggregate offering price for the Common Shares is based upon an
independent appraisal of the Association. The appraisal does not represent
Keller's opinion as to the price at which the Common Shares may trade and is not
a recommendation as to the advisability of purchasing Common Shares. No
assurance can be given that the Common Shares may later be resold at the price
at which they are purchased in connection with the Conversion. See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold."
DIVIDEND POLICY
The declaration and payment of dividends or other capital distributions by
MFC will be subject to the discretion of the Board of Directors of MFC, to the
earnings and financial condition of MFC and the Association and to general
economic conditions. If the Board of Directors of MFC determines in the
exercise of its discretion that the net income, capital and financial condition
of MFC and the general economy justify the declaration and payment of dividends
by MFC, dividends may be paid on the Common Shares. No assurance can be given,
however, that dividends will be paid or, if paid, will continue in the future.
See "DIVIDEND POLICY" and "REGULATION - Office of Thrift Supervision --
Limitations on Capital Distributions."
BENEFITS OF THE CONVERSION TO DIRECTORS, OFFICERS AND EMPLOYEES OF MFC AND THE
ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the Conversion, MFC will
establish the ESOP, which intends to use a loan from MFC to purchase 8% of the
Common Shares issued in the Conversion. The ESOP intends to repay the loan with
discretionary contributions made by the Association to the ESOP. As the loan is
repaid, the Common Shares held by the ESOP will be allocated to the accounts of
employees of the Association and MFC, including executive officers, at the
discretion of the Board of Directors of MFC. See "PRO FORMA DATA" for a
discussion of the impact of the ESOP on pro forma earnings per share. All full-
time employees of MFC and the Association who meet certain age and years of
service criteria will be eligible to participate in the ESOP. See "MANAGEMENT -
Stock Benefit Plans -- Employee Stock Ownership Plan."
-4-
<PAGE>
STOCK OPTION PLAN. After the completion of the Conversion, MFC intends to
establish the Market Financial Corporation 1997 Stock Option and Incentive Plan
(the "Stock Option Plan"). The Board of Directors of MFC anticipates that a
number of shares equal to 10% of the Common Shares sold in the Offering will be
reserved for issuance to directors, officers and employees of MFC and the
Association upon the exercise of options granted under the Stock Option Plan.
The Stock Option Plan will be administered by a committee comprised of three
directors of MFC (the "Stock Option Committee"). Persons eligible for awards
under the Stock Option Plan will consist of directors, officers and key
employees of MFC or the Association who hold positions with significant
responsibilities or whose performance or potential contribution, in the judgment
of the Stock Option Committee, will contribute to the future success of MFC or
the Association. The Stock Option Committee will consider the position, duties
and responsibilities of the directors, officers and key employees of MFC and the
Association, the value of their services to MFC and the Association and any
other factors the Stock Option Committee may deem relevant.
Under OTS regulations, no stock options may be awarded until after the
approval of the Stock Option Plan by the shareholders of MFC at an annual or a
special meeting of shareholders held not less than six months following the
completion of the Conversion. If the Stock Option Plan is approved by the MFC
shareholders at such meeting and implemented during the first year after the
completion of the Conversion, the following restrictions will apply: (i) the
number of shares which may be subject to options awarded under the Stock Option
Plan to directors who are not full-time employees of MFC may not exceed 5% per
person and 30% in the aggregate of the available awards; (ii) the number of
shares which may be subject to options awarded under the Stock Option Plan to
any individual who is a full-time employee of MFC or its subsidiaries may not
exceed 25% of the plan shares; (iii) stock options must be awarded with an
exercise price at least equal to the fair market value of common shares of MFC
at the time of the grant; and (iv) stock options will become exercisable at the
rate of one-fifth commencing no earlier than one year from the date the Stock
Option Plan is approved by the shareholders, subject to acceleration of vesting
only in the event of the death or disability of a participant. The ultimate
value of any option granted at fair market value will depend on future
appreciation in the fair market value of the shares to which the option relates.
No decision has been made as to anticipated awards under the Stock Option Plan.
See "MANAGEMENT - Stock Benefit Plans -- Stock Option Plan."
RECOGNITION AND RETENTION PLAN AND TRUST. MFC intends to establish the RRP
after the completion of the Conversion and anticipates that a number of shares
equal to 4% of the number of Common Shares sold in connection with the
Conversion will be purchased by, or issued to, the RRP. Shares held in the RRP
will be available for awards to directors, officers and employees of MFC and the
Association. The RRP will be administered by a committee comprised of three
directors of MFC (the "RRP Committee"). In selecting the directors, officers
and employees to whom awards will be granted and the number of shares covered by
such awards, the RRP Committee will consider the position, duties and
responsibilities of such persons, the value of their services to MFC and the
Association and any other factors the RRP Committee may deem relevant. No
determination has been made with respect to RRP awards.
Under OTS regulations, no RRP shares may be awarded until after the
approval of the RRP by the shareholders of MFC at an annual meeting or a special
meeting of shareholders to be held no less than six months after the completion
of the Conversion. If the RRP is approved by the MFC shareholders at such
meeting and implemented during the first year after the completion of the
Conversion, the following restrictions will apply: (i) the number of shares
that may be subject to awards under the RRP to directors who are not full-time
employees of MFC or its subsidiaries may not exceed 5% per person and 30% in the
aggregate of the available awards; (ii) the number of shares which may be
subject to RRP awards to any individual who is a full-time employee of MFC or
its subsidiaries may not exceed 25% of the plan shares; and (iii) RRP awards may
not be earned more quickly than one-fifth per year commencing on the date which
is one year from the date of grant of the award; provided, however, that in the
event of the death or the disability of the participant and RRP awards shall be
deemed earned and nonforfeitable on such date. Dividends paid by MFC on shares
awarded under the RRP but not yet earned will be held in the RRP Trust. When
the awarded shares are earned, the dividends accumulated with respect to such
shares will be distributed to the participant along with the shares. While held
in the RRP Trust, shares of MFC will be voted by the RRP Trustee. See
"MANAGEMENT - Stock Benefit Plans -- Recognition and Retention Plan and Trust."
EMPLOYMENT AGREEMENT. In connection with the Conversion, the Association
will enter into an employment agreement with John T. Larimer, the President of
the Association. The employment contract will provide for a term of three
years, with an annual salary not less than Mr. Larimer's current salary, which
is $94,500. The employment agreement will also provide for severance payments
in the event the agreement is terminated prior to the expiration of its term.
See "MANAGEMENT - Employment Agreement."
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<PAGE>
INVESTMENT RISKS
An investment in the Common Shares involves certain risks. Special
attention should be given to the matters discussed under "RISK FACTORS - Low
Return on Equity; - Interest Rate Risk and Historic Earnings; - Legislation and
Regulation Which May Adversely Affect the Association's Earnings; - Dilutive
Effect of Purchases by the ESOP and the RRP; - Absence of Market for Common
Shares; - Controlling Influence of Management and Anti-Takeover Provisions Which
May Discourage Sales of Common Shares for Premium Prices; - Possible Tax
Liability Related to Subscription Rights; and - Risk of Delayed Offering."
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<PAGE>
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth certain information concerning the financial
condition, earnings and other data regarding the Association at the dates and
for the periods indicated. The financial information should be read in
conjunction with the financial statements and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
At September 30,
At June 30, -------------------------------------------------------
SELECTED FINANCIAL CONDITION (1): 1996 1995 1994 1993 1992 1991
---------- ------- ------- ------- ------- -------
Total amount of: (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Asset $46,260 $45,734 $45,340 $46,942 $47,556 $46,374
Cash and cash equivalent 4,751 4,013 6,380 18,289 15,126 12,174
Certificates of deposit in other financial institutions 7,140 7,139 6,139 1,789 4,164 5,647
Investment securities - at cost 8,554 7,984 5,919 3,525 3,243 4,917
Investment securities designated as available
for sale - at market 622 504 - - - -
Mortgage-backed securities - at cost 1,785 2,211 2,441 3,661 5,793 4,081
Loans receivable - net 22,384 23,018 23,658 18,945 18,616 18,882
Real estate acquired through foreclosure - - - 79 - -
Deposits 38,190 38,056 38,674 40,703 41,719 40,925
Unrealized gains on securities designated as
available for sale (2) 392 314 - - - -
Retained earnings, net, substantially restricted
7,533 7,153 6,372 5,960 5,550 5,218
<CAPTION>
Nine months
ended June 30, Year ended September 30,
------------------ ------------------------------------------------------
SELECTED OPERATING DATA (1): 1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $2,469 $2,376 $3,182 $2,908 $3,095 $3,500 $3,776
Interest expense 1,336 1,170 1,622 1,478 1,706 2,318 2,826
------ ------ ------ ------ ------ ------ ------
Net interest income 1,133 1,206 1,560 1,430 1,389 1,182 950
Provision for losses on loans 13 - - - 10 11 9
------ ------ ------ ------ ------ ------ ------
Net interest income after provision for
losses on loans 1,120 1,206 1,560 1,430 1,379 1,171 941
Other income 6 6 8 12 10 8 9
General, administrative and other expenses 664 643 861 836 697 710 659
------ ------ ------ ------ ------ ------ ------
Earnings before income taxes 462 569 707 606 692 469 291
Federal income taxes 160 192 240 194 223 138 86
------ ------ ------ ------ ------ ------ ------
Net earnings $ 302 $ 377 $ 467 $ 412 $ 469 $ 331 $ 205
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
</TABLE>
________________________________
(1) The financial statements as of June 30, 1996, and for the nine months ended
June 30, 1996 and 1995, are unaudited. In the opinion of management,
however, all adjustments (consisting only of normal recurring accruals)
which are necessary for a fair presentation of financial condition and
results of operations have been included. The results of operations for
the nine months ended June 30, 1996, are not necessarily indicative of the
results that may be obtained for the fiscal year.
(2) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on October 1, 1994. As of and subsequent to that date, the
Association carries at market value securities designated as available for
sale.
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<PAGE>
<TABLE>
<CAPTION>
At or for the
nine months ended
June 30, (1) At or for the years ended September 30,
---------------- -----------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA: 1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Performance ratios:
Return on average assets (2)(3) 0.88% 1.11% 1.03% 0.89% 0.99% 0.70% 0.45%
Return on average equity (3)(4) 5.48 7.49 6.91 6.68 8.15 6.15 4.01
Interest rate spread (5) 2.66 3.23 2.93 2.98 2.58 1.98 1.44
Net interest margin (6) 3.37 3.75 3.55 3.29 3.03 2.57 2.14
Operating expenses to average assets 1.92 1.89 1.89 1.81 1.48 1.51 1.46
Equity to assets (7) 16.28 15.55 15.64 14.05 12.70 11.67 11.25
Asset quality ratios:
Nonperforming assets to total assets - - - - 0.58 0.57 0.81
Nonperforming loans to total loans - - - - 1.02 1.46 2.00
Allowance for losses on loans to total
loans .23 .17 0.17 0.16 0.21 0.18 0.16
Allowance for losses on loans to
nonperforming loans 346.67 N/M(8) N/M(8) N/M(8) 20.21 12.18 7.96
Net (charge-offs) recoveries to average
loans - - - - (0.02) (0.05) -
Average interest-earning assets to
average interest-bearing liabilities 117.74 114.26 116.62 109.04 112.38 111.54 111.04
Other data:
Number of full service offices 2 2 2 2 2 2 2
</TABLE>
__________________________
(1) Annualized, where appropriate.
(2) Return on average assets equals net earnings divided by average assets.
(3) Based on arithmetic average of beginning and ending balances.
(4) Return on average equity is calculated by dividing net earnings by average
equity capital.
(5) Average yield on interest-earning assets less average cost of interest-
bearing liabilities.
(6) Net interest income as a percentage of average interest-earning assets.
(7) At the end of the respective periods.
(8) Not meaningful, as the Association had no nonperforming loans at September
30, 1995 or 1994.
-8-
<PAGE>
RISK FACTORS
INVESTMENT IN THE COMMON SHARES INVOLVES CERTAIN RISKS. BEFORE INVESTING,
PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE FOLLOWING MATTERS.
LOW RETURN ON EQUITY
During the nine months ended June 30, 1996, and the fiscal years ended
September 30, 1995 and 1994, the return on average equity of the Association
equaled 5.49%, 6.91% and 6.68%, respectively. During fiscal year 1995 and the
first nine months of fiscal year 1996, loan principal repayments have exceeded
new loan originations, and funds not used to originate loans have been invested
in lower yielding investments, thus reducing the Association's return on average
equity.
The significant amount of equity capital that will be raised in the
Conversion will further reduce the return on equity of MFC on a consolidated
basis after the Conversion until the Conversion proceeds are effectively
invested. Although a low return on equity is not unusual for recently converted
well-capitalized thrifts, MFC's return on equity after the Conversion may
adversely affect the market price of the Common Shares.
INTEREST RATE RISK AND HISTORIC EARNINGS
The Association's operating results are dependent to a significant degree
on its net interest income, which is the difference between interest income from
loans and investments and interest expense on deposits and borrowings. Like
most thrift institutions, the Association's interest income and interest expense
change as interest rates fluctuate and assets and liabilities reprice. Interest
rates fluctuate and assets and liabilities reprice because of a variety of
factors, including general economic conditions, the policies of various
regulatory authorities and other factors beyond the Association's control. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Asset and Liability Management" and "THE BUSINESS OF THE
ASSOCIATION - Lending Activities; and - Deposits and Borrowings."
When interest rates are rising, the interest income earned on assets may
not increase as rapidly as the interest expense paid on the Association's
liabilities. As a result, the earnings of the Association may be adversely
affected when the cost of the Association's liabilities increases more rapidly
than the income earned on the Association's assets. The degree to which such
earnings will be adversely affected depends upon the rapidity and extent of the
increase in interest rates.
The Association's earnings were adversely affected during the first nine
months of fiscal year 1996 by the small difference between the interest paid by
the Association on deposits and the income received on the Association's assets.
In a rising interest rate environment, that small difference can be expected to
continue due to the Association's entirely fixed-rate loan portfolio and the
maturity of $17.5 million of certificates of deposit, or 75.7% of the
Association's total certificates of deposit, within one year after June 30,
1996. The interest earned on the Association's loan portfolio will increase
slowly as existing loans at lower rates are repaid and new loans at higher rates
are originated, while the rates paid on deposits will increase at a quicker
pace. Rising interest rates may also affect the Association's earnings due to
diminished loan demand. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Asset and Liability Management."
LEGISLATION AND REGULATION WHICH MAY ADVERSELY AFFECT THE ASSOCIATION'S EARNINGS
The Association is subject to extensive regulation by the OTS, the Division
and the FDIC and is periodically examined by such regulatory agencies to test
compliance with various regulatory requirements. MFC will also be subject to
regulation and examination by the OTS. Such supervision and regulation of the
Association and MFC are primarily for the protection of depositors and not for
the maximization of shareholder value and may affect the ability of MFC to
engage in various business activities. The assessments, filing fees and other
costs associated with reports, examinations and other regulatory matters are
significant and may have an adverse effect on MFC's net earnings. See
"REGULATION."
The FDIC is authorized to establish separate annual assessment rates for
deposit insurance for members of the Bank Insurance Fund (the "BIF") and the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF
-9-
<PAGE>
members. Under such system, assessments may vary depending on the risk the
institution poses to its deposit insurance fund. Such risk level is determined
by reference to the institution's capital level and the FDIC's level of
supervisory concern about the institution.
Because of the differing reserve levels of the SAIF and the BIF, deposit
insurance assessments paid by healthy commercial banks were recently reduced
significantly below the level paid by healthy savings associations. Assessments
paid by healthy savings associations exceeded those paid by healthy commercial
banks by approximately $.19 per $100 in deposits in late 1995 and exceed them by
$.23 per $100 in deposits in 1996. Such premium disparity could have a negative
competitive impact on MFC and other institutions with SAIF deposits.
Congress is considering legislation to recapitalize the SAIF and to
eliminate the significant premium disparity between the BIF and the SAIF.
Currently, the recapitalization plan provides for the payment of a special
assessment of approximately $.85 per $100 of SAIF deposits held at some date
during 1995, currently March 31, 1995, in order to increase SAIF reserves to the
level required by law. Certain associations holding SAIF-insured deposits would
pay a lower special assessment. In addition, the cost of prior thrift failures
would be shared by both the SAIF and the BIF. Such cost sharing might increase
BIF assessments by $.02 to $.025 per $100 in deposits. SAIF assessments for
healthy savings associations would be set at a significantly lower level after
the special assessment is paid by all SAIF institutions and could never be
reduced below the level set for healthy BIF institutions.
The Association had $37.6 million in deposits at March 31, 1995. If the
one-time special assessment in the legislative proposal is enacted into law, the
Association will pay an additional pre-tax assessment of approximately $320,000,
which will reduce capital and earnings for the quarter in which the assessment
is recorded. However, it is expected that quarterly SAIF assessments would be
reduced significantly after such special assessment is paid.
The recapitalization plan also provides for the merger of the SAIF and BIF
on January 1, 1998, and for an elimination of the federal thrift charter or of
the separate federal regulation of thrifts prior to the merger of the deposit
insurance funds. Under the legislation, the OTS would cease to exist and the
Association would be regulated under federal law as a bank. As a result, the
Association would become subject to the more restrictive activity limitations
imposed on national banks, but would have a specified period of time to divest
of any activities which are restricted. The requirement that the Association
convert to a bank charter could have an adverse effect on MFC and the
Association, although until such proposal is acted upon by Congress, the extent
of such effect is uncertain.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, MFC can give
no assurances that the disparity between BIF and SAIF assessments will be
eliminated and cannot be certain of the impact of its being regulated as a bank
holding company or the Association being regulated as a bank until the
legislation requiring such change is enacted. If the proposed legislation is
not adopted, SAIF premiums may increase and the disparity between BIF and SAIF
premiums may become more pronounced, which would negatively impact the
Association. See "REGULATION - Federal Deposit Insurance Corporation -- Deposit
Insurance."
DILUTIVE EFFECT PURCHASES BY THE ESOP AND THE RRP
If the ESOP is unable to purchase Common Shares in the Conversion due to an
oversubscription by Eligible Account Holders, the ESOP may purchase authorized
but unissued shares from MFC or purchase in the open market a number of shares
equal to up to 10% of the Common Shares issued in connection with the
Conversion. It is anticipated that the ESOP will purchase a number of shares
equal to 8% of the Common Shares issued in the Conversion. If the ESOP shares
are purchased from authorized but unissued shares, shareholders would experience
a dilution of their ownership interests of up to 7.41%. In addition, the RRP
may purchase authorized but unissued shares from MFC or purchase in the open
market a number of shares equal to 4% of the Common Shares issued in connection
with the Conversion. The purchase of authorized but unissued shares by the RRP
would have a dilutive effect on the ownership interests of MFC's shareholders of
up to 3.85%. See "CAPITALIZATION", "PRO FORMA DATA" and "MANAGEMENT - Stock
Benefit Plans."
ABSENCE OF MARKET FOR COMMON SHARES
There is presently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
-10-
<PAGE>
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares.
MFC has received conditional approval from Nasdaq Small Cap to have the
Common Shares quoted on Nasdaq Small Cap under the symbol "____" upon the
completion of the Conversion, subject to certain conditions which MFC and the
Association believe will be satisfied, although no assurance can be provided
that the conditions will be met. One of the conditions of the Nasdaq Small Cap
listing is the commitment of at least two brokerage firms to make a market in
the Common Shares. KBW intends to make a market in the Common Shares but has no
obligation to do so. Webb does not intend to make a market in the Common
Shares.
The aggregate offering price for the Common Shares is based upon an
independent appraisal of the Association. The appraisal is not a recommendation
as to the advisability of purchasing the Common Shares. See "THE CONVERSION -
Pricing and Number of Common Shares to be Sold." No assurance can be given that
persons purchasing Common Shares will thereafter be able to sell such shares at
a price at or above the offering price. See "RISK FACTORS - Market for Common
Shares."
CONTROLLING INFLUENCE OF MANAGEMENT AND ANTI-TAKEOVER PROVISIONS WHICH MAY
DISCOURAGE SALES OF COMMON SHARES FOR PREMIUM PRICES
The Articles of Incorporation and Code of Regulations of MFC and the
Amended Articles of Incorporation of the Association contain certain provisions
that could deter or prohibit non-negotiated changes in the control of MFC and
the Association. Such provisions include a restriction on the acquisition of
more than 10% of the outstanding shares of MFC by any person during the five-
year period following the effective date of the Conversion, the ability to issue
additional common shares and a supermajority voting requirement for certain
transactions. See "DESCRIPTION OF AUTHORIZED SHARES" and "RESTRICTIONS ON
ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS."
The Articles of Incorporation of MFC provide that for five years after the
effective date of the Conversion, no person, except the ESOP, may offer to
acquire or acquire the beneficial ownership of more than 10% of any class of
outstanding equity securities of MFC. If such a prohibited acquisition occurs,
the securities owned by such person in excess of the 10% limit may not be voted
on any matter submitted to the shareholders of MFC. Such provision may not be
waived by management. The ability of management or any other person to solicit
revocable proxies from shareholders and vote on behalf of such shareholders will
not be restricted by such 10% limit.
The Articles of Incorporation of MFC also provide that if the Board of
Directors recommends that shareholders approve certain matters, including
mergers, acquisitions of a majority of the shares of MFC or the transfer of
substantially all of the assets of MFC, the affirmative vote of the holders of
only a majority of the voting shares of MFC is required to approve such matter.
If, however, the Board of Directors recommends against the approval of any such
matter, the affirmative vote of the holders of at least 75% of the voting shares
of MFC is required to approve such matters. The existence of such a 75%
provision in the Articles of Incorporation of MFC may make more difficult
actions which certain shareholders deem to be in their best interests.
Officers and directors of MFC are expected to purchase approximately 11.71%
of the Common Shares sold in the Offering, assuming the sale of 1,010,000 Common
Shares, the midpoint of the Valuation Range. In addition, the ESOP intends to
purchase approximately 8% of the Common Shares sold in the Offering. The ESOP
trustee must vote shares allocated under the ESOP as directed by the
participants to whom the shares are allocated and will vote unallocated shares
in its sole discretion. The RRP may acquire common shares of MFC in the open
market or acquire authorized, but unissued, common shares from MFC following
approval of the RRP by the shareholders of MFC in an amount equal to up to 4% of
the Common Shares sold in the Offering. The RRP trustees, who are expected to
be three directors of the Association, will vote shares awarded but not
distributed under the RRP in their discretion. Under the Stock Option Plan,
directors will be, and officers and employees may be, granted options to
purchase common shares of MFC. The aggregate amount of common shares as to
which options might be granted may equal 10% of the Common Shares sold in
connection with the Conversion. See "MANAGEMENT - Stock Benefit Plans --
Employee Stock Ownership Plan; -- Stock Option Plan; and -- Recognition and
Retention Plan and Trust."
In view of the various provisions of the Articles of Incorporation and the
stock benefit plans of MFC, the aggregate ownership by the ESOP, the RRP and the
directors and officers of MFC and the Association may have the effect of
-11-
<PAGE>
facilitating the perpetuation of current management and discouraging proxy
contests and takeover attempts. Thus, officers and directors, who are
anticipated to be allocated or awarded shares under such plans, will have a
significant influence over the vote on such proxy contests and may be able to
defeat proposed takeover attempts. The Boards of Directors of MFC and the
Association believe that such provisions will be in the best interests of
shareholders by encouraging prospective acquirors to negotiate a proposed
acquisition with the directors. Such provisions could, however, adversely
affect the market value of the Common Shares or deprive shareholders of the
opportunity to sell their shares for premium prices.
Regulations of the OTS also restrict the ability of any person to acquire
the beneficial ownership of more than 10% of any class of voting equity security
of the Association or MFC without the prior written approval of or lack of
objection by the OTS. Such restrictions could restrict the use of revocable
proxies. Federal and Ohio law also restrict the acquisition of control of MFC
and the Association. Any or all of these provisions may facilitate the
perpetuation of current management and discourage proxy contests or takeover
attempts not first negotiated with the Board of Directors. See "RESTRICTIONS ON
ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS."
POSSIBLE TAX LIABILITY RELATED TO SUBSCRIPTION RIGHTS
As part of the Conversion, subscription rights have been granted to
(i) Eligible Account Holders, (ii) the ESOP, (iii) Supplemental Eligible Account
Holders and (iv) Other Eligible Members. The Association has received an
opinion from Keller to the effect that the subscription rights to be received by
Eligible Account Holders and other eligible subscribers do not have any value
because they are acquired by the recipients without cost, are non-transferable
and of short duration and afford the recipients a right only to purchase Common
Shares at a price equal to their estimated fair market value, the same price as
the purchase price for unsubscribed Common Shares.
Notwithstanding the opinion from Keller, if the subscription rights are
subsequently found to have a fair market value, income may be recognized by the
recipients of the subscription rights (in certain cases, whether or not the
rights are exercised) and MFC and/or the Association may be taxed on the
distribution of such subscription rights. In this regard, the subscription
rights may be taxed partially or entirely at ordinary income tax rates.
RISK OF DELAYED OFFERING
MFC and the Association expect to complete the Conversion by
_______________, 1996. It is possible, however, that adverse market, economic
or other factors could delay the completion of the Conversion. If the Community
Offering is extended beyond ________, 1996, each subscriber will be given a
notice of such delay and the right to affirm, increase, decrease or rescind his
subscription. In such event, any person who does not affirmatively elect to
continue his subscription or elects to rescind his subscription will have all of
his funds promptly refunded with interest. Any person who elects to decrease
his subscription will have the appropriate portion of his funds promptly
refunded with interest. If the Community Offering is extended, the cost of the
Conversion could increase and the valuation of the Association could change.
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from the
sale of the Common Shares, based on the Valuation Range:
<TABLE>
<CAPTION>
Minimum Mid-point Maximum Maximum, as adjusted
------- --------- ------- --------------------
<S> <C> <C> <C> <C>
Gross proceeds $8,585,000 $10,100,000 $11,615,000 $13,357,250
Less estimated expenses 417,000 435,000 453,000 473,000
---------- ----------- ----------- -----------
Total net proceeds $8,168,000 $ 9,665,000 $11,162,000 $12,884,250
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
The net proceeds from the sale of the Common Shares may vary depending upon
financial and market conditions at the time of the completion of the Offering.
See "THE CONVERSION - Pricing and Number of Common Shares to be Sold." The
expenses detailed above are estimated. Estimated expenses include estimated
sales commissions payable to Webb. Sales commissions have been computed on the
basis of the following assumptions: (i) approximately 19% of the Common Shares
sold in the Offering will be purchased by directors, officers and employees of
the Association and the members of their immediate families; (ii) 8% of the
Common Shares sold in the Offering will be purchased by the ESOP;
-12-
<PAGE>
and (iii) 73% of the Common Shares sold in the Offering will be sold in the
Subscription Offering with sales commissions of 1.5% of the aggregate dollar
amount of such Common Shares. Actual expenses may be more or less than
estimated. See "THE CONVERSION - Marketing Plan."
MFC will retain 50% of the net proceeds from the sale of the Common Shares,
or approximately $4.8 million at the mid-point of the Valuation Range, including
the value of a promissory note from the ESOP which MFC intends to accept in
exchange for the issuance of MFC Common Shares to the ESOP. The cash proceeds
received from the sale of Common Shares will be used by MFC to fund the RRP,
which intends to purchase up to 4% of all Common Shares sold in the Conversion,
and for general corporate purposes, which may include the payment of dividends,
repurchases of Common Shares and acquisitions of other financial institutions.
MFC presently has no specific plans to use the proceeds for any such purposes,
except the funding of the RRP. See "THE CONVERSION - Restrictions on Repurchase
of Common Shares."
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $4.8 million at the mid-point of the Valuation Range, will
be invested by MFC in the capital stock to be issued by the Association to MFC
as a result of the Conversion and will increase the regulatory capital of the
Association. Initially, for liquidity purposes, the Association will invest the
remainder of the funds in U.S. Treasury and government agency securities with
maturities of three years or less and short-term interest-bearing deposits. The
Association hopes that such proceeds will eventually be used to expand the
Association's lending and investment activities. The Association expects to
increase its loan origination staff and commence the origination of adjustable-
rate mortgage loans. No assurance can be provided, however, with respect to
when such hiring or originations will occur or the effect such efforts will have
on the Association's financial condition or earnings.
MARKET FOR COMMON SHARES
There is currently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares.
A public trading market for the stock of any issuer, including MFC, depends
upon the presence of both willing buyers and willing sellers at any given time.
MFC has applied to have the Common Shares included on Nasdaq Small Cap under the
symbol "____" upon completion of the Conversion, subject to certain conditions
which the Association and MFC believe will be satisfied, although no assurance
can be provided that the conditions will be met. One of the conditions to the
Nasdaq Small Cap listing is the commitment of at least two brokerage firms to
make a market in the Common Shares. KBW intends to make a market in the Common
Shares but has no obligation to do so. Webb does not intend to make a market in
the Common Shares.
The aggregate offering price for the Common Shares is based upon an
independent appraisal of the Association. The appraisal of the pro forma market
value of the Association, as converted, does not represent Keller's opinion as
to the price at which the Common Shares may trade, and such appraisal is not a
recommendation as to the advisability of purchasing Common Shares. No assurance
can be given that the Common Shares may later be resold at the price at which
they are purchased in connection with the Conversion. See "RISK FACTORS -
Absence of Market for Common Shares."
DIVIDEND POLICY
The declaration and payment of dividends by MFC will be subject to the
discretion of the Board of Directors of MFC, to the earnings and financial
condition of MFC and to general economic conditions. If the Board of Directors
of MFC determines in the exercise of its discretion that the net income, capital
and consolidated financial condition of MFC and the general economy justify the
declaration and payment of dividends by MFC, the Board of Directors of MFC may
authorize the payment of dividends on the Common Shares, subject to the
limitation under Ohio law that a corporation may pay dividends only out of
surplus. There can be no assurance that dividends will be paid on the Common
Shares or, if paid, that such dividends will continue to be paid in the future.
Other than earnings on the investment of the proceeds retained by MFC and
interest earned on the loan to the ESOP, the only source of income of MFC will
be dividends periodically declared and paid by the Board of Directors of the
-13-
<PAGE>
Association on the common shares of the Association held by MFC. The
declaration and payment of dividends by the Association to MFC will be subject
to the discretion of the Board of Directors of the Association, to the earnings
and financial condition of the Association, to general economic conditions and
to federal and state restrictions on the payment of dividends by thrift
institutions. Under regulations of the OTS applicable to converted
associations, the Association will not be permitted to pay a cash dividend on
its capital stock after the Conversion if its regulatory capital would, as a
result of the payment of such dividend, be reduced below the amount required for
the Liquidation Account or the applicable regulatory capital requirement
prescribed by the OTS. See "THE CONVERSION - Principal Effects of the
Conversion -- Liquidation Account" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital
Resources." The Association may not pay a dividend unless such dividend also
complies with an OTS regulation limiting capital distributions by savings and
loan associations. Capital distributions, for purposes of such regulation,
include, without limitation, payments of cash dividends, repurchases and certain
other acquisitions by an association of its shares and payments to stockholders
of another association in an acquisition of such other association. See
"REGULATION - Office of Thrift Supervision -- Limitations on Capital
Distributions."
-14-
<PAGE>
REGULATORY CAPITAL COMPLIANCE
The following table sets forth the historical and pro forma regulatory
capital of the Association at June 30, 1996, based on the receipt of 50% of the
net proceeds for the number of Common Shares indicated. Estimated expenses used
in determining the net proceeds are $417,000, $435,000, $453,000 and $473,000 at
the minimum, mid-point, maximum and maximum, as adjusted, respectively, of the
Valuation Range:
<TABLE>
<CAPTION>
Pro forma capital at June 30, 1996, assuming the sale of:
-------------------------------------------------------------------------------------------------------
858,500 1,010,000 1,161,500 1,335,725
Common Shares Common Shares Common Shares Common Shares
Historical at (offering price (offering price (offering price (offering price
June 30, 1996 of $10.00 per share) of $10.00 per share) of $10.00 per share) of $10.00 per share)
------------- -------------------- -------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted accounting
principles, before
adjustments (1) $7,533 16.3% $10,587 21.0% $11,154 21.8% $11,720 22.6% $12,372 23.5%
Current tangible
capital:
Capital level (2) $7,141 15.6% $10,195 20.4% $10,762 21.2% $11,328 22.0% $11,980 22.9%
Requirement 688 1.5 749 1.5 761 1.5 772 1.5 785 1.5
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess
$6,453 14.1% $ 9,446 18.9% $10,001 19.7% $10,556 20.5% $11,195 21.4%
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Current core
capital:
Capital level (2) 7,141 15.6% $10,195 20.4% $10,762 21.2% $11,328 22.0% $11,980 22.9%
Requirement 1,376 3.0 1,499 3.0 1,521 3.0 1,543 3.0 1,569 3.0
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess $5,765 12.6% $ 8,696 17.4% $ 9,241 18.2% $ 9,785 19.0% $10,411 19.9%
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Current risk-based
capital: (3)
Capital level (4)(2) $7,191 48.5% $10,245 65.9% $10,812 68.9% $11,378 71.9% $12,030 75.2%
Requirement 1,178 8.0 1,243 8.0 1,255 8.0 1,267 8.0 1,281 8.0
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess $6,013 40.5% $ 9,002 57.9% $ 9,557 60.9% $10,111 63.9% $10,749 67.2%
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
------ ---- ------- ---- ------- ---- ------- ---- ------- ----
</TABLE>
____________________________________
(1) The calculations in the table above do not take into account the interest
rate risk component added by the OTS to its risk-based capital
requirements. See "REGULATION - Office of Thrift Supervision -- Regulatory
Capital Requirements."
(2) Tangible and core capital are shown as a percent of adjusted total assets,
and risk-based capital levels are shown as a percent of risk-weighted
assets in accordance with OTS regulations. Tangible and core capital do
not include $392,000 of unrealized gains determined under SFAS No. 115.
Reflects a reduction for unearned ESOP and RRP shares equal to 8% and 4%,
respectively, of the Offering.
(3) Assumes that the net proceeds received by the Association will be invested
in assets having a risk-weighting of 20%.
(4) Risk-weighted capital includes $50,000 of qualifying general loan loss
allowances as determined under OTS regulations.
-15-
<PAGE>
CAPITALIZATION
Set forth below is the historical capitalization of the Association at June
30, 1996, and the pro forma consolidated capitalization of MFC as adjusted to
give effect to the sale of Common Shares based on the Valuation Range and
estimated expenses. See "USE OF PROCEEDS" and "THE CONVERSION - Pricing and
Number of Common Shares to be Sold."
Historical
capitalization
of the Association at
June 30,
1996
---------------------
(In thousands)
Deposits(1) $38,190
-------
-------
Borrowings $ -
-------
-------
Capital and retained earnings:
Preferred Shares, no par value per share:
authorized - 1,000,000 shares, assumed
utstanding - none $ -
Common Shares, no par value per share:
authorized - 4,000,000 shares; assumed
outstanding - as shown (2) -
Additional paid-in capital -
Less Common Shares acquired by the
ESOP (3) -
Less Common Shares acquired by the RRP
(4) -
Retained earnings, substantially restricted
(5) 7,533
-------
Total capital and retained earnings $ 7,533
-------
-------
<TABLE>
<CAPTION>
Pro forma capitalization of MFC
at June 30, 1996, assuming the sale of:
-------------------------------------------------------------------------------
858,500 1,010,000 1,161,500 1,335,725
Common Common Common Common
Shares Shares Shares Shares
(Offering (Offering (Offering (Offering
price of price of price of price of
10.00 per share) $10.00 per share) $10.00 per share) $10.00 per share)
--------------- ---------------- ---------------- -----------------
(In thousands)
<S> <C> <C> <C> <C>
Deposits(1) $38,190 $38,190 $38,190 $38,190
------- ------- ------- -------
------- ------- ------- -------
Borrowings $ - $ - $ - $ -
------- ------- ------- -------
------- ------- ------- -------
Capital and retained earnings:
Preferred Shares, no par value per share:
authorized - 1,000,000 shares, assumed
outstanding - none $ - $ - $ - $ -
Common Shares, no par value per share:
authorized - 4,000,000 shares; assumed
outstanding - as shown (2) - - - -
Additional paid-in capital 8,168 9,665 11,162 12,884
Less Common Shares acquired by the
ESOP (3) (687) (808) (929) (1,069)
Less Common Shares acquired by the RRP
(4) (343) (404) (465) (534)
Retained earnings, substantially restricted
(5) 7,533 7,533 7,533 7,533
------- ------- ------- -------
Total capital and retained earnings $14,671 $15,986 $17,301 $18,814
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
____________________________________
(1) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Shares in the Conversion. Any such
withdrawals will reduce pro forma deposits by the amount of such
withdrawals.
(2) The number of Common Shares to be issued will be determined on the basis of
the final valuation of the Association. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold." Common Shares assumed outstanding
does not reflect the issuance of any common shares which may be reserved
for issuance under the Stock Option Plan. See "MANAGEMENT - Stock Benefit
Plans -- Stock Option Plan." Reflects receipt of the proceeds from the
sale of the Common Shares, net of estimated expenses. Estimated expenses
include estimated sales commissions payable to Webb. Such sales
commissions have been computed based on the following assumptions: (i)
approximately 19% of the Common Shares sold in the Offering will be
purchased by directors, officers and employees of the Association and the
members of their immediate families; (ii) 8% of the Common Shares sold in
the Offering will be purchased by the ESOP; and (iii) 73% of the Common
Shares sold in the Offering will be purchased in the Subscription Offering
with sales commissions of 1.5% of the aggregate dollar amount of such
Common Shares.
(3) Assumes that 8% of the Common Shares sold in connection with the Conversion
will be acquired by the ESOP with funds borrowed by the ESOP from MFC for a
term of 8 years at a rate of 8%. The ESOP loan will be secured solely by
the Common Shares purchased by the ESOP. The Association has agreed,
however, to use its best efforts to fund the ESOP based on future earnings,
which best efforts funding will reduce the Association's total capital and
retained earnings, as reflected in the table. If the ESOP is unable to
purchase all or part of the Common Shares for which it subscribes, the ESOP
may purchase common shares on the open market or may purchase authorized
but unissued shares of MFC. If the ESOP purchases authorized but unissued
shares from MFC, such purchases would have a dilutive effect of
approximately 7.41% on the voting interests of MFC's shareholders. See
"MANAGEMENT - Stock Benefit Plans -- Employee Stock Ownership Plan" and
"RISK FACTORS - Possible Dilutive Effect of RRP and Stock Option Plan on
Net Income and Shareholders' Equity."
(4) Assumes that 4% of the Common Shares will be acquired in the open market by
the RRP after the Conversion at a price of $10 per share. There can be no
assurance that the RRP will be implemented, that a sufficient number of
shares will be available for purchase by the RRP, that shares could be
purchased at a price of $10 per share or that the shareholders will approve
the RRP if it is implemented during the first year after the Conversion. A
higher price per share, assuming the purchase of the entire 4% of the
shares, would reduce pro forma shareholders' equity. The RRP may purchase
shares in the open market or may purchase authorized but unissued shares
from MFC. If authorized but unissued shares are purchased, the voting
interests of existing shareholders would be diluted approximately
3.8%. See "MANAGEMENT - Stock Benefit Plans -- Recognition and Retention
Plan and Trust."
(5) Retained earnings include restricted and unrestricted retained earnings and
unrealized gain on securities designated as available for sale. See "THE
CONVERSION - Principal Effects of the Conversion -- Liquidation Account"
for information concerning the liquidation account to be established in
connection with the Conversion and "TAXATION - Federal Taxation" for
information concerning restricted retained earnings for federal tax
purposes.
PRO FORMA DATA
Set forth below are the pro forma consolidated net income of MFC for the
nine months ended June 30, 1996, and the year ended September 30, 1995, and the
pro forma consolidated shareholders' equity of MFC as of and for the respective
dates and periods ending on such dates, along with the related pro forma
earnings per share amounts, giving effect to the sale of the Common Shares. The
computations are based on the assumed issuance of 858,500 Common Shares (minimum
of the Valuation Range), 1,010,000 Common Shares (mid-point of the Valuation
Range), 1,161,500 Common Shares (maximum of the Valuation Range) and 1,335,725
Common Shares (15% above the maximum of the Valuation Range). See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold." The pro forma
data is based on the
-16-
<PAGE>
following assumptions: (i) the sale of the Common Shares occurred at the
beginning of the period and yielded the net proceeds indicated; (ii) such net
proceeds were invested at the beginning of the period to yield annualized after-
tax net returns of 3.82% for the nine months ended June 30, 1996, and the year
ended September 30, 1995; and (iii) no withdrawals from existing deposit
accounts were made to purchase the Common Shares. The assumed returns are based
on the one-year U.S. Treasury bill yield of 5.79% in effect at June 30, 1996.
This rate was used as an alternative to the arithmetic average of the
Association's interest-earning assets and interest-bearing deposits. In
calculating pro forma net earnings, a statutory federal income tax rate of 34%
has been assumed for the period. In the opinion of management, the assumed
after-tax yield does not differ materially from the estimated after-tax yield
which will be obtained on the initial investment of the cash proceeds in short-
term, interest-bearing deposits and is viewed as being more relevant in the
current low interest rate environment than the use of an arithmetic average of
the fiscal year 1995 weighed average yield on interest-earning assets and
weighed average rates paid on deposits during such period. Actual yields may
differ, however, from the assumed returns. The pro forma consolidated net
income amounts derived from the assumptions set forth herein should not be
considered indicative of the actual results of operations of MFC that would have
been attained for any period if the Conversion had been actually consummated at
the beginning of such period.
As the table demonstrates, pro forma consolidated earnings per share and
pro forma consolidated shareholders' equity per share decrease as the amount of
Common Shares sold moves from the minimum of the Valuation Range to the adjusted
maximum of the Valuation Range. In addition, the offering price as a multiple
of pro forma earnings per share and as a percent of pro forma shareholders'
equity per share increases as the amount of Common Shares sold moves from the
minimum of the Valuation Range to the adjusted maximum of the Valuation Range.
THE PRO FORMA DATA AND ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. NO
ASSURANCE CAN BE PROVIDED THAT THE YIELDS WILL BE ACHIEVED ON THE INVESTMENT OF
THE CONVERSION PROCEEDS. THE PRO FORMA DATA DOES NOT PURPORT TO REPRESENT WHAT
MFC'S FINANCIAL POSITION OR RESULTS OF OPERATIONS ACTUALLY WOULD HAVE BEEN HAD
THE AFOREMENTIONED TRANSACTIONS BEEN COMPLETED AS OF THE DATE OR AT THE
BEGINNING OF THE PERIODS INDICATED, OR TO PROJECT MFC'S FINANCIAL POSITION OR
RESULTS OF OPERATIONS AT ANY FUTURE DATE OR FOR ANY FUTURE PERIOD.
-17-
<PAGE>
<TABLE>
<CAPTION>
At and for the nine months ending June 30, 1996, assuming the sale of:
------------------------------------------------------------------------------
858,500 1,010,000 1,161,500 1,335,725
Common Shares Common Shares Common Shares Common Shares
(Offering price of (Offering price of (Offering price of (Offering price of
$10.00 per share) $10.00 per share) $10.00 per share) $10.00 per share)
----------------- ----------------- ----------------- -----------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 8,585 $10,100 $11,615 $13,357
Estimated expenses 417 435 453 473
------- ------- ------- -------
Estimated net proceeds 8,168 9,665 11,162 12,884
Less Common Shares acquired by the RRP (1) (343) (404) (465) (534)
Less Common Shares acquired by the ESOP (2) (687) (808) (929) (1,069)
------- ------- ------- -------
Net cash proceeds $ 7,138 $ 8,453 $ 9,768 $11,281
------- ------- ------- -------
------- ------- ------- -------
Net earnings:
Historical $ 302 $ 302 $ 302 $ 302
Pro forma income on net proceeds (3) 205 242 280 323
Pro forma adjustment for the RRP (1) (34) (40) (46) (53)
Pro forma adjustment for the ESOP (2) (43) (50) (57) (66)
------- ------- ------- -------
Pro forma net earnings $ 430 $ 454 $ 479 $ 506
------- ------- ------- -------
------- ------- ------- -------
Earnings per share:
Historical $ .35 $ .30 $ .26 $ .23
Pro forma income on net proceeds .24 .24 .24 .24
Pro forma adjustment for the RRP (1) (.04) (.04) (.04) (.04)
Pro forma adjustment for the ESOP (2) (.05) (.05) (.05) (.05)
------- ------- ------- -------
Pro forma earnings per share (3)(4) $ .50 $ .45 $ .41 $ .38
------- ------- ------- -------
------- ------- ------- -------
Offering price as a multiple of pro forma
earnings per share 20.00x 22.22x 24.39x 26.32x
------- ------- ------- -------
------- ------- ------- -------
Shareholders' equity: (5)
Historical $7,533 $ 7,533 $ 7,533 $ 7,533
Estimated net proceeds from the sale of
Common Shares 8,168 9,665 11,162 12,884
Less unearned RRP shares (1) (343) (404) (465) (534)
Less unearned ESOP shares (2) (687) (808) (929) (1,069)
------- ------- ------- -------
Pro forma shareholders' equity $14,671 $15,986 $17,301 $18,814
------- ------- ------- -------
------- ------- ------- -------
Per share shareholders' equity:
Historical $ 8.77 $ 7.46 $6.49 $5.64
Estimated net proceeds 9.51 9.57 9.61 9.65
Less unearned RRP shares (1) (.40) (.40) (.40) (.40)
Less unearned ESOP shares (2) (.80) (.80) (.80) (.80)
------- ------- ------- -------
Pro forma shareholders' equity per share (3)
$ 17.08 $ 15.83 $ 14.90 $ 14.09
------- ------- ------- -------
------- ------- ------- -------
Ratio of offering price to pro forma shareholders'
equity per share 58.55% 63.17% 67.11% 70.97%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
_________________________
(Footnotes on page 20)
-18-
<PAGE>
<TABLE>
<CAPTION>
At and for the year ended September 30, 1995, assuming the sale of:
------------------------------------------------------------------------------
858,500 1,010,000 1,161,500 1,335,725
Common Shares Common Shares Common Shares Common Shares
(Offering price of (Offering price of (Offering price of (Offering price of
$10.00 per share) $10.00 per share) $10.00 per share) $10.00 per share)
------------------ ------------------ ------------------ ------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 8,585 $10,100 $11,615 $13,357
Estimated expenses 417 435 453 473
------- ------- ------- -------
Estimated net proceeds 8,168 9,665 11,162 12,884
Less Common Shares acquired by the RRP (1) (343) (404) (465) (534)
Less Common Shares acquired by the ESOP (2) (687) (808) (929) (1,069)
------- ------- ------- -------
Net cash proceeds $ 7,138 $ 8,453 $ 9,768 $11,281
------- ------- ------- -------
------- ------- ------- -------
Net earnings:
Historical $ 467 $ 467 $ 467 $ 467
Pro forma income on net proceeds 273 323 373 431
Pro forma adjustment for the RRP (1) (45) (53) (61) (70)
Pro forma adjustment for the ESOP (2) (57) (67) (77) (88)
------- ------- ------- -------
Pro forma net earnings $ 638 $ 670 $ 702 $ 740
------- ------- ------- -------
------- ------- ------- -------
Earnings per share:
Historical $ .54 $ .46 $ .40 $ .35
Pro forma income on net proceeds .32 .32 .32 .32
Pro forma adjustment for the RRP (1) (.05) (.05) (.05) (.05)
Pro forma adjustment for the ESOP (2) (.07) (.07) (.07) (.07)
------- ------- ------- -------
Pro forma earnings per share (3)(6) $ .74 $ .66 $ .60 $ .55
------- ------- ------- -------
------- ------- ------- -------
Offering price as a multiple of pro forma
earnings per share 13.51x 15.15x 16.67x 18.18x
Shareholders' equity: (5)
Historical $ 7,153 $ 7,153 $ 7,153 $ 7,153
Estimated net proceeds from the sale of
Common Shares 8,168 9,665 11,162 12,884
Less unearned RRP shares (1) (343) (404) (465) (534)
Less unearned ESOP shares (2) (687) (808) (929) (1,069)
------- ------- ------- -------
Pro forma shareholders' equity
$14,291 $15,606 $16,921 $18,434
------- ------- ------- -------
------- ------- ------- -------
Per share shareholders' equity:
Historical $ 8.33 $7.08 $ 6.16 $ 5.36
Estimated net proceeds 9.51 9.57 9.61 9.65
Less unearned RRP shares (1) (.40) (.40) (.40) (.40)
Less unearned ESOP shares (2) (.80) (.80) (.80) (.80)
------- -------- ------- -------
Pro forma shareholders' equity per share (3) $ 16.64 $ 15.45 $ 14.57 $ 13.81
------- -------- ------- -------
------- -------- ------- -------
Ratio of offering price to pro forma shareholders'
equity per share 60.10% 64.72% 68.63% 72.41%
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
____________________________________
(Footnotes on next page)
-19-
<PAGE>
(1) Assumes that 4% of the Common Shares sold in connection with the Conversion
will be purchased by the RRP after the Conversion at a price of $10 per
share and that one-fifth of the purchase price of the RRP shares will be
expensed in each of the first five years after the Conversion. If the RRP
is implemented in the first year after the completion of the Conversion, it
will be subject to various OTS requirements, including the requirement that
the RRP be approved by the shareholders of MFC. There can be no assurance
that the RRP will be approved by the shareholders, that a sufficient number
of shares will be available for purchase by the RRP or that the shares
could be purchased at $10 per share. A higher per share price, assuming
the purchase of the entire 4% of the shares, would reduce pro forma net
earnings and pro forma shareholders' equity. If an insufficient number of
shares is available in the open market to fund the RRP at the desired
level, MFC may issue additional authorized shares. The issuance of
authorized but unissued shares in an amount equal to 4% of the Common
Shares issued in the Conversion would result in a 3.8% dilution in existing
shareholders' voting interests. See "MANAGEMENT - Stock Benefit Plans --
Recognition and Retention Plan and Trust."
(2) Assumes that 8% of the Common Shares sold in connection with the Conversion
will be purchased by the ESOP and that the funds used to acquire such
shares will be borrowed by the ESOP from MFC with repayment thereof secured
solely by the Common Shares purchased by the ESOP. The Association has
agreed, however, to use its best efforts to fund the ESOP based on future
earnings, which best efforts funding will reduce the income on the equity
raised in connection with the Conversion, as reflected in the table.
Assumes the level amortization of the ESOP loan over an eight-year period
with assumed tax benefits of 34%. See "MANAGEMENT - Stock Benefit Plans --
Employee Stock Ownership Plan." The Board of Directors may elect to issue
the ESOP shares from authorized but unissued shares. The issuance of
authorized but unissued shares to the ESOP would have the effect of
diluting the voting interest of existing shareholders by 7.41%.
(3) No effect has been given to shares reserved for issuance upon the exercise
of options pursuant to the Stock Option Plan. See "MANAGEMENT - Stock
Benefit Plans -- Stock Option Plan."
(4) Assumes that the ESOP holds 68,680 shares, 80,800 shares, 92,920 shares and
106,858 shares for purposes of computing earnings per share. Pursuant to
SOP 93-6, only ESOP shares which will be allocated over the period are
included in the earnings per share calculation. Application of SOP 93-6 to
the nine months ended June 30, 1996, would result in an earnings per share
presentation of $.54, $.48, $.44 and $.41, reflecting weighted average
shares outstanding of 796,259 shares, 936,775 shares, 1,077,291 shares and
1,238,885 shares at the minimum, mid-point, maximum and adjusted maximum of
the Valuation Range. SOP 93-6 also requires ESOP expense to be measured
based on the fair value of the shares to be allocated. The table reflects
the ESOP cost at the $10 offering price of the Common Shares in the
Conversion, which may be more or less than the fair value at which the
shares are ultimately allocated.
(5) The effect of the Liquidation Account is not included in these
computations. For additional information concerning the Liquidation
Account, see "THE CONVERSION - Principal Effects of the Conversion --
Liquidation Account." The amounts shown do not reflect the federal income
tax consequences of the potential restoration of the bad debt reserves to
income for tax purposes, which would be required in the event of
liquidation. See "TAXATION - Federal Taxation."
(6) Assumes that ESOP shares of 68,680 shares, 80,800 shares, 92,920 shares and
106,858 shares are outstanding for purposes of computing earnings per
share. Pursuant to SOP 93-6, only ESOP shares which will be allocated over
the period are included in the earnings per share calculation. Application
of SOP 93-6 to the year ended September 30, 1995, would result in an
earnings per share presentation of $.80, $.71, $.65 and $.60 reflecting
weighted average shares outstanding of 798,405 shares, 939,300 shares
1,080,195 shares and 1,242,224 shares at the minimum, mid-point, maximum
and adjusted maximum of the Valuation Range, respectively. SOP 93-6 also
requires ESOP expense to be measured based on the fair value of the shares
to be allocated. The table reflects the ESOP cost at the $10 offering
price of the Common Shares in the Conversion, which may be more or less
than the fair value at which the shares are ultimately allocated.
-20-
<PAGE>
SUMMARY STATEMENTS OF EARNINGS
The following summary sets forth information concerning the Association for
the periods indicated. Such information should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Nine months
ended June 30, (1) Year ended September 30, (2)
-------------------- ------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $1,414 $1,483 $1,960 $1,799 $1,853
Mortgage-backed securities 133 160 196 250 403
Investment securities 436 210 309 201 181
Interest-bearing deposits and other 486 523 717 658 658
------ ------ ------ ------ ------
Total interest income 2,469 2,376 3,182 2,908 3,095
Interest expense:
Deposits 1,336 1,170 1,622 1,478 1,706
------ ------ ------ ------ ------
Net interest income before provision for
losses on loans 1,133 1,206 1,560 1,430 1,389
Provision for losses on loans 13 - - - 10
------ ------ ------ ------ ------
Net interest income after provision for
losses on loans 1,120 1,206 1,560 1,430 1,379
Other income 6 6 8 12 10
General, administrative and other
expense 664 643 861 836 697
------ ------ ------ ------ ------
Earnings before income taxes 462 569 707 606 692
Federal income taxes 160 192 240 194 223
------ ------ ------ ------ ------
Net earnings $ 302 $ 377 $ 467 $ 412 $ 469
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
_____________________________
(1) The summary statements of earnings data for the nine months ended June 30,
1996 and 1995, were derived from unaudited financial statements. However,
in the opinion of management, all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair presentation of
financial condition and results of operations have been included. The
results of operations for the nine months ended June 30, 1996, are not
necessarily indicative of the results that may be obtained for the fiscal
year.
(2) The summary statements of earnings data for the fiscal years ended
September 30, 1995, 1994 and 1993, were derived from the audited financial
statements included herein.
-21-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Association is primarily engaged in the business of attracting savings
deposits from the general public and investing such funds in mortgage loans
secured by one- to four-family residential real estate located primarily in
Hamilton County, Ohio. Loans secured by multifamily real estate (over four
units) and nonresidential real estate loans and passbook loans are also
originated by the Association. In recent years, the Association has made
significant investments in certificates of deposit in other financial
institutions and U.S. Government agency obligations as an alternative to
originating loans.
The Association's profitability is primarily dependent upon its net
interest income, which is the difference between interest income on the
Association's loan, investment and mortgage-backed securities ("MBSs")
portfolios and interest paid on deposits and borrowed funds. Net interest
income is directly affected by the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rates earned or paid on such
amounts. The Association's profitability is also affected by its provision for
losses on loans and the level of other income or losses and general,
administrative and other expense. Other income consists primarily of service
charges. General, administrative and other expense includes salaries and
employee benefits, occupancy of premises, federal deposit insurance premiums,
state franchise taxes and other operating expenses.
The operating results of the Association are also affected by general
economic conditions, the monetary and fiscal policies of federal agencies and
the regulatory policies of agencies that regulate financial institutions. The
Association's cost of funds is influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
influenced by the demand for real estate loans and other types of loans, which
is in turn affected by the interest rates at which such loans are made, general
economic conditions and the availability of funds for lending activities.
CHANGES IN FINANCIAL CONDITION
The Association's assets at June 30, 1996, totaled $46.3 million, an
increase of $526,000, or 1.2%, from September 30, 1995. The increase was funded
primarily through growth in savings deposits of $134,000 and an increase in
retained earnings of $380,000.
Liquid assets (cash and cash equivalents, certificates of deposit and
investment securities) totaled $21.1 million at June 30, 1996, an increase of
$1.4 million over the total at September 30, 1995. This increase resulted
primarily from the growth in deposits coupled with proceeds from repayments on
loans and MBSs during the period.
Loans receivable totaled $22.4 million at June 30, 1996, a decrease of
$634,000, or 2.8%, from September 30, 1995. This decrease resulted primarily
from principal repayments of $2.7 million, which exceeded loan disbursements of
$2.1 million. The Association's allowance for losses on loans totaled $52,000
at June 30, 1996, an increase of $13,000 over the balance at September 30, 1995.
The allowance represented .23% and .17% of total loans at June 30, 1996, and
September 30, 1995, respectively. Nonperforming loans totaled $15,000 at June
30, 1996. The Association had no nonperforming loans at September 30, 1995.
Deposits totaled $38.2 million at June 30, 1996, an increase of $134,000,
or .4%, over the total at September 30, 1995. The increase resulted primarily
from management's implementation of a strategy to moderately grow the deposit
portfolio through pricing strategies. At June 30, 1996, certificates of deposit
which will mature within one year accounted for 37.9% of the Association's
assets.
The Association's assets totaled $45.7 million at September 30, 1995, an
increase of $394,000, or .9%, from the September 30, 1994 total. The increase
in assets resulted primarily from an increase in retained earnings of $781,000,
which was partially offset by a reduction in deposits of $618,000.
Liquid assets (cash and cash equivalents, certificates of deposit and
investment securities) totaled $19.6 million at September 30, 1995, which
represented an increase of $1.2 million, or 6.5%, from fiscal 1994 levels.
During fiscal 1995, the increase resulted primarily from the growth in retained
earnings, coupled with proceeds from repayments on loans and mortgage-backed
securities during the period, which was partially offset by management's
decision to fund net deposit outflows with excess liquidity. MBSs declined by
$230,000, or 9.4%, to a total of $2.2 million in 1995, as a result of principal
repayments during the year. At September 30, 1995, the Association's regulatory
liquidity, which includes the
-22-
<PAGE>
aforementioned liquid assets and certain qualifying MBSs, totaled $18.1 million
and its liquidity ratio was 49.2%, compared to $12.9 million and 34.9%,
respectfully, at September 30, 1994.
Loans receivable totaled $23.0 million at September 30, 1995, a decrease of
$640,000, or 2.7%, over the fiscal 1994 total. The decrease resulted primarily
from principal repayments of $3.0 million in excess of loan disbursements of
$2.4 million. The Association's allowance for losses on loans was $39,000 at
September 30, 1995 and 1994. The allowance represented .17% and .16% of total
loans as of September 30, 1995 and 1994, respectively. The Association had no
nonperforming loans as of September 30, 1995 or 1994.
Deposits totaled $38.1 million at September 30, 1995, a decrease of
$618,000, or 1.6%, from the total in fiscal 1994. Certificates of deposit
increased by $2.6 million during 1995, while transaction and demand accounts
declined by approximately $3.2 million.
COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 1996
AND 1995
GENERAL. The Association's net earnings for the nine months ended June 30,
1996 were $302,000 a decline of $75,000, or 19.9%, from the $377,000 in net
earnings recorded for the nine-month period ended June 30, 1995. The decline in
earnings resulted primarily from a $73,000 decrease in net interest income, a
$13,000 increase in the provision for losses on loans and a $21,000 increase in
general, administrative and other expense, which were partially offset by a
$32,000 decrease in the provision for income taxes.
NET INTEREST INCOME. Total interest income was $2.5 million for the nine-
month period ended June 30, 1996, a $93,000, or 3.9%, increase over the
comparable 1995 period. The increase in total interest income was attributable
to an increase of $189,000, or 25.8%, in interest income on investment
securities and interest-bearing deposits, due primarily to an increase of $2.8
million in the weighted-average balances outstanding totaling approximately
$20.1 million, coupled with a 47 basis point increase in the weighted-average
yield. Interest income on loans totaled $1.4 million in 1996, a decrease of
$69,000, or 4.7%, over 1995. The decrease resulted primarily from the decline
of $473,000 in weighted-average balances outstanding, coupled with a 22 basis
point decrease in the weighted-average yield, from 8.48% in 1995, to 8.26% in
1996. Interest income on MBSs decreased by $27,000, or 16.9%, during the 1996
nine-month period, as compared to 1995, as a result of a decline of $321,000 in
the weighted-average balance outstanding, coupled with a decline of 30 basis
points in the weighted-average yield, from 9.36% in 1995 to 9.06% in 1996.
Interest expense on deposits totaled $1.3 million for the nine-month period
ended June 30, 1996, an increase of $166,000, or 14.2%, over the comparable 1995
period. This increase was due primarily to a $575,000 increase in the weighted-
average balances outstanding, coupled with a 52 basis point increase in the
weighted-average cost of deposits, from 4.15% in the 1995 period to 4.67% in the
1996 period.
As a result of the foregoing changes in interest income and interest
expense, net interest income declined by $73,000, or 6.1%, for the nine-month
period ended June 30, 1996, compared to the comparable period in 1995. The
interest rate spread declined by 57 basis points, from 3.23% in 1995 to 2.66% in
1996, while the net interest margin declined by 38 basis points, from 3.75% in
1995 to 3.37% in 1996.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans increased
by $13,000 for the nine months ended June 30, 1996, compared to the same period
in 1995. During the 1996 period, management increased the allowance for loan
losses due to an increase in internally classified assets. While nonperforming
loans increased to $15,000 during the 1996 period, this level remains well below
the Association's peer group and industry averages as a percentage of loans
outstanding.
OTHER INCOME. Other income, primarily from service fees on money orders
and travelers' checks, totaled $6,000 for the nine months ended June 30, 1996,
which was comparable to the 1995 period.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. General, administrative and
other expense totaled $664,000 for the nine months ended June 30, 1996, an
increase of $21,000, or 3.3%, over the 1995 period. The increase resulted
primarily from a $56,000, or 20.6%, increase in employee compensation and
benefits, which was partially offset by an $18,000, or 12.9%, decrease in other
operating expense, a $5,000, or 5.6%, decrease in occupancy and equipment, a
$4,000, or 5.4%, decrease in franchise taxes and an $8,000, or 11.8%, decrease
in federal deposit insurance premiums. The increase in employee compensation
and benefits was due primarily to increased staffing levels, including Mr.
Larimer's appointment as Managing Officer of the Association, and normal merit
increases. In June 1996, the Association also hired a new chief financial
officer and a new vice president of lending. As a result of such staffing
increases and others
-23-
<PAGE>
anticipated in the current fiscal year, management of the Association believes
that compensation expense may increase by approximately $125,000 in fiscal year
1996.
FEDERAL INCOME TAXES. The provision for income taxes was $160,000 for the
nine-month period ended June 30, 1996, a decrease of $32,000, or 16.7%, from the
provision recorded in the 1995 period. The decrease resulted primarily from a
$107,000 decline in earnings before taxes. The effective tax rates were 34.6%
and 33.7% for the nine-month periods ended June 30, 1996 and 1995, respectively.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
GENERAL. Net earnings for the year ended September 30, 1995, amounted to
$467,000, an increase of $55,000, or 13.3%, from the $412,000 in net earnings
recorded in 1994. The increase in net earnings resulted primarily from a
$130,000 increase in net interest income, which was partially offset by a
decrease of $4,000 in other income, an increase of $25,000 in general,
administrative and other expense, and an increase of $46,000 in the provision
for income taxes.
NET INTEREST INCOME. Total interest income was $3.2 million for the year
ended September 30, 1995, an increase of $274,000, or 9.4%, over 1994. Interest
income on loans totaled $2.0 million, an increase of $161,000, or 8.9%, over the
1994 total. This increase resulted primarily from growth of $2.8 million in the
weighted-average balance outstanding, which was partially offset by a decrease
in the weighted-average yield of 38 basis points, to 8.44% in 1995. Interest
income on MBSs declined by $54,000, or 21.6%, from the 1994 amount, due to a
$581,000 decline in the weighted-average balance outstanding, coupled with a 13
basis point decrease in yield, to 8.65% in 1995. Interest income on investment
securities and interest-bearing deposits increased by $167,000, or 19.4%, over
1994, due to an increase in yield of 202 basis points.
Interest expense on deposits increased for the year ended September 30,
1995, by $144,000, or 9.7%, to a total of $1.6 million, compared to $1.5 million
in 1994. The increase resulted primarily from a 60 basis point increase in the
weighted-average cost of deposits, from 3.71% in 1994 to 4.31% in 1995. The
increase in cost of deposits was partially offset by a $2.2 million decline in
the weighted-average balance outstanding year to year. The increases in rates
paid on the Association's deposit portfolio generally reflect the increase in
interest rates in the overall economy during 1995.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased during 1995 by $130,000, or 9.1%, to a
total of $1.6 million. The interest rate spread decreased by 5 basis points
during 1995, from 2.98% in 1994 to 2.93% in 1995, while the net interest margin
increased by 26 basis points, from 3.29% in 1994 to 3.55% in 1995.
PROVISION FOR LOSSES ON LOANS. There was no provision for losses on loans
for the years ended September 30, 1995 and 1994, as management considered the
level to be adequate to absorb possible losses.
OTHER INCOME. Other income amounted to $8,000 during the year ended
September 30, 1995, a decrease of $4,000, or 33.3%, from 1994, due primarily to
a decline in service fees and other charges on loans and deposits.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. Other expense totaled
approximately $861,000 for the year ended September 30, 1995, an increase of
$25,000, or 3.0%, over the amount recorded for 1994. The increase resulted
primarily from a $24,000, or 6.8%, increase in employee compensation and
benefits, a $51,000, or 71.8%, increase in occupancy and equipment and an
$8,000, or 8.6%, increase in franchise taxes, which were partially offset by a
$23,000 decrease in the loss on sale of real estate acquired through foreclosure
and a $33,000 decrease in other operating expense. The increase in employee
compensation and benefits resulted primarily from an increase in staffing levels
and normal merit salary increases, coupled with a reduction in deferred loan
origination costs, as loan origination volume declined by $8.3 million from
fiscal year 1994 to fiscal year 1995. The increase in occupancy and equipment
expense resulted generally from increases in the cost of equipment maintenance
contracts and repairs and maintenance expenses, while the increase in franchise
taxes was due to pro-rata increases in retained earnings. The decrease in other
operating expenses was due to the absence in fiscal 1995 of merger-related
expenses associated with the merger of Cleves-North Bend with and into the
Association, which was effective on December 31, 1994.
FEDERAL INCOME TAXES. The provision for income taxes totaled $240,000 for
the year ended September 30, 1995, an increase of $46,000, or 23.7%, from the
1994 amount. The increase resulted primarily from a $101,000, or 16.7%,
increase in earnings before taxes. The effective tax rates were 33.9% and 32.0%
for the years ended September 30, 1995 and 1994, respectively.
-24-
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1993
GENERAL. Net earnings for the year ended September 30, 1994, totaled
$412,000, a decrease of $57,000, or 12.2%, from the $469,000 in net earnings
recorded in 1993. The decline in earnings resulted primarily from a $139,000
increase in general, administrative and other expense, which was partially
offset by a $41,000 increase in net interest income, a $10,000 decrease in the
provision for losses on loans and a $29,000 decrease in the provision for income
taxes.
NET INTEREST INCOME. Total interest income amounted to $2.9 million for
the year ended September 30, 1994, a decrease of $187,000, or 6.0%, from 1993.
Interest income on loans totaled $1.8 million, a decline of $54,000, or 2.9%,
from the 1993 total. The decrease resulted from a decline in the average yield
of 127 basis points, to 8.82% in 1994 from 10.09% in 1993, which was partially
offset by an increase in the average outstanding balance of $2.0 million.
Interest income on MBSs decreased by $153,000, or 38.0%, due primarily to a
decline in the average balance outstanding of approximately $2.1 million, which
was partially offset by an increase in the weighted average yield of 61 basis
points to 8.78% at September 30, 1994. Interest income on investment securities
and interest-bearing deposits increased by $20,000, or 2.4%, due to an increase
in the weighted average yield on interest-bearing deposits from 3.44% to 4.18%,
despite a decrease in the weighted average yield on investment securities and a
$2.3 million decrease in the average balance of investment securities and
interest-bearing deposits outstanding year-to-year.
Interest expense on deposits declined by $228,000, or 13.4%, during the
year ended September 30, 1994, to a total of $1.5 million, compared to $1.7
million for 1993. The decrease resulted primarily from a 47 basis point decline
in the weighted-average cost of deposits, from 4.18% in 1993 to 3.71% in 1994,
coupled with a decrease in the average balance outstanding of $886,000.
As a result of the foregoing changes in interest income and interest
expense, net interest income increased by $41,000, or 3.0%, to a total of $1.4
million for the year ended September 30, 1994. The interest rate spread
increased by 40 basis points, to 2.98% in 1994, from 2.58% in 1993. The net
interest margin increased by 26 basis points during the period, from 3.03% in
1993 to 3.29% in 1994.
OTHER INCOME. Other income totaled $12,000 for the year ended September
30, 1994, an increase of $2,000, or 20.0%, over the amount recorded for 1993.
The increase resulted primarily from an increase in service fees on money orders
and travelers' checks.
PROVISION FOR LOSSES ON LOANS. The provision for losses on loans totaled
$10,000 for the year ended September 30, 1993, and there was no provision in the
year ended September 30, 1994.
GENERAL, ADMINISTRATIVE AND OTHER EXPENSE. Other expense totaled $836,000
for the year ended September 30, 1994, an increase of $139,000, or 19.9%, over
the 1993 total. The increase resulted primarily from a $31,000, or 9.7%,
increase in employee compensation and benefits and a $47,000, or 100.0%,
increase in federal deposit insurance premiums. The increase in employee
compensation and benefits was due primarily to normal merit increases and a
reduction of deferred loan origination fees. The increase in federal deposit
insurance premiums resulted primarily from the recognition of a credit of
$43,000 related to the Federal Savings and Loan Insurance Corporation Secondary
Reserve deposit in 1993.
FEDERAL INCOME TAXES. The provision for income taxes totaled $194,000 for
the year ended September 30, 1994, a decrease of $29,000, or 13.0%, from the
amount recorded in 1993. The decline resulted primarily from an $86,000, or
12.4%, decline in earnings before taxes. The effective tax rates were 32.0% and
32.2% for the years ended September 30, 1994 and 1993, respectively.
-25-
<PAGE>
The following table sets forth certain average balance sheet information,
including the average yield on interest-earning assets and the average cost of
interest-bearing liabilities, for the years indicated. Such yields and costs
are derived by dividing income or expense by the average monthly balance of
interest-earning assets or interest-bearing liabilities, respectively, for the
years presented. Average balances are derived from monthly balances, which
include nonaccruing loans in the loan portfolio. Management does not believe
that the use of month-end balances instead of daily balances has caused any
material difference in the information presented.
<TABLE>
<CAPTION>
Nine months ended June 30,
----------------------------------------------------------------------
1996 1995
-------------------------------- -----------------------------------
Average Interest Average Average Interest Average
outstanding earned/ yield/ outstanding earned/ yield/
balance paid rate balance paid rate
----------- -------- ------- ----------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $22,831 $1,414 8.26% $23,304 $1,483 8.48%
Mortgage-backed securities 1,958 133 9.06 2,279 160 9.36
Investment securities 8,984 436 6.47 6,899 210 4.06
Other interest-earning assets 11,114 486 5.83 10,422 523 6.69
------- ------ ---- ------- ------ ----
Total interest-earning assets 44,887 2,469 7.33 42,904 2,376 7.38
Non-interest-earning assets 1,417 2,036
------- -------
Total assets $46,304 $44,940
------- -------
------- -------
Interest-bearing liabilities:
Deposits $38,125 1,336 4.67 $37,550 1,170 4.15
------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities 38,125 1,336 4.67 37,550 1,170 4.15
------ ---- ------ ----
Non-interest-bearing liabilities 832 572
------- -------
Total liabilities 38,957 38,122
Retained earnings 7,347 6,818
------- -------
Total liabilities and retained $46,304 $44,940
earnings ------- -------
------- -------
Net interest income and spread $1,133 2.66% $1,206 3.23%
------ ---- ------ ----
------ ----- ------ ----
Net interest margin (net interest
income as a percent of
average interest-earning
assets) 3.37% 3.75%
---- ----
---- ----
Average interest-earning assets
to interest-bearing liabilities 117.74% 114.26%
------ ------
------ ------
<CAPTION>
Year ended September 30,
-----------------------------------------------------------------------
1995 1994
--------------------------------- -----------------------------------
Average Interest Average Average Interest Average
outstanding earned/ yield/ outstanding earned/ yield/
balance paid rate balance paid rate
----------- -------- ------- ----------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $23,214 $1,960 8.44% $20,399 $1,799 8.82%
Mortgage-backed securities 2,267 196 8.65 2,848 250 8.78
Investment securities 7,288 309 4.24 4,501 201 4.47
Other interest-earning assets 11,154 717 6.43 15,742 658 4.18
------- ----- ---- ------- ------ ----
Total interest-earning
assets 43,923 3,182 7.24 43,490 2,908 6.69
Non-interest-earning assets 1,240 2,908
------- -------
Total assets $45,163 $46,398
------- -------
------- -------
Interest-bearing liabilities:
Deposits $37,664 1,622 4.31 $39,885 1,478 3.71
------- ----- ---- ------- ------ ----
Total interest-bearing
liabilities 37,664 1,622 4.31 39,885 1,478 3.71
------ ---- ------ ----
Non-interest-bearing liabilities 586 358
------- -------
Total liabilities 38,250 40,243
Retained earnings 6,913 6,155
------- -------
Total liabilities and
retained earnings $45,163 $46,398
------- -------
------- -------
Net interest income and spread $1,560 2.93% $1,430 2.98%
------ ---- ------ ----
------ ---- ------ ----
Net interest margin (net interest
income as a percent of
average interest-earning
assets) 3.55% 3.29%
---- ----
---- ----
Average interest-earning assets
to interest-bearing liabilities 116.62% 109.04%
------ ------
------ ------
</TABLE>
Year ended September 30,
------------------------------------
1993
------------------------------------
Average Interest Average
outstanding earned/ yield/
balance paid rate
----------- -------- --------
(Dollars in thousands)
Interest-earning assets:
Loans receivable $18,364 $1,853 10.09%
Mortgage-backed securities 4,934 403 8.17
Investment securities 3,406 181 5.31
Other interest-earning assets 19,113 658 3.44
------- ------ ----
Total interest-earning
assets 45,817 3,095 6.76
Non-interest-earning assets 1,191
-------
Total assets $47,008
-------
-------
Interest-bearing liabilities:
Deposits $40,771 1,706 4.18
------- ------ ----
Total interest-bearing
liabilities 40,771 1,706 4.18
------ ----
Non-interest-bearing liabilities 525
-------
Total liabilities 41,296
Retained earnings 5,712
-------
Total liabilities and
retained earnings $47,008
-------
-------
Net interest income and spread $1,389 2.58%
------ ----
------ ----
Net interest margin (net interest
income as a percent of
average interest-earning
assets) 3.03%
----
Average interest-earning assets
to interest-bearing liabilities 112.38%
------
------
-26-
<PAGE>
The following table sets forth, at the dates indicated, the weighted
average yields earned on the Association's interest-earning assets, the weighted
average interest rates paid on interest-bearing liabilities and the interest
rate spread between the weighted average yields and rates at the dates
presented.
At September 30,
At June 30, -----------------------
1996 1995 1994 1993
------------ ------ ------ ------
Weighted average yield on loans 8.05% 8.11% 8.27% 8.85%
Weighted average yield on mortgage-backed
securities 9.08 9.02 9.04 9.01
Weighted average yield on investment
securities 6.15 5.98 5.22 5.19
Weighted average yield on interest-bearing
deposits and other 5.83 6.03 4.60 3.37
Weighted average rate paid on deposits 4.60 4.87 3.87 3.95
Interest rate spread 2.56 2.39 3.02 2.27
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the Association's interest income and interest expense during the
years indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), (ii)
changes in rate (change in rate multiplied by prior year volume) and (iii) total
changes in rate and volume. The combined effects of changes in both volume and
rate, which cannot be separately identified, have been allocated proportionately
to the change due to volume and the change due to rate:
<TABLE>
<CAPTION>
Nine months ended June 30, Year ended September 30,
--------------------------- ---------------------------------------------------------
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
-------------------------- --------------------------- ---------------------------
Increase Increase Increase
(decrease) due to (decrease) due to (decrease) due to
----------------- ----------------- -----------------
Volume Rate Total Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- ----- ------ ---- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income
attributable to:
Loans receivable $(30) $ (39) $(69) $241 $(80) $161 $193 $(247) $(54)
Mortgage-backed
securities (23) (4) (27) (50) (4) (54) (181) 28 (153)
Investment securities 76 150 226 118 (10) 108 52 (32) 20
Interest-bearing deposits 34 (71) (37) (228) 287 59 (127) 127 0
---- ---- ---- ---- ---- ---- ---- ---- -----
Total interest income 57 36 93 81 193 274 (63) (124) (187)
Interest expense
attributable to:
Deposits 18 148 166 (86) 230 144 (36) (192) (228)
---- ---- ---- ---- ---- ---- ---- ---- -----
Total interest expense 18 148 166 (86) 230 144 (36) (192) (228)
---- ---- ---- ---- ---- ---- ---- ---- -----
Increase (decrease) in net
interest income $ 39 $(112) $(73) $167 $(37) $130 $(27) $ 68 $ 41
---- ---- ---- ---- ---- ---- ---- ---- -----
---- ---- ---- ---- ---- ---- ---- ---- -----
</TABLE>
ASSET AND LIABILITY MANAGEMENT
The Association, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice differently
than its interest-bearing liabilities. Interest rate risk is defined as the
sensitivity of an institution's earnings and net asset values to changes in
interest rates. As part of its effort to monitor and manage the interest rate
risk of the Association, the Board of Directors has adopted an interest rate
risk policy which charges the Board to review quarterly reports related to
interest rate risk, to set exposure limits for the Association and to provide
management with a list of transactions that the Association may not engage in
without prior Board authorization.
-27-
<PAGE>
One of the methods utilized by the Association to monitor interest rate
risk has been the rate shock risk estimates contained in the quarterly Rate
Shock Risk Reports prepared by the Sendaro Corporation ("Sendaro"). In its
report, Sendaro assesses the Association's interest rate risk based on the
percent and dollar changes in the Association's net interest income ("NII") and
market value of portfolio ("MVP") projected over permanent and instantaneous
parallel shifts in interest rates. The rate shock methodology attempts to
quantify interest rate risk as the change in the Association's NII and MVP which
would result from a theoretical basis point (1 basis point equals .01%) change
in current interest rates. The management and the Board of Directors of the
Association attempt to maintain the projected percentage change in NII and the
projected change in MVP within limits established by the Board of Directors.
Presented below, as of March 31, 1996, is an analysis of the Association's
interest rate risk as measured by changes in NII and MPV for instantaneous and
parallel shifts of 100 basis points in market interest rates. This is the
latest practicable date for which this information is available. The table also
contains the policy limits set by the Board of Directors of the Association as
the maximum change in NII and MVP that the Board of Directors deem advisable in
the event of various changes in interest rates. Such limits have been
established with consideration of the dollar impact of various rate changes and
the Bank's strong capital position.
As illustrated by the table, MVP is more sensitive to rising rates than
declining rates. Such difference in sensitivity occurs principally because, as
rates rise, borrowers do not prepay fixed-rate loans as quickly as they do when
interest rates are declining. Thus, in a rising interest rate environment,
because the Association has a significant amount of fixed-rate loans in its loan
portfolio, the amount of interest the Association would receive on its loans
would increase relatively slowly as the loans are slowly prepaid and new loans
are made at higher rates. Moreover, the interest the Association would pay on
its deposits would increase rapidly because the Association's deposits generally
have shorter periods to reprice. In preparing the data for the following table,
Sendaro assumed that rates would stay constant over a twelve-month period.
March 31, 1996
Change in interest rate Board limit ----------------------------------
(basis points) % Change in NII $ Change in NII % Change in NII
- ----------------------- --------------- --------------- ---------------
(Dollars in thousands)
+400 (40.0)% $ (15) (1.09)%
+300 (30.0) (12) (0.82)
+200 (20.0) (8) (0.53)
+100 (10.0) (4) (0.26)
0 0 0 0
-100 (10.0) (4) (0.28)
-200 (20.0) (22) (1.52)
-300 (30.0) (65) (4.61)
-400 (40.0) (109) (7.71)
March 31, 1996
Change in interest rate Board limit ----------------------------------
(basis points) % Change in MVP $ Change in MVP % Change in MVP
- ----------------------- --------------- --------------- ---------------
(Dollars in thousands)
+400 (70.0)% $(1,901) (26.48)%
+300 (50.0) (1,492) (20.78)
+200 (35.0) (987) (13.75)
+100 (20.0) (487) (6.79)
0 0 0 0
-100 (20.0) 279 3.89
-200 (35.0) 269 3.75
-300 (50.0) (233) (3.24)
-400 (70.0) (477) (6.64)
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the rate shock analysis using NII and MVP. Rate changes in
actuality are rarely instantaneous, and the use of this simplifying assumption
in the rate shock analysis may misstate NII risk over the year in some instances
by overstating very short-term repricing potential and may misstate MVP risk
relative to historic rate patterns, which rarely show parallel yield curve
shifts.
-28-
<PAGE>
In a rising interest rate environment, the Association's net interest
income could be expected to be negatively affected. Moreover, rising interest
rates could negatively affect the Association's earnings due to diminished loan
demand. The net proceeds from the Conversion will assist the Association in
managing its interest rate risk to the extent the proceeds are invested in
short-term investments and adjustable-rate loans.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the ability of the Association to generate sufficient
cash to fund current loan demand, meet deposit withdrawals and pay operating
expenses. Liquidity is influenced by financial market conditions, fluctuations
in interest rates, general economic conditions and regulatory requirements. The
Association's liquid assets, primarily represented by cash and cash equivalents
and interest-bearing deposits in other financial institutions, are a result of
its operating, investing and financing activities. These activities are
summarized in the following table for the nine months ended June 30, 1996 and
1995, and for the years ended September 30, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Nine months ended
June 30, Year ended September 30,
----------------------- --------------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net cash from operating activities $ 144 $ 407 $ 497 $ 259 $ 310
Net cash provided by (used in)
investing activities 507 (864) (2,240) (10,149) 3,858
Net cash provided by (used in)
financing activities 87 (848) (624) (2,019) (1,005)
-------- -------- -------- -------- --------
Net change in cash and cash
equivalents 738 (1,305) (2,367) (11,909) 3,163
Cash and cash equivalents at the
beginning of the period 4,013 6,380 6,380 18,289 15,126
-------- -------- -------- -------- --------
Cash and cash equivalents at the
end of the period $ 4,751 $ 5,075 $ 4,013 $ 6,380 $18,289
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
The Association's principal sources of funds are deposits, loan and
mortgage-backed securities repayments, maturities of securities and other funds
provided by operations. The Association also has the ability to borrow from the
FHLB of Cincinnati. See "REGULATION - Federal Home Loan Bank." While scheduled
loan repayments and maturing investments are relatively predictable, deposit
flows and early loan and mortgage-backed security prepayments are influenced to
a greater degree by interest rates, general economic conditions and competition.
The Association maintains investments in liquid assets based upon management's
assessment of (i) the need for funds, (ii) expected deposit flows, (iii) the
yields available on short-term liquid assets and (iv) the objectives of the
Association's asset and liability management program.
OTS regulations presently require the Association to maintain an average
daily balance of liquid assets, which may include, but are not limited to,
investments in U.S. Treasury and federal agency obligations and other
investments having maturities of five years or less, in an amount equal to 5% of
the sum of the Association's average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity requirement,
which may be changed from time to time by the OTS to reflect changing economic
conditions, is intended to provide a source of relatively liquid funds upon
which the Association may rely if necessary to fund deposit withdrawals or other
short-term funding needs. At June 30, 1996, the Association's regulatory
liquidity ratio was 52.4%. At such date, the Association had commitments to
originate loans and loans in process totaling $266,000 and no commitments to
purchase or sell loans. The Association considers its liquidity and capital
resources sufficient to meet its outstanding short-term and long-term needs. See
Note H to Financial Statements.
The Association is required by applicable law and regulations to meet
certain minimum capital standards. Such capital standards include a tangible
capital requirement, a core capital requirement or leverage ratio and a risk-
based capital requirement. See "REGULATION - Office of Thrift Supervision --
Regulatory Capital Requirements." The Association exceeded all of its
regulatory capital requirements at June 30, 1996.
-29-
<PAGE>
The tangible capital requirement requires a savings and loan association to
maintain "tangible capital" of not less than 1.5% of the association's adjusted
total assets. Tangible capital is defined in OTS regulations as core capital
minus any intangible assets.
"Core capital" is comprised of common shareholders' equity (including
retained earnings), noncumulative preferred stock and related surplus, minority
interests in consolidated subsidiaries, certain nonwithdrawable accounts,
pledged deposits of mutual associations and intangible assets, primarily certain
purchased mortgage servicing rights and qualifying supervisory goodwill, which
was includable in core capital prior to January 1, 1995, in accordance with a
phase-out schedule. OTS regulations require a savings and loan association to
maintain core capital of at least 3% of the association's total assets. The OTS
has proposed to increase such requirement to 4% and 5%, except for those
associations with the highest examination rating and acceptable levels of risk.
See "REGULATION - Office of Thrift Supervision -- Regulatory Capital
Requirements."
OTS regulations require that a savings and loan association maintain "risk-
based capital" in an amount not less than 8% of its risk-weighted assets. Risk-
based capital is defined as core capital plus certain additional items of
capital, which in the case of the Association includes a general loan loss
allowance of $50,000 at June 30, 1996.
The following table summarizes the Association's regulatory capital
requirements and actual capital at June 30, 1996, and at September 30, 1995:
<TABLE>
<CAPTION>
Excess of actual
capital over current
Actual capital Current requirement requirement
--------------------- ---------------------- --------------------- Applicable
June 30, 1996 Amount Percent Amount Percent Amount Percent asset total
- ------------- ------ ------- ------ ------- ------ ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $7,141 15.6% $ 688 1.5% $6,453 14.1% $45,868
Core capital 7,141 15.6 1,376 3.0 5,765 12.6 45,868
Risk-based capital 7,191 48.5 1,178 8.0 6,013 40.5 14,720
</TABLE>
<TABLE>
<CAPTION>
Excess of actual
capital over current
Actual capital Current requirement requirement
--------------------- ---------------------- --------------------- Applicable
September 30, 1995 Amount Percent Amount Percent Amount Percent asset total
- ------------------ ------ ------- ------ ------- ------ ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Tangible capital $6,839 15.1% $ 681 1.5% $6,158 13.6% $45,420
Core capital 6,839 15.1 1,363 3.0 5,476 12.1 45,420
Risk-based capital 6,876 45.2 1,216 8.0 5,660 37.2 15,200
</TABLE>
For information concerning the Association's regulatory capital on a pro
forma basis after the Conversion, see "REGULATORY CAPITAL COMPLIANCE."
At June 30, 1996, the Association had no material commitments for capital
expenditures.
PROPOSED ONE-TIME SAIF ASSESSMENT
The Association, a SAIF-insured institution, is subject to regulation by
the OTS and the FDIC. The FDIC is authorized to establish different annual
assessment rates for deposit insurance for members of the BIF and the SAIF. The
OTS, the FDIC and the Treasury Department have proposed a plan to strengthen the
deposit insurance system and avert a significant deposit premium disparity
between SAIF-insured institutions and BIF-insured institutions. Such plan
includes a one-time assessment of $.85 per $100 in deposits held by the
Association. If such plan is enacted into law, the Association will pay a one-
time assessment of approximately $320,000 in 1996. See "RISK FACTORS -
Legislation and Regulation Which May Adversely Affect the Association's
Earnings."
-30-
<PAGE>
IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1993, the Financial Accounting Standards Board ("FASB") adopted
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114,
which is effective for fiscal years beginning after December 14, 1994, requires
that impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or fair value of the
collateral. The Association's loans which might be affected are collateral
dependent, and Association's current procedures for evaluating impaired loans
result in carrying such loans at the lower of cost or fair value. Management
adopted SFAS No. 114 on October 1, 1995, without a significant detrimental
effect on Association's overall financial position or results of operations.
In May 1995, the FASB issued SFAS No. 122 "Accounting for Mortgage
Servicing Rights," which requires that the Association recognize as separate
assets rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. An institution that acquires mortgage servicing
rights through either the purchase or origination of mortgage loans and sells
those loans with servicing rights retained would allocate some of the cost of
the loans to the mortgage servicing rights. SFAS No. 122 requires that
securitizations of mortgage loans be accounted for as sales of mortgage loans
and acquisitions of mortgage-backed securities. Additionally, SFAS No. 122
requires that capitalized mortgage servicing rights and capitalized excess
servicing receivables be assessed for impairment. Impairment is measured based
on fair value. SFAS No. 122 was effective for fiscal years beginning after
December 15, 1995 (October 1, 1996, as to the Association) to transactions in
which an entity acquires mortgage servicing rights and to impairment evaluations
of all capitalized mortgage servicing rights and capitalized excess servicing
receivables whenever acquired. Retroactive application is prohibited, and
earlier adoption is encouraged. Management does not anticipate any material
impact of adopting SFAS No. 122, or revisions thereto due to the fact that the
Association does not currently sell loans.
In October 1995, the FASB issued SFAS No. 123 entitled "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes recognition or requisite
disclosure of a fair value based method of accounting for stock-based
compensation paid to employees. SFAS No. 123 recognizes or provides for
footnote disclosure of the fair value of an award of stock or stock options on
the grant date and is required to be adopted by 1996, although earlier
application is permitted. Management has determined that MFC will continue to
account for stock-based compensation pursuant to the Accounting Principles Board
Opinion No. 25, and therefore, adoption of SFAS No. 123 will not have a material
effect on the Association's financial condition or results of operations.
IMPACT OF INFLATION AND CHANGING PRICES.
The financial statements and notes thereto included herein have been
prepared in accordance with generally accepted accounting principles ("GAAP").
GAAP requires the Association to measure financial and operating results in
terms of historical dollars. Changes in the relative value of money due to
inflation or recession are generally not considered.
In management's opinion, changes in interest rates affect the financial
condition of a financial institution to a far greater degree than changes in the
inflation rate. While interest rates are greatly influenced by changes in the
inflation rate, they do not change at the same rate or in the same magnitude as
the inflation rate. Rather, interest rate volatility is based on changes in the
expected rate of inflation, as well as on changes in monetary and fiscal
policies.
THE BUSINESS OF THE ASSOCIATION
GENERAL
The Association is a mutual savings and loan association which was
organized under Ohio law in 1883. Subject to supervision and regulation by the
OTS, the Division and the FDIC, the Association is a member of the FHLB of
Cincinnati, and the deposits of the Association are insured up to applicable
limits by the FDIC in the SAIF. See "REGULATION."
The Association is principally engaged in the business of originating
mortgage loans secured by first mortgages on one- to four-family residential
real estate located in its primary market area of Hamilton County, Ohio, and
portions of the contiguous counties. The Association also originates a limited
number of loans for the construction of one- to four-family residential real
estate, permanent mortgage loans secured by multifamily real estate (over four
units) and nonresidential real estate in its primary market area, and secured
consumer loans. See "Lending Activities." For liquidity and interest rate risk
-31-
<PAGE>
management purposes, the Association invests in interest-bearing deposits in
other financial institutions, U.S. Government and agency obligations and
mortgage-backed securities. See "Investment Activities." Funds for lending and
other investment activities are obtained primarily from savings deposits, which
are insured up to applicable limits by the FDIC, and loan principal repayments.
See "Deposits and Borrowings."
Interest on loans and investments is the Association's primary source of
income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of the Association, which is the difference between interest
income earned on loans, mortgage-backed securities and other investments and
interest paid on deposits. Like most thrift institutions, the Association's
interest income and interest expense are significantly affected by general
economic conditions and by the policies of various regulatory authorities. See
"RISK FACTORS - Interest Rate Risk and Historic Earnings" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Asset
and Liability Management."
MARKET AREA
The Association conducts business from its main office in Mt. Healthy,
Ohio, and from its full-service branch office located in North Bend, Ohio. The
Association's primary market area for lending and deposit activity is Hamilton
County, Ohio, which includes the City of Cincinnati within its boundaries.
Located in southwest Ohio and served by both Interstate 75 and 71, Hamilton
County is a major center for manufacturing, wholesaling and retailing. Major
employers in Hamilton County include manufacturing companies such as Procter &
Gamble Co., G.E. Aircraft Engines and Cincinnati Milacron, wholesale/retail
businesses such as The Kroger Co. and government entities such as the City of
Cincinnati, the University of Cincinnati and the Cincinnati Public Schools.
Hamilton County has a population of approximately 866,000, which has
remained relatively unchanged since 1990. By contrast, the period from 1990 to
1995 was characterized by 5.7% growth in the national population and 2.8% in the
population of Ohio, while the population of Mt. Healthy decreased 1.5%, to
approximately 44,000 in 1995. Both Hamilton County and Mt. Healthy had a higher
per capita income than either Ohio or the United States during the period from
1990 to 1995. In 1995, the per capita income levels in Hamilton County and Mt.
Healthy were $18,004 and $16,805, respectively, compared to $15,708 for Ohio and
$16,405 for the nation. The median household income level of Hamilton County
and Mt. Healthy was $29,498 and $34,085 in 1995, respectively, compared to
$29,276 and $28,255 in Ohio and the United States, respectively. Of the housing
in Hamilton County, 58.3% is owner-occupied, compared to 74.9% in Mt. Healthy,
67.5% in Ohio and 64.2% in the United States. The median housing value in
Hamilton County in 1990 was $72,246, compared to $64,696 in Mt. Healthy, $63,457
in the State of Ohio and $79,098 in the United States.
An economic indicator that pertains more directly to the banking and thrift
industries is the issuance of new housing permits. In 1994, 1,676 new housing
permits were issued in Hamilton County, a 12.9% decrease from 1993, compared to
increases of 5.2% and 8.8% in Ohio and the United States, respectively. Another
key economic indicator is the rate of unemployment. Unemployment has declined
by 16.4% in Hamilton County since 1993, from 5.5% to 4.6%, compared to declines
of 7.7% in Ohio and 7.4% in the United States. The source of the statistics
disclosed in this and the preceding paragraph is the 1996 SOURCEBOOK OF
DEMOGRAPHICS, produced by CACI, Inc.
Although, there is only one other institution competing for deposits in Mt.
Healthy, the Association has only 1.1% of the thrift deposits and 0.7% of all
financial deposits in Hamilton County.
LENDING ACTIVITIES
GENERAL. The Association's principal lending activity is the origination
of conventional real estate loans secured by one- to four-family residences
located in the Association's primary market area. A limited number of loans
secured by multifamily properties containing five units or more and by
nonresidential real estate and loans for the construction of residences have
been originated by the Association. In addition to real estate lending, the
Association originates a limited number of loans secured by deposit accounts.
-32-
<PAGE>
LOAN PORTFOLIO COMPOSITION. The following table presents certain
information in respect of the composition of the Association's loan portfolio at
the dates indicated:
<TABLE>
<CAPTION>
At September 30,
At June 30, ----------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------
Percent Percent Percent Percent
of total of total of total of total
Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family $20,763 92.8% $21,093 91.6% $21,299 90.0% $16,482 87.0%
Multifamily 410 1.8 465 2.0 500 2.1 508 2.7
Nonresidential 1,186 5.3 1,431 6.3 1,627 6.9 1,917 10.1
Construction - - 146 0.6 260 1.1 - -
------- ----- ------- ----- ------- ----- ------- -----
Total real estate loans 22,359 99.9 23,135 100.5 23,686 100.1 18,907 99.8
Consumer loans:
Loans on deposits 107 0.5 118 0.5 117 0.5 154 0.8
------- ----- ------- ----- ------- ----- ------- -----
Total loans 22,466 100.4 23,253 101.0 23,803 100.6 19,061 100.6
Less:
Undisbursed portion of loans in process - - 146 0.6 41 0.1 - -
Unearned and deferred income 30 0.2 50 0.2 65 0.3 77 .4
Allowance for loan losses 52 0.2 39 0.2 39 0.2 39 .2
------- ----- ------- ----- ------- ----- ------- -----
Net loans $22,384 100.0% $23,018 100.0% $23,658 100.0% $18,945 100.0%
------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- -----
</TABLE>
LOAN MATURITY SCHEDULE. The following table sets forth certain information
as of June 30, 1996, regarding the dollar amount of loans maturing in the
Association's portfolio based on their contractual terms to maturity before
consideration of net items. Demand loans and other loans having no stated
schedule of repayments or no stated maturity are reported as due in one year or
less.
<TABLE>
<CAPTION>
Due during the year ending Due 4-5 Due 6-10 Due 11-20 Due more
June 30, years years years than 20
-------------------------------- after after after years after
1997 1998 1999 6/30/96 6/30/96 6/30/96 6/30/96 Total
------ ------ ------ ------- ------- ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family $620 $50 $65 $424 $1,509 $10,051 $8,044 $20,763
Multifamily - 1 1 - 68 340 - 410
Nonresidential 1 2 3 - 197 983 - 1,186
Consumer loans 68 16 15 8 - - - 107
---- --- --- ---- ------ ------- ------ -------
Total $689 $69 $84 $432 $1,774 $11,370 $8,044 $22,466
---- --- --- ---- ------ ------- ------ -------
---- --- --- ---- ------ ------- ------ -------
</TABLE>
All of the Association's loans have fixed rates of interest.
LOANS SECURED BY ONE- TO FOUR-FAMILY RESIDENCES. The principal lending
activity of the Association is the origination of conventional loans secured by
first mortgages on one- to four-family residences, primarily single-family
residences located within the Association's primary market area. At June 30,
1996, the Association's one- to four-family residential loans totaled
approximately $20.7 million, or 92.8% of total loans.
OTS regulations and Ohio law limit the amount which the Association may
lend in relationship to the appraised value of the real estate and improvements
which will secure the loan (the "LTV") at the time of loan origination. In
accordance with such regulations, the Association makes fixed-rate loans on one-
to four-family residences up to 95% of the value of the real estate and
improvements thereon, although most of the Association's one- to four-family
loans have an LTV of 80% or less. The Association requires private mortgage
insurance for the amount of such loans in excess of 80% of the value of the real
estate securing such loans.
-33-
<PAGE>
Fixed-rate loans are offered by the Association, currently for terms of up
to 30 years, though most loans are originated with terms of 20 years or less.
The Association does not currently originate adjustable-rate mortgage loans
("ARMs"), though management is considering plans to offer ARMs in the future in
an effort to decrease the Association's interest rate risk.
The Association also makes closed-end home equity loans, which do not
provide the borrower with a line of credit at the Association, in an amount
which, when added to the prior indebtedness secured by the real estate, does not
exceed 80% of the estimated value of the real estate. Home equity loans are
secured by real estate and are made only to borrowers as to whom the Association
holds the first mortgage. Of the $20.7 million of one- to four-family
residential loans, approximately $283,000 were closed-end home equity loans.
LOANS SECURED BY MULTIFAMILY RESIDENCES. In addition to loans on one- to
four-family properties, the Association originates a limited number of loans
secured by multifamily properties, which contain more than four units. At June
30, 1996, loans secured by multifamily residences totaled approximately
$410,000, or 1.8% of total loans. At June 30, 1996, the largest single loan
secured by a multifamily residence was $191,000 and was performing in accordance
with its terms. Multifamily loans are offered with fixed rates for terms of up
to 30 years and have LTVs of up to 80%.
Multifamily lending is generally considered to involve a higher degree of
risk than one- to four-family residential lending because the borrower typically
depends upon income generated by the project to cover operating expenses and
debt service. The profitability of a project can be affected by economic
conditions, government policies and other factors beyond the control of the
borrower. The Association attempts to reduce the risk associated with
multifamily lending by evaluating the creditworthiness of the borrower and the
projected income from the project and by obtaining personal guarantees on loans
made to corporations and partnerships. The Association requires borrowers to
agree to submit financial statements annually to enable the Association to
monitor the loan and requires the assignment of rents.
LOANS SECURED BY NONRESIDENTIAL REAL ESTATE. The Association also
originates loans for the purchase of nonresidential real estate located within
close proximity to the Association's offices, though it has not originated such
a loan in the last three years. Among the properties securing the
nonresidential real estate loans originated by the Association are office
buildings, retail properties and a veterinary clinic, all located within the
immediate vicinity of the Association's offices. At June 30, 1996,
approximately $1.2 million, or 5.3%, of the Association's total loans were
secured by mortgages on nonresidential real estate. The Association's
nonresidential real estate loans have fixed rates, terms of up to 20 years and
LTVs of up to 75%. See "Delinquent Loans, Nonperforming Assets and Classified
Assets."
Although loans secured by nonresidential real estate have higher interest
rates than one- to four-family residential real estate loans, nonresidential
real estate lending is generally considered to involve a higher degree of risk
than residential lending due to the relatively larger loan amounts and the
effects of general economic conditions on the successful operation of income-
producing properties. The Association has endeavored to reduce such risk by
evaluating the credit history of the borrower, the location of the real estate,
the financial condition of the borrower, the quality and characteristics of the
income stream generated by the property and the appraisals supporting the
property's valuation. The Association also requires personal guarantees.
CONSTRUCTION LOANS. The Association has made in the past a limited number
of loans for the construction of residential real estate. Such loans are
structured as permanent loans with fixed rates of interest and terms of up to 30
years. During the first six months while the residence is being constructed,
the borrower is required to pay interest only. Such loans have an LTV of 80% or
more, with the value of the land counting as part of the down payment if already
owned. Construction loans originated by the Association are made to owner-
occupants for the construction of single-family homes by a general contractor.
At June 30, 1996, the Association had no construction loans.
COMMERCIAL LOANS. The Association does not issue any letters of credit or
originate or purchase any loans for commercial, business or agricultural
purposes, other than loans secured by real estate.
CONSUMER LOANS. The Association makes loans at fixed rates of interest to
depositors on the security of their deposit accounts. At June 30, 1996, the
Association had approximately $107,000, or 0.5% of total loans, invested in such
consumer loans.
-34-
<PAGE>
LOAN SOLICITATION AND PROCESSING. Loan originations are developed from a
number of sources, including continuing business with depositors, other
borrowers and real estate developers, solicitations by the Association's lending
staff and walk-in customers.
Loan applications for permanent real estate loans are taken by loan
personnel. The Association typically obtains a credit report, verification of
employment and other documentation concerning the creditworthiness of the
borrower. An appraisal of the fair market value of the real estate which will
be given as security for the loan is prepared by an appraiser approved by the
Board of Directors. Upon the completion of the appraisal and the receipt of
information on the credit history of the borrower, the application for a loan is
submitted for review in accordance with the Association's underwriting
guidelines. Loans are approved by the full Board of Directors of the
Association.
Until October 1995, if a mortgage loan application was approved, the
Association typically obtained an attorney's opinion of title. Presently, the
Association obtains title insurance on loans secured by real estate unless the
borrower is seeking to refinance a loan the Association originated. Borrowers
are required to carry satisfactory fire and casualty insurance and flood
insurance, if applicable, and to name the Association as an insured mortgagee.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications and estimates of construction costs. The
Association also evaluates the feasibility of the proposed construction project
and the experience and record of the builder. Once approved, the construction
loan is disbursed in portions based upon periodic inspections of construction
progress.
LOAN ORIGINATIONS AND PARTICIPATION. Currently, the Association is
originating only fixed-rate loans for its portfolio and not with the intention
of selling such loans in the secondary market. The Association does not service
loans for other financial institutions.
The following table presents the Association's loan origination activity
for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended
June 30, Year ended September 30,
---------------------- -------------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans originated:
One- to four-family residential $ 1,991 $ 684 $ 2,115 $10,216 $ 7,425
Nonresidential 38 - - 368 184
Construction - - 146 41 -
Consumer 20 75 97 37 135
------- ------- ------- ------- -------
Total loans originated 2,049 759 2,358 10,662 7,744
Principal repayments (2,695) (1,733) (3,018) (6,008) (7,479)
Increase in other items, net(1) 12 14 20 59 64
------- ------- ------- ------- -------
Net increase (decrease) $ (634) $ (960) $ (640) $ 4,713 $ 329
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
_____________________________
(1) Other items consist of loans in process, deferred loan origination fees and
allowance for loan losses.
OTS regulations generally limit the aggregate amount that a savings
association may lend to any one borrower to an amount equal to 15% of the
association's total capital for risk-based purposes plus any loan reserves not
already included in total capital (collectively, "Unimpaired Capital"). A
savings association may lend to one borrower an additional amount not to exceed
10% of the association's Unimpaired Capital if the additional amount is fully
secured by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." In addition, the regulations
require that loans to certain related or affiliated borrowers be aggregated for
purposes of such limits. Two exceptions to these limits permit loans to one
borrower of up to $500,000 "for any purpose" and, subject to certain conditions,
including OTS prior approval, loans to one borrower for the development of
domestic residential housing units in amounts up to the lesser of $30 million or
30% of the saving associations total capital.
-35-
<PAGE>
Based on such limits, the Association was able to lend approximately $1.1
million to one borrower at June 30, 1996. The largest amount the Association
had outstanding to one borrower at June 30, 1996, was $545,100, consisting of
three loans, the largest of which is $309,700. Each of such loans was secured
by one- to four-family real estate and was performing in accordance with it
terms.
DELINQUENT LOANS, NONPERFORMING ASSETS AND CLASSIFIED ASSETS. Payments on
loans made by the Association are due on the first day of the month with the
interest portion of the payment applicable to interest accrued during the prior
month. When a loan payment has not been made by the thirtieth of the month, a
late notice is sent. In addition, if the loan is on the borrower's primary
residence, the Association will send a notice of available counseling for
delinquent borrowers. If payment is not received by the sixtieth day, a second
notice is sent. Telephone calls are made to the borrower in connection with
both the 30- and 60-day notices. If the Association is unable to make contact
with the borrower by mail or telephone, a representative from the Association
will make a personal visit to the property in an attempt to speak with the
borrower.
When a loan secured by real estate becomes more than 90 days delinquent it
is considered nonperforming by the Association and the above steps are repeated
and a letter is sent to the borrower by the Association to inform the borrower
that foreclosure proceedings will begin if the loan is not brought current
promptly. The borrower is also counseled to make every effort to sell the
property before it is lost in a sheriff's sale. If the customer fails to take
any action, a request is made to the Board of Directors to authorize foreclosure
proceedings.
If a foreclosure occurs, the real estate is sold at public sale and may be
purchased by the Association, to be sold as soon as possible by the Association
without the use of a real estate agent.
The following table reflects the amount of loans in a delinquent status as
of the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30, At September 30, At September 30,
------------------------- ------------------------- ------------------------- ------------------------
1996 1995 1994 1993
------------------------- ------------------------- ------------------------- ------------------------
Percent Percent Percent Percent
of total of total of total of total
Number Amount loans Number Amount loans Number Amount loans Number Amount loans
------ ------ ----- ------ ------ ----- ------ ------ ----- ------ ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30 - 59 days 19 $357 1.6% 17 $902 3.9% 23 $424 2.3% 23 $505 2.7%
60 - 89 days 6 148 0.6 2 20 0.1 2 45 0.2 5 89 0.5
90 days and over 1 15 0.1 - - - - - - 6 183 1.0
-- ---- --- -- ---- --- -- ---- --- -- ---- ---
Total delinquent loans 26 $520 2.3% 19 $922 4.0% 25 $469 2.5% 34 $777 4.2%
-- ---- --- -- ---- --- -- ---- --- -- ---- ---
-- ---- --- -- ---- --- -- ---- --- -- ---- ---
</TABLE>
-36-
<PAGE>
The following table sets forth information with respect to the accrual and
nonaccrual status of the Association's loans and other nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
--------------------- ------------------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Accruing loans delinquent more
than 90 days (1) $15 $ - $ - $ - $ 89
Loans accounted for on a
nonaccrual basis:
Real estate
One- to four-family - - - - 32
Multifamily - - - - 72
Nonresidential - - - - -
Consumer - - - - -
--- --- --- --- ----
Total nonaccrual loans - - - - 104
--- --- --- --- ----
Total nonperforming loans 15 - - - 193
Real estate acquired through foreclosure - - - - 79
--- --- --- --- ----
Total nonperforming assets $15 $ - $ - $ - $272
--- --- --- --- ----
--- --- --- --- ----
Allowance for loan losses $52 $39 $39 $39 $ 39
--- --- --- --- ----
--- --- --- --- ----
Nonperforming assets as a percent
of total assets - N/A N/A N/A 0.6%
Nonperforming loans as a percent
of total loans 0.1% N/A N/A N/A 1.0%
Allowance for loan losses as a percent
of nonperforming loans 346.7% N/A N/A N/A 20.2%
</TABLE>
_____________________________
(1) Consists entirely of one- to four-family residential loans for all dates
presented.
The Association had no nonaccruing loans during the nine months ended June
30, 1996.
OTS regulations require that each thrift institution classify its own
assets on a regular basis. Problem assets are classified as "substandard,"
"doubtful" or "loss." "Substandard" assets have one or more defined weaknesses
and are characterized by the distinct possibility that the Association will
sustain some loss if the deficiencies are not corrected. "Doubtful" assets have
the same weaknesses as "substandard" assets, with the additional characteristics
that (i) the weaknesses make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, questionable and (ii) there is
a high possibility of loss. An asset classified "loss" is considered
uncollectible and of such little value that its continuance as an asset of the
Association is not warranted. The regulations also contain a "special mention"
category, consisting of assets which do not currently expose an institution to a
different degree of risk to warrant classification but which possess credit
deficiencies or potential weaknesses deserving management's' close attention.
-37-
<PAGE>
The aggregate amounts of the Association's classified assets at the dates
indicated were as follows:
<TABLE>
<CAPTION>
At September 30,
At June 30, --------------------------------------
1996 1995 1994 1993
---------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Classified assets:
Substandard $51 $15 $52 $167
Doubtful - - - -
Loss 2 2 3 3
--- --- --- ----
Total classified assets $53 $17 $55 $170
--- --- --- ----
--- --- --- ----
</TABLE>
The Association establishes general allowances for loan losses for any loan
classified as substandard or doubtful. If an asset, or portion thereof, is
classified as loss, the Association establishes specific allowances for losses
in the amount of 100% of the portion of the asset classified loss. See
"Allowance for Loan Losses." Generally, the Association charges off the portion
of any real estate loan deemed to be uncollectible.
The Association analyzes each classified asset on a monthly basis to
determine whether changes in the classifications are appropriate under the
circumstances. Such analysis focuses on a variety of factors, including the
amount of any delinquency and the reasons for the delinquency, if any, the use
of the real estate securing the loan, the status of the borrower and the
appraised value of the real estate. As such factors change, the classification
of the asset will change accordingly.
ALLOWANCE FOR LOAN LOSSES. The Association maintains an allowance for loan
losses based upon a number of relevant factors, including, but not limited to,
growth and changes in the composition of the loan portfolio, trends in the level
of delinquent and problem loans, current and anticipated economic conditions in
the primary lending area, past loss experience and possible losses arising from
specific problem assets.
The single largest component of the Association's loan portfolio consists
of one- to four-family residential real estate loans. Substantially all of
these loans are secured by property in the Association's lending area of
Hamilton County, Ohio, which has a fairly stable economy. The Association's
practice of making loans primarily in its local market area has contributed to a
low historical charge-off rate. In addition to one- to four-family residential
real estate loans, the Association makes home equity, multifamily residential
real estate, nonresidential real estate and construction loans. These real
estate loans are also secured by property in the Association's lending area.
The Association has not experienced any significant charge-offs from these other
real estate loan categories in recent years. Only 0.5% of the Association's
total loans are comprised of consumer loans, which carry a higher degree of risk
than the real estate loans.
The following table sets forth an analysis of the Association's allowance
for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended June 30, Year ended September 30,
-------------------------- --------------------------------------
1996 1995 1995 1994 1993
---------- ---------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $39 $39 $39 $39 $33
Loans charged-off:
Residential real estate loans - - - - (4)
Nonresidential real estate loans - - - - -
Consumer loans - - - - -
--- --- --- --- ---
Total charge-offs - - - - (4)
Recoveries - - - - -
Provision for possible loan losses 13 - - - 10
--- --- --- --- ---
Balance at end of period $52 $39 $39 $39 $39
--- --- --- --- ---
--- --- --- --- ---
Ratio of net charge-offs to average loans - - - - .02%
--- --- --- --- ---
--- --- --- --- ---
Ratio of allowance for loan losses
to total loans .23% .17% .17% .16% .21%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
-38-
<PAGE>
The allowance for loan losses is based on estimates and is, therefore,
monitored monthly and adjusted as necessary to provide an adequate allowance.
INVESTMENT ACTIVITIES
Federal regulation and Ohio law permit the Association to invest in various
types of investment securities, including interest-bearing deposits in other
financial institutions, U.S. Treasury and agency obligations, mortgage-backed
securities and certain other specified investments. The Board of Directors of
the Association has adopted an investment policy which authorizes management to
make investments in U.S. Government and agency securities, deposits in the FHLB,
certificates of deposit in federally-insured financial institutions, and federal
funds at commercial banks. The Board of Directors has primary responsibility
for implementation of the investment policy. The Association's investment
policy is designed primarily to provide and maintain liquidity within regulatory
guidelines, to maintain a balance of high quality investments to minimize risk
and to maximize return without sacrificing liquidity and safety. See
"REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Changes in Financial Condition; - Liquidity and
Capital Resources." The following table sets forth the composition of the
Company's investment portfolio, excluding mortgage-backed securities, at the
dates indicated:
<TABLE>
<CAPTION>
At September 30,
At June 30, ---------------------------------------------------------------
1996 1995 1994 1993
-------------------- ------------------- ------------------- ------------------
Book Percent Book Percent Book Percent Book Percent
Value of total Value of total Value of total Value of total
-------- ------- -------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
in other financial
institutions (1) $10,771 53.0% $10,483 54.3% $11,843 65.5% $19,444 83.6%
U.S. Government agency
obligations (2) 8,554 42.1 7,984 41.3 5,890 32.6 3,496 15.0
FHLMC stock (3) 622 3.1 504 2.6 29 .2 29 .1
FHLB stock 357 1.8 339 1.8 318 1.7 302 1.3
------- ----- ------- ----- ------- ----- ------- -----
Total $20,304 100.0% $19,310 100.0% $18,080 100.0% $23,271 100.0%
------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- -----
</TABLE>
___________________________________
(1) Includes interest-bearing deposits, Federal Funds sold and certificates of
deposit.
(2) Consists primarily of investments in U.S. Treasury Notes and Bills, which
are classified as held to maturity at June 30, 1996.
(3) Classified as available for sale at June 30, 1996, and September 30, 1995.
-39-
<PAGE>
The Association maintains a portfolio of mortgage-backed securities in the
form of fixed-rate participation interests issued by the Government National
Mortgage Association ("GNMA"). Mortgage-backed securities generally entitle the
Association to receive a portion of the cash flows from an identified pool of
mortgages and are guaranteed by the issuing agency as to principal and interest.
Although mortgage-backed securities generally yield less than individual loans
originated by the Association, management believes they are a prudent
alternative for investing excess cash flow when available funds exceed local
loan demand and as part of the Association's interest rate risk management. The
following table sets forth certain information regarding the Association's
investments in mortgage-backed securities at the dates indicated, all of which
are classified as held to maturity:
<TABLE>
<CAPTION>
At June 30, 1996 At September 30, 1995
----------------------------------------------- -----------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized unrealized unrealized Fair Amortized unrealized unrealized Fair
Cost gains loss Value Cost gains loss Value
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GNMA participation
certificates $1,785 $ 71 $ - $1,856 $2,211 $ 102 $ - $2,313
------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------
<CAPTION>
At September 30, 1994
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized Fair
Cost gains loss Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
GNMA participation
certificates $2,441 $ 32 $ 54 $2,409
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
-40-
<PAGE>
The maturities of the Association's investment securities at June 30, 1996,
are indicated in the following table:
<TABLE>
<CAPTION>
At June 30, 1996
-------------------------------------------------------------------
1-5 Total
Less than 1 year years investment securities
----------------- ---------------- ---------------------------
Book Book Book Market Average
value Yield value Yield value value yield
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Certificates of deposit in other financial institutions $4,395 6.27% $2,745 5.82% $7,140 $7,140 6.10%
U.S. Government agency obligations (1) $5,157 6.16% $3,397 5.81% $8,554 $8,559 6.02%
</TABLE>
- ------------------------------------
(1) Consists primarily of investments in U.S. Treasury Notes and Bills, which
are classified as held to maturity at June 30, 1996.
DEPOSITS AND BORROWINGS
GENERAL. Deposits have traditionally been the primary source of the
Association's funds for use in lending and other investment activities. In
addition to deposits, the Association derives funds from interest payments and
principal repayments on loans and income on earning assets. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." Loan
payments are a relatively stable source of funds, while deposit inflows and
outflows fluctuate in response to general interest rates and money market
conditions.
DEPOSITS. Deposits are attracted principally from within the Association's
market area through the offering of a selection of deposit instruments,
including regular passbook savings accounts, term certificate accounts and
Individual Retirement Accounts ("IRAs"). Interest rates paid, maturity terms,
service fees and withdrawal penalties for the various types of accounts are
established weekly by the Board of Directors of the Association based on the
Association's liquidity requirements, growth goals and interest rates paid by
competitors. The Association does not use brokers to attract deposits. The
amount of deposits from outside the Association's market area is not
significant.
At June 30, 1996, the Association's certificates of deposit totaled
approximately $23.2 million, or 60.6% of total deposits. Of such amount,
approximately $17.5 million in certificates of deposit mature within one year.
Based on past experience and the Association's prevailing pricing strategies,
management believes that a substantial percentage of such certificates will be
renewed with the Association at maturity.
-41-
<PAGE>
The following table sets forth the dollar amount of deposits in the various
types of accounts offered by the Association at the dates indicated:
<TABLE>
<CAPTION>
At June 30, At September 30,
------------------- ---------------------------------------------------------------------
1996 1995 1994 1993
------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent
of total of total of total of total
Amount deposits Amount deposits Amount deposits Amount deposits
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Transaction accounts:
Passbook accounts (1) $11,424 29.9% $11,008 28.9% $12,058 31.2% $12,109 29.8%
Club accounts (2) 37 .1 54 .1 54 .1 55 .1
Money market accounts (3) 3,574 9.4 3,857 10.2 5,988 15.5 6,676 16.4
------- ----- ------- ----- ------- ----- ------- -----
Total transaction accounts 15,035 39.4 14,919 39.2 18,100 46.8 18,840 46.3
Certificates of deposit (4) 23,155 60.6 23,137 60.8 20,574 53.2 21,863 53.7
------- ----- ------- ----- ------- ----- ------- -----
Total deposits $38,190 100.0% $38,056 100.0% $38,674 100.0% $40,703 100.0%
------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- -----
</TABLE>
- -----------------------------------
(1) The weighted average interest rates on passbook accounts were 2.83% at June
30, 1996, and 3.09% at September 30, 1995 and 1994, and 3.22% at September
30, 1993.
(2) The weighted average interest rates on club accounts were 5.08% at June 30,
1996, and 5.07%, 5.00% and 5.00%, at September 30, 1995, 1994 and 1993,
respectively.
(3) The weighted average interest rates on money market accounts were 2.83%,
3.09%, 3.11% and 3.26%, at June 30, 1996, and September 30, 1995, 1994 and
1993.
(4) The weighted average rates on all certificates of deposit were 5.74%,
5.04%, 4.38% and 4.43% at June 30, 1996, and September 30, 1995, 1994 and
1993, respectively
The following table shows rate and maturity information for the
Association's certificates of deposit at June 30, 1996:
Amount Due
----------------------------------------------------
Over Over
Up to 1 year to 2 years to
Rate one year 2 years 3 years Total
- ---- -------- ------- ------- -----
(In thousands)
4.99 - less 2,792 - - $ 2,792
5.00 - 5.99% 12,819 3,368 886 17,073
6.00 - 6.99% 1,532 970 156 2,658
7.00 - 7.99% 391 241 - 632
------- ------- ------- -------
Total certificates
of deposit $17,534 $4,579 $1,042 $23,155
------- ------- ------- -------
------- ------- ------- -------
The following table presents the amount of the Association's certificates
of deposit of $100,000 or more by the time remaining until maturity at June 30,
1996:
Maturity Amount
-------- ------
(In thousands)
September 30, 1996 $ 510
December 31, 1996 118
March 31, 1997 207
June 30, 1997 268
After June 30, 1997 125
-------
Total $ 1,228
-------
-------
-42-
<PAGE>
The following table sets forth the Association's deposit account balance
activity for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended
June 30, Year ended September 30,
----------------------- --------------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance $ 38,056 $ 38,674 $ 38,674 $ 40,703 $ 41,719
Deposits 10,015 14,999 19,344 16,866 21,265
Withdrawals (10,875) (16,566) (21,039) (19,905) (23,390)
Interest credited 994 766 1,077 1,010 1,109
-------- -------- -------- -------- --------
Ending balance
$ 38,190 $ 37,873 $ 38,056 $ 38,674 $ 40,703
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net increase (decrease) $ 134 $ (801) $ (618) $ (2,029) $ (1,016)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Percent increase (decrease) 0.4% (2.1)% (1.6)% (5.0)% (2.4)%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
BORROWINGS. The FHLB system functions as a central reserve bank providing
credit for its member institutions and certain other financial institutions.
See "REGULATION - Federal Home Loan Banks." As a member in good standing of the
FHLB of Cincinnati, the Association is authorized to apply for advances from the
FHLB of Cincinnati, provided certain standards of creditworthiness have been
met. Under current regulations, an association must meet certain qualifications
to be eligible for FHLB advances. The extent to which an association is
eligible for such advances will depend upon whether it meets the Qualified
Thrift Lender Test (the "QTL Test"). See "REGULATION - Office of Thrift
Supervision -- Qualified Thrift Lender Test." If an association meets the QTL
Test, the association will be eligible for 100% of the advances it would
otherwise be eligible to receive. If an association does not meet the QTL Test,
the association will be eligible for such advances only to the extent it holds
specified QTL Test assets. At June 30, 1996, the Association was in compliance
with the QTL Test. The Association has never utilized FHLB advances.
COMPETITION
The Association competes for deposits with other savings and loan
associations, savings banks, commercial banks and credit unions and with issuers
of commercial paper and other securities, including shares in money market
mutual funds. The primary factors in competition for deposits are customer
service and convenience of office location. In making loans, the Association
competes with other savings associations, savings and loan associations,
commercial banks, mortgage brokers, consumer finance companies, credit unions,
leasing companies and other lenders. The Association competes for loan
originations primarily through the interest rates and loan fees it charges and
through the efficiency and quality of services it provides to borrowers.
Competition is intense and is affected by, among other things, the general
availability of lendable funds, general and local economic conditions, current
interest rate levels and other factors which are not readily predictable. The
Association does not offer all of the products and services offered by some of
its competitors, particularly commercial banks.
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<PAGE>
PROPERTIES
The following table sets forth certain information at June 30, 1996,
regarding the properties on which the main office and the branch office of the
Association are located:
<TABLE>
<CAPTION>
Owned or Date Square Net book
Location leased acquired footage value Deposits
- -------- -------- -------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231 Owned 1964 2,325 $74,000 $32,902
125-127 Miami Avenue
North Bend, Ohio 45052 Owned 1994 1,753 $ 5,000 $ 5,288
</TABLE>
EMPLOYEES
At June 30, 1996, the Association had six full-time employees and
three part-time employees. The Association believes that relations with its
employees are excellent. The Association offers health, life and disability
benefits to all employees and although it has had a defined benefit pension plan
for its full-time employees in the past, such plan is in the process of being
terminated. None of the employees of the Association are represented by a
collective bargaining unit.
LEGAL PROCEEDINGS
The Association is not presently involved in any material legal
proceedings. From time to time, the Association is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by the Association.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
MFC. The Board of Directors of MFC consists of seven members divided into
two classes. All of the directors of MFC were initially elected to the Board of
Directors in 1996. Each director is elected for a two-year term and until his
other successor is elected or until his or her earlier resignation, removal from
office or death. The following table presents certain information in respect of
the members of the Board of Directors and the executive officers of MFC:
Name Age Position Term Expires
- ---- --- -------- ------------
Robert Gandenberger 68 Director 1998
John T. Larimer 62 Director and President 1998
Rae Skirvin Larimer 60 Director and Secretary 1997
Edgar H. May 71 Director 1998
R. C. Meyerenke 73 Director and Treasurer 1997
Wilbur H. Tisch 79 Director 1997
Kathleen A. White 39 Director 1997
Julie M. Bertsch 34 Chief Financial Officer -
ROBERT GANDENBERGER. Mr. Gandenberger retired as Supervisor of the
Hamilton County Ohio Recorder's Office in 1994. From 1991 to 1994, Mr.
Gandenberger served as a director of Cleves-North Bend.
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JOHN T. LARIMER. Mr. Larimer, an attorney, has served as President of the
Association since 1993 and as Managing Officer of the Association since November
1995. He has been a director of the Association since 1976. Mr. Larimer is Rae
Skirvin Larimer's spouse and is a brother-in-law of Una Schaeperklaus, a
director of the Association.
RAE SKIRVIN LARIMER. Ms. Larimer has been legal counsel for the
Association since 1975. Ms. Larimer is John Larimer's spouse and Una
Schaeperklaus' sister.
EDGAR H. MAY. Mr. May has served as a director of the Association since
1992. From 1960 until his retirement in 1994, Mr. May was a broker and partner
in Ed May Realty Co., located in Deer Park, Ohio.
R. C. MEYERENKE. Mr. Meyerenke has served the Association as a director
since 1974 and as the Treasurer since _______. From 1974 until his retirement
in 1991, Mr. Meyerenke was the Managing Officer of the Association.
WILBUR H. TISCH. Mr. Tisch retired as owner and President of General Metal
Works in 1983. Mr. Tisch served as director of Cleves-North Bend from 1975 to
1994 and as President from 1986 to 1994.
KATHLEEN A. WHITE. Ms. White has been employed as a real estate title
examiner since 1980.
JULIE M. BERTSCH. Ms. Bertsch, a Certified Public Accountant, was hired as
Chief Financial Officer of MFC and the Association in June 1996. Prior to
joining MFC, Ms. Bertsch was employed from August 1987 until June 1996 with
Grant Thornton LLP, independent certified public accountants.
THE ASSOCIATION. The Amended Constitution of the Association provides for
a Board of Directors consisting of not less than five nor more than seven
directors. The Board of Directors of the Association currently consists of five
directors. Each director serves for a three-year term. The Board of Directors
met 46 times during the fiscal year ended September 30, 1995, for regular and
special meetings. No director attended fewer than 75% of the aggregate of such
meetings and all meetings of the committees of which such director was a member.
The following table presents certain information with respect to the
present directors and executive officers of the Association:
<TABLE>
<CAPTION>
Year of
Position(s) with commencement Term
Name the Association of directorship expires
- ---- ---------------- --------------- -------
<S> <C> <C> <C>
John T. Larimer Director, President and Managing Officer 1975 1997
David H. Korn Director 1961 1997
R. C. Meyerenke Director and Treasurer 1974 1999
Edgar H. May Director 1992 1998
Una Schaeperklaus Director and Secretary 1992 1998
Julie M. Bertsch Chief Financial Officer - -
Charles D. Dell Vice President/Lending - -
</TABLE>
DAVID H. KORN. Mr. Korn has served as a director of the Association since
1961. During the past five years, Mr. Korn has served as a consultant to the
President of a heating and air conditioner contractor, located in Mt. Healthy,
Ohio.
UNA SCHAEPERKLAUS. Ms. Schaeperklaus has served as a director of the
Association since 1992. From 1986 to 1992, Ms. Schaeperklaus served as a
director of Cleves-North Bend, which merged into the Association in 1994. Ms.
Schaeperklaus is Mr. Larimer's sister-in-law and Ms. Larimer's sister.
CHARLES D. DELL. Mr. Dell was named Vice President/Lending of the
Association in June 1996. From 1986 until June 1996, Mr. Dell served as Vice
President/Lending at Centennial Savings Bank, fsb, located in Cincinnati, Ohio.
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After the Conversion, each director of the Association will continue to
serve the Association, and each director and of MFC will continue to serve MFC.
COMMITTEES OF DIRECTORS
The Board of Directors of the Association has an Audit Committee and a Loan
Appraisal Committee.
The members of the Audit Committee are Messrs. Korn, Meyerenke and Larimer.
The Audit Committee is responsible for auditing teller boxes, reviewing and
reporting to the full Board of Directors on the independent audits of the
Association and reviewing loan files for regulatory compliance and adherence to
the Association's lending policies. The Audit Committee met five times during
fiscal year 1995.
The Loan Appraisal Committee is comprised of Messrs. May, Larimer and Korn.
The function of the Loan Appraisal Committee is to review delinquent loans, non-
performing assets and REO properties and to report and recommend action to the
full Board of Directors with regard thereto. The Loan Appraisal Committee met
15 times during fiscal year 1995.
The Board of Directors of MFC does not currently have any committees.
COMPENSATION
Each director of the Association currently receives a fee of $19,500 per
year for service as a director of the Association. Effective April 1996,
directors no longer received committee fees. During fiscal year 1995, a total
of $108,000 was paid in directors' and committee fees.
During the fiscal year ended September 30, 1995, no executive officer of
the Association received annual compensation in an amount equal to or greater
than $100,000. The following table presents certain information regarding the
annual compensation received by Mr. Larimer during such period:
MFC does not currently pay directors' fees, but intends to pay a fee of
$10,000 per year to those directors who do not serve on the Association's Board
of Directors.
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------
Name and Principal Position Year Salary ($)
- --------------------------------------------------------------------------------
John T. Larimer, President 1995 $44,975(1)
- ----------------------------
(1) Consists of salary in the amount of $22,500 and directors' fees in the
amount of $22,475. Does not include amounts attributable to other
miscellaneous benefits received by executive officers. The cost to the
Association of providing such benefits to Mr. Larimer was less than 10% of
his cash compensation.
Mr. Larimer became the Managing Officer of the Association in November,
1995. His current salary is $94,500 per year.
PENSION PLAN
The Association sponsors a defined benefit pension plan (the "Pension
Plan") for the benefit of its full-time employees which it is in the process of
terminating.
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<PAGE>
STOCK BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN. MFC has established the ESOP for the
benefit of employees of MFC and its subsidiaries, including the Association, who
are age 21 or older and who have completed at least one year of service with MFC
and its subsidiaries. The Board of Directors of MFC believes that the ESOP will
be in the best interests of MFC and its shareholders.
The ESOP trust intends to borrow funds from MFC with which to acquire up to
8% of the Common Shares sold in connection with the Conversion. Such loan will
be secured by the Common Shares purchased with the proceeds from the loan and
will be repaid by the ESOP over a period of up to eight years. The primary
source of repayment will be contributions made to the ESOP by the Association.
Common Shares purchased with such loan proceeds will be held in a suspense
account for allocation among ESOP participants as the loan is repaid. If the
ESOP is unable to purchase all or part of the Common Shares for which it
subscribes, the ESOP may purchase common shares on the open market or may
purchase authorized but unissued common shares. If the ESOP purchases
authorized but unissued common shares, such purchases could have a dilutive
effect on the interests of MFC's shareholders.
Contributions to the ESOP and shares released from the suspense account
will be allocated pro rata to participants on the basis of compensation. Except
for participants who retire, become disabled, or die during the plan year, all
other participants must have completed at least 1,000 hours of service and be
employed on the last day of the plan year in order to receive an allocation.
Benefits become vested after five years of service. Vesting will be accelerated
upon retirement at or after age 65, death, disability, termination of the ESOP
or change in control of MFC or the Association. Forfeitures will be reallocated
among remaining participating employees. Benefits may be paid either in MFC
Common Shares or in cash. Benefits may be payable upon retirement, death,
disability or separation from service. Benefits payable under the ESOP cannot
be estimated.
MFC or a committee appointed by the Board of Directors of MFC will
administer the ESOP. The Common Shares and other ESOP funds will be held by a
trustee selected and appointed by MFC (the "ESOP Trustee"). The ESOP Trustee
must vote all common shares of MFC held in the ESOP that are allocated to the
accounts of ESOP participants in accordance with the instructions of such
participants. Common shares held by the ESOP that are not allocated to
participants' accounts and allocated shares for which voting instructions are
not received will be voted by the ESOP Trustee in its sole discretion.
Contributions will be made to the ESOP by the Association based upon the
understanding that the ESOP will be a tax-qualified plan under the Code.
Although no assurances can be given, MFC expects a favorable result when the
ESOP is submitted to the IRS for a determination in respect of such tax
qualification.
STOCK OPTION PLAN. After the completion of the Conversion, the Board of
Directors of MFC intends to adopt the Stock Option Plan, subject to approval by
the shareholders of MFC. The purposes of the Stock Option Plan include
retaining and providing incentives to the directors, officers and employees of
MFC and its subsidiaries by facilitating their purchase of a stock interest in
MFC.
Options granted to the officers and employees under the Stock Option Plan
may be "incentive stock options" within the meaning of Section 422 of the Code
("ISOs"). Options granted under the Stock Option Plan to directors who are not
full-time employees of MFC or the Association will not qualify under the Code
and thus will not be ISOs ("non-qualified stock options"). The option exercise
price will be determined by the Stock Option Committee at the time of grant;
provided, however, that the exercise price for an option must not be less than
100% of the fair market value of the shares on the date of the grant. No stock
option will be exercisable after the expiration of ten years from the date that
it is granted, except that in the case of an ISO granted to an employee who owns
more than 10% of MFC's outstanding common shares at the time such ISO is granted
under the Stock Option Plan, the exercise price of the ISO may not be less than
110% of the fair market value of the shares on the date of the grant and the ISO
may not be exercisable after the expiration of five years from the date of
grant.
An option recipient cannot transfer or assign an option other than by will,
in accordance with the laws of descent and distribution or pursuant to a
domestic relations order issued by a court of competent jurisdiction.
"Termination for cause," as defined in the Stock Option Plan, will result in the
termination of any outstanding options.
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<PAGE>
MFC will receive no monetary consideration for the granting of options
under the Stock Option Plan. Upon the exercise of options, MFC will receive a
payment of cash, common shares of MFC or a combination of cash and common shares
from option recipients in exchange for shares issued.
A number of shares equal to 10% of the Common Shares sold in the Offering
is expected to be reserved for issuance by MFC upon the exercise of options to
be granted to certain directors, officers and employees of MFC and its
subsidiaries from time to time under the Stock Option Plan. No determination
has been made regarding the recipients of awards under the Stock Option Plan or
the number of shares to be awarded to individual recipients. The Stock Option
Committee may grant options under the Stock Option Plan to the directors,
officers and employees of MFC and the Association at such times as they deem
most beneficial to MFC on the basis of the individual participant's
responsibility, tenure and future potential.
In accordance with OTS regulations, the following restrictions will apply
if the Stock Option Plan is implemented by MFC during the first year following
the completion of the Conversion: (i) the Stock Option Plan must be approved by
the shareholders of MFC at an annual or a special meeting of shareholders, in
either case to be held no sooner than six months after the completion of the
Conversion; (ii) awards to directors who are not full-time employees of MFC or
the Association may not exceed 5% per person and 30% in the aggregate of the
total number of plan shares; (iii) awards to directors or other persons who are
full-time employees of MFC or the Association may not exceed 25% of the plan
shares per person; and (iv) options will become exercisable at the rate of
one-fifth per year commencing no earlier than one year from the date of grant,
subject to acceleration of vesting only in the event of the death or disability
of a participant.
RECOGNITION AND RETENTION PLAN AND TRUST. After the completion of the
Conversion, the Association intends to adopt the RRP. The purpose of the RRP is
to provide directors, officers and certain key employees of the Association with
an ownership interest in the Association in a manner designed to compensate such
directors, officers and key employees for services to the Association. The
Association expects to contribute sufficient funds to enable the RRP to purchase
up to 4% of the Common Shares sold in the Offering. Such shares may be
purchased in the market following the Conversion or may be purchased from the
authorized but unissued shares of MFC.
The RRP Committee will administer the RRP and determine the number of
shares to be granted to eligible participants. Each participant granted shares
under the RRP will be entitled to the benefit of any dividends or other
distributions paid on such shares prior to the shares being earned, although
dividends or other distributions on shares held in the RRP Trust will not be
distributed to the participant until the shares are distributed to the
participant. Compensation expense in the amount of the fair market value of the
RRP shares will be recognized as the shares are earned.
No determination has been made regarding recipients of RRP awards or the
number of shares to be awarded to individual recipients. In accordance with OTS
regulations, the following restrictions will apply if the RRP is implemented
during the first year following the completion of the Conversion: (i) the RRP
must be approved by the shareholders of MFC at an annual or a special meeting of
shareholders, in either case to be held no sooner than six months after the
completion of the Conversion; (ii) awards to directors who are not full-time
employees of MFC or the Association may not exceed 5% per person and 30% in the
aggregate of the total number of plan shares; (iii) awards to directors or other
persons who are full-time employees of MFC or the Association may not exceed 25%
per person; (iv) RRP shares will be earned and nonforfeitable at the rate of
one-fifth per year on each of the first five anniversaries of the award, subject
to acceleration only in the event of the death or disability of a participant;
and (v) RRP shares will be voted by the RRP Trust until distributed to a
participant.
EMPLOYMENT AGREEMENT
The Association intends to enter into an employment agreement with Mr.
Larimer (the "Employment Agreement"). The Association currently has no
employment agreements with any of its officers. The Employment Agreement will
become effective upon the completion of the Conversion and will provide for a
term of three years, a salary of not less than $94,500 and performance review by
the Board of Directors not less often than annually. The Employment Agreement
will also provide for the inclusion of Mr. Larimer in any formally established
employee benefit, bonus, pension and profit-sharing plans for which senior
management personnel are eligible.
The Employment Agreement will be terminable by the Association at any time.
In the event of termination by the Association for "just cause," as defined in
the Employment Agreement, Mr. Larimer will have no right to receive any
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<PAGE>
compensation or other benefits for any period after such termination. In the
event of termination by the Association other than for just cause, at the end of
the term of the Employment Agreement or in connection with a "change of
control," as defined in the Employment Agreement, Mr. Larimer will be entitled
to a continuation of salary payments for a period of time equal to the term of
the Employment Agreement and a continuation of benefits substantially equal to
those being provided at the date of termination of employment until the earliest
to occur of the end of the term of the Employment Agreement or the date on which
Mr. Larimer becomes employed full-time by another employer.
The Employment Agreement also will contain provisions with respect to the
occurrence within one year of a "change of control" of (1) the termination of
employment of Mr. Larimer for any reason other than just cause, retirement or
termination at the end of the term of the agreement, or (2) a constructive
termination resulting from change in the capacity or circumstances in which Mr.
Larimer is employed or a material reduction in his responsibilities, authority,
compensation or other benefits provided under the Employment Agreement without
Mr. Larimer's written consent. In the event of any such occurrence, Mr. Larimer
will be entitled to payment of an amount equal to (a) the amount of compensation
to which he would be entitled for the remainder of the term of the Employment
Agreement, plus (b) the difference between (i) three times Mr. Larimer's average
annual compensation for the three taxable years immediately preceding the
termination of employment, less (ii) the amount paid to Mr. Larimer as
compensation for the remainder of the employment term. In addition, Mr. Larimer
will be entitled to continued coverage under all benefit plans until the
earliest of the end of the term of the Employment Agreement or the date on which
he is included in another employer's benefit plans as a full-time employee. The
maximum which Mr. Larimer may receive, however, is limited to an amount which
will not result in the imposition of a penalty tax pursuant to Section
280G(b)(3) of the Code. "Control," as defined in the Employment Agreement,
generally refers to the acquisition by any person or entity of the ownership or
power to vote 10% or more of the voting stock of the Association or MFC, the
control of the election of a majority of the directors of the Association or MFC
or the exercise of a controlling influence over the management or policies of
the Association or MFC.
The aggregate payments that would have been made to Mr. Larimer, assuming
his termination at June 30, 1996, following a change of control, would have been
approximately $283,500.
CERTAIN TRANSACTIONS WITH THE ASSOCIATION
In accordance with the OTS regulations, the Association makes loans to
executive officers and directors of the Association in the ordinary course of
business and on the same terms and conditions, including interest rates and
collateral, as those of comparable loans to other persons. There were no loans
to directors or executive officers of the Association at June 30, 1996.
Rae Skirvin Larimer, the spouse of John T. Larimer and sister of Una
Schaeperklaus, serves as general counsel to the Association. The Association
expects to continue to engage Ms. Larimer in such capacity in the future. In
1995, the Association paid $20,000 in legal fees to the firm of Rae Skirvin
Larimer, Attorney-at-law, for Ms. Larimer's services.
REGULATION
GENERAL
As a savings and loan association incorporated under the laws of Ohio, the
Association is subject to regulation, examination and oversight by the OTS and
the Superintendent of the Division (the "Ohio Superintendent"). Because the
Association's deposits are insured by the FDIC, the Association also is subject
to general oversight by the FDIC. The Association must file periodic reports
with the OTS, the Ohio Superintendent and the FDIC concerning its activities and
financial condition. Examinations are conducted periodically by federal and
state regulators to determine whether the Association is in compliance with
various regulatory requirements and is operating in a safe and sound manner.
The Association is a member of the FHLB of Cincinnati.
MFC will be a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended (the "HOLA"). Consequently, MFC will be
subject to regulation, examination and oversight by the OTS and will be required
to submit periodic reports thereto. Because MFC and the Association are
corporations organized under Ohio law, they are also subject to the provisions
of the Ohio Revised Code applicable to corporations generally.
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<PAGE>
The United States Congress is considering legislation to recapitalize the
SAIF. See "- Federal Deposit Insurance Corporation -- Assessments." In
connection with such legislation, Congress may eliminate the OTS and may require
that the Association be regulated under federal law in the same fashion as
banks. As a result, the Association may become subject to additional
regulation, examination and oversight by the FDIC. In addition, MFC might
become a bank holding company, subject to examination, regulation and oversight
by the Board of Governors of the Federal Reserve ("FRB"), including greater
activity and capital requirements than imposed on it by the OTS.
OHIO SAVINGS AND LOAN LAW
The Ohio Superintendent is responsible for the regulation and supervision
of Ohio savings and loan associations in accordance with the laws of the State
of Ohio. Ohio law prescribes the permissible investments and activities of Ohio
savings and loan associations, including the types of lending that such
associations may engage in and the investments in real estate, subsidiaries and
corporate or government securities that such associations may make. The ability
of Ohio associations to engage in these state-authorized investments and
activities is subject to oversight and approval by the FDIC, if such investments
or activities are not permissible for a federally chartered savings and loan
association. See "Federal Deposit Insurance Corporation -- State Association
Activities."
The Ohio Superintendent also has approval authority over any mergers
involving or acquisitions of control of Ohio savings and loan associations. The
Ohio Superintendent may initiate certain supervisory measures or formal
enforcement actions against Ohio associations. Ultimately, if the grounds
provided by law exist, the Ohio Superintendent may place an Ohio association in
conservatorship or receivership.
The Ohio Superintendent conducts regular examinations of the Association
approximately once a year. Such examinations are usually conducted jointly with
one or both federal regulators. The Ohio Superintendent imposes assessments on
Ohio associations based on their asset size to cover the cost of supervision and
examination.
OFFICE OF THRIFT SUPERVISION
GENERAL. The OTS is an office in the Department of the Treasury and is
responsible for the regulation and supervision of all federally chartered
savings and loan associations and all other savings and loan associations the
deposits of which are insured by the FDIC. The OTS issues regulations governing
the operation of savings and loan associations, regularly examines such
associations and imposes assessments on savings associations based on their
asset size to cover the costs of this supervision and examination. The OTS also
may initiate enforcement actions against savings and loan associations and
certain persons affiliated with them for violations of laws or regulations or
for engaging in unsafe or unsound practices. If the grounds provided by law
exist, the OTS may appoint a conservator or receiver for a savings and loan
association.
REGULATORY CAPITAL REQUIREMENTS. The Association is required by OTS
regulations to meet certain minimum capital requirements. For information
regarding the Association's regulatory capital at June 30, 1996, and pro forma
regulatory capital after giving effect to the Conversion, see "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Liquidity and Capital Resources" and "REGULATORY CAPITAL COMPLIANCE."
Current capital requirements call for tangible capital of 1.5% of adjusted
total assets, core capital (which for the Association consists solely of
tangible capital) of 3.0% of adjusted total assets and risk-based capital (which
for the Association consists of core capital and general valuation allowances)
of 8.0% of risk-weighted assets (assets, including certain off-balance sheet
items, are weighted at percentage levels ranging from 0% to 100% depending on
the relative risk).
The OTS has proposed to amend the core capital requirement so that those
associations that do not have the highest examination rating and an acceptable
level of risk will be required to maintain core capital of from 4% to 5%,
depending on the Association's examination rating and overall risk. The
Association does not anticipate that it will be adversely affected if the core
capital requirement regulation is amended as proposed.
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement a savings association would have to
measure the effect of an immediate 200 basis point change in interest rates on
the value of its portfolio as determined under
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the methodology of the OTS. If the measured interest rate risk is above the
level deemed normal under the regulation, the Association will be required to
deduct one-half of such excess exposure from its total capital when determining
its risk-based capital. In general, an association with less than $300 million
in assets and a risk-based capital ratio in excess of 12% will not be subject to
the interest rate risk component, and the association qualifies for such
exemption. Pending implementation of the interest rate risk component, the OTS
has the authority to impose a higher individualized capital requirement on any
savings association it deems to have excess interest rate risk. The OTS also
may adjust the risk-based capital requirement on an individualized basis to take
into account risks due to concentrations of credit and non-traditional
activities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - Asset and Liability Management."
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings and
loan associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility in
determining how to resolve the problems of the institution. In addition, the
OTS generally can downgrade an association's capital category, notwithstanding
its capital level, if, after notice and opportunity for hearing, the association
is deemed to be engaging in an unsafe or unsound practice because it has not
corrected deficiencies that resulted in it receiving a less than satisfactory
examination rating on matters other than capital or it is deemed to be in an
unsafe or unsound condition. An undercapitalized association must submit a
capital restoration plan to the OTS within 45 days after it becomes
undercapitalized. Undercapitalized associations will be subject to increased
monitoring and asset growth restrictions and will be required to obtain prior
approval for acquisitions, branching and engaging in new lines of business.
Critically undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except under
limited circumstances. The Association's capital at June 30, 1996, meets the
standards for the highest level, a "well-capitalized" institution.
Federal law prohibits a savings and loan association from making a capital
distribution to anyone or paying management fees to any person having control of
the association if, after such distribution or payment, the association would be
undercapitalized. In addition, each company controlling an undercapitalized
association must guarantee that the association will comply with its capital
plan until the association has been adequately capitalized on an average during
each of four preceding calendar quarters and must provide adequate assurances of
performance. The aggregate liability pursuant to such guarantee is limited to
the lesser of (i) an amount equal to 5% of the association's total assets at the
time the association became undercapitalized or (ii) the amount that is
necessary to bring the association into compliance with all capital standards
applicable to such association at the time the association fails to comply with
its capital restoration plan.
LIQUIDITY. OTS regulations require that savings associations maintain an
average daily balance of liquid assets (cash, certain time deposits,
association's acceptances and specified United States government, state or
federal agency obligations) equal to a monthly average of not less than 5% of
its net withdrawable savings deposits plus borrowings payable in one year or
less. Federal regulations also require each member institution to maintain an
average daily balance of short-term liquid assets of not less than 1% of the
total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed upon member institutions
failing to meet liquidity requirements. The eligible liquidity of the
Association at June 30, 1996, was approximately $20.1 million, or 52.2%, which
exceeded the 5% liquidity requirement by approximately $18.2 million. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources."
QUALIFIED THRIFT LENDER TEST. Savings and loan associations are required
to maintain a specified level of investments in assets that are designated as
qualifying thrift investments. Such investments are generally related to
domestic residential real estate and manufactured housing and include stock
issued by any FHLB, the Federal Home Loan Mortgage Corporation or the Federal
National Mortgage Association. The QTL test requires that 65% of an
institution's "portfolio assets" (total assets less goodwill and other
intangibles, property used to conduct business and 20% of liquid assets) consist
of qualified thrift investments on a monthly average basis in 9 out of every 12
months. The OTS may grant exceptions to the QTL test under certain
circumstances. If a savings and loan association fails to meet the QTL Test,
the association and its holding company will be subject to certain operating
restrictions. A savings and loan association that fails to meet the QTL Test
will not be eligible for new FHLB advances. See "Federal Home Loan Banks." At
June 30, 1996, the Association had QTL investments totalling approximately 75%
of its total portfolio assets.
LENDING LIMIT. OTS regulations generally limit the aggregate amount that a
savings association can lend to one borrower or group of related borrowers to an
amount equal to 15% of the association's unimpaired capital, which is defined
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for this purpose as total capital for regulatory purposes. A savings
association may lend to one borrower an additional amount not to exceed 10% of
the association's unimpaired capital if the additional amount is fully secured
by certain forms of "readily marketable collateral." Real estate is not
considered "readily marketable collateral." Notwithstanding the level of
unimpaired capital and surplus, a savings association may lend up to $500,000 to
any one borrower or group of related borrowers. See "THE BUSINESS OF THE
ASSOCIATION - Lending Activities -- Loan Originations, Purchases and Sales."
TRANSACTIONS WITH INSIDERS AND AFFILIATES. Loans to insiders are also
subject to Section 22(g) and (h) of the Federal Reserve Act ("FRA"), which place
restrictions on loans to executive officers, directors and principal
shareholders and their related interests. Generally, such loans must conform to
the lending limit on loans to one borrower, and the total of such loans to
executive officers, directors, principal shareholders and their related
interests cannot exceed the association's unimpaired capital and surplus or 200%
of unimpaired capital and surplus for eligible adequately capitalized
institutions with less than $100 million in assets. See "- Lending Limit."
Most loans to directors, executive officers and principal shareholders must be
approved in advance by a majority of the "disinterested" members of the board of
directors of the association with any "interested" director not participating.
All loans to directors, executive officers and principal shareholders must be
made on terms substantially the same as offered in comparable transactions with
the general public. Loans to executive officers are subject to additional
limits. The Association was in compliance with such restrictions at June 30,
1996. See "MANAGEMENT - Certain Transactions with the Association."
Savings associations must comply with Sections 23A and 23B of the FRA,
pertaining to transactions with affiliates. An affiliate of a savings
association is any company or entity that controls, is controlled by or is under
common control with the savings and loan association. MFC will be an affiliate
of the Association. Generally, Sections 23A and 23B of the FRA (i) limit the
extent to which a savings and loan association or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, (ii) limit the aggregate of all such
transactions with all affiliates to an amount equal to 20% of such capital stock
and surplus, and (iii) require that all such transactions be on terms
substantially the same, or at least as favorable to the association, as those
provided in transactions with a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a association holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. The Association was
in compliance with these requirements and restrictions at June 30, 1996.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. The OTS imposes various restrictions
or requirements on the ability of associations to make capital distributions,
according to ratings of associations based on their capital level and
supervisory condition. Capital distributions, for purposes of such regulation,
include, without limitation, payments of cash dividends, repurchases and certain
other acquisitions by an association of its shares and payments to stockholders
of another association in an acquisition of such other association.
The first rating category is Tier 1, consisting of associations that,
before and after the proposed capital distribution, meet their fully phased-in
capital requirement. Associations in this category may make capital
distributions during any calendar year equal to the greater of 100% of their net
income, current year-to-date, plus 50% of the amount by which the lesser of such
association's tangible, core or risk-based capital exceeds its fully phased-in
capital requirement for such capital component, as measured at the beginning of
the calendar year, or the amount authorized for a Tier 2 association. The
second category, Tier 2, consists of associations that, before and after the
proposed capital distribution, meet their current minimum, but not fully
phased-in capital requirement. Associations in this category may make capital
distributions up to 75% of their net income over the most recent four quarters.
Tier 3 associations do not meet their current minimum capital requirement and
must obtain OTS approval of any capital distribution. A Tier 1 association
deemed to be in need of more than normal supervision by the OTS may be
downgraded to a Tier 2 or Tier 3 association.
The Association meets the requirements for a Tier 1 association and has not
been notified of any need for more than normal supervision. The Association
will also be prohibited from declaring or paying any dividends or from
repurchasing any of its stock if, as a result, the net worth of the Association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with the Conversion. In addition, as a
subsidiary of MFC, the Association will also be required to give the OTS 30
day's notice prior to declaring any dividend on its stock. The OTS may object
to the dividend during that 30-day period based on safety and soundness
concerns. Moreover, the
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OTS may prohibit any capital distribution otherwise permitted by regulation
if the OTS determines that such distribution would constitute an unsafe or
unsound practice.
In December 1994, the OTS issued a proposal to amend the capital
distributions limits. Under that proposal, associations not owned by a holding
company with an examination rating of 1 or 2 could make a capital distribution
without notice to the OTS, if they remain adequately capitalized, as described
above, after the distribution is made. Any other association seeking to make a
capital distribution that would not cause the association to fall below the
capital levels to qualify as adequately capitalized or better, would have to
provide notice to the OTS. Except under limited circumstances and with OTS
approval, no capital distributions would be permitted if it caused the
association to become undercapitalized.
HOLDING COMPANY REGULATION. After the Conversion, MFC will be a savings
and loan holding company within the meaning of the HOLA. As such, MFC will
register with the OTS and will be subject to OTS regulations, examination,
supervision and reporting requirements. Congress is considering legislation
which may require that MFC become a bank holding company regulated by the FRB.
Bank holding companies with more than $150 million in assets are subject to
capital requirements similar to those imposed on the Association and have more
extensive interstate acquisition authority than savings and loan holding
companies. They are also subject to more restrictive activity and investment
limits than savings and loan holding companies. No assurances can be given that
such legislation will be enacted, and MFC cannot be certain of the legislation's
impact on its future operations until it is enacted.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings and loan association or savings and loan holding
company, without prior approval of the OTS, or from acquiring or retaining more
than 5% of the voting shares of a savings and loan association or holding
company thereof, which is not a subsidiary. Under certain circumstances, a
savings and loan holding company is permitted to acquire, with the approval of
the OTS, up to 15% of the previously unissued voting shares of an
undercapitalized savings and loan association for cash without such savings and
loan association being deemed to be controlled by such holding company. Except
with the prior approval of the OTS, no director or officer of a savings and loan
holding company or person owning or controlling by proxy or otherwise more than
25% of such company's stock may also acquire control of any savings institution,
other than a subsidiary institution, or any other savings and loan holding
company.
MFC will be a unitary savings and loan holding company. Under current law,
there are generally no restrictions on the activities of unitary savings and
loan holding companies and such companies are the only financial institution
holding companies which may engage in commercial, securities and insurance
activities without limitation. The broad latitude under current law is
restricted if the OTS determines that there is reasonable cause to believe that
the continuation by a savings and loan holding company of an activity
constitutes a serious risk to the financial safety, soundness or stability of
its subsidiary savings and loan association. The OTS may impose such
restrictions as deemed necessary to address such risk, including limiting (i)
payment of dividends by the savings and loan association; (ii) transactions
between the savings and loan association and its affiliates; and (iii) any
activities of the savings and loan association that might create a serious risk
that the liabilities of the holding company and its affiliates may be imposed on
the savings and loan association. Notwithstanding the foregoing rules as to
permissible business activities of a unitary savings and loan holding company,
if the savings and loan association subsidiary of a holding company fails to
meet the QTL Test, then such unitary holding company would become subject to the
activities restrictions applicable to multiple holding companies. At June 30,
1996, the Association met the QTL Test. See "Qualified Thrift Lender Test."
If MFC were to acquire control of another savings institution, other than
through a merger or other business combination with the Association, MFC would
become a multiple savings and loan holding company. Unless the acquisition is
an emergency thrift acquisition and each subsidiary savings and loan association
meets the QTL Test, the activities of MFC and any of its subsidiaries (other
than the Association or other subsidiary savings and loan associations) would
thereafter be subject to activity restrictions. The HOLA provides that, among
other things, no multiple savings and loan holding company or subsidiary thereof
that is not a savings institution shall commence or continue for a limited
period of time after becoming a multiple savings and loan holding company or
subsidiary thereof, any business activity other than (i) furnishing or
performing management services for a subsidiary savings institution; (ii)
conducting an insurance agency or escrow business; (iii) holding, managing or
liquidating assets owned by or acquired from a subsidiary savings institution;
(iv) holding or managing properties used or occupied by a subsidiary savings
institution; (v) acting as trustee under deeds of trust; (vi) those activities
previously directly authorized by federal regulation as of March 5, 1987, to be
engaged in by multiple holding companies; or (vii) those activities authorized
by the FRB as permissible for bank holding companies,
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unless the OTS by regulation prohibits or limits such activities for savings and
loan holding companies, and which have been approved by the OTS prior to being
engaged in by a multiple holding company.
The OTS may approve an acquisition resulting in the formation of a multiple
savings and loan holding company that controls savings and loan associations in
more than one state only if the multiple savings and loan holding company
involved controls a savings and loan association that operated a home or branch
office in the state of the association to be acquired as of March 5, 1987, or if
the laws of the state in which the institution to be acquired is located
specifically permit institutions to be acquired by state-chartered institutions
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). As under prior law, the OTS may approve an acquisition
resulting in a multiple savings and loan holding company controlling savings and
loan associations in more than one state in the case of certain emergency thrift
acquisitions.
No subsidiary savings and loan association of a savings and loan holding
company may declare or pay a dividend on its permanent or nonwithdrawable stock
unless it first gives the OTS 30 days advance notice of such declaration and
payment. Any dividend declared during such period or without the giving of such
notice shall be invalid.
FDIC REGULATIONS
DEPOSIT INSURANCE. The FDIC is an independent federal agency that insures
the deposits, up to prescribed statutory limits, of banks and thrifts and
safeguards the safety and soundness of the banking and thrift industries. The
FDIC administers two separate insurance funds, the BIF for commercial banks and
state savings banks and the SAIF for savings associations and banks that have
acquired deposits from savings associations. The FDIC is required to maintain
designated levels of reserves in each fund. The reserves of the SAIF are
currently below the level required by law, primarily because a significant
portion of the assessments paid into the SAIF have been used to pay the cost of
prior thrift failures, while the reserves of the BIF met the level required by
law in May, 1995. Thrifts are generally prohibited from converting from one
insurance fund to the other until the SAIF meets its designated reserve level,
except with the prior approval of the FDIC in certain limited cases, and
provided certain fees are paid. The insurance fund conversion provisions do not
prohibit a SAIF member from converting to a bank charter or merging with a bank
during the moratorium as long as the resulting bank continues to pay the
applicable insurance assessments to the SAIF during such period and as long as
certain other conditions are met.
The Association is a member of the SAIF and its deposit accounts are
insured by the FDIC up to the prescribed limits. The FDIC has examination
authority over all insured depository institutions, including the Association,
and has authority to initiate enforcement actions against federally insured
savings associations if the FDIC does not believe the OTS has taken appropriate
action to safeguard safety and soundness and the deposit insurance fund.
ASSESSMENTS. The FDIC is authorized to establish separate annual
assessment rates for deposit insurance for members of the BIF and members of the
SAIF. The FDIC may increase assessment rates for either fund if necessary to
restore the fund's ratio of reserves to insured deposits to the target level
within a reasonable time and may decrease such rates if such target level has
been met. The FDIC has established a risk-based assessment system for both SAIF
and BIF members. Under this system, assessments vary depending on the risk the
institution poses to its deposit insurance fund. Such risk level is determined
based on the institution's capital level and the FDIC's level of supervisory
concern about the institution.
Because of the differing reserve levels of the SAIF and the BIF, deposit
insurance assessments paid by healthy commercial banks were recently reduced
significantly below the level paid by healthy savings associations. Assessments
paid by healthy savings associations exceeded those paid by healthy commercial
banks by approximately $.19 per $100 in deposits in late 1995 and will exceed
them by $.23 per $100 in deposits beginning in 1996. Such premium disparity
could have a negative competitive impact on MFC and other institutions with SAIF
deposits.
Congress is considering legislation to recapitalize the SAIF and to
eliminate the significant premium disparity between the BIF and the SAIF.
Currently, the recapitalization plan provides for the payment within 60 days of
the enactment of the legislation of a special assessment of approximately $.85
per $100 of SAIF deposits held at some date in 1996, in order to increase SAIF
reserves to the level required by law. Certain associations holding SAIF
insured deposits would pay a lower special assessment. In addition, the cost of
prior thrift failures would be shared by both the SAIF and the BIF. Such cost
sharing might increase BIF assessments by $.02 to $.025 per $100 in deposits.
SAIF assessments for
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healthy savings associations would be set at a significantly lower level after
the special assessment is paid by all SAIF institutions and could never be
reduced below the level set for healthy BIF institutions
The recapitalization plan also provides for the merger of the SAIF and BIF
on January 1, 1998. However, the SAIF recapitalization legislation currently
provides for an elimination of the federal thrift charter or of the separate
federal regulation of thrifts prior to the merger of the deposit insurance
funds. The Association would be regulated under federal law as a bank, and, as
a result, would become subject to the more restrictive activity limitations
imposed on national banks, but it would have a specified period of time to
divest of any non-conforming assets. The requirement that the Association
convert to a bank charter could have an adverse effect on MFC, although until
such proposals are acted upon by Congress, the extent of such effect is
uncertain.
The Association had $37.6 million in deposits at March 31, 1995. If the
one-time special assessment in the legislative proposal is enacted into law
based upon deposits at March 31, 1995, the Association will pay an additional
pre-tax assessment of approximately $320,000, which will reduce capital and
earnings for the quarter in which the special assessment is recorded. However,
it is expected that quarterly SAIF assessments would be reduced significantly
after such special assessment is paid.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, MFC can give
no assurances that the disparity between BIF and SAIF assessments will be
eliminated and cannot be certain of the impact of its being regulated as a bank
holding company or the Association being regulated as a bank until the
legislation requiring such change is enacted. If the proposed legislation is
not enacted, SAIF premiums may increase and the disparity between BIF and SAIF
premiums may become more pronounced, which would negatively impact the
Association.
FRB REGULATIONS
FRB regulations currently require savings associations to maintain reserves
of 3% of net transaction accounts (primarily NOW accounts) up to $52.0 million
in such accounts (subject to an exemption of $4.3 million) and of 10% of net
transaction accounts over $52.0 million. At June 30, 1996, the Association was
in compliance with the FRB's reserve requirements.
FEDERAL HOME LOAN BANKS
The FHLBs provide credit to their members in the form of advances. See
"THE BUSINESS OF THE ASSOCIATION - Deposits and Borrowings." The Association
is a member of the FHLB of Cincinnati and must maintain an investment in the
capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1%
of the aggregate outstanding principal amount of the Association's residential
mortgage loans, home purchase contracts and similar obligations at the beginning
of each year, and 5% of its advances from the FHLB. The Association is in
compliance with this requirement with an investment in stock of the FHLB of
Cincinnati of $357,000 at June 30, 1996.
Upon the origination or renewal of a loan or advance, the FHLB of
Cincinnati is required by law to obtain and maintain a security interest in
collateral in one or more of the following categories: fully disbursed, whole
first mortgage loans on improved residential property or securities representing
a whole interest in such loans; securities issued, insured or guaranteed by the
U.S. Government or an agency thereof; deposits in any FHLB; or other real estate
related collateral (up to 30% of the member association's capital) acceptable to
the applicable FHLB, if such collateral has a readily ascertainable value and
the FHLB can perfect its security interest in the collateral.
FHLB advances to members such as the Association who meet the QTL Test are
generally limited to the lower of (i) 25% of the member's assets and (ii) 20
times the member's investment in FHLB stock. At June 30, 1996, the
Association's maximum limit on advances was approximately $7.1 million. The
granting of advances is subject also to the FHLB's collateral and credit
underwriting guidelines. The FHLB of Cincinnati currently offers advances with
fixed and variable interest rates ranging from 6.20% to 8.25%, which included
the following types of borrowings: short-term advances with terms ranging from
one day to one year, including cash management accounts and lines of credit;
fixed-rate, long-term advances with terms ranging from seven months to 20 years;
and various customized advances with terms ranging from one month to 30 years
and with call, balloon or mortgage-matching features.
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Each FHLB is required to establish standards of community investment or
service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's performance
under the Community Reinvestment Act and its record of lending to first-time
home buyers. All long-term advances by each FHLB must be made only to provide
funds for residential housing finance. The FHLBs have established an
"Affordable Housing Program" to subsidize the interest rate of advances to
member associations engaged in lending for long-term, low- and moderate-income,
owner-occupied and affordable rental housing at subsidized rates. The FHLB of
Cincinnati reviews and accepts proposals for subsidies under that program twice
a year. The Association has not participated in such program.
TAXATION
FEDERAL TAXATION
MFC is subject to the federal tax laws that apply to corporations
generally. With certain exceptions, the Association is also subject to the
federal tax laws and regulations which apply to corporations generally. One
such exception permits thrift institutions such as the Association which meet
certain definitional tests relating to the composition of assets and other
conditions prescribed by the Code to establish a reserve for bad debts and to
make annual additions thereto which may, within specified limits, be taken as a
deduction in computing taxable income. Legislation pending in Congress may
eliminate this bad debt reserve provision in 1996 and may require the recapture
of post-1987 bad debt reserves over a six-year period beginning in 1998. See
"REGULATION - FDIC Regulations -- Assessments."
For purposes of the bad debt reserve deduction, loans are categorized as
"qualifying real property loans," which generally include loans secured by
improved real estate, and "nonqualifying loans," which include all other types
of loans. The amount of the bad debt reserve deduction for "nonqualifying
loans" is computed under the experience method. A thrift institution may elect
annually to compute its allowable addition to its bad debt reserves for
qualifying loans under either the experience method or the percentage of taxable
income method. There was no effect of utilizing the percentage of taxable
income method to compute bad debt reserves on the Association's federal income
taxes payable for fiscal 1995, 1994 and 1993, respectively, due to the 12% of
deposits limitation.
Under the experience method, the bad debt deduction for an addition to the
reserve for "qualifying real property loans" or "nonqualifying loans" is an
amount determined under a formula based upon a moving average of the bad debts
actually sustained by a thrift institution over a period of years or an amount
necessary to maintain a minimum reserve level amount for a statutory base year.
The percentage of specially computed taxable income that is used to compute
the percentage bad debt deduction is 8%. The percentage bad debt deduction thus
computed is reduced by the amount permitted as a deduction for nonqualifying
loans under the experience method. The availability of the percentage of
taxable income method permits qualifying thrift institutions to be taxed at a
lower effective federal income tax rate than that applicable to corporations
generally. The effective maximum federal income tax rate applicable to a
qualifying thrift institution (exclusive of any minimum tax or environmental
tax), assuming the maximum percentage bad debt deduction, is approximately
31.3%.
If less than 60% of the total dollar amount of an institution's assets (on
a tax basis) consist of specified assets (generally, loans secured by
residential real estate or deposits, educational loans, cash and certain
governmental obligations), such institution may not deduct any addition to a bad
debt reserve and generally must include reserves in excess of that allowable
under the experience method in income over a six-year period. At June 30, 1996,
at least 60% of the Association's total assets were specified assets. No
representation can be made as to whether the Association will meet the 60% test
for subsequent taxable years.
Under the percentage of taxable income method, the percentage bad debt
deduction cannot exceed the amount necessary to increase the balance in the
reserve for "qualifying real property loans" to an amount equal to 6% of such
loans outstanding at the end of the taxable year. Additionally, the total bad
debt deduction attributable to "qualifying real property loans" cannot exceed
the greater of (i) the amount deductible under the experience method and (ii)
the amount which, when added to the bad debt deduction for "nonqualifying
loans," equals the amount by which 12% of the amount comprising savings accounts
at year-end exceeds the sum of surplus, undivided profits and reserves at the
beginning of the year. At June 30, 1996, and September 30, 1995 and 1994, the
12% of deposits limitation restricted the percentage of bad debt deduction
available to the Association.
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In addition to the regular income tax, the Association is subject to a
minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20%
on "alternative minimum taxable income" (which is the sum of a corporation's
regular taxable income, with certain adjustments, and tax preference items),
less any available exemption. Such tax preference items include (i) 100% of the
excess of a thrift institution's bad debt deduction over the amount that would
have been allowable based on actual experience and (ii) interest on certain
tax-exempt bonds issued after August 7, 1986. In addition, 75% of the amount by
which a corporation's "adjusted current earnings" exceeds its alternative
minimum taxable income computed without regard to this preference item and prior
to reduction by net operating losses, is included in alternative minimum taxable
income. Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it exceeds
the corporation's regular income tax. Payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. In
addition, for taxable years after 1986 and before 1996, the Association is also
subject to an environmental tax equal to 0.12% of the excess of alternative
minimum taxable income for the taxable year (determined without regard to net
operating losses and the deduction for the environmental tax) over $2.0 million.
To the extent earnings appropriated to a thrift institution's bad debt
reserves for qualifying real property loans and deducted for federal income tax
purposes exceed the allowable amount of such reserves computed under the
experience method, and to the extent of the institution's supplemental reserves
for losses on loans (the "Excess"), such Excess may not, without adverse tax
consequences, be utilized for payment of cash dividends or other distributions
to a shareholder (including distributions in dissolution or liquidation) or for
any other purpose (except to absorb bad debt losses). Distribution of a cash
dividend by a thrift institution to a shareholder is treated as made: first, out
of the institution's post-1951 accumulated earnings and profits; second, out of
the Excess; and third, out of such other accounts as may be proper. As of
September 30, 1995, the Association's Excess for tax purposes totaled
approximately $1.4 million. The Association believes it had approximately $6.0
million of accumulated earnings and profits for tax purposes as of September 30,
1995, which would be available for dividend distributions, provided regulatory
restrictions applicable to the payment of dividends are met. See "DIVIDEND
POLICY." No representation can be made as to whether the Association will have
current or accumulated earnings and profits in subsequent periods.
Under pending legislation currently awaiting the President's signature, the
Association will be absolved of any tax liability related to the aforementioned
Excess, but will be required to recapture its post-1987 percentage of bad debt
deductions with a previously deferred tax liability totaling $8,000.
The tax returns of the Association have been closed by statute or audited
through fiscal year 1991. In the opinion of management, any examination of open
returns would not result in a deficiency which could have a material adverse
effect on the financial condition of the Association.
OHIO TAXATION
MFC is subject to the Ohio corporation franchise tax, which, as applied to
MFC, is a tax measured by both net earnings and net worth. The rate of tax is
the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and
8.9% of computed Ohio taxable income in excess of $50,000 and (ii) 0.582% times
taxable net worth.
In computing its tax under the net worth method, MFC may exclude 100% of
its investment in the capital stock of the Association after the Conversion, as
reflected on the balance sheet of MFC, as long as it owns at least 25% of the
issued and outstanding capital stock of the Association. The calculation of the
exclusion from net worth is based on the ratio of the excludable investment (net
of any appreciation or goodwill included in such investment) to total assets
multiplied by the net value of the stock. As a holding company, MFC may be
entitled to various other deductions in computing taxable net worth that are not
generally available to operating companies.
A special litter tax is also applicable to all corporations, including MFC,
subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
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The Association is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of the
Association's book net worth determined in accordance with GAAP. As a
"financial institution," the Association is not subject to any tax based upon
net income or net profits imposed by the State of Ohio.
THE CONVERSION
THE OTS AND THE DIVISION HAVE APPROVED THE PLAN, SUBJECT TO THE APPROVAL OF
THE PLAN BY THE MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE ON THE PLAN AND
SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS AND
THE DIVISION. OTS AND DIVISION APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN.
GENERAL
On April 16, 1996, the Board of Directors of the Association unanimously
adopted the Plan and recommends that the voting members of the Association
approve the Plan at the Special Meeting. During and upon completion of the
Conversion, the Association will continue to provide the services presently
offered to depositors and borrowers, will maintain its existing office and will
retain its existing management and employees.
Based on the current Valuation Range, between 858,500 and 1,161,500 Common
Shares are expected to be offered in the Subscription Offering and the
concurrent Community Offering at a price of $10 per share. Federal regulations
require, with certain exceptions, that shares offered in connection with the
Conversion must be sold up to at least the minimum point of the Valuation Range
in order for the Conversion to become effective. The actual number of Common
Shares sold in connection with the Conversion will be determined upon completion
of the Offering in the sole discretion of the Board of Directors based on the
final valuation of the Association, as converted. See "Pricing and Number of
Common Shares to be Sold."
The Common Shares will be offered in the Subscription Offering to the ESOP
and certain present and former depositors of the Association. Any Common Shares
not subscribed for in the Subscription Offering will be concurrently offered to
the general public in the Community Offering in a manner which will seek to
achieve the widest distribution of the Common Shares, but which will give
preference to natural persons residing in Hamilton County, Ohio. If conducted,
the Community Offering is expected to be completed by _________, 1996, and must
be completed by ______, 1996, unless such period is extended by the Association
with the approval of the OTS and the Division. If the Community Offering is
determined not to be feasible, an occurrence that is not currently anticipated,
the Boards of Directors of MFC and the Association will consult with the OTS and
the Division to determine an appropriate alternative method of selling, up to
the minimum of the Valuation Range, the Common Shares for which subscriptions
were not received. No alternative sales methods are currently planned.
OTS and Ohio regulations require the completion of the Conversion within 24
months after the date of the approval of the Plan by the voting members of the
Association. The commencement and completion of the Conversion will be subject
to market conditions and other factors beyond the Association's control. Due to
changing economic and market conditions, no assurance can be given as to the
length of time that will be required to complete the sale of the Common Shares.
If delays are experienced, significant changes may occur in the estimated pro
forma market value of the Association. In such circumstances, the Association
may also incur substantial additional printing, legal and accounting expenses in
completing the Conversion. In the event the Conversion is not successfully
completed, the Association will be required to charge all Conversion expenses
against current earnings.
REASONS FOR THE CONVERSION
In unanimously adopting the Plan, the Board of Directors of the Association
determined that the Association will derive substantial benefits from the
Conversion and that the Conversion is in the best interests of the Association
and its members. The net proceeds from the sale of shares of stock will
increase the Association's regulatory capital and thereby enable further growth,
with the result that additional funds will be available for lending and other
investment purposes.
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As a mutual institution, the Association has no stockholders and no
authority to issue capital stock. The Board of Directors of the Association
believes that the ability to issue and sell stock will provide additional
capital for investment, increase the Association's operational flexibility and
enable the Association to operate in the form used by commercial banks, most
business corporations and an increasing number of thrift institutions. The
formation of MFC will provide greater flexibility than the Association would
have alone for growth and diversification of business activities. The
Conversion also will enable the Association to utilize stock-related incentive
programs, which the Board of Directors believes will benefit the Association by
enabling it to attract and retain well-qualified directors, management and
staff.
The Conversion will also give members of the Association, at their option,
the opportunity to become shareholders of MFC. No member of the Association
will be obligated to subscribe or for Common Shares by voting on the Plan, nor
will any member's savings account be converted into Common Shares by such vote.
PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Deposit holders who are members of the Association in its
mutual form will have no voting rights in the Association as converted and will
not participate, therefore, in the election of directors or otherwise control
the Association's affairs. Voting rights in MFC will be held exclusively by its
shareholders, and voting rights in the Association will be held exclusively by
MFC as the sole shareholder of the Association. Each holder of MFC's common
shares will be entitled to one vote for each share owned on any matter to be
considered by MFC's shareholders. See "DESCRIPTION OF AUTHORIZED SHARES."
DEPOSIT ACCOUNTS AND LOANS. Deposit accounts in the Association, as
converted, will be equivalent in amount, interest rate and other terms to the
present deposit accounts in the Association, and the existing FDIC insurance on
such deposits will not be affected by the Conversion. The Conversion will not
affect the terms of loan accounts or the rights and obligations of borrowers
under their individual contractual arrangements with the Association.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by the Association of a private letter ruling from the
IRS or an opinion of counsel to the effect that the Conversion will constitute a
tax-free reorganization as defined in Section 368(a) of the Code. The
Association intends to proceed with the Conversion based upon an opinion
received from its special counsel, Vorys, Sater, Seymour and Pease, to the
following effect:
(1) The Conversion constitutes a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and no gain or loss will be recognized by
the Association in its mutual form or in its stock form as a result of the
Conversion. The Association in its mutual form and the Association in its
stock form will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Association upon the
receipt of money from MFC in exchange for the capital stock of the
Association, as converted;
(3) The assets of the Association will have the same basis in its
hands immediately after the Conversion as they had in its hands immediately
prior to the Conversion, and the holding period of the assets of the
Association after the Conversion will include the period during which the
assets were held by the Association before the Conversion;
(4) No gain or loss will be recognized by the deposit account holders
of the Association upon the issuance to them, in exchange for their
respective withdrawable deposit accounts in the Association immediately
prior to the Conversion, of withdrawable deposit accounts in the
Association immediately after the Conversion, in the same dollar amount as
their withdrawable deposit accounts in the Association immediately prior to
the Conversion, plus, in the case of Eligible Account Holders and
Supplemental Eligible Account Holders, the interests in the Liquidation
Account of the Association, as described below;
(5) The basis of the withdrawable deposit accounts in the Association
held by its deposit account holders immediately after the Conversion will
be the same as the basis of their deposit accounts in the Association
immediately prior to the Conversion. The basis of the interests in the
Liquidation Account received by the Eligible Account Holders and
Supplemental Eligible Account Holders will be zero. The basis of the
nontransferable
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subscription rights received by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Eligible Members will be zero (assuming
that at distribution such rights have no ascertainable fair market value);
(6) No gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members upon the
distribution to them of nontransferable subscription rights to purchase
Common Shares (assuming that at distribution such rights have no
ascertainable fair market value), and no taxable income will be realized by
such Eligible Account Holders, Supplemental Eligible Account Holders or
Other Eligible Members as a result of their exercise of such
nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of the
Association pursuant to the exercise of subscription rights will be the
purchase price thereof (assuming that such rights have no ascertainable
fair market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the holding
period of such shares will commence on the date of such exercise. The
basis of the Common Shares purchased other than by the exercise of
subscription rights will be the purchase price thereof (assuming in the
case of the other subscribers that the opportunity to buy in the
Subscription Offering has no ascertainable fair market value), and the
holding period of such shares will commence on the day after the date of
the purchase;
(8) For purposes of Section 381 of the Code, the Association will be
treated as if there had been no reorganization. The taxable year of the
Association will not end on the effective date of the Conversion.
Immediately after the Conversion, the Association in its stock form will
succeed to and take into account the tax attributes of the Association in
its mutual form immediately prior to the Conversion, including the
Association's earnings and profits or deficit in earnings and profits;
(9) The bad debt reserves of the Association in its mutual form
immediately prior to the Conversion will not be required to be restored to
the gross income of the Association in its stock form as a result of the
Conversion and immediately after the Conversion such bad debt reserves will
have the same character in the hands of the Association in its stock form
as they would have had if there had been no Conversion. The Association in
its stock form will succeed to and take into account the dollar amounts of
those accounts of the Association in its mutual form which represent bad
debt reserves in respect of which the Association in its mutual form has
taken a bad debt deduction for taxable years ending on or before the
Conversion; and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of the Association available for the subsequent
distribution of dividends within the meaning of Section 316 of the Code.
The creation of the Liquidation Account on the records of the Association
will have no effect on its taxable income, deductions for additions to
reserves for bad debts under Section 593 of the Code or distributions to
stockholders under Section 593(e) of the Code.
For Ohio tax purposes, the tax consequences of the Conversion will be as
follows:
(1) The Association is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status;
(2) The Association is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of
the Association's equity capital determined in accordance with GAAP, and
the Conversion will not change such status;
(3) As a "financial institution," the Association is not subject to
any tax based upon net income or net profit imposed by the State of Ohio,
and the Conversion will not change such status;
(4) The Conversion will not be a taxable transaction to the
Association in its mutual or stock form for purposes of the Ohio corporate
franchise tax. As a consequence of the Conversion, however, the annual
Ohio corporate franchise tax liability of the Association will increase if
the taxable net worth of the Association (i.e., book net worth computed in
accordance with GAAP at the close of the Association's taxable year for
federal income tax purposes) increases thereby; and
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(5) The Conversion will not be a taxable transaction to any deposit
account holder or borrower member of the Association in its mutual or stock
form for purposes of the Ohio corporate franchise tax and the Ohio personal
income tax.
The Association has received an opinion from Keller to the effect that the
subscription rights have no ascertainable fair market value because the rights
are received by specified persons at no cost, may not be transferred and are of
short duration. The IRS could challenge the assumption that the subscription
rights have no ascertainable fair market value.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of the claims of all creditors, including the claims of all depositors
to the withdrawable value of their deposit accounts. A depositor's pro rata
share of such remaining assets would be the same proportion of such assets as
the value of such depositor's deposit accounts bears to the total aggregate
value of all deposit accounts in the Association at the time of liquidation.
In the event of a complete liquidation of the Association in its stock form
after the Conversion, each depositor would have a claim of the same general
priority as the claims of all other general creditors of the Association.
Except as described below, each depositor's claim would be solely in the amount
of the balance in such depositor's deposit account plus accrued interest. The
depositor would have no interest in the assets of the Association above that
amount. Such assets would be distributed to MFC as the sole shareholder of the
Association.
For the purpose of granting a limited priority claim to the assets of the
Association in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
deposit accounts at the Association after the Conversion, the Association will,
at the time of Conversion, establish a liquidation account in an amount equal to
the regulatory capital of the Association as of the latest practicable date
prior to the Conversion at which such regulatory capital can be determined (the
"Liquidation Account"). For this purpose, the Association will use the
regulatory capital figure set forth in its latest statement of regulatory
capital contained in the Prospectus. The Liquidation Account will not operate
to restrict the use or application of any of the regulatory capital of the
Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date.
The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of all Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on the last day of each fiscal year of MFC subsequent to the respective
record dates, the balance in the deposit account to which a Subaccount relates
is less than the lesser of (i) the deposit balance in such deposit account at
the close of business on the last day of any other fiscal year of MFC subsequent
to the Eligibility Record Date or the Supplemental Eligibility Record Date or
(ii) the amount of the Qualifying Deposit as of the Eligibility Record Date or
the Supplemental Eligibility Record Date, the balance of the Subaccount for such
deposit account shall be adjusted proportionately to the reduction in such
deposit account balance. In the event of any such downward adjustment, such
Subaccount balance shall not be subsequently increased notwithstanding any
increase in the deposit balance of the related deposit account. If any deposit
account is closed, its related Subaccount shall be reduced to zero upon such
closing.
In the event of a complete liquidation of the converted Association (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to MFC as the sole shareholder of the
Association. Any assets remaining after satisfaction of such liquidation rights
and the claims of the Association's creditors would be distributed to MFC as the
sole shareholder of the Association. No merger, consolidation, purchase of bulk
assets or similar combination or transaction with another financial institution,
the deposits of which are insured by the FDIC, will be deemed to be a complete
liquidation for this purpose and, in any such transaction, the Liquidation
Account shall be assumed by the surviving institution.
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COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE INSURED
BY THE FDIC. For a description of the characteristics of the Common Shares, see
"DESCRIPTION OF AUTHORIZED SHARES."
INTERPRETATION AND AMENDMENT OF THE PLAN
The Boards of Directors of the Association and MFC will interpret the Plan
and to the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of MFC and the Association will be final. The Plan may be
amended by the Boards of Directors of MFC and the Association at any time with
the concurrence of the OTS and the Division. If the Association and MFC
determine, upon advice of counsel and after consultation with the OTS and the
Division, that any such amendment is material, subscribers will be notified of
the amendment and will be provided the opportunity to affirm, increase, decrease
or cancel their subscriptions. Any person who does not affirmatively elect to
continue his subscription or elects to rescind his subscription before the date
specified in the notice will have all of his funds promptly refunded with
interest. Any person who elects to decrease his subscription will have the
appropriate portion of his funds promptly refunded with interest.
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan by the
voting members of the Association at the Special Meeting and the sale of the
requisite amount of Common Shares within 24 months following the date of such
approval. If these conditions are not satisfied, the Plan will automatically
terminate and the Association will continue its business in the mutual form of
organization. The Plan may be voluntarily terminated by the Board of Directors
at any time before the Special Meeting and at any time thereafter with the
approval of the OTS and the Division.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 4:30 P.M., EASTERN TIME, ON
_________, 1996 (THE "SUBSCRIPTION EXPIRATION DATE"). SUBSCRIPTION RIGHTS NOT
EXERCISED BEFORE THE SUBSCRIPTION EXPIRATION DATE WILL BE VOID, WHETHER OR NOT
THE ASSOCIATION HAS BEEN ABLE TO LOCATE EACH PERSON ENTITLED TO SUCH
SUBSCRIPTION RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. EACH PERSON SUBSCRIBING FOR COMMON SHARES MUST
REPRESENT TO THE ASSOCIATION THAT HE OR SHE IS PURCHASING THE COMMON SHARES FOR
HIS OR HER OWN ACCOUNT AND THAT HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING WITH
ANY OTHER PERSON FOR THE SALE OR TRANSFER OF THE COMMON SHARES. ANY PERSON WHO
ATTEMPTS TO TRANSFER HIS OR HER SUBSCRIPTION RIGHTS MAY BE SUBJECT TO PENALTIES
AND SANCTIONS, INCLUDING LOSS OF THE SUBSCRIPTION RIGHTS.
The number of Common Shares which a person who has subscription rights may
purchase will be determined, in part, by the total number of Common Shares to be
issued and the availability of Common Shares for purchase under the preference
categories set forth in the Plan and certain other limitations. See
"Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to subscriptions received is contingent upon approval of the Plan by
the voting members of the Association at the Special Meeting.
The preference categories and preliminary purchase limitations which have
been established by the Plan, in accordance with applicable regulations, for the
allocation of Common Shares are as follows:
(a) Each Eligible Account Holder shall receive, without payment
therefor, a nontransferable right to purchase up to the greater of (i) 2%
of the total number of Common Shares to be sold in the Conversion (26,715
shares at the maximum of the Valuation Range, as adjusted) or (ii) 15 times
the product (rounded down to the next whole number) obtained by multiplying
the total number of Common Shares to be sold in connection with the
Conversion by a fraction, the numerator of which is the amount of the
Eligible Account Holder's Qualifying Deposit and the denominator of which
is the total amount of Qualifying Deposits of all Eligible Account Holders,
subject to the limitation that no person, together with such person's
Associates and other persons acting in concert with such person, may
purchase more than 4% of the Common Shares sold in connection with the
Conversion
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(53,429 shares at the maximum of the Valuation Range, as adjusted) and
subject to adjustments by the Board of Directors of MFC and the Association
as set forth in the Plan. If the exercise of subscription rights by
Eligible Account Holders results in an over-subscription, Common Shares
will be allocated among subscribing Eligible Account Holders in a manner
which will, to the extent possible, make the total allocation of each
subscriber equal 100 shares or the amount subscribed for, whichever is
less. Any Common Shares remaining after such allocation has been made will
be allocated among the subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion which the amount of their
respective Qualifying Deposits on the Eligibility Record Date bears to the
total Qualifying Deposits of all Eligible Account Holders on such date.
Notwithstanding the foregoing, Common Shares in excess of 1,161,500, the
maximum of the Valuation Range, may be sold to the ESOP before fully
satisfying the subscriptions of Eligible Account Holders. No fractional
shares will be issued. For purposes of this paragraph (a), increases in
the Qualifying Deposits of directors and executive officers of the
Association during the twelve months preceding the Eligibility Record Date
shall not be considered.
(b) The ESOP shall receive, without payment therefor, a
nontransferable right to purchase Common Shares in an aggregate amount of
up to 10% of the Common Shares sold in the Conversion, provided that shares
remain available after satisfying the subscription rights of Eligible
Account Holders up to the maximum of the Valuation Range pursuant to
paragraph (a) above. Although the Plan and OTS regulations permit the ESOP
to purchase up to 10% of the Common Shares, MFC anticipates that the ESOP
will purchase 8% of the Common Shares. If the ESOP is unable to purchase
all or part of the Common Shares for which it subscribes, the ESOP may
purchase Common Shares on the open market or may purchase authorized but
unissued Common Shares. If the ESOP purchases authorized but unissued
Common Shares, such purchases could have a dilutive effect on the interests
of MFC's shareholders.
(c) Each Supplemental Eligible Account Holder will receive,
without payment therefor, a nontransferable right to purchase up to the
greater of (i) 2% of the total number of Common Shares to be sold in the
Conversion (26,715 shares at the maximum of the Valuation Range, as
adjusted) or (ii) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of Common Shares to be
sold in connection with the Conversion by a fraction, the numerator of
which is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, subject
to (i) the limitation that no person, together with such person's
Associates and other persons acting in concert with such person, may
purchase more than 4% of the Common Shares sold in connection with the
Conversion (53,429 shares at the maximum of the Valuation Range, as
adjusted) and (ii) the limitation that shares remain available after
satisfying the subscription rights of Eligible Account Holders and the ESOP
pursuant to paragraphs (a) and (b) above and subject to adjustments by the
Board of Directors of MFC and the Association as set forth in the Plan. If
the exercise of subscription rights by Supplemental Eligible Account
Holders results in an oversubscription, Common Shares will be allocated
among subscribing Supplemental Eligible Account Holders in a manner which
will, to the extent possible, make the total allocation of each subscriber
equal 100 shares or the amount subscribed for, whichever is less. Any
Common Shares remaining after such allocation has been made will be
allocated among the subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled in the proportion which the amount of their
respective Qualifying Deposits on the Supplemental Eligibility Record Date
bears to the total Qualifying Deposits of all Supplemental Eligible Account
Holders on such date. No fractional shares will be issued.
Subscription rights received by Supplemental Eligible Account
Holders will be subordinate to the subscription rights of Eligible Account
Holders and the ESOP.
(d) Each Other Eligible Member, other than an Eligible Account
Holder or Supplemental Eligible Account Holder, shall receive, without
payment therefor, a nontransferable right to purchase a number of Common
shares equal to up to 2% of the total number of Common Shares to be sold in
the Conversion (26,715 shares at the maximum of the Valuation Range, as
adjusted), subject to (i) the limitation that no person, together with such
person's Associates and other persons acting in concert with such person,
may purchase more than 4% of the Common Shares sold in connection with the
Conversion (53,429 shares at the maximum of the Valuation Range, as
adjusted) and (ii) the limitation that shares remain available after
satisfying the subscription rights of Eligible Account Holders, the ESOP
and Supplemental Eligible Account Holders pursuant to paragraphs (a), (b)
and (c) above and subject to adjustment by the Boards of Directors of MFC
and the Association as set forth in the Plan. In the event of an
oversubscription by Other Eligible Members, the available Common Shares
will be allocated among subscribing Other Eligible Members in the same
proportion that their subscriptions bear to the
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total amount of subscriptions by all Other Eligible Members; provided,
however, that, to the extent sufficient Common Shares are available, each
subscribing Other Eligible Member shall receive 25 Common Shares before the
remaining available Common Shares are allocated.
The subscription rights granted under this Plan are nontransferable. Each
subscription right may be exercised only by the person to whom it is issued and
only for such person's own account. Each person exercising subscription rights
will be required to certify that such person is purchasing for such person's own
account and that such person has no agreement or understanding for the sale or
transfer of the Common Shares to which such person subscribes. The Association
will use the information provided on the Order Form to ensure that those persons
subscribing in the Subscription Offering have subscription rights and that the
orders submitted do not exceed applicable purchase limitations. In order to
ensure proper identification of subscription rights and proper allocations in
the event of an oversubscription, it is the responsibility of each subscriber to
provide correct account verification information and the correct address of the
subscriber's primary residence.
The Association will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons having subscription
rights reside. However, no such person will be offered or receive any Common
Shares under the Plan who resides in a foreign country or in a state of the
United States with respect to which each of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares under the Plan
resides in such country or state; (ii) under the securities laws of such country
or state, the granting of subscription rights or the offer or sale of Common
Shares to such persons would require MFC or its officers or directors to
register as a broker or dealer or to register or otherwise qualify its
securities for sale in such country or state; and (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise.
The term "resident" as used herein with respect to the Subscription
Offering means any person who, on the date of submission of an Order Form,
maintained a bona fide residence within a jurisdiction in which the Common
Shares are being offered for sale. If a person is a business entity, the
person's residence shall be the location of the principal place of business. If
the person is a personal benefit plan, the residence of the beneficiary shall be
the residence of the plan. In the case of all other benefit plans, the
residence of the trustee shall be the residence of the plan. In all cases, the
determination of a subscriber's residency shall be in the sole discretion of the
Association and MFC.
COMMUNITY OFFERING
The Association is hereby offering Common Shares in the Community Offering
concurrently with the Subscription Offering to the extent such shares remain
available after the satisfaction of all subscriptions received in the
Subscription Offering.
THE COMMUNITY OFFERING IS EXPECTED TO END ON __________, 1996, AND MAY BE
TERMINATED AT ANY TIME AFTER ORDERS FOR AT LEAST 1,335,725 COMMON SHARES HAVE
BEEN RECEIVED. IN NO EVENT, HOWEVER, WILL THE COMMUNITY OFFERING EXTEND BEYOND
___________, 1996 (THE "COMMUNITY EXPIRATION DATE"), WITHOUT THE CONSENT OF THE
OTS.
If subscriptions are received in the Subscription Offering for up to
1,335,725 Common Shares, Common Shares may not be available in the Community
Offering. In the event shares are available for the Community Offering, each
person, together with any Associate or groups Acting in Concert, may purchase in
the Community Offering up to 2% of the Common Shares sold in connection with the
Conversion (26,715 shares at the maximum of the Valuation Range, as adjusted).
If an insufficient number of Common Shares is available to fill all of the
orders received in the Community Offering, the available Common Shares will be
allocated in a manner to be determined by the Boards of Directors of MFC and the
Association, subject to the following:
(i) Preference will be given to natural persons who are residents of
Hamilton County, Ohio, the county in which the offices of the Association
are located;
(ii) Orders received in the Community Offering will first be filled up
to 2% of the total number of Common Shares offered, with any remaining
shares allocated on an equal number of shares per order basis until all
orders have been filled; and
(iii) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of MFC and the Association to
accept or reject such purchases in whole or in part.
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The term "resident," as used herein with respect to the Community Offering,
means any natural person who, on the date of submission of an Order Form,
maintains a bona fide residence within, as appropriate, Hamilton County, Ohio,
or a jurisdiction in which the Common Shares are being offered for sale.
LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon the
purchase of Common Shares. To the extent Common Shares are available, the
minimum number of Common Shares that may be purchased by any party is 25. No
fractional shares will be issued.
Currently, each Eligible Account Holder, Supplemental Eligible Account
Holder and Other Eligible Member in the Subscription Offering and each person,
together with his Associate or group Acting in Concert in the Community
Offering, may purchase up to 2% of the Common Shares (26,715 shares at the
maximum of the Valuation Range, as adjusted), subject to the limitation that no
person, together with such person's Associates and others with whom such person
may be acting in concert, may purchase more than 4% of the Common Shares sold in
connection with the Conversion (53,429 shares at the maximum of the Valuation
Range, as adjusted). Such limitation does not apply to the ESOP. Subject to
applicable regulations but without further approval of the members of the
Association, the purchase limitation may be increased or decreased after the
commencement of the Offering in the sole discretion of the Boards of Directors
of MFC and the Association. If such amount is increased, persons who subscribed
for the maximum amount will be given the opportunity to increase their
subscriptions up to the then applicable limits, subject to the rights and
preferences of any person who has priority subscription rights. In the event
that the purchase limitation is decreased after commencement of the Subscription
Offering, the order of any person who subscribed for the maximum number of
Common Shares shall be decreased by the minimum amount necessary so that such
person shall be in compliance with the then maximum number of Common Shares
permitted to be subscribed for by such person.
"Acting in Concert" is defined as "knowing participation in a joint
activity or independent conscious parallel action towards a common goal" or "a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose." Persons shall be presumed to be acting in concert
with each other if: (i) both are purchasing Common Shares in the Conversion and
are (a) executive officers, directors, trustees, or any one who performs, or
whose nominee or representative performs, a similar policy making function at a
company (other than the Association or MFC) or principal business units or
subsidiaries of a company, or (b) any person who directly or indirectly owns or
controls 10% or more of the stock of a company (other than the Association or
MFC); or (ii) one person provides credit to the other for the purchase of Common
Shares or is instrumental in obtaining that credit. In addition, if a person is
presumed to be acting in concert with another person, then the person is
presumed to act in concert with anyone else who is, or is presumed to be, acting
in concert with that other person.
A person's Associates consist of all of the following (collectively,
"Associates"): (a) any corporation or organization (other than the Association)
of which such person is an officer, partner or, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (b) any trust
or other estate in which such person has a substantial beneficial interest or as
to which such person serves as trustee or in a similar fiduciary capacity; and
(c) any relative or spouse of such person, or relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Association. Executive officers and directors of the Association, together with
their Associates, may not purchase, in the aggregate, more than thirty-five
percent of the total number of Common Shares sold in the Conversion. Shares
acquired by the ESOP will not, pursuant to regulations governing the Conversion,
be aggregated with the shares purchased by the directors, officers and employees
of the Association.
Purchases of Common Shares in the Offering are also subject to the change
in control regulations which restrict direct and indirect purchases of 10% or
more of the stock of any savings association by any person or group of persons
acting in concert, under certain circumstances. See "RESTRICTIONS ON
ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS -
Federal Law and Regulation."
After the Conversion, Common Shares, except for Common Shares purchased by
officers and directors of MFC and the Association, will be freely transferable,
subject to OTS and Division regulations. See "Restrictions on Transferability
of Common Shares by Officers and Directors."
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MARKETING PLAN
The offering of the Common Shares is made only pursuant to this Prospectus
which is available to all eligible subscribers by mail. Additional copies are
available at the offices of the Association. See "ADDITIONAL INFORMATION."
Officers and directors of the Association will be available to answer questions
about the Conversion and may also hold informational meetings for interested
persons. Such officers and directors will not be permitted to make statements
about MFC or the Association unless such information is also set forth in this
Prospectus, nor will they render investment advice. MFC will rely on Rule 3a4-1
under the Securities Exchange Act of 1934 (the "Exchange Act"), and sales of
Common Shares will be conducted within the requirements of Rule 3a4-1, which
will permit officers, directors and employees of MFC and the Association to
participate in the sale of Common Shares. No officer, director or employee of
MFC or the Association will be compensated in connection with his participation
by the payment of commissions or other remuneration based either directly or
indirectly on the transactions in the Common Shares.
To assist MFC and the Association in marketing the Common Shares, the
Association has retained the services of Webb, a broker-dealer registered with
the SEC and member of the National Association of Securities Dealers, Inc.
("NASD"). Webb will assist the Association in (i) training and educating the
Association's employees regarding the mechanics and regulatory requirements of
the conversion process; (ii) conducting information meetings for subscribers and
other potential purchasers; and (iii) keeping records of all stock
subscriptions. For providing these services, the Association has agreed to pay
Webb (a) a management fee of $25,000, all of which has been paid, and (b) a
marketing fee of 1.5% of the aggregate dollar amount of Common Shares sold in
the Subscription Offering and the Community Offering, excluding shares sold by
Selected Brokers (as defined below), if any, and shares purchased by the ESOP
and directors, officers, and employees of the Association and members of their
immediate families. The management fee will be deducted from the marketing fee.
Webb will also receive a fee of $6,500 for the performance of conversion agent
and other data processing duties, which Webb shall subcontract. Webb is not
obligated to purchase any Common Shares.
The Association has also agreed to reimburse Webb for its legal fees and
disbursements in an amount not to exceed $25,000. The Association and MFC have
also agreed to indemnify Webb, under certain circumstances, against liabilities
and expenses (including legal fees) arising out of or based upon untrue
statements or omissions contained in the materials used in the Offering or in
various documents submitted to regulatory authorities in respect of the
Conversion, including liabilities under the Securities Act of 1933, as amended
(the "Act").
SELECTED BROKERS
If Common Shares remain available after the satisfaction of all
subscriptions received in the Subscription Offering, Webb may enter into an
agreement with certain brokers (the "Selected Brokers") to assist in the sale of
Common Shares in the Community Offering. If Selected Brokers are used, Webb
will receive commissions of no more than 5.5% of the aggregate purchase price of
the Common Shares sold in the Community Offering by the Selected Brokers, and
Webb will pay to the Selected Brokers a portion of the 5.5% commission pursuant
to selected dealer agreements. During the Community Offering, Selected Brokers
may only solicit indications of interest from their customers to place orders
with the Association as of a certain date (the "Order Date") for the purchase of
Common Shares. When and if the Association believes that enough indications of
interest and orders have been received in the Community Offering to consummate
the Conversion, Webb will request, as of the Order Date, Selected Brokers to
submit orders to purchase shares for which they have previously received
indications of interest from the customers. Selected Brokers will send
confirmations of the orders to such customers on the next business day after the
Order Date. Selected Brokers will debit the accounts of their customers on the
date which will be three business days from the Order Date (the "Settlement
Date"). On the Settlement Date, funds received by Selected Brokers will be
remitted to the Association. It is anticipated that the Conversion will be
consummated on the Settlement Date. However, if consummation is delayed after
payment has been received by the Association from Selected Brokers, funds will
earn interest at the passbook rate, currently an annual percentage yield of
____%, until the completion of the offering. Funds will be returned promptly in
the event the Conversion is not consummated.
EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community offering extends beyond ________, 1996, persons who have
subscribed for Common Shares in the Subscription Offering or in the Community
Offering will receive a written notice that they have the right to increase,
decrease or rescind their subscriptions for Common Shares at any time prior to
20 days before the end of the extension period. Any person who does not
affirmatively elect to continue his subscription or elects to rescind his
subscription during
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any such extension will have all of his funds promptly refunded with interest.
Any person who elects to decrease his subscription during any such extension
shall have the appropriate portion of his funds promptly refunded with interest.
USE OF ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and orders for
Common Shares in the Community Offering may be made only by completing and
submitting an Order Form. Any person who desires to subscribe for Common Shares
in the Subscription Offering or order Common Shares in the Community Offering
must do so by delivering to the Association, by mail or in person, prior to 4:30
p.m., Eastern Time, on _______, 1996, a properly executed and completed Order
Form, together with full payment of the subscription price of $10 for each
Common Share for which subscription is made. ANY ORDER FORM WHICH IS NOT
RECEIVED BY THE ASSOCIATION PRIOR TO 4:30 P.M., EASTERN TIME, ON ________, 1996,
OR FOR WHICH FULL PAYMENT HAS NOT BEEN RECEIVED BY THE ASSOCIATION PRIOR TO SUCH
TIME, WILL NOT BE ACCEPTED. PHOTOCOPIES, TELECOPIES OR OTHER REPRODUCTIONS OF
ORDER FORMS WILL NOT BE ACCEPTED. See "ADDITIONAL INFORMATION."
AN EXECUTED ORDER FORM, ONCE RECEIVED BY MFC, MAY NOT BE MODIFIED, AMENDED
OR RESCINDED WITHOUT THE CONSENT OF MFC, UNLESS (I) THE COMMUNITY OFFERING IS
NOT COMPLETED WITHIN 45 DAYS AFTER THE SUBSCRIPTION EXPIRATION DATE OR (II) THE
FINAL VALUATION OF THE ASSOCIATION, AS CONVERTED, IS LESS THAN $8,585,000 OR
MORE THAN $13,357,250. IF EITHER OF THOSE EVENTS OCCUR, PERSONS WHO HAVE
SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION OFFERING OR ORDERED COMMON
SHARES IN THE COMMUNITY OFFERING WILL RECEIVE WRITTEN NOTICE THAT, UNTIL A DATE
SPECIFIED IN THE NOTICE, THEY HAVE A RIGHT TO AFFIRM, INCREASE, DECREASE OR
RESCIND THEIR SUBSCRIPTIONS OR ORDERS. ANY PERSON WHO DOES NOT AFFIRMATIVELY
ELECT TO CONTINUE HIS SUBSCRIPTION OR ORDER OR ELECTS TO RESCIND HIS
SUBSCRIPTION OR ORDER DURING ANY SUCH EXTENSION WILL HAVE ALL OF HIS FUNDS
PROMPTLY REFUNDED WITH INTEREST. ANY PERSON WHO ELECTS TO DECREASE HIS
SUBSCRIPTION OR ORDER DURING ANY SUCH EXTENSION WILL HAVE THE APPROPRIATE
PORTION OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST. IN ADDITION, IF THE
MAXIMUM PURCHASE LIMITATION IS INCREASED TO MORE THAN 2% OF THE COMMON SHARES,
PERSONS WHO HAVE SUBSCRIBED FOR 2% OF THE COMMON SHARES WILL BE GIVEN THE
OPPORTUNITY TO INCREASE THEIR SUBSCRIPTIONS.
PAYMENT FOR COMMON SHARES
Payment of the subscription or order price for all Common Shares for which
subscription or order is made must accompany all completed Order Forms in order
for subscriptions or orders to be valid. Payment for Common Shares may be made
(i) in cash, if delivered in person; (ii) by check, bank draft or money order
made payable to the Association; or (iii) by authorization of withdrawal from
deposit accounts in the Association (other than IRAs). The Association cannot
lend money or otherwise extend credit to any person to purchase Common Shares,
other than the ESOP.
Payments made in cash or by check, bank draft or money order will be placed
in a segregated savings account insured by the FDIC up to applicable limits
until the Conversion is completed or terminated. Interest will be paid by the
Association on such account at the Association's passbook savings account rate,
currently annual percentage yield of 2.79%, from the date payment is received
until the Conversion is completed or terminated. Payments made by check will
not be deemed to have been received until such check has cleared for payment.
Instructions for authorizing withdrawals from deposit accounts, including
certificates of deposit, are provided in the Order Form. Once a withdrawal has
been authorized, none of the designated withdrawal amount may be used by a
subscriber for any purpose other than to purchase Common Shares, unless the
Conversion is terminated. All sums authorized for withdrawal will continue to
earn interest at the contract rate for such account or certificate until the
completion or termination of the Conversion. Interest penalties for early
withdrawal applicable to certificate accounts will be waived in the case of
withdrawals authorized for the purchase of Common Shares. If a partial
withdrawal from a certificate account results in a balance less than the
applicable minimum balance requirement, the certificate will be canceled and the
remaining balance will earn interest at the Association's passbook rate
subsequent to the withdrawal.
Persons who are beneficial owners of IRAs maintained at the Association do
not personally have subscription rights related to such account. The account
itself, however, may have subscription rights. In order to utilize funds in an
IRA maintained at the Association, the funds must be transferred to a
self-directed IRA that permits the funds to be invested in stock. There will be
no early withdrawal or IRS penalties for such transfer. The beneficial owner of
the IRA must direct the trustee of the account to use funds from such account to
purchase Common Shares in connection with the Conversion.
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THIS CANNOT BE DONE THROUGH THE MAIL. Persons who are interested in utilizing
IRAs at the Association to subscribe for Common Shares should contact the
Conversion Information Center at (513)___-____ for instructions and assistance.
Subscriptions and orders will not be filled by the Association until
subscriptions and orders have been received in the Offering for up to 858,500
Common Shares, the minimum point of the Valuation Range. If the Conversion is
terminated, all funds delivered to the Association for the purchase of Common
Shares will be returned with interest, and all charges to deposit accounts will
be rescinded. If subscriptions and orders are received for at least 858,500
Common Shares, subscribers and other purchasers will be notified by mail,
promptly on completion of the sale of the Common Shares, of the number of shares
for which their subscriptions or orders have been accepted. The funds on
deposit with the Association for the purchase of Common Shares will be withdrawn
and paid to MFC in exchange for the Common Shares. Certificates representing
Common Shares will be delivered promptly thereafter. The Common Shares will not
be insured by the FDIC.
If the ESOP subscribes for Common Shares in the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes but may pay for such Common Shares upon consummation of the
Conversion.
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information regarding the
subscription rights intended to be exercised by the directors and executive
officers of the Association and MFC and their Associates and persons with whom
they may be deemed to be Acting in Concert:
<TABLE>
<CAPTION>
Name Total shares(2) Percent of total offering(1) Aggregate purchase price(2)
- ---- -------------- --------------------------- --------------------------
<S> <C> <C> <C>
Robert Gandenberger 2,000 0.20% $ 20,000
David H. Korn 40,400 4.00 404,000
John T. Larimer (3) 16,200 1.60 162,000
Rae Skirvin Larimer (3) 14,200 1.41 142,000
R. C. Meyerenke 2,500 0.25 25,000
Edgar H. May 2,500 0.25 25,000
Una Schaeperklaus (3) 10,000 0.99 100,000
Wilbur H. Tisch 5,000 0.50 50,000
Kathleen A. White 500 0.05 5,000
Julie M. Bertsch 7,500 0.74 75,000
Charles D. Dell 17,500 1.73 175,000
------ ---- ----------
All directors and executive
officers as a group (12 persons) 118,300 11.71% $1,183,000
------- ------ ----------
------- ------ ----------
</TABLE>
- -----------------------------
(1) Assumes that 1,010,000 Common Shares, the mid-point of the Valuation Range,
will be sold in connection with the Conversion at $10 per share and that a
sufficient number of Common Shares will be available to satisfy the
intended purchases by directors and executive officers. See "Pricing and
Number of Common Shares to be Sold."
(2) Amounts under "Total shares" and "Aggregate purchase price" may increase in
the event that more than 1,010,000 Common Shares are sold in connection
with the Conversion.
(3) John T. Larimer is Rae Skirvin Larimer's spouse and Una Schaeperklaus'
sister-in-law. Rae Skirvin Larimer and Una Schaeperklaus are sisters.
All purchases by executive officers and directors of the Association are
being made for investment purposes only and with no present intent to resell.
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PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
The aggregate offering price of the Common Shares will be based on the pro
forma market value of the shares as determined by an independent appraisal of
the Association. Keller, a firm which evaluates and appraises financial
institutions, was retained by the Association to prepare an appraisal of the
estimated pro forma market value of the Association as converted. Keller will
receive a fee of $17,000 for its appraisal and one update. Such amount includes
out-of-pocket expenses.
Keller was selected by the Board of Directors of the Association because
Keller has extensive experience in the valuation of thrift institutions,
particularly in the mutual-to-stock conversion context. The Board of Directors
interviewed Keller's principal, reviewed the credentials of Keller's appraisal
personnel and obtained references and recommendations from other companies which
have engaged Keller. Keller is certified by the OTS as a mutual-to-stock
conversion appraiser. The Association and Keller have no relationships which
would affect Keller's independence.
The appraisal was prepared by Keller in reliance upon the information
contained herein. Keller also considered the following factors, among others:
the present and projected operating results and financial condition of the
Association and the economic and demographic conditions in the Association's
existing market area; the quality and depth of the Association's management and
personnel; certain historical financial and other information relating to the
Association; a comparative evaluation of the operating and financial statistics
of the Association with those of other thrift institutions; the aggregate size
of the Offering; the impact of the Conversion on the Association's regulatory
capital and earnings potential; the trading market for stock of comparable
thrift institutions and thrift holding companies; and general conditions in the
markets for such stocks.
Three valuation methods were used by Keller: price to book value; price to
earnings; and price to assets. The most emphasis was placed on the price to
book value method. The price to book value method compares the pro forma book
value of the Association, which takes into consideration the going concern value
of a thrift institution, to the book value of the comparable group. Upward and
downward adjustments are made, as appropriate, to account for variations between
the Association and the comparable group on specific factors. The net
Conversion proceeds are included for purposes of determining the pro forma book
value of the Association. The book value method focuses on the Association's
financial condition and does not give as much consideration to earnings. The
price to earnings method is used to ascertain the multiple of earnings at which
the Association is likely to trade, based on the multiple of earnings at which a
comparable group of thrift institutions trades. The comparable group consisted
of 10 thrift institutions located in the Midwest which had similar operating and
financial characteristics to the Association. In calculating the price to
earnings ratio, Keller used the Association's core earnings for the year ended
June 30, 1996. The use of core earnings eliminates items which are not
generated by the principal business activities of the Association. The price to
assets method does not consider the Association's financial condition or
earnings. Consequently, it is not heavily relied on in valuing financial
institutions. In determining the reasonableness and adequacy of the appraisal,
the Board of Directors reviewed and considered the foregoing methodology and the
appropriateness of the assumptions used by Keller in the preparation of the
appraisal.
The Pro Forma Value of the Association, as converted, determined by Keller,
is $1,010,000 as of August 2, 1996. The Valuation Range established in
accordance with the Plan is $8,585,000 to $11,615,000, which, based upon a per
share offering price of $10, will result in the sale of between 858,500 and
11,615,000 Common Shares. The total number of Common Shares sold in the
Conversion will be determined in the discretion of the Board of Directors, based
on the Valuation Range. Pro forma shareholders' equity per share and pro forma
earnings per share decrease moving from the low end to the high end of the
Valuation Range. See "PRO FORMA DATA."
In the event that Keller determines at the close of the Conversion that the
aggregate pro forma value of the Association is higher or lower than the Pro
Forma Value, but is nevertheless within the Valuation Range, MFC will make an
appropriate adjustment by raising or lowering the total number of Common Shares
sold in the Conversion consistent with the final Valuation Range. If, due to
changing market conditions, the final valuation is less than $8,585,000 or more
than $11,615,000, subscribers will be given a notice of such final valuation and
the right to affirm, increase, decrease or rescind their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
THE APPRAISAL BY KELLER IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON SHARES OR
VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION,
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KELLER HAS RELIED UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF THE AUDITED
FINANCIAL STATEMENTS AND STATISTICAL INFORMATION PROVIDED BY THE ASSOCIATION.
KELLER DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE ASSOCIATION, NOR DID KELLER VALUE INDEPENDENTLY THE
ASSETS OR LIABILITIES OF THE ASSOCIATION OR MFC. THE VALUATION CONSIDERS THE
ASSOCIATION ONLY AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN
INDICATION OF THE LIQUIDATION VALUE OF THE ASSOCIATION. MOREOVER, BECAUSE SUCH
VALUATION IS NECESSARILY BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF
MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN
BE GIVEN THAT PERSONS PURCHASING COMMON SHARES WILL THEREAFTER BE ABLE TO SELL
SUCH SHARES AT THE CONVERSION PURCHASE PRICE.
A copy of the complete appraisal is on file and open for inspection at the
offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the Central
Regional Office of the OTS, 200 West. Madison Street, Suite 1300, Chicago,
Illinois 60606; at the offices of the Division, 77 S. High Street, Columbus,
Ohio 43215; and at the offices of the Association.
RESTRICTIONS ON REPURCHASE OF COMMON SHARES
OTS regulations generally prohibit MFC from repurchasing any of its capital
stock for three years following the date of completion of the Conversion, except
as part of an open-market stock repurchase program during the second and third
years following the Conversion involving no more than 5% of the outstanding
capital stock during a twelve-month period. The OTS has recently indicated,
however, that it would permit repurchases beginning after six months following
the completion of the Conversion and will under certain circumstances, permit
repurchases of more than 5% during a twelve-month period. In addition, after
such a repurchase, the Association's regulatory capital must equal or exceed all
regulatory capital requirements. Before the commencement of a repurchase
program, MFC must provide notice to the OTS, and the OTS may disapprove the
program if the OTS determines that it would adversely affect the financial
condition of the Association or if it determines that there is no valid business
purpose for such repurchase. Such repurchase restrictions would not prohibit
the ESOP or the RRP from purchasing Common Shares during the first year
following the Conversion.
Ohio regulations prohibit MFC from repurchasing shares during the first
year after the Conversion if the effect thereof would cause the Association not
to meet its capital requirements.
RESTRICTIONS ON TRANSFER OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors and executive officers of MFC will be
subject to the restriction that such shares may not be sold for a period of one
year following completion of the Conversion, except in the event of the death of
the shareholder. The certificates evidencing Common Shares issued by MFC to
directors and executive officers will bear a legend giving appropriate notice of
the restriction imposed upon them. In addition, MFC will give appropriate
instructions to the transfer agent (if any) for MFC's common shares in respect
of the applicable restriction on transfer of any restricted shares. Any shares
issued as a stock dividend, stock split or otherwise in respect of restricted
shares will be subject to the same restrictions.
Subject to certain exceptions, for a period of three years following the
Conversion, no director or officer of MFC or the Association, or any of their
Associates, may purchase any common shares of MFC without the prior written
approval of the OTS, except through a broker-dealer registered with the SEC.
This restriction will not apply, however, to negotiated transactions involving
more than 1% of a class of outstanding common shares of MFC or shares acquired
by any stock benefit plan of MFC or the Association.
The Common Shares, like the stock of most public companies, are subject to
the registration requirements of the Act. Accordingly, the Common Shares may be
offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common Shares received
in the Conversion by persons who are not "affiliates" of MFC may be resold
without registration. Common Shares received by affiliates of MFC will be
subject to resale restrictions. An "affiliate" of MFC, for purposes of Rule
144, is a person who directly, or indirectly through one or more intermediaries,
controls, or is controlled by or is under common control with, MFC. Rule 144
generally requires that there be publicly available certain information
concerning MFC and that sales subject to Rule 144 be made in routine brokerage
transactions or through a market maker. If the conditions of Rule 144 are
satisfied, each affiliate (or group of persons acting in concert with one or
more affiliates) is generally entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of MFC or (ii)
if the shares are admitted to trading on a national securities exchange or
reported through the
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automated quotation system of a registered securities association, such as
Nasdaq Small Cap, the average weekly reported volume of trading during the four
weeks preceding the sale.
RIGHTS OF REVIEW
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves the Plan may obtain review of such action by
filing in the Court of Appeals of the United States for the circuit in which the
principal office or residence of such person is located or in the United States
Court of Appeals for the District of Columbia, a written petition praying that
the final action of the OTS be modified, terminated or set aside. Such petition
must be filed within 30 days after the date of mailing of proxy materials to the
voting members of the Association or within 30 days after the date of
publication in the Federal Register of notice of approval of the Plan by the
OTS, whichever is later.
RESTRICTIONS ON ACQUISITION OF MFC AND THE ASSOCIATION
AND RELATED ANTI-TAKEOVER PROVISIONS
GENERAL
Federal law and regulations, Ohio law, the Articles of Incorporation and
Code of Regulations of MFC, the Amended Articles of Incorporation and Amended
Constitution of the Association and certain employee benefit plans to be adopted
by MFC and the Association contain certain provisions which may deter or
prohibit a change of control of MFC and the Association. Such provisions are
intended to encourage any acquiror to negotiate the terms of an acquisition with
the Board of Directors of MFC, thereby reducing the vulnerability of MFC to
takeover attempts and certain other transactions which have not been negotiated
with and approved by the Board of Directors.
Anti-takeover devices and provisions may, however, have the effect of
discouraging sudden and other hostile takeover attempts which are not approved
by the Board of Directors, even under circumstances in which shareholders may
deem such takeovers to be in their best interests or in which shareholders may
receive a substantial premium for their shares over then current market prices.
As a result, shareholders who might desire to participate in such a transaction
may not have an opportunity to participate by virtue of such devices and
provisions. Such provisions may also benefit management by discouraging changes
of control in which incumbent management would be removed from office. The
following is a summary of certain provisions of such laws, regulations and
documents.
FEDERAL LAW AND REGULATION
FEDERAL DEPOSIT INSURANCE ACT. The Federal Deposit Insurance Act (the
"FDIA") provides that no person, acting directly or indirectly or in concert
with one or more persons, shall acquire control of any insured savings
association or holding company unless 60 days' prior written notice has been
given to the OTS, and the OTS has not issued a notice disapproving the proposed
acquisition. Control, for purposes of the FDIA, means the power, directly or
indirectly, to direct the management or policies of an insured institution or to
vote 25% or more of any class of securities of such institution. This provision
of the FDIA is implemented by the OTS in accordance with the Regulations for
Acquisition of Control of an Insured Institution, 12 C.F.R. Part 574 (the
"Control Regulations"). Control, for purposes of the Control Regulations,
exists in situations in which the acquiring party has direct or indirect voting
control of at least 25% of the institution's voting shares or controls in any
manner the election of a majority of the directors of such institution or the
Director of the OTS determines that such person exercises a controlling
influence over the management or policies of such institution. In addition,
control is presumed to exist, subject to rebuttal, if the acquiring party (which
includes a group "acting in concert") has voting control of at least 10% of the
institution's voting stock and any of eight control factors specified in the
Control Regulations exists. There are also rebuttable presumptions in the
Control Regulations concerning whether a group "acting in concert" exists,
including presumed action in concert among members of an "immediate family."
The Control Regulations apply to acquisitions of Common Shares in connection
with the Conversion and to acquisitions after the Conversion.
CHANGE IN CONTROL OF CONVERTED ASSOCIATIONS. A regulation of the OTS
provides that, for a period of three years after the date of the completion of
the Conversion, no person shall, directly or indirectly, offer to acquire or
acquire beneficial ownership of more than 10% of any class of equity security
of MFC or the Association without the prior written approval of the OTS. In
addition to the actual ownership of more than 10% of a class of equity
securities, a person shall be
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deemed to have acquired beneficial ownership of more than 10% of the equity
securities of MFC or the Association if the person holds any combination of
stock and revocable and/or irrevocable proxies of MFC under circumstances that
give rise to a conclusive control determination or rebuttable control
determination under the Control Regulations. Such circumstances include (i)
holding any combination of voting shares and revocable and/or irrevocable
proxies representing more than 25% of any class of voting stock of MFC enabling
the acquirer (a) to elect one-third or more of the directors, (b) to cause MFC
or the Association's shareholders to approve the acquisition or corporate
reorganization of MFC, or (c) to exert a controlling influence on a material
aspect of the business operations of MFC or the Association, and (ii) acquiring
any combination of voting shares and irrevocable proxies representing more than
25% of any class of voting shares.
Such three-year restriction does not apply (i) to any offer with a view
toward public resale made exclusively to MFC or the Association or any
underwriter or selling group acting on behalf of MFC or the Association, (ii)
unless made applicable by the OTS by prior written advice, to any offer or
announcement of an offer which, if consummated, would result in the acquisition
by any person, together with all other acquisitions by any such person of the
same class of securities during the preceding 12-month period, of not more than
1% of the class of securities, or (iii) to any offer to acquire or the
acquisition of beneficial ownership of more than 10% of any class of equity
security of MFC or the Association by a corporation whose ownership is or will
be substantially the same as the ownership of MFC or the Association if made
more than one year following the date of the Conversion. The foregoing
restriction does not apply to the acquisition of the capital stock of MFC or the
Association by one or more tax-qualified employee stock benefit plans, provided
that the plan or plans do not have the beneficial ownership in the aggregate of
more than 25% of any class of equity security of MFC or the Association.
HOLDING COMPANY RESTRICTIONS. Federal law generally prohibits a savings
and loan holding company, without prior approval of the Director of the OTS,
from (i) acquiring control of any other savings association or savings and loan
holding company, (ii) acquiring substantially all of the assets of a savings
association or holding company thereof, or (iii) acquiring or retaining more
than 5% of the voting shares of a savings association or holding company thereof
which is not a subsidiary.
Under certain circumstances, a savings and loan holding company is
permitted to acquire, with the approval of the Director of the OTS, up to 15% of
the previously unissued voting shares of an undercapitalized savings association
for cash without such savings association being deemed to be controlled by MFC.
Except with the prior approval of the Director of the OTS, no director or
officer of the savings and loan holding company or person owning or controlling
by proxy or otherwise more than 25% of such company's voting shares may acquire
control of any savings institution, other than a subsidiary institution or any
other savings and loan holding company.
OHIO LAW
MERGER MORATORIUM STATUTE. Ohio has a merger moratorium statute regulating
certain takeover bids affecting certain public corporations which have
significant ties to Ohio. The statute prohibits, with some exceptions, any
merger, combination or consolidation and any of certain other sales, leases,
distributions, dividends, exchanges, mortgages or transfers between such an Ohio
corporation and any person who has the right to exercise, alone or with others,
10% or more of the voting power of such corporation (an "Interested
Shareholder") for three years following the date on which such person first
becomes an Interested Shareholder. Such a business combination is permitted
only if, prior to the time such person first becomes an Interested Shareholder,
the Board of Directors of the issuing corporation has approved the purchase of
shares which resulted in such person first becoming an Interested Shareholder.
After the initial three-year moratorium, such a business combination may
not occur unless (1) one of the exceptions referred to above applies, (2) the
holders of at least two-thirds of the voting shares, and of at least a majority
of the voting shares not beneficially owned by the Interested Shareholder,
approve the business combination at a meeting called for such purpose, or (3)
the business combination meets certain statutory criteria designed to ensure
that the issuing public corporation's remaining shareholders receive fair
consideration for their shares.
An Ohio corporation, under certain circumstances, may "opt out" of the
statute by specifically providing in its articles of incorporation that the
statute does not apply to any business combination of such corporation. The
statute still prohibits for 12 months, however, any business combination that
would have been prohibited but for the adoption of such an opt-out amendment.
The statute also provides that it will continue to apply to any business
combination between a person
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who became an Interested Shareholder prior to the adoption of such an amendment
as if the amendment had not been adopted. The Articles of Incorporation of MFC
do not opt out of the protection afforded by Chapter 1704.
CONTROL SHARE ACQUISITION STATUTE. Section 1701.831 of the Ohio Revised
Code (the "Control Share Acquisition Statute") requires that certain
acquisitions of voting securities which would result in the acquiring
shareholder owning 20%, 33-1/3% or 50% of the outstanding voting securities of
MFC (a "Control Share Acquisition") must be approved in advance by the holders
of at least a majority of the outstanding voting shares represented at a meeting
at which a quorum is present and a majority of the portion of the outstanding
voting shares represented at such a meeting, excluding the voting shares owned
by the acquiring shareholder. The Control Share Acquisition Statute was
intended, in part, to protect shareholders of Ohio corporations from coercive
tender offers.
TAKEOVER BID STATUTE. Ohio law also contains a statute regulating takeover
bids for any Ohio corporation. Such statute provides that no offeror may make a
takeover bid unless (i) at least 20 days prior thereto the offeror announces
publicly the terms of the proposed takeover bid and files with the Ohio Division
of Securities (the "Securities Division") and provides the target company with
certain information in respect of the offeror, his ownership of the company's
shares and his plans for the company, and (ii) within ten days following such
filing either (a) no hearing is required by the Securities Division, (b) a
hearing is requested by the target company within such time but the Securities
Division finds no cause for hearing exists, or (c) a hearing is ordered and upon
such hearing the Securities Division adjudicates that the offeror proposes to
make full, fair and effective disclosure to offerees of all information material
to a decision to accept or reject the offer.
The takeover bid statute also states that no offeror shall make a takeover
bid if he owns 5% or more of the issued and outstanding equity securities of any
class of the target company, any of which were purchased within one year before
the proposed takeover bid, and the offeror, before making any such purchase,
failed to announce his intention to gain control of the target company or
otherwise failed to make full and fair disclosure of such intention to the
persons from whom he acquired such securities. The United States District Court
for the Southern District of Ohio has determined that the Ohio takeover bid
statute is preempted by federal regulation.
ARTICLES OF INCORPORATION OF MFC
RESTRICTION ON ACQUISITION OF MORE THAN 10% OF THE COMMON SHARES. The
Articles of Incorporation of MFC provide that for five years after the effective
date of the Conversion, no person, except the ESOP, may offer to acquire or
acquire the beneficial ownership of more than 10% of any class of outstanding
equity securities of MFC. If such a prohibited acquisition occurs, the
securities owned by such person in excess of the 10% limit may not be voted on
any matter submitted to the shareholders of MFC. The term "person" is defined
as an individual, a group acting in concert, a corporation, a partnership, an
association, a joint stock company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of the equity securities of MFC, but does not
include an employee stock ownership plan for the benefit of the employees of the
Association or MFC. The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of MFC's Common Shares. The ability of management or any
other person to solicit revocable proxies from shareholders will not be
restricted by such 10% limit.
ABILITY OF THE BOARD OF DIRECTORS TO ISSUE ADDITIONAL SHARES. The Articles
of Incorporation of MFC permit the Board of Directors of MFC to issue additional
common shares. The ability of the Board of Directors to issue such additional
shares may create impediments to gaining, or otherwise discourage persons from
attempting to gain, control of MFC.
MATTERS REQUIRING ENLARGED SHAREHOLDER VOTE. Article Sixth of the Articles
of Incorporation of MFC provides that, in the event the Board of Directors
recommends against the approval of any of the following matters, the holders of
at least 75% of the voting shares of MFC are required to approve any such
matters:
(1) A proposed amendment to the Articles of Incorporation of MFC;
(2) A proposed Amendment to the Code of Regulations of MFC;
(3) A proposal to change the number of directors by action of the
shareholders;
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(4) An agreement of merger or consolidation providing for the proposed
merger or consolidation of MFC with or into one or more other
corporations;
(5) A proposed combination or majority share acquisition involving the
issuance of shares of MFC and requiring shareholder approval;
(6) A proposal to sell, exchange, transfer or otherwise dispose of all, or
substantially all, of the assets, with or without the goodwill, of
MFC; or
(7) A proposed dissolution of MFC.
ELIMINATION OF CUMULATIVE VOTING. Section 1701.55 of the Ohio Revised Code
provides in substance and effect that shareholders of a for profit corporation
which is not a savings and loan association and which is incorporated under Ohio
law must initially be granted the right to cumulate votes in the election of
directors. The right to cumulate votes in the election of directors will exist
at a meeting of shareholders if notice in writing is given by any shareholder to
the President, a Vice President or the Secretary of an Ohio corporation, not
less than 48 hours before a meeting at which directors are to be elected, that
the shareholder desires that the voting for the election of directors shall be
cumulative and if an announcement of the giving of such notice is made upon the
convening of such meeting by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice. If cumulative voting is invoked, each
shareholder would have a number of votes equal to the number of directors to be
elected, multiplied by the number of shares owned by him, and would be entitled
to distribute his votes among the candidates as he sees fit.
Section 1701.69 of the Ohio Revised Code provides that an Ohio corporation
may eliminate cumulative voting in the election of directors after the
expiration of 90 days after the date of initial incorporation by filing with the
Ohio Secretary of State an amendment to the articles of incorporation
eliminating cumulative voting. The Articles of Incorporation of MFC will be
amended prior to the consummation of the Conversion to eliminate cumulative
voting. The elimination of cumulative voting may make it more difficult for
shareholders to elect as directors persons whose election is not supported by
the Board of Directors of MFC.
EMPLOYEE BENEFIT PLANS
The Stock Option Plan, the ESOP and the RRP also may be deemed to have
certain anti-takeover effects. The ESOP may become the owner of a sufficient
percentage of the total outstanding common shares of MFC that the decision
whether to tender the shares held by the ESOP to a potential acquiror may
prevent a takeover. In addition, the acquisition by the directors and executive
officers of MFC of common shares of MFC upon grants under the RRP or upon the
exercise of options granted under the Stock Option Plan will have the effect of
giving the directors and executive officers greater influence in votes on
proposed takeover attempts and proxy contests. See "DESCRIPTION OF AUTHORIZED
SHARES" and "MANAGEMENT - Employee Stock Ownership Plan; - Stock Option Plan;
and - Recognition and Retention Plan and Trust."
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of MFC authorize the issuance of 4,000,000
common shares, without par value, and 1,000,000 preferred shares, without par
value. Upon receipt by MFC of the purchase price therefor and subsequent
issuance thereof, each Common Share issued in the Conversion will be fully paid
and nonassessable. Notwithstanding the foregoing, until payments are received
by MFC from the ESOP in accordance with the terms of a loan agreement to be
entered into by and between MFC and the ESOP, Common Shares issued to the ESOP
for which payment in money has not been received will not be fully paid and
non-assessable. The Common Shares will represent nonwithdrawable capital and
will not and cannot be insured by the FDIC. Each Common Share will have the
same relative rights and will be identical in all respects to every other Common
Share.
None of the preferred shares of MFC will be issued in connection with the
Conversion. The Board of Directors of MFC is authorized, without shareholder
approval, to issue preferred shares and to fix and state the designations,
preferences or other special rights of such shares and the qualifications,
limitations and restrictions thereof. The preferred shares may
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rank prior to the common shares as to dividend rights, liquidation preferences
or both. Each holder of preferred shares will be entitled to one vote for each
preferred share held of record on all matters submitted to a vote of
shareholders. The issuance of preferred shares and any conversion rights which
may be specified by the Board of Directors for the preferred shares could
adversely affect the voting power of holders of the common shares. The Board of
Directors has no present intention to issue any of the preferred shares.
The following is a summary description of the rights of the common shares
of MFC, including the material express terms of such shares as set forth in
MFC's Articles of Incorporation.
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of MFC, the holders
of the Common Shares will be entitled to receive all assets of MFC available for
distribution, in cash or in kind, after payment or provision for payment of (i)
all debts and liabilities of MFC, (ii) any accrued dividend claims, and (iii)
any interests in the Liquidation Account payable as a result of a liquidation of
the Association. See "THE CONVERSION - Liquidation Account."
VOTING RIGHTS
The holders of the Common Shares will possess exclusive voting rights in
MFC. Each holder of Common Shares will be entitled to one vote for each share
held of record on all matters submitted to a vote of holders of common shares.
See "RESTRICTIONS ON ACQUISITION OF MFC AND THE ASSOCIATION - Articles of
Incorporation of MFC -- Elimination of Cumulative Voting."
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of dividends. The payment of dividends is subject to federal and state
statutory and regulatory restrictions. See "DIVIDEND POLICY," "REGULATION -
Office of Thrift Supervision -- Limitations on Capital Distributions" and
"TAXATION - Federal Taxation" for a description of restrictions on the payment
of cash dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of MFC will have,
as a matter of right, the preemptive right to purchase or subscribe for shares
of any class, now or hereafter authorized, or to purchase or subscribe for
securities or other obligations convertible into or exchangeable for such shares
or which by warrants or otherwise entitle the holders thereof to subscribe for
or purchase any such share.
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for a
description of the limitations on the repurchase of stock by MFC; "THE
CONVERSION - Restrictions on Transfer of Common Shares by Directors and
Officers" for a description of certain restrictions on the transferability of
Common Shares purchased by officers and directors; and "RESTRICTIONS ON
ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS" for
information regarding regulatory restrictions on acquiring Common Shares.
REGISTRATION REQUIREMENTS
MFC will register its common shares pursuant to Section 12(g) of the
Exchange Act prior to or promptly upon the completion of the Conversion and will
not deregister such shares for a period of three years following the completion
of the Conversion. Upon such registration, the proxy and tender offer rules,
insider trading restrictions, annual and periodic reporting and other
requirements of the Exchange Act will apply to MFC.
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LEGAL MATTERS
Certain legal matters pertaining to the Common Shares and the federal and
Ohio tax consequences of the Conversion will be passed upon for MFC and the
Association by Vorys, Sater, Seymour and Pease, Cincinnati, Ohio. Certain legal
matters are being passed upon for Webb by its counsel, Luse Lehman Gorman
Pomerenk & Schick, A Professional Corporation, Washington, D.C.
EXPERTS
Keller has consented to the publication herein of the summary of its letter
to the Association setting forth its opinion as to the estimated pro forma
market value of the Association as converted and to the use of its name and
statements with respect to it appearing herein.
The financial statements of the Association as of September 30, 1995, 1994
and 1993 and for each of the years in the three-year period ended September 30,
1995, have been included herein in reliance upon the report of Grant Thornton
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
MFC has filed with the SEC a Registration Statement on Form S-1 (File No.
333-_____) under the Act with respect to the Common Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Such information may be inspected at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the SEC at prescribed
rates.
The Association has filed an Application for Conversion (the "Application")
with the OTS and the Division. This document omits certain information
contained in the Application. The Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the Central Regional
Office of the OTS, 200 West Madison, Suite 1300, Chicago, Illinois 60606; and at
the offices of the Division, 77 S. High Street, Columbus, Ohio 43215.
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CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS
STATEMENTS OF FINANCIAL CONDITION
(As of June 30, 1996 (unaudited) and September 30, 1995 and 1994) F-3
STATEMENTS OF EARNINGS
(For the nine months ended June 30, 1996 and 1995 (unaudited)
and the years ended September 30, 1995, 1994 and 1993) F-4
STATEMENTS OF RETAINED EARNINGS
(For the nine months ended June 30, 1996 and 1995 (unaudited)
and the years ended September 30, 1995, 1994 and 1993) F-5
STATEMENTS OF CASH FLOWS
(For the nine months ended June 30, 1996 and 1995 (unaudited)
and the years ended September 30, 1995, 1994 and 1993) F-6
NOTES TO FINANCIAL STATEMENTS
(For the nine months ended June 30, 1996 and 1995 (unaudited)
and the years ended September 30, 1995, 1994 and 1993) F-8
The financial statements of Market Financial Corporation are not presented as
such Corporation was not active during any of the periods presented.
SCHEDULES: All schedules are omitted as the required information is either not
applicable or is contained in the financial statements.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
The Market Building and Saving Company
We have audited the accompanying statements of financial condition of The Market
Building and Saving Company as of September 30, 1995 and 1994, and the related
statements of earnings, retained earnings, and cash flows for each of the years
ended September 30, 1995, 1994 and 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Market Building and Saving
Company as of September 30, 1995 and 1994, and the results of its operations and
its cash flows for each of the years ended September 30, 1995, 1994 and 1993, in
conformity with generally accepted accounting principles.
As more fully discussed in Notes A-2 and B, the Company changed its method of
accounting for certain investments and mortgage-backed securities as of October
1, 1994.
GRANT THORNTON LLP
Cincinnati, Ohio
November 29, 1995
F-2
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
STATEMENTS OF FINANCIAL CONDITION
(In thousands)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
ASSETS 1996 1995 1994
(Unaudited)
<S> <C> <C>
Cash and due from banks $ 1,120 $ 669 $ 676
Federal funds sold 3,207 2,727 4,510
Interest-bearing deposits in other financial institutions 424 617 1,194
------- ------- -------
Cash and cash equivalents 4,751 4,013 6,380
Certificates of deposit in other financial institutions 7,140 7,139 6,139
Investment securities - at amortized cost, approximate market
value of $8,559, $8,023 and $6,216 at June 30, 1996 and
September 30, 1995 and 1994 8,554 7,984 5,919
Investment securities designated as available for sale - at market 622 504 -
Mortgage-backed securities - at cost, approximate market
value of $1,856, $2,313 and $2,409 at June 30, 1996 and
September 30, 1995 and 1994 1,785 2,211 2,441
Loans receivable - net 22,384 23,018 23,658
Office premises and equipment - at depreciated cost 125 121 112
Federal Home Loan Bank stock - at cost 357 339 318
Accrued interest receivable 343 341 235
Prepaid expenses and other assets 147 64 100
Prepaid federal income taxes 52 - 38
------- ------- -------
$46,260 $45,734 $45,340
------- ------- -------
------- ------- -------
LIABILITIES AND RETAINED EARNINGS
Deposits $38,190 $38,056 $38,674
Advances by borrowers for taxes and insurance 10 57 63
Accrued interest payable 137 134 103
Other liabilities 6 13 14
Accrued federal income taxes - 14 -
Deferred federal income taxes 384 307 114
------- ------- -------
Total liabilities 38,727 38,581 38,968
Commitments - - -
Retained earnings - substantially restricted 7,141 6,839 6,372
Unrealized gains on securities designated as available for sale,
net of related tax effects 392 314 -
------- ------- -------
Total retained earnings 7,533 7,153 6,372
------- ------- -------
$46,260 $45,734 $45,340
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
STATEMENTS OF EARNINGS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
1996 1995 1995 1994 1993
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income
Loans $1,414 $1,483 $1,960 $1,799 $1,853
Mortgage-backed securities 133 160 196 250 403
Investment securities 436 210 309 201 181
Interest-bearing deposits and other 486 523 717 658 658
------ ------ ------ ------ ------
Total interest income 2,469 2,376 3,182 2,908 3,095
Interest expense
Deposits 1,336 1,170 1,622 1,478 1,706
------ ------ ------ ------ ------
Net interest income before provision
for losses on loans 1,133 1,206 1,560 1,430 1,389
Provision for losses on loans 13 - - - 10
------ ------ ------ ------ ------
Net interest income after provision
for losses on loans 1,120 1,206 1,560 1,430 1,379
Other operating income 6 6 8 12 10
General, administrative and other expense
Employee compensation and benefits 328 272 376 352 321
Occupancy and equipment 85 90 122 71 73
Federal deposit insurance premiums 60 68 92 94 47
Franchise taxes 70 74 101 93 78
Loss on sale of real estate acquired through
foreclosure - - - 23 -
Other operating 121 139 170 203 178
------ ------ ------ ------ ------
Total general, administrative and
other expense 664 643 861 836 697
------ ------ ------ ------ ------
Earnings before income taxes 462 569 707 606 692
Federal income taxes
Current 123 168 210 171 209
Deferred 37 24 30 23 14
------ ------ ------ ------ ------
160 192 240 194 223
------ ------ ------ ------ ------
NET EARNINGS $ 302 $ 377 $ 467 $ 412 $ 469
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
STATEMENTS OF RETAINED EARNINGS
For the nine months ended June 30, 1996 (unaudited) and the years
ended September 30, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
UNREALIZED GAINS
ON SECURITIES
DESIGNATED AS TOTAL
RETAINED AVAILABLE RETAINED
EARNINGS FOR SALE EARNINGS
<S> <C> <C> <C>
Balance at October 1, 1992 $5,491 $- $5,491
Net earnings for the year ended September 30, 1993 469 - 469
------ ------ ------
Balance at September 30, 1993 5,960 - 5,960
Net earnings for the year ended September 30, 1994 412 - 412
------ ------ ------
Balance at September 30, 1994 6,372 - 6,372
Cumulative effect of change in method of accounting
for securities designated as available for sale - net
of related tax effects - 238 238
Unrealized gains on securities designated as
available for sale, net of related tax effects - 76 76
Net earnings for the year ended September 30, 1995 467 - 467
------ ------ ------
Balance at September 30, 1995 6,839 314 7,153
Unrealized gains on securities designated as available
for sale, net of related tax effects (unaudited) - 78 78
Net earnings for the nine months ended June 30, 1996 (unaudited) 302 - 302
------ ------ ------
Balance at June 30, 1996 (unaudited) $7,141 $392 $7,533
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
1996 1995 1995 1994 1993
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings for the period $ 302 $ 377 $ 467 $ 412 $ 469
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Amortization of premiums and discounts on
investments and mortgage-backed securities, net (35) (2) 2 23 33
Depreciation and amortization 25 16 25 11 8
Amortization of deferred loan origination fees (25) (14) (20) (58) (93)
Loss on sale of real estate acquired through foreclosure - - - 23 -
Provision for losses on loans 13 - - - 10
Federal Home Loan Bank stock dividends (18) (16) (21) (16) (13)
Increase (decrease) in cash due to changes in:
Accrued interest receivable (2) (73) (106) (92) -
Accrued interest payable 3 40 31 18 (36)
Prepaid expenses and other assets (83) 6 36 (13) (26)
Other liabilities (7) (1) 1 (13) (30)
Federal income taxes
Current (66) 50 52 (59) (26)
Deferred 37 24 30 23 14
------- ------- ------- ------- -------
Net cash provided by operating activities 144 407 497 259 310
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 426 193 221 1,202 2,014
Proceeds from maturity of investment securities 2,900 1,300 1,500 1,902 1,417
Proceeds from sale of real estate acquired through
foreclosure - - - 55 21
Loan disbursements (2,049) (759) (2,358) (10,662) (7,744)
Principal repayments on loans 2,695 1,733 3,018 6,008 7,479
Purchase of investment securities designated as held
to maturity (3,435) (2,801) (3,587) (4,300) (1,695)
Purchase of furniture and equipment (29) (30) (34) (4) (9)
(Increase) decrease in certificates of deposit in other
financial institutions - net (1) (500) (1,000) (4,350) 2,375
------- ------- ------- ------- -------
Net cash provided by (used in) investing activities 507 (864) (2,240) (10,149) 3,858
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits 134 (801) (618) (2,029) (1,016)
Advances by borrowers for taxes and insurance (47) (47) (6) 10 11
------- ------- ------- ------- -------
Net cash provided by (used in) financing activities 87 (848) (624) (2,019) (1,005)
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents (balance carried forward) 738 (1,305) (2,367) (11,909) 3,163
------- ------- ------- ------- -------
</TABLE>
F-6
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEAR ENDED SEPTEMBER 30,
1996 1995 1995 1994 1993
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents (balance brought forward) $ 738 $ (1,305) $ (2,367) $(11,909) $ 3,163
Cash and cash equivalents at beginning of period 4,013 6,380 6,380 18,289 15,126
-------- -------- -------- -------- --------
Cash and cash equivalents at end of period $ 4,751 $ 5,075 $ 4,013 $ 6,380 $ 18,289
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Federal income taxes $ 161 $ 84 $ 155 $ 152 $ 112
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Interest on deposits $ 1,333 $ 1,130 $ 1,591 $ 1,460 $ 1,744
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Supplemental disclosure of noncash investing activities:
Transfer of securities to an available for sale designation
upon adoption of SFAS No. 115 $ - $ - $ 29 $ - $ -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Unrealized gain on securities designated as available
for sale, net of related tax effects $ 78 $ 312 $ 314 $ - $ -
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Transfer from loans to real estate acquired through
foreclosure $ - $ - $ - $ - $ 79
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES
The Market Building and Saving Company (the Company) is a state-chartered
mutual financial institution with two offices located in Hamilton County,
Ohio.
The Company conducts a general banking business in southwestern Ohio which
consists of attracting deposits from the general public and applying those
funds to the origination of loans for consumer and residential purposes.
The Company's profitability is significantly dependent on net interest
income, which is the difference between interest income generated from
interest-earning assets (i.e. loans and investments) and the interest
expense paid on interest-bearing liabilities (i.e. customer deposits and
borrowed funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the interest
received or paid on these balances. The level of interest rates paid or
received by the Company can be significantly influenced by a number of
environmental factors, such as governmental monetary policy, that are
outside of management's control.
The financial information presented herein has been prepared in accordance
with generally accepted accounting principles (GAAP) and general accounting
practices within the financial services industry. In preparing financial
statements in accordance with GAAP, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from such estimates.
The following is a summary of significant accounting policies which, with
the exception of the policy described in Note A-2, have been consistently
applied in the preparation of the accompanying financial statements.
1. BUSINESS COMBINATION AND BASIS OF PRESENTATION
On December 31, 1994, The Market Building and Saving Company ("Market" or
the "Company") entered into a merger with The Cleves-North Bend Building
and Loan Company, a state-chartered mutual savings and loan association,
with the combined entity continuing operations under the Market name. The
transaction was accounted for as a pooling-of-interests. Accordingly, the
financial statements as of and for the years ended September 30, 1994 and
1993 were restated to reflect this business combination as of October 1,
1992.
The statement of financial condition as of June 30, 1996, and the related
statements of earnings, retained earnings and cash flows for the nine
months ended June 30, 1996 and 1995 are unaudited. However, in the opinion
of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of financial position and
results of operations have been made.
F-8
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
2. INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES
Prior to October 1, 1994, investment securities and mortgage-backed
securities were stated at the unpaid principal balance (cost), adjusted for
unamortized premiums and discounts. Premiums and discounts on investment
securities and mortgage-backed securities are amortized and accreted to
operations using the interest method over the estimated life of the
investment security or of the underlying loans collateralizing the
securities, respectively. Investment securities and mortgage-backed
securities held for portfolio investments were carried at cost, rather than
the lower of cost or market, as it was management's intent, and the Company
had the ability to hold the securities until maturity. Investment
securities and mortgage-backed securities which would be held for
indefinite periods of time, or used as part of the Company's
asset/liability management strategy, or that may be sold in response to
changes in interest rates, prepayment risk or the perceived need to
increase regulatory capital were classified as held for sale and were
carried at the lower of aggregate cost or market. There were no
investments or mortgage-backed securities designated as held for sale at
September 30, 1994.
In May 1993, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting
for Certain Investments in Debt and Equity Securities". SFAS No. 115
requires that investments be categorized as held-to-maturity, trading, or
available for sale. Securities classified as held-to-maturity are carried
at cost only if the Company has the positive intent and ability to hold
these securities to maturity. Trading securities and securities designated
as available for sale are carried at fair value with resulting gains or
losses recorded to operations or retained earnings, respectively. The
Company adopted SFAS No. 115 for the fiscal year beginning October 1, 1994.
The effect of initial adoption was to increase retained earnings by
approximately $238,000, which represented the unrealized gain on securities
designated as available for sale, net of applicable deferred federal income
taxes. The amount of unrealized gains on securities designated as
available for sale had increased to a net unrealized gain of approximately
$314,000 and $392,000 at September 30, 1995 and June 30, 1996,
respectively.
Realized gains and losses on the sale of investment and mortgage-backed
securities are recognized using the specific identification method.
3. LOANS RECEIVABLE
Loans are stated at the principal amount outstanding, adjusted for deferred
loan origination fees and the allowance for loan losses. Interest is
accrued as earned unless the collectibility of the loan is in doubt.
Uncollectible interest on loans that are contractually past due is charged
off, or an allowance is established based on management's periodic
evaluation. The allowance is established by a charge to interest income
equal to all interest previously accrued, and income is subsequently
recognized only to the extent that cash payments are received until, in
management's judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status.
F-9
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
3. LOANS RECEIVABLE (continued)
The Company accounts for loan origination fees in accordance with SFAS No.
91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases".
Pursuant to the provisions of SFAS No. 91, origination fees received from
loans, net of direct origination costs, are deferred and amortized to
interest income using the level yield method, giving effect to actual loan
prepayments. Additionally, SFAS No. 91 generally limits the definition of
loan origination costs to direct costs attributable to originating a loan,
i.e., principally actual personnel costs.
4. ALLOWANCE FOR LOSSES ON LOANS
It is the Company's policy to provide valuation allowances for estimated
losses on loans based on past loss experience, current trends in the level
of delinquent and problem loans, loan concentrations to single borrowers,
changes in the composition of the loan portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral and current and anticipated economic conditions in
the primary lending areas. When the collection of a loan becomes doubtful,
or otherwise troubled, the Company records a charge-off equal to the
difference between the fair value of the property securing the loan and the
loan's carrying value. Major loans and major lending areas are reviewed
periodically to determine potential problems at an early date. The
allowances are increased by a charge to earnings and decreased by charge-
offs (net of recoveries).
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." This Statement, which was amended by SFAS No. 118
as to certain income recognition provisions and financial statement
disclosure requirements, requires that impaired loans be measured based
upon the present value of expected future cash flows discounted at the
loans' effective interest rate or, as an alternative, at the loans
observable market price or fair value of the collateral. SFAS No. 114 was
effective for years beginning after December 15, 1994 (October 1, 1995, as
to the Company). The Company adopted SFAS No. 114 effective October 1,
1995, without material effect on financial condition or results of
operations.
A loan is defined under SFAS No. 114 as impaired when, based on current
information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. In applying the provisions of SFAS No. 114, the Company
considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. With respect to the
Company's investment in impaired nonresidential and multifamily residential
real estate loans, such loans are generally collateral dependent and, as a
result, are carried as a practical expedient at the lower of cost or fair
value. Collateral dependent loans which are more than ninety days
delinquent are considered to constitute more than a minimum delay in
repayment and are evaluated for impairment under SFAS No. 114 at that time.
At June 30, 1996, the Company had no loans that would be defined as
impaired under SFAS No. 114.
F-10
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
5. OFFICE PREMISES AND EQUIPMENT
Office premises and equipment are carried at cost and include expenditures
which extend the useful lives of existing assets. Maintenance, repairs and
minor renewals are expensed as incurred. For financial reporting,
depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over the estimated service lives,
principally using the straight-line method. An accelerated depreciation
method is used for tax reporting purposes.
6. REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is carried at the lower of the
loan's unpaid principal balance (cost) or fair value less estimated selling
expenses at the date of acquisition. The loan loss allowance is charged
for any write down in the loan's carrying value to fair value at the date
of acquisition. Loss provisions are recorded if the properties' fair value
subsequently declines below the value determined at the recording date.
Costs relating to development and improvement of property are capitalized
up to the fair value of the property, whereas, those relating to holding
the property are charged to expense.
7. FEDERAL INCOME TAXES
The Company accounts for federal income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109).
SFAS No. 109 established financial accounting and reporting standards for
the effects of income taxes that result from the Company's activities
within the current and previous years. It requires an asset and liability
approach for financial accounting and reporting for income taxes. Pursuant
to the provisions of SFAS No. 109, a deferred tax liability or deferred tax
asset is computed by applying the expected statutory tax rates to net
taxable or deductible differences between the tax basis of an asset or
liability and its reported amount in the financial statements that will
result in taxable or deductible amounts in future periods. Deferred tax
assets are recorded only to the extent that the amount of net deductible
temporary differences or carryforward attributes may be utilized against
current period earnings, carried back against prior years' earnings, offset
against taxable temporary differences reversing in future periods, or
utilized to the extent of management's estimate of future taxable income.
A valuation allowance is provided for deferred tax assets to the extent
that the value of net deductible temporary differences and carryforward
attributes exceeds management's estimates of taxes payable on future
taxable income. Deferred tax liabilities are provided on the total amount
of net temporary differences taxable in the future.
F-11
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
7. FEDERAL INCOME TAXES (continued)
Deferral of federal income taxes results primarily from the practice of
preparing tax returns on the cash basis of accounting, while the financial
statements are prepared on the accrual basis of accounting, and from
different methods of accounting for deferred loan origination fees, Federal
Home Loan Bank stock dividends and the Company's general loan loss
allowance. Additionally, a temporary difference is also recognized for
depreciation utilizing accelerated methods for federal income tax purposes.
8. PENSION PLAN
The Company has a defined benefit pension plan which covers substantially
all employees who have completed one year of service. This plan will be
terminated in 1996 upon receipt of all required regulatory approvals. The
pension plan is funded with an annuity policy using the individual level
premium method. It is the Company's policy to fund pension costs accrued
up through the date of termination. Pension expense for the nine months
ended June 30, 1996 and 1995, totaled approximately $21,000 and $18,000,
respectively. Annual pension expense for the years ended September 30,
1995, 1994 and 1993, totaled approximately $24,000, $25,000 and $14,000,
respectively. The required disclosure under Statement of Financial
Accounting Standards No. 87, Accounting for Pensions, has not been provided
herein based on materiality.
9. CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents includes
cash and due from banks, federal funds sold and interest-bearing deposits
in other financial institutions with original terms to maturity of less
than ninety days.
10. ADVERTISING
Advertising costs are expensed when incurred.
11. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
reporting requirements of a publicly-held financial institution.
F-12
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE B - INVESTMENTS
The amortized cost and approximate market values of investment securities
are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995 1994
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE COST VALUE
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
HELD TO MATURITY OR CARRIED AT COST:
U.S. Government
agency obligations
Due within:
One year $5,157 $5,173 $4,288 $4,290 $1,494 $1,486
One to three years 3,397 3,386 3,696 3,733 4,396 4,341
FHLMC stock - - - - 29 389
------ ------ ------ ------ ------ ------
Total investment securities
held to maturity or carried
at cost 8,554 8,559 7,984 8,023 5,919 6,216
AVAILABLE FOR SALE:
FHLMC stock 29 622 29 504 - -
------ ------ ------ ------ ------ ------
Total investment securities $8,583 $9,181 $8,013 $8,527 $5,919 $6,216
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
At June 30, 1996, the market value appreciation of the Company's held to
maturity investment portfolio in excess of the cost carrying value totaled
$5,000, consisting of gross unrealized losses of $18,000 and gross
unrealized gains of $23,000.
At September 30, 1995, the market value appreciation of the Company's held
to maturity investment portfolio in excess of the cost carrying value
totaled $39,000, consisting of gross unrealized gains of $44,000 and gross
unrealized losses of $5,000. At September 30, 1994, the market value
appreciation of the Company's investment securities in excess of the cost
carrying value totaled $297,000, consisting of gross unrealized losses of
$64,000 and gross unrealized gains of $361,000.
Mortgage-backed securities at June 30, 1996 and September 30, 1995 and
1994, were comprised solely of Government National Mortgage Association
participation certificates. At June 30, 1996, and September 30, 1995, the
market value appreciation of the Company's mortgage-backed securities in
excess of cost was approximately $71,000 and $102,000, respectively,
comprised solely of gross unrealized gains. At September 30, 1994, the
cost carrying value of the Company's mortgage-backed securities in excess
of market value was approximately $32,000, comprised of gross unrealized
losses of $54,000, and gross unrealized gains of $22,000. Maturities of
mortgage-backed securities are due ratably over the next fifteen fiscal
years based on the contractual repayment terms of the underlying loans.
F-13
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE C - LOANS RECEIVABLE
The composition of the loan portfolio is as follows:
JUNE 30, SEPTEMBER 30,
1996 1995 1994
(Unaudited)
(In thousands)
Real estate mortgage loans
One-to-four family $20,763 $21,093 $21,299
Multifamily 410 465 500
Nonresidential 1,186 1,431 1,627
Construction - 146 260
Passbook loans 107 118 117
------- ------- -------
22,466 23,253 23,803
Less:
Undisbursed portion of loans in process - 146 41
Deferred loan origination fees 30 50 65
Allowance for loan losses 52 39 39
------- ------- -------
$22,384 $23,018 $23,658
------- ------- -------
------- ------- -------
The Company's lending efforts have historically focused on residential real
estate loans, which comprised approximately $21.1 million, or 94.2% of the
total loan portfolio at June 30, 1996, $21.5 million, or 93.3%, of the
total loan portfolio at September 30, 1995, and $21.9 million, or 92.6%, of
the total loan portfolio at September 30, 1994. Generally, such loans have
been underwritten on the basis of no more than an 80% loan-to-value ratio,
which has historically provided the Company with adequate collateral
coverage in the event of default. Nevertheless, the Company, as with any
lending institution, is subject to the risk that residential real estate
values could deteriorate in its primary lending area of southwestern Ohio,
thereby impairing collateral values. However, management is of the belief
that real estate values in the Company's primary lending area are presently
stable.
In the ordinary course of business, the Company has granted loans to some
of the officers, directors, employees and their related interests. Related
party loans are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than normal
risk of collectibility. The aggregate dollar amount of these loans was
approximately $173,000, $187,000, and $191,000 at June 30, 1996, and
September 30, 1995 and 1994, respectively.
Additionally, the Company has employed a director from time to time to
close loans and to perform title and other related legal services. During
the fiscal year ended September 30, 1995, the Company paid fees of $20,000
to such director for such services.
F-14
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE D - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
NINE MONTHS ENDED
JUNE 30, YEARS ENDED SEPTEMBER 30,
1996 1995 1995 1994 1993
(Unaudited)
(In thousands)
Beginning balance $ 39 $ 39 $ 39 $ 39 $33
Provision for loan losses 13 - - - 10
Charge-off of loans - - - - (4)
----- ----- ----- ----- -----
Ending balance $ 52 $ 39 $ 39 $ 39 $39
----- ----- ----- ----- -----
----- ----- ----- ----- -----
At June 30, 1996 and September 30, 1995, the Company's allowance for loan
losses was comprised primarily of a general loan loss allowance, which is
includible as a component of regulatory risk-based capital.
Nonperforming loans totaled approximately $15,000 and $193,000 at June 30,
1996 and September 30, 1993. There were no nonperforming loans at June 30,
1995, September 30, 1995 or 1994. Interest income that would have been
recognized had nonaccrual loans performed pursuant to contractual terms
totaled approximately $40,000 for the year ended September 30, 1993.
NOTE E - OFFICE PREMISES AND EQUIPMENT
Office premises and equipment is comprised of the following:
JUNE 30, SEPTEMBER 30,
1996 1995 1994
(Unaudited)
(In thousands)
Land $ 34 $ 34 $ 34
Building 104 104 104
Building improvements 52 52 52
Furniture and equipment 182 153 119
----- ----- -----
372 343 309
Less accumulated
depreciation 247 222 197
----- ----- -----
$125 $121 $112
----- ----- -----
----- ----- -----
F-15
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE F - DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
DEPOSIT TYPE AND JUNE 30, SEPTEMBER 30,
WEIGHTED-AVERAGE 1996 1995 1994
INTEREST RATE AMOUNT % AMOUNT % AMOUNT %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts -
2.83% in 1996, 3.09% in1995
and 1994 $11,424 29.9 $11,008 28.9 $12,058 31.2
Club accounts - 5.08% in 1996,
5.07% in 1995 and 5.00% in 1994 37 .1 54 .1 54 .1
Money market demand accounts -
2.83% in 1996 , 3.09% in 1995 and
3.11% in 1994 3,574 9.4 3,857 10.2 5,988 15.5
------- ------- ------- ------- ------- -------
Total demand accounts 15,035 39.4 14,919 39.2 18,100 46.8
Certificates of deposit -
5.74% in 1996, 5.04% in 1995
and 4.38% in 1994 23,155 60.6 23,137 60.8 20,574 53.2
------- ------- ------- ------- ------- -------
Total deposit accounts $38,190 100.0 $38,056 100.0 $38,674 100.0
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
<CAPTION>
Interest expense on deposits is summarized as follows:
JUNE 30, SEPTEMBER 30,
1996 1995 1995 1994 1993
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Passbook and club accounts $ 244 $ 222 $ 343 $ 433 $ 463
Money market accounts 76 84 119 148 186
Certificates of deposit 1,016 864 1,160 897 1,057
------- ------- ------- ------- -------
$1,336 $1,170 $1,622 $1,478 $1,706
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
F-16
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE F - DEPOSITS (CONTINUED)
Maturities of outstanding certificates of deposit are summarized as
follows:
JUNE 30, SEPTEMBER 30,
1996 1995 1994
(Unaudited)
(In thousands)
Less than six months $10,155 $ 23 $ 9,284
Six months to one year 7,379 12,033 7,375
One year to three years 5,621 11,081 3,915
------- ------- -------
$23,155 $23,137 $20,574
------- ------- -------
------- ------- -------
G - FEDERAL INCOME TAXES
The provision for federal income taxes on earnings differs from that
computed at the statutory corporate tax rate as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995 1995 1994 1993
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Federal income taxes computed
at statutory rate $157 $193 $240 $206 $235
Increase (decrease) resulting from:
Other 3 (1) - (12) (12)
---- ---- ---- ---- ----
Federal income tax provision per
financial statements $160 $192 $240 $194 $223
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
F-17
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE G - FEDERAL INCOME TAXES (CONTINUED)
The composition of the Company's net deferred tax liability is as follows:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995 1994
TAXES (PAYABLE) REFUNDABLE ON TEMPORARY (Unaudited)
DIFFERENCES AT STATUTORY RATE: (In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Deferred loan origination fees $ 10 $ 17 $ 20
General loan loss allowance 17 12 10
Other 3 1 -
------- ------- -------
Total deferred tax assets 30 30 30
Deferred tax liabilities:
Unrealized gains on securities designated as
available for sale (201) (161) -
Difference between cash and accrual basis of accounting (120) (92) (74)
Federal Home Loan Bank stock dividends (58) (51) (37)
Difference between book and tax depreciation (26) (24) (21)
Percentage of earnings bad debt deduction (8) (8) (10)
Other (1) (1) (2)
------- ------- -------
Total deferred tax liabilities (414) (337) (144)
------- ------- -------
Net deferred tax liability $ (384) $ (307) $ (114)
------- ------- -------
------- ------- -------
</TABLE>
The Company is allowed a special bad debt deduction based on a percentage
of earnings, generally limited to 8% of otherwise taxable income, or the
amount of qualifying and nonqualifying loans outstanding and subject to
certain limitations based on aggregate loans and savings account balances
at the end of the calendar year. The Company was subject to such
limitations during the nine months ended June 30, 1996 and 1995, and the
fiscal years ended September 30, 1995 and 1994 and, therefore, was
precluded from utilizing the percentage of earnings bad debt deduction. If
the amounts that qualified as deductions for federal income tax purposes
are later used for purposes other than for bad debt losses, including
distributions in liquidation, such distributions will be subject to federal
income taxes at the then current corporate income tax rate. Retained
earnings at June 30, 1996, and September 30, 1995 includes approximately
$1.3 million for which federal income taxes have not been provided. The
amount of the unrecognized deferred tax liability relating to the
cumulative percentage of earnings bad debt deduction totaled approximately
$430,000 at June 30, 1996 and September 30, 1995.
F-18
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE H - COMMITMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers including commitments to extend credit. Such commitments
involve, to varying degrees, elements of credit and interest-rate risk in
excess of the amount recognized in the statement of financial condition.
The contract or notional amounts of the commitments reflect the extent of
the Company's involvement in such financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.
At June 30, 1996, and September 30, 1995, the Company had outstanding
commitments of approximately $266,000 and $397,000 to originate residential
real estate loans. In the opinion of management, the loan commitments
equaled or exceeded prevalent market interest rates as of those dates, and
such commitments have been underwritten on the same basis as the existing
loan portfolio. Management believes that all commitments will be funded
through cash flow from operations and existing excess liquidity. Fees
received in connection with these commitments have not been recognized in
earnings.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if it is deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral on loans may vary but the preponderance of loans
granted generally include a mortgage interest in real estate as security.
NOTE I - RETAINED EARNINGS AND REGULATORY CAPITAL
The Company is subject to minimum regulatory capital standards promulgated
by the Office of Thrift Supervision (OTS). Such minimum capital standards
generally require the maintenance of regulatory capital sufficient to meet
each of three tests, hereinafter described as the tangible capital
requirement, the core capital requirement and the risk-based capital
requirement. The tangible capital requirement provides for minimum
tangible capital (defined as retained earnings less all intangible assets)
equal to 1.5% of adjusted total assets. The core capital requirement
provides for minimum core capital (tangible capital plus certain forms of
supervisory goodwill and other qualifying intangible assets) equal to 3.0%
of adjusted total assets. An OTS proposal, if adopted in present form,
would increase the core capital
F-19
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE I - RETAINED EARNINGS AND REGULATORY CAPITAL (CONTINUED)
requirement to a range of 4% - 5% of adjusted total assets for
substantially all savings associations. Management anticipates no material
change to the Company's present excess regulatory capital position as a
result of this proposed change in the regulatory capital requirement. The
risk-based capital requirement currently provides for the maintenance of
core capital plus general loss allowances equal to 8.0% of risk-weighted
assets. In computing risk-weighted assets, the Company multiplies the
value of each asset on its statement of financial condition by a defined
risk-weighted factor, e.g., one-to-four family residential loans carry a
risk-weighted factor of 50%.
As of June 30, 1996, and September 30, 1995, the Company's regulatory
capital exceeded all regulatory capital requirements as shown below:
<TABLE>
<CAPTION>
JUNE 30, 1996
RISK-
TANGIBLE CORE BASED
CAPITAL PERCENT CAPITAL PERCENT CAPITAL PERCENT
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted accounting principles $7,533 $7,533 $7,533
Unrealized gain on securities
designated as available for sale, net (392) (392) (392)
General valuation allowances - - 50
------- ------- -------
Regulatory capital computed 7,141 15.6 7,141 15.6 7,191 48.5
Minimum capital requirement 688 1.5 1,376 3.0 1,178 8.0
------- ------- ------- ------- ------- -------
Regulatory capital - excess $6,453 14.1 $5,765 12.6 $6,013 40.5
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
<CAPTION>
SEPTEMBER 30, 1995
RISK-
TANGIBLE CORE BASED
CAPITAL PERCENT CAPITAL PERCENT CAPITAL PERCENT
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted accounting principles $7,153 $7,153 $7,153
Unrealized gain on securities
designated as available for sale, net (314) (314) (314)
General valuation allowances - - 37
------- ------- ------- ------- ------- -------
Regulatory capital computed 6,839 15.1 6,839 15.1 6,876 45.2
Minimum capital requirement 681 1.5 1,363 3.0 1,216 8.0
------- ------- ------- ------- ------- -------
Regulatory capital - excess $6,158 13.6 $5,476 12.1 $5,660 37.2
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
F-20
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE I - RETAINED EARNINGS AND REGULATORY CAPITAL (CONTINUED)
The deposit accounts of the Company and of other savings associations are
insured by the Federal Deposit Insurance Corporation ("FDIC") in the
Savings Association Insurance Fund ("SAIF"). The reserves of the SAIF are
below the level required by law, because a significant portion of the
assessments paid into the fund are used to pay the cost of prior thrift
failures. The deposit accounts of commercial banks are insured by the FDIC
in the Bank Insurance Fund ("BIF"), except to the extent such banks have
acquired SAIF deposits. The reserves of the BIF met the level required by
law in May 1995. As a result of the respective reserve levels of the
funds, deposit insurance assessments paid by healthy savings associations
exceeded those paid by healthy commercial banks during calendar 1995 by
approximately $.19 per $100 in deposits. In 1996, no BIF assessments will
be required for healthy commercial banks except for a $2,000 minimum fee.
Congress is considering legislation to recapitalize the SAIF and eliminate
the significant premium disparity. Currently, that recapitalization plan
provides for a special assessment of approximately $.85 per $100 of SAIF
deposits held at June 30, 1995, in order to increase SAIF reserves to the
level required by law. In addition, the cost of prior thrift failures
would be shared by both the SAIF and the BIF. This would likely increase
BIF assessments by $.02 to $.025 per $100 in deposits. SAIF assessments
would initially be set at the same level as BIF assessments and could never
be reduced below the level for BIF assessments. These projected assessment
levels may change if commercial banks holding SAIF deposits are provided
some relief from the special assessment or are allowed to transfer SAIF
deposits to the BIF.
A component of the recapitalization plan provides for the merger of the
SAIF and BIF on January 1, 1998. However, the SAIF recapitalization
legislation currently provides for an elimination of the thrift charter or
of the separate federal regulation of thrifts prior to the merger of the
deposit insurance funds. As a result, the Company would be regulated as a
bank under Federal laws which would subject it to the more restrictive
activity limits imposed on national banks.
The Company had approximately $37.6 million in deposits at June 30, 1995.
If a special assessment is finalized at $.85 per $100 in deposits, the
Company will pay an additional assessment of $320,000. This assessment
should be tax deductible, but it will reduce earnings and capital for the
quarter in which it is recorded.
No assurances can be given that the SAIF recapitalization plan will be
enacted into law or in what form it may be enacted. In addition, the
Company can give no assurances that the disparity between BIF and SAIF
assessments will be eliminated and cannot predict the impact of being
regulated as a bank, or the change in tax accounting for bad debt reserves,
until the legislation requiring such change is enacted.
F-21
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Nine months ended June 30, 1996 and 1995 (unaudited) and
years ended September 30, 1995, 1994 and 1993
NOTE J - CORPORATE REORGANIZATION AND CONVERSION TO STOCK FORM (UNAUDITED)
In April 1996, the Company's Board of Directors adopted an overall plan of
conversion and reorganization (the Plan) whereby the Company will convert
to the stock form of ownership, followed by the issuance of all the
Company's outstanding stock to a newly formed holding company, Market
Financial Corporation. Pursuant to the Plan, as amended, the Company will
offer for sale between 858,500 and 1,335,725 common shares to its
depositors, members of the community, and a newly formed Employee Stock
Ownership Plan (ESOP) at a cost of $10.00 per share. The costs of issuing
the common stock will be deferred and deducted from the sale proceeds of
the offering. If the conversion is unsuccessful, all deferred costs will
be charged to operations. At June 30, 1996, the Company has incurred
deferred conversion costs totaling approximately $50,000. The transaction
is subject to approval by regulatory authorities and members of the
Company.
At the completion of the conversion to stock form, the Company will
establish a liquidation account in the amount of retained earnings
contained in the final offering circular. The liquidation account will be
maintained for the benefit of eligible savings account holders who maintain
deposit accounts in the Company after conversion.
In the event of a complete liquidation (and only in such event), each
eligible member will be entitled to receive a liquidation distribution from
the liquidation account in the amount of the then current adjusted balance
of deposit accounts held, before any liquidation distribution may be made
with respect to common stock. Except for the repurchase of stock and
payment of dividends by the Company, the existence of the liquidation
account will not restrict the use or application of such retained earnings.
The Company may not declare, pay a cash dividend on, or repurchase any of
its common stock, if the effect thereof would cause retained earnings to be
reduced below either the amount required for the liquidation account or the
regulatory capital requirements for SAIF insured institutions.
F-22
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY MFC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY SECURITY, OTHER THAN THE COMMON SHARES
OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM DELIVERY OF THIS
PROSPECTUS WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS TO ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SELECTED FINANCIAL INFORMATION AND OTHER DATA. . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
MARKET FOR COMMON SHARES . . . . . . . . . . . . . . . . . . . . . . . . . 13
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
REGULATORY CAPITAL COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . 15
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PRO FORMA DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SUMMARY STATEMENTS OF EARNINGS . . . . . . . . . . . . . . . . . . . . . . 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . 22
THE BUSINESS OF THE ASSOCIATION. . . . . . . . . . . . . . . . . . . . . . 31
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
THE CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
RESTRICTIONS ON ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED
ANTI-TAKEOVER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 71
DESCRIPTION OF AUTHORIZED SHARES . . . . . . . . . . . . . . . . . . . . . 74
REGISTRATION REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 75
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . 76
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
UNTIL 25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS OBLIGATION IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
Up to 1,161,500 Common Shares
MARKET FINANCIAL CORPORATION
____________
PROSPECTUS
____________
CHARLES WEBB & COMPANY
__________, 1996
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
* Legal Fees $130,000
* Postage $ 15,000
* Printing and EDGARIZING $ 45,000
* Appraisal Fees and Expenses $ 17,000
* Accounting Fees and Expenses $ 41,000
* Blue sky filing fees and expenses $ 15,000
* Federal filing fees $ 15,000
* Conversion Agent Fees $ 6,500
* Other Expenses $ 14,500
** Underwriting Fees and Expenses $136,000
--------
Total estimated expenses $435,000
--------
- -----------------------------
* Estimated.
** To assist MFC and the Association in marketing the Common Shares, MFC and
the Association have retained Charles Webb & Company. ("Webb"). Webb is a
broker-dealer registered with the SEC and members of the NASD.
For its services, Webb has received a management fee of $25,000 and will
receive a marketing fee of 1.5% of the aggregate purchase price of the
Common Shares other than (i) Common Shares purchased by the directors,
officers and employees of the Association and MFC and members of their
immediate families, and (ii) Common Shares purchased by the ESOP, Stock
Option Plan or RRP.
Depending on market conditions, the Common Shares, if any, not initially
subscribed for in the Subscription Offering or the Community Offering may
be offered for sale to the general public on a best efforts basis in a
syndicated community offering by a selling group of broker-dealers
("Selected Dealers") to be formed by Webb. If Selected Dealers are
employed, the Selected Dealers will be paid a commission not to exceed 5.5%
of the aggregate purchase price received for Common Shares sold by such
Selected Dealers.
The estimated underwriting fees are based on the following assumptions:
(i) 1,010,000 Common Shares will be sold in the Offering; (ii)
approximately 19% of the Common Shares sold in the Offering will be
purchased by directors, officers and employees of the Association and MFC
and the members of their immediate families; (iii) 8% of the Common Shares
sold in the Offering will be purchased by the ESOP; and (iv) 73% of the
Common Shares sold in the Offering will be sold in the Subscription
Offering with sales commissions of 1.5% of the aggregate dollar amount of
such Common Shares.
The Association will also reimburse the Agents for all reasonable fees and
expenses of its legal counsel, not to exceed $25,000.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) OHIO REVISED CODE
Division (E) of Section 1701.13 of the Ohio Revised Code governs
indemnification by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any person
who was or is a party or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or
II-1
<PAGE>
was a director, officer, employee, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, partnership, joint venture, trust, or other enterprise, against
expenses, including attorney's fees, judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation, domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise, against expenses, including
attorney's fees, actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification shall be made in respect of any
of the following:
(a) Any claim, issue, or matter as to which such person is adjudged
to be liable for negligence or misconduct in the performance of his duty to
the corporation unless, and only to the extent that the court of common
pleas or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in divisions (E)(1) and (2) of this section, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorney's fees, actually and reasonably incurred by him in
connection with the action, suit, or proceeding.
(4) Any indemnification under divisions (E)(1) and (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in divisions (E)(1) and (2)
of this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened
with any such action, suit, or proceeding;
(b) If the quorum described in division (E)(4)(a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in which such action,
suit, or proceeding was brought.
Any determination made by the disinterested directors under division
(E)(4)(a) or by independent legal Counsel under division (E)(4)(b) of this
section shall be promptly communicated to the person who threatened or brought
the action or suit by or in the right of the corporation under division (E)(2)
of this section, and within ten days after receipt of such notification, such
person shall have the right to petition the court of common pleas or the court
in which action or suit was brought to review the reasonableness of such
determination.
II-2
<PAGE>
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section, the articles or the regulations of a corporation state by
specific reference to this division that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
action, suit, or proceeding shall be paid by the corporation as they are
incurred, in advance of the final disposition of the action, suit, or proceeding
upon receipt of an undertaking by or on behalf of the director in which he
agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to
act involved an act or omission undertaken with deliberate intent to cause
injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the action,
suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a director, trustee,
officer, employee, or agent in defending any action, suit, or proceeding
referred to in divisions (E)(1) and (2) of this section, may be paid by the
corporation as they are incurred, in advance of the final disposition of the
action, suit, or proceeding as authorized by the directors in the specific case
upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is not entitled to be indemnified by the corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to, any other rights granted to those seeking
indemnification under the articles of the regulations or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including but not limited to trust funds, letters of credit, or
self-insurance, on behalf of or for any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or profit, partnership,
joint venture, trust, or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the corporation would have the power to indemnify
him against such liability under this section. Insurance may be purchased from
or maintained with a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
divisions (E)(1) and (2) of this section does not limit the payment of expenses
as they are incurred, indemnification, insurance, or other protection that may
be provided pursuant to divisions (E)(5), (6), and (7) of this section.
Divisions (E)(1) and (2) of this section do not create any obligation to repay
or return payments made by the corporation pursuant to division (E)(5), (6), or
(7).
(9) As used in this division, references to "corporation" includes all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee, or
agent of such a constituent corporation, or is or was serving at the request of
such constituent corporation as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.
The Association may authorize payment of reasonable costs and expenses,
including reasonable attorney's fees arising from the defense or settlement of
any Action, to any director, officer or employee if a majority of the directors
of the Association conclude that such person may become entitled to
indemnification. The directors of the Association may impose conditions on such
payment, and, before making an advance payment, the Association shall obtain an
agreement from such person that the Association will be repaid if the person on
whose behalf payment is made is later determined not to be entitled to such
indemnification.
The Association currently maintains a directors' and officers' liability
policy providing for insurance of directors and officers for liability incurred
in connection with performance of their duties as directors and officers. Such
policy does not, however, provide insurance for losses resulting from willful or
criminal misconduct.
II-3
<PAGE>
(b) MFC'S CODE OF REGULATIONS
Article Five of MFC's Code of Regulations provides for the
indemnification of officers and directors as follows:
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit), partnership,
joint venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful.
A person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification, to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his conduct was
unlawful, and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
SECTION 5.02. COURT-APPROVED INDEMNIFICATION. Anything contained in
the Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or director
of the corporation who was a party to any completed action or suit instituted by
or in the right of the corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of another corporation (domestic
or foreign, nonprofit or for profit), partnership, joint venture, trust or other
enterprise, in respect of any claim, issue or matter asserted in such action or
suit as to which he shall have been adjudged to be liable for acting with
reckless disregard for the best interests of the corporation or misconduct
(other than negligence) in the performance of his duty to the corporation unless
and only to the extent that the Court of Common Pleas of Hamilton County, Ohio,
or the court in which such action or suit was brought shall determine upon
application that, despite such adjudication of liability, and in view of all the
circumstances of the case, he is fairly and reasonably entitled to such
indemnity as such Court of Common Pleas or such other court shall deem proper;
and
(B) the corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as contemplated by this
Section 5.02.
SECTION 5.03. INDEMNIFICATION FOR EXPENSES. Anything contained in
the Regulations or elsewhere to the contrary notwithstanding, to the extent that
an officer or director of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
Section 5.01, or in defense of any claim, issue or matter therein, he shall be
promptly indemnified by the corporation against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) actually and reasonably incurred by him in connection therewith.
SECTION 5.04 DETERMINATION REQUIRED. Any indemnification required
under Section 5.01 and not precluded under Section 5.02 shall be made by the
corporation only upon a determination that such indemnification of the officer
or director is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 5.01. Such determination may be made
only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Hamilton County,
Ohio, or (if the corporation is a party thereto) the
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<PAGE>
court in which such action, suit or proceeding was brought, if any; any such
determination may be made by a court under division (D) of this Section 5.04 at
any time including, without limitation, any time before, during or after the
time when any such determination may be requested of, be under consideration by
or have been denied or disregarded by the disinterested directors under
division (A) or by independent legal counsel under division (B) or by the
shareholders under division (C) of this Section 5.04; and no failure for any
reason to make any such determination, and no decision for any reason to deny
any such determination, by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by shareholders under
division (C) of this Section 5.04 shall be evidence in rebuttal of the
presumption recited in Section 5.01. Any determination made by the
disinterested directors under division (A) or by independent legal counsel under
division (B) of this Section 5.04 to make indemnification in respect of any
claim, issue or matter asserted in an action or suit threatened or brought by or
in the right of the corporation shall be promptly communicated to the person who
threatened or brought such action or suit, and within ten (10) days after
receipt of such notification such person shall have the right to petition the
Court of Common Pleas of Hamilton County, Ohio, or the court in which such
action or suit was brought, if any, to review the reasonableness of such
determination.
SECTION 5.05. ADVANCES FOR EXPENSES. Expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) incurred in defending any action, suit or proceeding referred to in
Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
(A) if it shall ultimately be determined as provided in
Section 5.04 that he is not entitled to be indemnified by the corporation as
provided under Section 5.01; or
(B) if, in respect of any claim, issue or other matter asserted
by or in the right of the corporation in such action or suit, he shall have been
adjudged to be liable for acting with reckless disregard for the best interests
of the corporation or misconduct (other than negligence) in the performance of
his duty to the corporation, unless and only to the extent that the Court of
Common Pleas of Hamilton County, Ohio, or the court in which such action or suit
was brought shall determine upon application that, despite such adjudication of
liability, and in view of all the circumstances, he is fairly and reasonably
entitled to all or part of such indemnification.
SECTION 5.06. ARTICLE FIVE NOT EXCLUSIVE. The indemnification
provided by this Article Five shall not be deemed exclusive of any other rights
to which any person seeking indemnification may be entitled under the Articles
or the Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be an officer or director of the corporation and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
SECTION 5.07. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, or agent of another corporation
(domestic or foreign, nonprofit or for profit), partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article Five.
SECTION 5.08. CERTAIN DEFINITIONS. For purposes of this Article
Five, and as examples and not by way of limitation:
(A) A person claiming indemnification under this Article 5 shall
be deemed to have been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 5.01, or in defense of any
claim, issue or other matter therein, if such action, suit or proceeding shall
be terminated as to such person, with or without prejudice, without the entry of
a judgment or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to pay any
amount in settlement thereof (whether or not any such termination is based upon
a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in a vindication of him); and
II-5
<PAGE>
(B) References to an "other enterprise" shall include employee
benefit plans; references to a "fine" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article Five.
SECTION 5.09. VENUE. Any action, suit or proceeding to determine a
claim for indemnification under this Article Five may be maintained by the
person claiming such indemnification, or by the corporation, in the Court of
Common Pleas of Hamilton County, Ohio. The corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Hamilton County, Ohio, in any
such action, suit or proceeding.
(c) INDEMNIFICATION AGREEMENTS
(i) AGREEMENT WITH KELLER & COMPANY, INC.
The Association has agreed to indemnify Keller & Company, Inc.
("Keller"), the firm retained by the Association to provide the appraisal of the
pro forma market value of the Association as converted, in connection with
certain matters related to the appraisal. The Association will indemnify
Keller, its employees and affiliates, for certain costs and expenses, including
reasonable legal fees, in connection with claims or litigation relating to the
appraisal and arising out of any misstatement or untrue statement of a material
fact in information supplied to Keller by the Association or by an intentional
omission by the Association to state a material fact in the information so
provided, except where Keller has been negligent or at fault.
(ii) AGREEMENT WITH THE AGENTS
The Association has agreed to indemnify and hold harmless Webb. In
general, the agreement with Webb (the "Agency Agreement") provides that the
Association will indemnify and hold harmless Webb's directors, officers,
employees, agents and any controlling person against any and all loss,
liability, claim, damage or expense (including the fees and disbursements of
counsel reasonably incurred) arising out of any untrue statement, or alleged
untrue statement, of a material fact contained in the Summary Proxy Statement or
the Prospectus, any application to regulatory authorities, any "blue sky"
application, or any other related document prepared or executed by or on behalf
of the Association with its consent in connection with, or in contemplation of,
the transactions contemplated by the Agency Agreement, or any omission therefrom
of a material fact required to be stated therein, unless such untrue statement
or omission, or alleged untrue statement or omission, was made in reliance upon,
and in conformity with, written information regarding Webb furnished to the
Association by Webb expressly for use in the Summary Proxy Statement or the
Prospectus.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of MFC have been sold by MFC without registration pursuant to
the Act, except as follows:
On April 18, 1996, in connection with the incorporation of MFC, 100 common
shares, without par value, of MFC (the "Securities") were sold for an aggregate
purchase price of $100 pursuant to Section 4(2) of the Act in a transaction not
involving any public offering. The Securities were sold to John T. Larimer, the
President of MFC, who had access to all material information about MFC. The
Securities were offered without the use of any form of general solicitation or
advertising. No underwriter was involved in the transaction, and no commission,
discount or other remuneration was paid or given in connection with the sale of
the Securities. Under the terms of the Subscription Agreement between MFC and
Mr. Larimer, the Securities will be repurchased by MFC for $100 on the effective
date of the Conversion.
II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
The exhibits filed as a part of this Registration Statement are as
follows:
1.1 Engagement letter with Charles Webb & Company
1.2 Form of Agency Agreement with Charles Webb & Company
2 Plan of Conversion
3.1 Articles of Incorporation of Market Financial Corporation
3.2 Certificate of Amendment to Articles of Incorporation of Market
Financial Corporation
3.3 Code of Regulations of Market Financial Corporation
5 Opinion of Vorys, Sater, Seymour and Pease regarding legality of
securities being registered
8 Opinion of Vorys, Sater, Seymour and Pease regarding tax matters
10.1 Market Financial Corporation 1996 Stock Option and Incentive Plan
(proposed)
10.2 Market Financial Corporation Recognition and Retention Plan and Trust
Agreement (proposed)
*10.3 Market Financial Corporation Employee Stock Ownership Plan (proposed)
10.4 Employment Agreement between The Market Building and Saving Company
and John T. Larimer (proposed)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Keller & Company, Inc.
23.3 Consent of Vorys, Sater, Seymour and Pease
27 Financial Data Schedule
99.1 Summary Proxy Statement
99.2 Order Form and Form of Certification
99.3 Form of Proxy
99.4 Solicitation and Marketing Material
99.5 Appraisal Agreement between The Market Building and Saving Company and
Keller & Company, Inc.
*99.6 Appraisal Report prepared by Keller & Company, Inc.
- -------------------------------------------------------------
* To be filed supplementally or by amendment.
(b) FINANCIAL STATEMENT SCHEDULES:
No financial statement schedules are filed because the required
information is not applicable or is included in the consolidated financial
statements or related notes.
ITEM 17. UNDERTAKINGS.
(a) The undersigned, MFC, hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
II-7
<PAGE>
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of MFC, pursuant
to the foregoing provisions or otherwise, MFC has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by MFC of expenses incurred or paid by a director, officer or
controlling person of MFC in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, MFC will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, duly authorized to do so, in the City of Mt.
Healthy, State of Ohio, on August 13, 1996.
MARKET FINANCIAL CORPORATION
By: /s/ John T. Larimer
------------------------------------
John T. Larimer
its President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed below by the following
persons in the capacities and as of the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John T. Larimer President August 13, 1996
- ------------------------ (Principal Executive Officer) and
John T. Larimer Director
/s/ Julie M. Bertsch Chief Financial Officer August 13, 1996
- ------------------------ (Principal Financial Officer and
Julie M. Bertsch Principal Accounting Officer)
/s/ Robert Gandenberger Director August 13, 1996
- ------------------------
Robert Gandenberger
/s/ Edgar H. May Director August 13, 1996
- ------------------------
Edgar H. May
/s/ Rae Skirvin Larimer Secretary and Director August 13, 1996
- ------------------------
Rae Skirvin Larimer
/s/ R. C. Meyerenke Treasurer August 13, 1996
- ------------------------
R. C. Meyerenke
/s/ Wilbur H. Tisch Director August 13, 1996
- ------------------------
Wilbur H. Tisch
/s/ Kathleen A. White Director August 13, 1996
- ------------------------
Kathleen A. White
II-9
<PAGE>
MARKET FINANCIAL CORPORATION
REGISTRATION STATEMENT ON FORM S-1
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------
<C> <S>
1.1 Engagement letter with Charles Webb & Company
1.2 Form of Agency Agreement with Charles Webb & Company
2 Plan of Conversion
3.1 Articles of Incorporation of Market Financial Corporation
3.2 Certificate of Amendment to Articles of Incorporation of Market
Financial Corporation
3.3 Code of Regulations of Market Financial Corporation
5 Opinion of Vorys, Sater, Seymour and Pease regarding legality of
securities being registered
8 Opinion of Vorys, Sater, Seymour and Pease regarding tax matters
10.1 Market Financial Corporation 1997 Stock Option and Incentive Plan
(proposed)
10.2 Market Financial Corporation Recognition and Retention Plan and
Trust Agreement (proposed)
10.3 Employment Agreement between The Market Building and Saving
Company and John T. Larimer (proposed)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Keller & Company, Inc.
23.3 Consent of Vorys, Sater, Seymour and Pease
27 Financial Data Schedule
99.1 Summary Proxy Statement
99.2 Order Form and Form of Certification
99.3 Form of Proxy
99.4 Solicitation and Marketing Material
99.5 Appraisal Agreement between The Market Building and Saving Company
and Keller & Company, Inc.
</TABLE>
<PAGE>
CHARLES WEBB & COMPANY
INVESTMENT BANKERS AND FINANCIAL ADVISORS
May 27, 1996
Mr. John T. Larimer
President
Market Building and Saving Company
7522 Hamilton
Mt. Healthy, Ohio 45231-4398
Dear Mr. Larimer:
This proposal is in connection with Market Building and Saving Company's (the
"Bank") intention to convert from a mutual to a capital stock form of
organization (the "Conversion"). In order to effect the Conversion, it is
contemplated that all of the Bank's common stock to be outstanding pursuant to
the Conversion will be issued to a holding company (the "Company") to be formed
by the Bank, and that the Company will offer and sell shares of its common stock
first to eligible persons (pursuant to the Bank's Plan of Conversion) in a
Subscription Offering and then in a Community Offering.
Charles Webb & Company ("Webb") will act as the Bank's and the Company's
exclusive financial advisor and marketing agent in connection with the
Conversion. This letter sets forth selected terms and conditions of our
engagement.
1. ADVISORY/CONVERSION SERVICES. As the Bank's and Company's financial
advisor and marketing agent, Webb will provide the Bank and the Company with a
comprehensive program of conversion services designated to promote an orderly,
efficient, cost-effective and long-term stock distribution. Webb will provide
financial and logistical advice to the Bank and the Company concerning the
offering and related issues. Webb will assist in providing of conversion
enhancement services intended to maximize stock sales in the Subscription
Offering and to residents of the Bank's market area, if necessary, in the
Community Offering.
Webb shall provide financial advisory services to the Bank which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the client with a focus on identifying factors which
impact the valuation of an equity security and provide the appropriate
recommendations for the betterment of the equity valuation.
<PAGE>
Mr John T. Larimer
May 29, 1996
Page 2 of 5
Additionally, post conversion financial advisory services will include advice on
shareholder relations, NASDAQ listing, dividend policy, stock repurchase
strategy and communications with market makers. Prior to the closing of the
offering, Webb shall furnish to client a Post-conversion reference manual which
will include specifies relative to these items. (The nature of the services to
be provided by Webb as the Bank's and the Company's financial advisor and
marketing agent are further described in Exhibit A attached hereto.)
2. PREPARATION OF OFFERING DOCUMENTS. The Bank, the Company and their counsel
will draft the Registration Statement, Application for Conversion, Prospectus
and other documents to be used in connection with the Conversion. Webb will
attend meetings to review these documents and advise you on their form and
content. Webb and their counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
3. DUE DILIGENCE REVIEW. Prior to filing the Registration Statement,
Application for Conversion or any offering or other documents naming Webb as the
Bank's and the Company's financial advisor and marketing agent, Webb and their
representatives will undertake substantial investigations to learn about the
Bank's business and operations ("due diligence review") in order to confirm
information provided to us and to evaluate information to be contained in the
Bank's and/or the Company's offering documents. The Bank agrees that it will
make available to Webb all relevant information, whether or not publicly
available, which Webb reasonably request, and will permit Webb to discuss
personnel and the operations and prospects of the Bank with management. Webb
will treat all material non-public information as confidential. The Bank
acknowledges that Webb will rely upon the accuracy and completeness of all
information received from the Bank, its officers, directors, employees, agents
and representatives, accountants and counsel including this letter of intent to
serve as the Bank's and the Company's financial advisor and marketing agent.
4. REGULATORY FILINGS. The Bank and/or the Company will cause appropriate
offering documents to be filed with all regulatory agencies including, the
Securities and Exchange Commission ("SEC"), the National Association of
Securities Dealers ("NASD"), and such state securities commissioners as may be
determined by the Bank.
5. AGENCY AGREEMENT. The specific terms of the conversion services,
conversion offering enhancement and syndicated offering services contemplated in
this letter shall be set forth in an Agency Agreement between Webb and the Bank
and the Company to be executed prior to commencement of the offering, and dated
the date that the Company's Prospectus is declared effective and/or authorized
to be disseminated by the appropriate regulatory agencies, the SEC,
<PAGE>
Mr John T. Larimer
May 29, 1996
Page 3 of 5
the NASD and such state securities commissioners and other regulatory agencies
as required by applicable law.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. The Agency Agreement will
provide for customary representations, warranties and covenants by the Bank and
Webb, and for the Company to indemnify Webb and their controlling persons (and,
if applicable, the members of the selling group and their controlling persons),
and for Webb to indemnify the Bank and the Company against certain liabilities,
including, without limitation, liabilities under the Securities Act of 1993.
7. FEES. For the services hereunder, the Bank and/or Company shall pay the
following fees to Webb at closing unless stated otherwise:
(a) A Management Fee of $25,000 payable in four consecutive monthly
installments of $6,250 commencing with the signing of this letter.
Such fees shall be deemed to have been earned when due. Should the
Conversion be terminated for any reason not attributable to the
action or inaction of Webb, Webb shall have earned and be entitled to
be paid fees accruing through the stage at which point the
termination occurred.
(b) A Success Fee of 1.5% of the aggregate Purchase Price of Common Stock
sold in the Subscription Offering and Community Offering excluding
shares purchased by the Bank's officers, directors or employees (or
members of their immediate families) plus any ESOP, tax-qualified or
stock based compensation plans (except IRA's) or similar plan created
by the Bank for some or all of its directors or employees. The
Management Fee described in Paragraph 7(a) will be deducted from this
Success Fee.
(c) If any shares of the Company's stock remain available after the
subscription offering, at the request of the Bank, Webb will seek to
form a syndicate of registered broker-dealers to assist in the sale
of such common stock on a best efforts basis, subject to the terms
and conditions set forth in the selected dealers agreement. Webb
will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and
the Plan of Conversion. Webb will be paid a fee not to exceed 5.5%
of the aggregate Purchase Price of the shares of common stock sold by
them. Webb will pass onto selected broker-dealers, who assist in the
syndicated community, an amount competitive with gross underwriting
discounts charged at such time for comparable amounts of stock sold
at a comparable price per share in a similar market environment.
Fees with respect to purchases affected with the assistance
<PAGE>
Mr John T. Larimer
May 29, 1996
Page 4 of 5
of a broker/dealer other than Webb shall be transmitted by Webb to such
broker/dealer. The decision to utilize selected broker-dealers will be
made by the Bank upon consultation with Webb. In the event, with respect
to any stock purchases, fees are paid pursuant to this subparagraph 7(c),
such fees shall be in lieu of, and not in addition to, payment pursuant to
subparagraph 7(a) and 7(b).
8. CONVERSION AGENT. The Bank shall pay Webb a fee of $6,500 for performance
of conversion agent and other data processing duties. Webb shall sub-contract
these duties.
9. EXPENSES. The Bank will bear those expenses of the proposed offering
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Bank's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing and syndicate expenses associated with the
Conversion; the fees set forth in Section 7; and fees for "Blue Sky" legal work.
DUE TO CLIENT'S CLOSE PROXIMITY TO OUR OFFICE, WEBB WILL NOT REQUEST ANY EXPENSE
REIMBURSEMENT FOR TRAVEL AND ACCOMMODATION EXPENSES. Webb shall be reimbursed
for the reasonable fees and expenses of their Counsel, not to exceed $25,000.
The selection of such counsel will be done by Webb, with the approval of the
Bank.
10. CONDITIONS. Webb's willingness and obligation to proceed hereunder shall
be subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) full
and satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in their
sole discretion, that the sale of stock on the terms proposed is reasonable
given such disclosures; (b) no material adverse change in the condition or
operations of the Bank subsequent to the execution of the agreement; and (c) no
market conditions at the time of offering which in Webb's opinion make the sale
of the shares by the Company inadvisable.
11. BENEFIT. This Agreement shall inure to the benefit of the parties hereto
and their respective successors and to the parties indemnified hereunder and
their successors, and the obligations and liabilities assumed hereunder by the
parties hereto shall be binding upon their respective successors provided,
however, that this Agreement shall not be assignable by Webb.
12. DEFINITIVE AGREEMENT. This letter reflects Webb's present intention of
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Bank, the Company or Webb except as to
the agreement to maintain the confidentiality of non-public information set
forth in Section 3, the payment of certain fees as set forth in Section 7(a) and
7(b) and the assumption of expenses as set forth in Section 9, all of which
shall constitute
<PAGE>
Mr John T. Larimer
May 29, 1996
Page 5 of 5
the binding obligations of the parties hereto and which shall survive the
termination of this Agreement or the completion of the services furnished
hereunder and shall remain operative and in full force and effect. You further
acknowledge that any report or analysis rendered by Webb pursuant to this
engagement is rendered for use solely by the management of the Bank and its
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without prior written
consent.
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will
be pleased to elaborate on any of the matters discussed in this letter at your
convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicated by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY
/s/ Patricia A. McJoynt
- ------------------------------
Patricia A. McJoynt
Executive Vice President
MARKET BUILDING & SAVINGS COMPANY
By:/s/ John T. Larimer May 27, 1996
- ------------------------------ ---------------
John T. Larimer, President Date
<PAGE>
EXHIBIT A
CONVERSION SERVICES PROPOSAL
TO MARKET BUILDING AND SAVING COMPANY
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
GENERAL SERVICES
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
CONVERSION OFFERING ENHANCEMENT SERVICES
Establish and manage Conversion Center at the Bank. Conversion Center personnel
will track prospective investors; record stock orders; mail order confirmations;
provide the Bank's senior management with daily reports; answer customer
inquires; and handle special situations as they arise.
Assign Webb's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Conversion Center, meet with prospective
shareholders at individual and community information meetings, solicit local
investor interest through a telemarketing campaign, answer inquires, and
otherwise assist in the sale of stock in the Subscription and Community
Offerings. This effort will be led by a Principal of Webb.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
<PAGE>
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
BROKER-ASSISTED SALES SERVICES
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
AFTERMARKET SUPPORT SERVICES
Webb will use their best efforts to secure market making and on-going research
commitment from at least two NASD firms.
<PAGE>
MARKET FINANCIAL CORPORATION
(an Ohio corporation)
Up to Shares of Common Stock
(No Par Value)
AGENCY AGREEMENT
August __, 1996
Charles Webb & Company
211 Bradenton
Dublin, Ohio 43017
Gentlemen and Ladies:
Market Financial Corporation, an Ohio corporation ("Company"), and The
Market Building and Saving Company, an Ohio mutual savings and loan association
("Bank"), hereby confirm their agreement with Charles Webb & Company ("Webb" or
"Agent" or "you"), as follows:
INTRODUCTION. The Bank is converting from an Ohio-chartered mutual savings
and loan association bank to an Ohio-chartered permanent capital stock savings
and loan association pursuant to the Home Owners' Loan Act ("HOLA") Part 563b of
the Code of Federal Regulations as administered by the Office of Thrift
Supervision ("OTS") and the Ohio _________ Act and the rules and regulations
promulgated thereunder by the Superintendent of the Division of Financial
Institutions of the Department of Commerce of the State of Ohio (the
"Superintendent") (such federal and state statutes and regulations are
hereinafter referred to collectively as the "Conversion Regulations"). The Bank
has filed with the OTS an Application For Conversion on Form AC (the "Conversion
Application"), and has filed with the Superintendent an Application For Approval
to Convert to a Stock Savings and Loan Association (the "Ohio Application"), and
all amendments and supplements, if any required to the date hereof have also
been filed. The Conversion Application and the Ohio Application include among
other things, the Bank's Plan of Conversion, as amended ("Plan"), and the Bank's
proxy statement ("Proxy Statement") for the Special Meeting of Members, to be
held on _______, 1996. The Company has filed with the OTS an Application on
Form H-(e)1-S (the "Holding Company Application"), and all amendments and
supplements, if any required to the date hereof have also been filed to obtain
approval to acquire the outstanding common stock of the Bank. Prior to the date
hereof, the Plan has been adopted by the Board of Directors of the Bank and
approved by the Superintendent and OTS subject to certain conditions. Pursuant
to the Plan: (i) the Bank will convert from an Ohio-chartered mutual savings and
loan association to an Ohio-chartered capital stock savings and loan
association; (ii) all of the issued and outstanding stock of the Bank will be
issued to the Company; and (iii) the Company will issue and sell the Common
Stock (as defined below) in a subscription offering ("Subscription Offering"), a
community offering ("Community Offering") and a syndicated community offering
("Syndicated Community Offering"), if necessary, each of which is described in
the Plan and are collectively referred to herein as the "Offerings. "
Collectively, these transactions are referred to herein as the "Conversion."
<PAGE>
Charles Webb & Company
Page 2
August __, 1996
The Company has _________ shares of authorized capital stock, of which
__________ shares are common stock, without par value ("Common Stock"), and
__________ shares are preferred stock, without par value. Pursuant to the Plan,
the Company is offering in the Subscription Offering by way of nontransferable
subscription rights, Common Stock in order of priority to (i) "Eligible Account
Holders" (savings account holders whose deposits in the Bank totaled $50 or more
at the close of business on December 31, 1994); (ii) the Bank's tax qualified
Employee Stock Ownership Plan (the "ESOP"); (iii) "Supplemental Eligible Account
Holders" (savings account holders who are not Eligible Account Holders and whose
deposits in the Bank totaled $50 or more at the close of business on June 30,
1996); and (iv) members of the Bank who are not Eligible Account Holders or
Supplemental Account Holders, as of the voting record date (the "Voting Record
Date") for the Special Meeting of Members called to vote on the Conversion
("Other Eligible Members"). Subject to the prior rights of holders of
subscription rights, the Company is offering the shares of Common Stock not
subscribed for in the Subscription Offering for sale in the Community Offering
to certain members of the general public, with preference given to natural
persons residing in Hamilton County, Ohio. Except for the ESOP, no Eligible
Account Holder, Supplemental Eligible Account Holder or Other Eligible Member
may purchase more than 2.0 % of the total number of shares of Common Stock
offered in the Subscription Offering and no person, together with such person's
associates, may purchase more than 4% of the Common Stock offered in the
Conversion. Such purchase limitations are subject to increase at the sole
discretion of the Bank and the Company. Any Common Stock not subscribed for in
the Subscription Offering and Community Offering may be sold in the Syndicated
Community Offering. The Board of Directors of the Bank and the Company may
reject any subscriptions, in whole or in part, received from the general public
in the Community Offering or Syndicated Community Offering.
The Company has filed with the Securities and Exchange Commission
("Commission") a registration statement on Form S-1, including such amendments
and any supplements thereto (File No. 333-_____) ("Registration Statement"),
containing a prospectus relating to the Offerings, for the registration of the
Common Stock under the Securities Act of 1933, as amended (" 1933 Act"), and has
filed such amended prospectuses as may have been required as of the date hereof.
The prospectus, as amended or supplemented, on file with the Commission at the
time the Registration Statement initially became effective is hereinafter called
the "prospectus, " except that if the prospectus filed by the Company pursuant
to Rule 424(b) of the rules and regulations of the Commission under the 1933 Act
("1933 Act Regulations") differs from the prospectus on file at the time the
Registration Statement initially becomes effective, the term "Prospectus" shall
refer to the prospectus from and after the time it is filed with or mailed to
the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations.
SECTION 1. RETENTION OF WEBB: COMPENSATION; SALE AND DELIVERY OF THE
SHARES. Subject to the terms and conditions herein set forth, the Bank and the
Company hereby appoint Webb as their agent to utilize its best efforts to
solicit subscriptions for the Common Stock in accordance with
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Charles Webb & Company
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August __, 1996
the terms of this Agency Agreement ("Agreement") and the Prospectus.
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Webb
accepts such appointment and agrees to consult with and advise the Bank and the
Company as to the conversion services set forth in Exhibit A to the letter
agreement between Webb and the Bank dated March 27, 1996 ("Letter Agreement").
During the term of this Agreement, Webb will have the exclusive right to perform
such conversion services. Such right of exclusivity means that neither the
Company nor the Bank shall retain, directly or indirectly, any other financial
advisor or investment banker to perform such services during the term of this
engagement or as may be hereafter extended.
The Company and the Bank acknowledge that Webb is not required to purchase
any Common Stock and is not obligated to take any action which is inconsistent
with any applicable laws, regulations, decisions or orders. Webb and the Bank
may jointly determine to engage additional broker-dealers that are members of
the National Association of Securities Dealers, Inc. ("NASD") to participate in
the solicitation of purchase orders for shares of the Common Stock ("Sub-
Agents") in the Syndicated Community Offering.
The obligations of Webb hereunder shall terminate upon the completion,
termination or abandonment of the Plan by the Bank or upon termination of the
Subscription Offering and Community Offering, but in no event later than March
31, 1997 ("End Date"). All unpaid fees and expenses due to Webb will be payable
to Webb in immediately available funds at the earlier of the Closing Date (as
hereinafter defined) or the End Date. If the Subscription Offering and Community
Offering are extended beyond the End Date, the Bank and Webb may agree to renew
this Agreement under mutually acceptable terms.
If the Company is unable to sell a minimum of ________ shares of the Common
Stock (or such lesser amount as the Superintendent and the OTS may permit)
within the period herein provided, this Agreement shall terminate, and the Bank
shall refund to all persons who have subscribed for any of the shares of Common
Stock the full amount which it may have received from them plus accrued interest
as set forth in the Prospectus. If this Agreement shall terminate pursuant to
the previous sentence, none of the parties to this Agreement shall have any
obligation to the other parties hereunder, except as set forth in this Section 1
and in Sections 2, 7, 8 and 10 hereof.
If the closing of the Conversion does not occur, the Conversion is
terminated or abandoned, or the terms of the Conversion are amended so as to
materially and adversely affect the role of Webb, Webb shall be paid the fees
due to it through the date of such termination, abandonment or amendment
together with reimbursement for reasonable legal fees and reasonable out-of-
pocket expenses upon such termination, abandonment or amendment within five (5)
days of such event.
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Charles Webb & Company
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August __, 1996
In addition to the reimbursement of expenses specified in Section 2, the
Company and the Bank, jointly and severally, agree to pay Webb the following
fees as compensation for Webb's services hereunder:
(a) a management fee of $25,000 which is hereby acknowledged to have been
paid;
(b) a fee of 1.5% of the aggregate actual purchase price of the shares of
Common Stock sold in the Subscription Offering and Community Offering, excluding
those shares purchased by the Bank's officers, directors and employees (or
members of their "immediate families,") or by any ESOP, tax-qualified or stock-
based compensation plans (except IRAs) or similar plan created by the Bank for
some or all of its directors or employees. The management fee described in
Paragraph 7(a) will be deducted from this success fee;
(c) for any shares of Common Stock sold by Sub-Agents (excluding shares
purchased by officers, directors and employees, or members of their immediate
families, of the Bank or by the ESOP) during the Syndicated Community Offering,
a fee of 5.5 % of the aggregate purchase price of the shares of Common Stock
sold by Sub-Agents shall be paid to Webb and Webb will pass on to the selling
Sub-Agents an amount competitive with gross underwriting discounts charged at
such time for comparable amounts of stock sold at a comparable price per share
in a similar market environment;
(d) a fee of $6,500 for performance of conversion agent and other data
processing duties, which duties Webb shall sub-contract.
SECTION 2. PAYMENT OF EXPENSES. Whether or not the Conversion is completed,
the Company and the Bank jointly and severally agree to pay all expenses
incident to the performance of the obligations of the Company and the Bank under
this Agreement, including but not limited to the following: (i) the preparation,
printing, issuance and delivery of certificates for the Common Stock; (ii) the
fees and disbursements of the Company's and the Bank's counsel, accountants and
other advisors; (iii) the qualification of the Common Stock under all applicable
Blue Sky Laws, including filing fees and the fees and disbursements of counsel
in connection therewith and in connection with the preparation of a Blue Sky
survey; (iv) the printing and delivery to Webb in such quantities as Webb shall
reasonably request of copies of the Registration Statement, the Prospectus, the
Proxy Statement, the Conversion Application, the Ohio Application and the
Holding Company Application as originally filed and as amended or supplemented
and all other documents in connection with the Conversion and this Agreement;
(v) filing fees incurred in connection with the review of the Subscription
Offering and Community Offering by the Commission and by the NASD; (vi) the fees
for listing the shares on the Nasdaq Small Cap Market; (vii) fees and expenses
relating to the preparation of the independent appraisal and all updates
thereof; (viii) fees and expenses relating to advertising expenses, temporary
personnel expenses and, conversion center expenses,
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Charles Webb & Company
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August __, 1996
investor meeting expenses, and other miscellaneous expenses relating to the
marketing of the Common Stock by the Agent; (ix) the fees and charges of any
transfer agent, registrar and other agents; and (x) all reasonable out-of-pocket
expenses of Webb and expenses of Webb's counsel not to exceed $25,000 incurred
in connection with the Conversion.
SECTION 3. CLOSING DATE: RELEASE OF FUNDS AND DELIVERY OF CERTIFICATES. If
all conditions precedent to the consummation of the Conversion are satisfied,
including, without limitation, the sale of all Common Stock required by the
Plan, the Company agrees to issue or have issued the Common Stock sold in the
Offerings and to release for delivery certificates for such Common Stock on the
Closing Date (as hereinafter defined) against payment therefor by release of
funds from the special interest-bearing account referred to in the Prospectus
and by the authorized withdrawal of funds from deposit accounts of Eligible
Account Holders, Supplemental Eligible Account Holders, Other Eligible Members
and other subscribers in accordance with the Plan; provided, however, that no
funds shall be released to the Company or withdrawn until the conditions
specified in Section 9 hereof shall have been complied with to the reasonable
satisfaction of the Agent and its counsel. Such release, withdrawal and payment
shall be made at such date and time at the offices of Luse Lehman Gorman
Pomerenk & Schick, or such other place selected by the Agent, which date, time
and place are mutually acceptable to the Bank and the Company and Webb, on at
least two business days' prior notice to the Bank and Company (it being
understood that such business day shall not be more than 10 business days after
termination of the Subscription Offering and Community Offering unless an
amendment to the Registration Statement is required), or such other time or
place as shall be agreed upon by the Agent, the Bank and the Company.
Certificates for Common Stock shall be delivered directly to the purchasers
thereof or in accordance with their directions. The hour and date upon which the
Company shall release or deliver the Common Stock sold in the Subscription
Offering and Community Offering, according to the terms hereof, are herein
called the "Closing Date."
SECTION 4. PROSPECTUS; SUBSCRIPTION OFFERING, COMMUNITY OFFERING AND
SYNDICATED COMMUNITY OFFERING. The Common Stock shall be offered in the
Subscription Offering and Community Offering and in the Syndicated Community
Offering, if any, at the purchase price as set forth on the cover page of the
Prospectus. That price or the number of shares offered may be changed by the
Company and the Bank, after consultation with the Agent, with such approval of
the Superintendent or the OTS, if required.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Company and the Bank jointly
and severally represent and warrant to the Agent as of the date hereof as
follows:
(a) The Plan has been adopted by the Board of Directors of the Bank by the
requisite vote required by the Conversion Regulations.
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Charles Webb & Company
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August __, 1996
(b) The Registration Statement was declared effective by the Commission on
____, 1996. At the time the Registration Statement became effective, the
Registration Statement complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations, and the Registration
Statement, any preliminary or final Prospectus, Proxy Statement, any Blue Sky
Application or any Sales Document (as such terms are defined previously herein
or in Section 7 hereof) authorized by the Company or the Bank for use in
connection with the Offerings did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and at the time any Prospectus was filed with or
mailed to the Commission for filing under Rule 424(b) of the 1933 Act
Regulations, the Registration Statement, any preliminary or final Prospectus,
any Proxy Statement, any Blue Sky Application or any Sales Document (as such
terms are defined previously herein or in Section 7 hereof), authorized by the
Company or the Bank for use in connection with the Offerings did not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided, however, that the
representations and warranties in this Section 5(b) shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company or the Bank by Webb expressly regarding
Webb for use in the Prospectus under the caption "The Conversion- Marketing
Plan."
(c)(i) The Bank has filed the Ohio Application with the Superintendent. The
Superintendent approved the Plan on _______, 1996, and the Superintendent has
approved use of the Proxy Statement of the Bank. No order has been issued by or
is pending before the Superintendent preventing, suspending or revoking such
approval; and, to the best knowledge of the Company and the Bank, no person has
sought to obtain review of the final action of the Superintendent in approving
the Plan. At the time of the approval of the Plan by the Superintendent, the
Plan complied as to form in all material respects with the Conversion
Regulations. As of the date hereof, the Ohio Application complies as to form in
all material respects with the Conversion Regulations. At the time of approval
of the Ohio Application, the Ohio Application, including the Proxy Statement,
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(ii) The Bank has filed the Conversion Application with the OTS. The OTS
approved the Conversion Application, including the Plan contained therein, on
________, 1996, and the OTS has approved use of the proxy materials and
prospectus. No order has been issued by or is pending before the OTS
preventing, suspending or revoking such advice; and, to the best knowledge of
the Company and the Bank, no person has sought to obtain review of such action
by the OTS. At the time of the action on the Conversion Application by the OTS,
the Conversion Application complied as to form in all material respects with the
Conversion Regulations. As of the date hereof, the
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Charles Webb & Company
Page 7
August __, 1996
Conversion Application complies as to form in all material respects with the
Conversion Regulations. At the time of approval of the Conversion Application,
the Conversion Application, including the Proxy Statement, did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Company has filed the Holding Company Application with the OTS.
The OTS approved the Holding Company Application on ____, 1996, subject to
certain conditions. No order has been issued by or is pending before the OTS
preventing, suspending or revoking such approval; and, to the best knowledge of
the Company and the Bank, no person has sought to obtain review of the final
action of the OTS in approving the Holding Company Application.
(e) The Prospectus has been approved by the Superintendent and the OTS and
has been declared effective by the Commission. The Prospectus contained in the
Conversion Application and the Ohio Application complies as to form, and at
______, 1996 complied as to form, in all material respects with the Conversion
Regulations, the 1933 Act and the 1933 Act Regulations. No order has been issued
by the Superintendent, the Commission, the OTS, or any Blue Sky authority
preventing or suspending the use of the Prospectus, and no action by or before
any such government entity to revoke any approval, authorization or order of
effectiveness related to the Conversion is pending or, to the best knowledge of
the Company or the Bank, threatened.
(f) Keller & Co., Inc. ("Keller"), the firm that prepared the independent
appraisal dated as of __________, 1996, and updated on ______, 1996, has advised
the Bank that it is independent with respect to the Company and the Bank within
the meaning of the Conversion Regulations.
(g) Grant Thornton, LLP, the firm that certified the financial statements
filed as part of the Registration Statement, has advised the Company and the
Bank that it is independent with respect to the Company and the Bank as required
by the 1933 Act, the 1933 Act Regulations, the Code of Professional Ethics of
the American Institute of Certified Public Accountants and the Conversion
Regulations, and nothing has come to the attention of the Company or the Bank
which causes them to believe that Grant Thornton, LLP is not independent within
the meaning of such provisions.
(h) The financial statements and notes thereto included in the Registration
Statement, the Conversion Application and the Ohio Application and which are
part of the Prospectus present fairly the financial condition, results of
operations, retained earnings and cash flows of the Bank for the dates indicated
and for the periods specified and comply as to form in all material respects
with the applicable accounting requirements of the Conversion Regulations, the
1933 Act, the 1933 Act Regulations, and generally accepted accounting principles
("GAAP") applied consistently during the periods involved. The other financial,
statistical and pro forma information and related notes included in the
Prospectus present fairly the information shown therein at the respective dates
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Charles Webb & Company
Page 8
August __, 1996
thereof and for the respective periods covered thereby on a basis consistent
with the audited financial statements of the Bank included in the Prospectus,
and the pro forma adjustments made therein have been properly applied on the
basis described therein.
(i) Since the respective dates as of which information is given in the
Registration Statement, the Conversion Application, the Ohio Application and the
Prospectus, except as may otherwise be stated therein: (i) there has not been
any material adverse change, financial or otherwise, in the condition of the
Company or the Bank, considered as one enterprise, or in the results of
operations, earnings, capital, properties, business or affairs of the Bank or
the Company, whether or not arising in the ordinary course of business; (ii)
there has not been any material increase in the long-term debt or non-performing
assets of the Bank; (iii) there has not been any material decrease in retained
earnings, reserves or total assets of the Bank; (iv) neither the Company nor the
Bank has issued any securities or incurred any liability or obligation for
borrowing other than in the ordinary course of business; (v) there have not been
any material transactions entered into by the Company or the Bank, except those
transactions entered into by the Bank in the ordinary course of business; (vi)
there has been no material legal proceeding or employee grievances initiated
against the Bank or the Company; (vii) there has been no material change in
management of the Bank or the Company; and (viii) the capitalization,
liabilities, assets, properties and business of the Company and the Bank conform
in all material respects to the descriptions thereof contained in the
Prospectus. Neither the Company nor the Bank has any material liability of any
kind, except as set forth in the Prospectus.
(j) The Bank has been organized and is a validly existing Ohio state-
chartered mutual savings and loan association and upon the Conversion will
become a duly organized and validly existing Ohio state-chartered permanent
capital stock savings and loan association, in both instances duly authorized to
conduct its business and own its properties as described in the Registration
Statement, the Conversion Application, the Ohio Application and the Prospectus.
The Bank has obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its business, all such
licenses, permits and governmental authorizations are in full force and effect,
and the Bank is in all material respects complying with all laws, rules,
regulations and orders applicable to the operation of its business. The Bank is
existing under the laws of the State of Ohio and is duly qualified as a foreign
corporation to transact business and is in good standing in each jurisdiction in
which its ownership of property or leasing of properties or the conduct of its
business requires such qualification except where failure to so qualify would
not have a material adverse effect on the financial condition or results of
operations of the Bank. The Bank does not own equity securities or any equity
interest in any other business enterprise except as described in the Prospectus.
Upon completion of the sale of the Common Stock contemplated by the Prospectus,
(i) the Bank will be converted pursuant to the Plan to an Ohio state-chartered
permanent capital stock savings and loan association; (ii) all of the issued and
outstanding capital stock of the Bank will be owned by the Company and (iii) the
Company will have no direct subsidiaries other than the Bank. The Conversion
will have been effected in all material respects in accordance with all
applicable statutes,
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Charles Webb & Company
Page 9
August __, 1996
regulations, decisions and orders; and, except with respect to the filing of
certain post-Conversion reports and documents, all terms, conditions,
requirements and provisions with respect to the Conversion imposed by the
Commission, the Superintendent and the OTS, if any, will have been complied with
by the Company and the Bank or appropriate waivers will have been obtained and
all notice and waiting periods will have been satisfied, waived or elapsed.
(k) The Bank is a member of the Federal Home Loan Bank of Cincinnati. The
deposit accounts of the Bank are insured by the Savings Association Insurance
Fund ("SAIF") as administered by the FDIC up to the maximum amount allowed under
law. No proceedings for the termination or revocation of such membership or
insurance coverage are pending or, to the best knowledge of the Company and the
Bank, threatened.
(l) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company will be as set forth in the Prospectus
under the caption "Capitalization;" no shares of Common Stock or other equity
securities of the Company, other than shares of Common Stock issued in
connection with the incorporation of the Company, have been or will be issued
and outstanding prior to the Closing Date; the Common Stock has been duly and
validly authorized for issuance and, when issued and delivered by the Company
pursuant to the Plan against payment of the consideration calculated as set
forth in the Plan and in the Prospectus, will be duly and validly issued and
fully paid and non-assessable. Except as disclosed in the Registration
Statement, the Conversion Application, the Ohio Application and the Prospectus,
there are no preemptive or similar rights to subscribe for or to purchase, or
any restriction upon the voting or transfer of, any shares of Common Stock
pursuant to the Company's Articles of Incorporation, bylaws or any agreement or
other instrument to which the Company is a party or by which the Company is
bound. Except as disclosed in the Registration Statement, the Conversion
Application, the Ohio Application and the Prospectus, there are no options,
warrants, agreements, contracts or other rights in existence to purchase or
acquire from the Company any shares of the capital stock of the Company. The
terms and provisions of the Common Stock conform in all material respects to the
description thereof contained in the Registration Statement, the Conversion
Application, the Ohio Application and the Prospectus. Upon the issuance of the
Common Stock, good title to the Common Stock will be transferred from the
Company to the purchasers thereof against payment therefor, subject to such
claims as may be asserted against the purchasers thereof by third-party
claimants.
(m) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Ohio with corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement, the Conversion Application,
the Ohio Application and the Prospectus, and the Company is qualified to do
business as a foreign corporation in each jurisdiction in which the conduct of
its business requires such qualification except where failure to so qualify
would not have a material adverse effect on the financial condition or results
of operations of the Company. The Company has obtained all licenses,
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Charles Webb & Company
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August __, 1996
permits and other governmental authorizations currently required for the conduct
of its business, except where failure to obtain such licenses, permits or
authorizations which individually or in the aggregate would not have a material
adverse effect on the financial condition or results of operations of the
Company and the Bank taken as a whole; all such licenses, permits and
governmental authorizations are in full force and effect; and the Company is in
all material respects complying with all laws, rules, regulations and orders
applicable to the operation of its business.
(n) Neither the Company nor the Bank is in violation of its Articles of
Incorporation, Code of Regulation, Constitution or bylaws (and the Bank will not
be in violation of its Articles of Incorporation, Constitution or bylaws in
capital stock form upon consummation of the Conversion) or in default in the
performance or observance of any obligation, agreement, covenant, or condition
contained in any material contract, lease, loan agreement, indenture or other
instrument to which it is a party or by which it or any of its property may be
bound. The consummation of the Conversion, the execution, delivery and
performance of this Agreement and the consummation of the transactions herein
contemplated have been duly and validly authorized by all necessary corporate
action on the part of the Company and the Bank and this Agreement has been
validly executed and delivered by the Company and the Bank and is the valid,
legal and binding agreement of the Company and the Bank enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, moratorium, reorganization or similar laws relating
to or affecting the enforcement of creditors' rights generally or the rights of
creditors, or by general equity principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law, and except to
the extent, if any, that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy. The consummation of the transactions
herein contemplated will not (i) conflict with or constitute a breach of, or
default under, the Articles of Incorporation, Code of Regulation or bylaws of
the Company, the Articles of Incorporation, Constitution or bylaws of the Bank
(in either mutual or capital stock form), or any contract, lease or other
instrument to which the Company or the Bank is a party or in which the Company
or the Bank is a party or in which the Company, the Bank has a beneficial
interest, or any applicable law, rule, regulation or order; (ii) violate any
authorization, approval, judgment, decree, order, statute, rule or regulation
applicable to the Company or the Bank, except for such violations which would
not have a material adverse effect on the financial condition or results of
operations of the Company or the Bank, taken as a whole, or (iii) with the
exception of the liquidation account established in the Conversion in accordance
with the Conversion Regulations, result in the creation of any lien, charge or
encumbrance upon any property of the Company or the Bank.
(o) The Company and the Bank have all such corporate power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue and
sell the capital stock of the Bank and the Common Stock as provided in the Plan
and as described in the Prospectus.
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Charles Webb & Company
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August __, 1996
(p) The Company and the Bank have good and marketable title to all
properties and assets that are material to the business of the Company and the
Bank and to those properties and assets described in the Registration Statement
and the Prospectus as owned by them, free and clear of all liens, charges,
encumbrances, or restrictions, except as such are described in the Registration
Statement, the Conversion Application, the Ohio Application or the Prospectus or
which do not have a material adverse effect on the business of the Company and
the Bank taken as a whole; and all of the leases and subleases material to the
business of the Company and the Bank under which the Company or the Bank hold
properties, including those described in the Registration Statement, the
Conversion Application, the Ohio Application and the Prospectus, are in full
force and effect.
(q) The Company and the Bank are not in violation of any directive from the
Superintendent, the OTS, or any other governmental agency or authority to make
any change in the method of conducting their businesses so as to comply with all
applicable statutes and regulations (including, without limitation, regulations,
decisions, directives and orders of the Superintendent and the OTS) and, except
as set forth in the Registration Statement, the Conversion Application, the Ohio
Application and the Prospectus, there is no suit, proceeding, charge,
investigation or action before or by any court, regulatory authority or
governmental agency or body, pending or, to the best knowledge of the Company
and the Bank, threatened, which might materially and adversely affect the
Conversion, the performance of this Agreement or the consummation of the
transactions contemplated in the Plan and as described in the Registration
Statement, the Conversion Application, the Ohio Application and the Prospectus
or which might result in any material adverse change in the condition, financial
or otherwise, earnings, capital, properties or affairs of the Company or the
Bank.
(r) The Plan has been approved by the Superintendent and the OTS, subject
to certain conditions. To the best knowledge of the Company and the Bank, no
person has sought to obtain review of the actions of the Superintendent or the
OTS with respect to the Plan, the Conversion or the Holding Company Application.
(s) The Bank has received an opinion of its counsel, Vorys, Sater, Seymour
and Pease, with respect to the federal income tax consequences and Grant
Thornton, LLP, with respect to the Ohio tax consequences of the Conversion as
described in the Prospectus; and the facts and representations upon which such
opinions are based are true, accurate and complete, and neither the Bank nor the
Company has taken any action inconsistent therewith.
(t) No default exists, and no event has occurred which, with notice or
lapse of time or both, would constitute a default on the part of the Company or
the Bank, in the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, note, bank loan or credit
agreement or any other instrument or agreement to which the Company or the Bank
is a party or by which any of them or any of their property is bound or affected
in any respect which, in any individual case or in the aggregate, would have a
material adverse effect on the business,
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Charles Webb & Company
Page 12
August __, 1996
results of operations, financial condition or affairs of the Company or the
Bank; such agreements are in full force and effect; and no other party to any
such agreements has instituted or, to the best knowledge of the Company and the
Bank, threatened any action or proceeding wherein the Company or the Bank would
or might be alleged to be in default thereunder, under circumstances where such
action or proceeding, if determined adversely to the Company or the Bank, would
have a material adverse effect on the Company and the Bank. taken as a whole.
(u) Subsequent to the respective dates as of which information is given in
the Registration Statement, the Conversion Application, the Ohio Application and
the Prospectus, except as otherwise may be indicated or contemplated therein,
neither the Company nor the Bank has (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money, except
borrowings from the same or similar sources indicated in the Prospectus in the
ordinary course of its business, or (ii) entered into any transaction which is
material in light of the business and properties of the Company and the Bank.
(v) The Company and the Bank have filed all federal, state and local tax
returns required to be filed and have made timely payments of all taxes due and
payable with respect to such returns, except where permitted to be extended and
no deficiency has been asserted with respect thereto by any taxing authority.
(w) Neither the Company, the Bank nor, to the best knowledge of the Company
and the Bank, any of their respective employees has made any payment of funds of
the Company or the Bank as a loan for the purchase of the Common Stock or made
any other payment of funds prohibited by law, and no funds have been set aside
by the Company or the Bank to be used for any payment prohibited by law.
(x) Neither the Bank nor the Company has: (i) placed any securities within
the last 18 months (except for liabilities incurred in the ordinary course of
business or described in the Prospectus); (ii) had any dealings within the 12
months prior to the date hereof with any member of the NASD, or any person
related to or associated with such member, other than discussions and meetings
relating to the transactions contemplated hereby and routine purchases and sales
of U.S. government and agency securities; (iii) entered into a financial or
management consulting agreement except as contemplated hereunder and except for
the Letter Agreement; or (iv) engaged any intermediary between the Agent and the
Company or the Bank in connection with the offering of Common Stock, and no
person has been or shall be compensated in any manner for such service
(y) As of the date hereof, the Company and the Bank have taken all
necessary corporate action to file such applications for registration or
qualification in the jurisdictions selected by the Company and the Bank in which
the Common Stock will be offered for sale and which require such registration or
qualification.
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Charles Webb & Company
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August __, 1996
(z) All documents delivered by the Bank or the Company or their
representatives in connection with the issuance and sale of the Common Stock, or
in connection with Webb's exercise of due diligence, were on the dates on which
they were delivered, complete in all material respects.
(aa) The records of account holders, depositors, borrowers and other
members of the Bank are accurate and complete in all material respects. Webb
shall have no liability to any person for the accuracy, reliability and
completeness of such records or for any denial or reduction of a subscription to
purchase Common Stock, whether as a result of a properly calculated allocation
pursuant to the Plan or otherwise' based upon such records.
(bb) To the best knowledge of the Company and the Bank, the Company and the
Bank are in compliance with all laws, rules and regulations relating to
environmental protection, and neither the Company nor the Bank has been notified
or is otherwise aware that either of them is potentially liable, or is
considered potentially liable, under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or any similar state law. To
the best knowledge of the Company and the Bank, no action, suits, regulatory
investigations or other proceedings pending, or to the best knowledge of the
Company and the Bank, threatened against the Company or the Bank relating to
environmental protection, nor does the Company or the Bank have any reason to
believe any such proceedings may be brought against either of them. To the best
knowledge of the Company and the Bank, no disposal, release or discharge of
hazardous or toxic substances, pollutants or contaminants, including petroleum
and gas products, as any of such terms may be defined under federal, state or
local law, has occurred on, in, at or about any of the facilities or properties
of the Company or the Bank.
Any certificate signed by an officer of the Bank or of the Company and
delivered to the Agent or its counsel in connection with this Agreement shall be
deemed to be a representation and warranty by the Bank or the Company to the
Agent as to the matters covered thereby with the same effect as if such
representation and warranty were set forth herein.
SECTION 6. COVENANTS OF THE COMPANY AND BANK. The Company and the Bank
hereby jointly and severally covenant with you as follows:
(a) At any time after the date the Registration Statement is declared
effective and the Conversion Application, the Ohio Application and the Holding
Company Application are approved, the Company and the Bank will not file any
amendment or supplement to the Registration Statement, the Conversion
Application, the Ohio Application or the Holding Company Application without
providing you and your counsel an opportunity to review such amendment or to
which amendment you or your counsel shall reasonably object.
(b) The Company and the Bank will use their best efforts to cause any post-
effective
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Charles Webb & Company
Page 14
August __, 1996
amendments to the Registration Statement to be declared effective by the
Commission and any post-approval amendments to the Conversion Application, the
Ohio Application or the Holding Company Application to be approved by the
Superintendent and the OTS, as applicable. The Company and the Bank will notify
you: (i) when the Registration Statement has become effective and each of the
Conversion Application, the Ohio Application and the Holding Company Application
has been approved; (ii) of the receipt of any comments from the Commission, the
Superintendent, the OTS or any other governmental entity with respect to the
transactions contemplated by this Agreement; (iii) of the request by the
Commission, the Superintendent, the OTS or any other governmental entity for any
amendment or supplement to the Registration Statement, the Conversion
Application, the Ohio Application or the Holding Company Application or for
additional information; (iv) of the issuance by the Commission, the
Superintendent, the OTS or any other governmental entity of any order or other
action suspending the Offerings or the use of the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application or
the Prospectus or any other filing of the Company and the Bank under the
Conversion Regulations or other applicable law, or the threat of any such
action; (v) the issuance by the Commission, the Superintendent or OTS or any
other authority of any stop order suspending the effectiveness of the
Registration Statement or the approval of the Conversion Application, the Ohio
Application or the Holding Company Application or of the initiation or threat of
initiation or threat of any proceedings for those purposes; or (vi) of the
occurrence of any event mentioned in paragraph (g) below. The Company and the
Bank will make every reasonable effort to prevent the issuance by the
Commission, the Superintendent, the OTS or any other authority of any such order
and, if any such order shall at any time be issued, to obtain the lifting
thereof at the earliest possible time.
(c) The Company will notify you of its intention to file, and will allow
you reasonable time to review prior to filing, any amendment or supplement to
the Registration Statement, the Conversion Application, the Ohio Application,
the Holding Company Application or the Prospectus and will not file any such
amendment or supplement to which you shall reasonably object or which shall be
reasonably disapproved by your counsel.
(d) The Company and the Bank will deliver to you and to your counsel two
conformed copies, with all exhibits, of each of the Conversion Application, the
Ohio Application and the Holding Company Application, as originally filed and of
each amendment or supplement thereto, and the Registration Statement, as
originally filed and each amendment thereto. In addition, the Company and the
Bank will also deliver to you such number of copies of the Prospectus, as
amended or supplemented, as you may reasonably request.
(e) The Company will furnish to you, from time to time during the period
when the Prospectus (or any later prospectus related to this offering) is
required to be delivered under the 1933 Act or the 1934 Act, such number of
copies of the Prospectus as you may reasonably request for the purposes
contemplated by the 1933 Act, the 1933 Act
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Charles Webb & Company
Page 15
August __, 1996
Regulations, the 1934 Act or the 1934 Act Regulations. The Company authorizes
the Agent to use the Prospectus for any lawful manner in connection with the
sale of the Common Stock by the Agent.
(f) The Company and the Bank will comply with any and all terms,
conditions, requirements and provisions with respect to the Conversion imposed
by the Superintendent, the OTS, applicable state law, the Conversion
Regulations, the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934
Act Regulations, to be complied with subsequent to the Closing Date. During the
period prior to the Closing Date and when the Prospectus is required to be
delivered, the Company and the Bank will comply, at their own expense, with all
requirements imposed upon them by the Commission, the Superintendent, the OTS,
applicable state law, the Conversion Regulations, the 1933 Act, the 1933 Act
Regulations, the 1934 Act and the 1934 Act Regulations, including, without
limitation, Rule 10b-5 of the 1934 Act Regulations, in each case as from time to
time in force, in accordance with the provisions hereof and the Prospectus.
(g) If, at any time during the period when the Prospectus is required to be
delivered, any event relating to or affecting the Company or the Bank shall
occur, as a result of which it is necessary or appropriate, in the opinion of
counsel to Webb, to amend or supplement the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application or
the Prospectus in order to make the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application or the
Prospectus not misleading in light of the circumstances existing at the time it
is delivered to a purchaser, the Company and the Bank will, at their expense,
prepare and file such amendment or supplement with the Commission, the
Superintendent and the OTS, as applicable, and furnish to you a reasonable
number of copies of all amendments or supplements to the Registration Statement,
the Conversion Application, the Ohio Application, the Holding Company
Application or the Prospectus (in form and substance satisfactory to you and
your counsel after a reasonable time for review) so that, as amended or
supplemented, the Registration Statement, Conversion Application, the Ohio
Application, the Holding Company Application and the Prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not misleading.
For the purpose of this Agreement, the Company and the Bank each will timely
furnish to you such information with respect to itself as you may from time to
time request.
(h) The Company and the Bank will take all necessary actions, in
cooperation with you, and furnish such information as may be required to qualify
or register the Common Stock for offering and sale by the Company under the
applicable securities laws and regulations (collectively, the "Blue Sky Laws")
of such jurisdictions as you may reasonably designate; provided, however, that
the Company shall not be obligated to file any general consent to service of
process or to qualify to do business in any jurisdiction in which it is not so
qualified. In each jurisdiction where any of the Common Stock shall have been
qualified or registered as above provided, the Company will make
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Charles Webb & Company
Page 16
August __, 1996
and file such statements and reports in each fiscal period as are or may be
required by the Blue Sky Laws of such jurisdiction.
(i) The Company will not for a period of 90 days after the Closing Date,
without your prior written consent, offer for sale, sell or issue, contract to
sell or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exercisable for common stock, other than the Common Stock or
other than in connection with any plan or arrangement described in the
Prospectus.
(j) During the period during which the Common Stock is registered under the
1934 Act or for three years from the Closing Date, whichever period is greater,
the Company will furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report to stockholders meeting the
requirements of the 1934 Act and the 1934 Act Regulations (including
consolidated statements of financial condition, operations, stockholders' equity
and cash flows of the Company and its subsidiary as at the end of and for such
year, certified by independent public accountants in accordance with Regulation
S-X of the Commission).
(k) For three years after the Closing Date, the Company will furnish to
Webb: (i) as soon as publicly available, a copy of each report of the Company
furnished generally to stockholders or furnished to or filed with the Commission
under the 1934 Act or the 1934 Act Regulations or any national securities
exchange or system on which any class of securities of the Company is listed or
quoted (including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and
all proxy statements and annual reports to stockholders), a copy of each other
report of the Company mailed to its stockholders or filed with the Commission,
the Superintendent, the OTS or any other supervisory or regulatory authority or
any national securities exchange or system on which any class of securities of
the Company is listed or quoted, each press release released by the Company and
such additional documents and information with respect to the Company or the
Bank as Webb may reasonably request, and (ii) from time to time, such other non-
confidential information concerning the Company and the Bank as you may
reasonably request.
(l) The Company and the Bank will use the net proceeds of the Offerings in
the manner set forth in the Prospectus under the caption "Use of Proceeds."
(m) Upon consummation of the Conversion, the liquidation account for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
will be duly established in accordance with the Plan and the requirements of the
Conversion Regulations.
(n) The Bank and the Company will conduct the Conversion in accordance with
the Plan, all applicable laws and regulations and in the manner described in the
Prospectus.
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Charles Webb & Company
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August __, 1996
(o) Other than as permitted by the Conversion Regulations, the 1933 Act,
the 1933 Act Regulations and the Blue Sky Laws of any state in which the Common
Stock is qualified for sale, neither the Company nor the Bank will distribute
any prospectus as defined in the 1933 Act in connection with the offer and sale
of the Common Stock.
(p) The Company will make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve-month period beginning
not later than the first day of the Company's fiscal quarter next following the
effective date (as defined in Rule 158) of the Registration Statement.
(q) The Company will file with the Commission a report on Form SR pursuant
to Rule 463 of the 1933 Act Regulations.
(r) The Company will register the Common Stock under Section 12(g) of the
1934 Act.
(s) The Company will use its best efforts to obtain approval for and
maintain quotation of the shares on the Nasdaq Small Cap Market effective on or
prior to the Closing Date.
(t) The Bank will maintain appropriate arrangements for depositing all
subscription funds to purchase Common Stock in the Conversion in an interest-
bearing account at the rate described in the Prospectus until the Closing Date
and satisfaction of all conditions precedent to the release of the Bank's
obligation to refund payments received from persons subscribing for or ordering
Common Stock in the Offerings in accordance with the Plan as described in the
Prospectus, or until refunds of such funds have been made to the persons
entitled thereto in accordance with the Plan and as described in the Prospectus.
The Bank will maintain such records of all funds received to permit each
subscriber's funds to be separately insured by the Federal Deposit Insurance
Corporation (to the maximum extent allowable by law) and to enable the Bank to
make appropriate refunds of such funds if required in accordance with the Plan
and as described in the Prospectus.
(u) The Company will promptly register, if so required, as a savings and
loan holding company under the applicable Federal and Ohio laws.
(v) The Company will take such actions and furnish such information as is
reasonably requested by the Agent to ensure compliance with the NASD
"Interpretation on Free Riding and Withholding."
(w) The Company and the Bank will conduct their businesses in material
compliance with all applicable federal and state laws, rules, regulations,
decisions, directives and orders including, all decisions, directives and orders
of the Commission, the Superintendent, the OTS, the FDIC and
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Charles Webb & Company
Page 18
August __, 1996
the Federal Reserve Board.
(x) The Bank will not amend the Plan without notifying the Agent prior
thereto.
(y) Subsequent to the date the Registration Statement is declared effective
by the Commission and prior to the Closing Date, except as otherwise may be
indicated or contemplated therein, neither the Company nor the Bank will: (i)
issue any securities or incur any liability or obligations, direct or
contingent, for borrowed money, except borrowing from the same or similar
sources indicated in the Prospectus in the ordinary course of its business, or
(ii) enter into any transaction that is material in light of the business and
properties of the Company and the Bank, excluding origination, purchase and sale
of loans in the ordinary course of its business.
(z) Neither the Bank nor the Company will take, directly or indirectly, any
action designed to or which has constituted or which reasonably might be
expected to cause or result, under the 1934 Act or otherwise, in the
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Common Stock.
(aa) The Company and the Bank will comply with each and every undertaking
or commitment made by them under Blue Sky Laws, including, without limitation,
each and every undertaking or commitment made in connection with the Offerings.
(bb) The Company and the Bank will use their best efforts to comply with,
or cause to be complied with, the conditions precedent to the several
obligations of the Agent specified in Section 9 hereof.
(cc) The records of account holders, depositors, borrowers and other
members of the Bank are complete in all material respects. Webb shall have no
liability to any person for the accuracy, reliability and completeness of such
records or for any denial or reduction of a subscription to purchase Common
Stock, whether as a result of a properly calculated allocation pursuant to the
Plan or otherwise, based upon such records.
SECTION 7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Webb, its officers,
directors, agents, servants and employees and each person, if any, who controls
Webb within the meaning of Section 15 of the 1933 Act or Section 20(a) of the
1934 Act, against any and all loss, liability, claim, damage or expense
whatsoever (including but not limited to any and all amounts paid in settlement
of any claim or litigation) that Webb or any of them may suffer or to which Webb
or any of them may become subject under all applicable federal and state laws or
otherwise, and to promptly reimburse Webb and any such persons upon written
demand for any expenses (including reasonable fees and
<PAGE>
Charles Webb & Company
Page 19
August __, 1996
disbursements of counsel) incurred by Webb or any of them in connection with
investigating, preparing or defending any actions, proceedings or claims
(whether commenced or threatened) to the extent such losses, claims, damages,
liabilities or actions: (i) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, the Conversion Application, the Ohio Application or the Holding
Company Application (or any amendment or supplement thereto), preliminary or
final Prospectus (or any amendment or supplement thereto), or any Blue Sky
application or other instrument or document of the Company or based upon written
information supplied by the Company and filed in any state or jurisdiction to
register or qualify any or all of the Common Stock under the Blue Sky Laws
thereof (collectively, the "Blue Sky Application"), or any application or other
document, advertisement or communication ("Sales Information") prepared, made or
executed by or on behalf of the Company or based upon information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify or
register the Common Stock under the Blue Sky Laws thereto; (ii) arise out of or
are based upon the omission or alleged omission to state in any of the foregoing
documents or information, a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; or, (iii) arise from any theory of
liability whatsoever relating to or arising from or based upon the Registration
Statement, the Conversion Application, the Ohio Application, the Holding Company
Application (or any amendment or supplement thereto), preliminary or final
Prospectus, Blue Sky Application or Sales Information distributed in connection
with the Conversion, except to the extent such losses, claims, damages,
liabilities or actions arise out of or are based upon any untrue material
statements or alleged untrue material statements in, or material omission or
alleged material omission from, the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application (or any
amendment or supplement thereto), the preliminary or final Prospectus (or any
amendment or supplement thereto), or Sales Information made in reliance upon and
in conformity with information furnished in writing to the Company by you
regarding you expressly for use under the caption "The Conversion-Marketing
Plan" therein or statistical information regarding national averages provided by
Webb for the Sales Information. This indemnity agreement will be in addition to
any liability which the Company may otherwise have, including under this
Agreement.
(b) Webb agrees to indemnify and hold harmless the Company, its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against
any and all loss, liability, claim, damage or expense whatsoever, joint or
several which they, or any of them, may suffer or to which they, or any of them,
may become subject under all applicable federal and state laws or otherwise, and
to promptly reimburse the Company and any such persons upon written demand for
any expenses (including reasonable fees and disbursements of counsel) incurred
by them, or any of them, in connection with investigating, preparing or
defending any actions, proceedings or claims (whether commenced or threatened)
to the extent such losses, claims, damages, liabilities or actions arise out of
or are based upon any untrue statement or alleged untrue statement of a material
fact contained in the
<PAGE>
Charles Webb & Company
Page 20
August __, 1996
Registration Statement (or any amendment of supplement thereto) or the
preliminary or final Prospectus (or any amendment or supplement thereto), or are
based upon the omission or alleged omission to state in any of the foregoing
documents a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that Webb's obligations under this
Section 7(b) shall exist only if and only to the extent that such untrue
statement or alleged untrue statement was made in, or such material fact or
alleged material fact was omitted from the Registration Statement (or any
amendment or supplement thereto) or the preliminary or final Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with
information furnished in writing to the Company by Webb regarding Webb expressly
for use under the caption "The Conversion-Marketing Plan" in the Prospectus or
statistical information regarding national averages provided by Webb for the
Sales Information.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 7 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties that
are defendants in such action, unless such indemnified parties reasonably object
to such assumption on the ground that there may be legal defenses available to
them that are different from or in addition to those available to such
indemnifying party. If an indemnifying party assumes the defense of such action,
the indemnifying parties shall not be liable for any fees and expenses of
counsel for the indemnified parties incurred thereafter in connection with such
action, proceeding or claim, other than reasonable costs of investigation. In no
event shall the indemnifying parties be liable for the fees and expenses of more
than one separate firm of attorneys (and any special counsel that said firm may
retain) for each indemnified party in connection with any one action, proceeding
or claim or separate but similar or related actions, proceedings or claims in
the same jurisdiction arising out of the same general allegations or
circumstances.
SECTION 8. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 7 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company or Webb, the Company and Webb shall
contribute to the aggregate losses, claims, damages and liabilities (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of any action, suit or proceeding of any claims
asserted, but after deducting any contribution received by the Company or Webb
from persons other than the other party thereto, who may also be liable for
contribution) in such proportion so that Webb is responsible for that portion
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Charles Webb & Company
Page 21
August __, 1996
represented by the percentage that the fees paid to the Agent pursuant to
Section 1 of this Agreement bears to the gross proceeds received by the Company
in the Offerings and the Company shall be responsible for the balance. If,
however, the allocation provided above is not permitted by applicable law or if
the indemnified party failed to give the notice required under Section 7 above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company, on the one
hand, and you on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions, proceedings
or claims in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and you on the other shall be deemed to be in the same proportion as the total
gross proceeds from the Offerings received by the Company bear to the total fees
received by the Agent pursuant to Section 1 of this Agreement. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or you on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and you agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or action, proceedings or claims in respect thereof) referred to
above in this Section 8 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action, proceeding or claim. Notwithstanding this Section
8, it is expressly agreed that Webb shall not be liable for any loss, liability,
claim, damage or expense or be required to contribute any amount which in the
aggregate exceeds the amount paid to Webb under Section 1 of this Agreement. It
is understood that the above-stated limitation on Webb's liability is essential
to Webb and that Webb would not have entered into this Agreement if such
limitation had not been agreed to by the parties to this Agreement. No person
found guilty of any fraudulent misrepresentation (within the meaning of Section
ll(f) of the 1933 Act) shall be entitled to contribution from any person who was
not found guilty of such fraudulent misrepresentation. The obligations of the
Company and Webb under this Section 8 and under Section 7 shall be in addition
to any liability which the Company and Webb may otherwise have. For purposes of
this Section 8, each of Webb's officers and directors and each person, if any,
who controls Webb within the meaning of the 1933 Act and the 1934 Act shall have
the same rights to contribution as you and each person, if any, who controls the
Company within the meaning of the 1933 Act and the 1934 Act, and each officer
and director of the Company shall have the same rights to contribution as the
Company. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action, suit, claim or proceeding against such party in
respect of which a claim for contribution may be made against another party
under this Section 8, will notify such party from whom contribution may be
sought, but the omission to so notify such party shall not relieve
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Charles Webb & Company
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August __, 1996
the party from whom contribution may be sought from any other obligation it may
have hereunder or otherwise than under this Section 8.
SECTION 9. CONDITIONS TO WEBB'S OBLIGATIONS. Webb's obligations hereunder,
as to the Common Stock to be delivered at the Closing Date, are subject to the
condition that all representations and warranties and other statements of the
Bank and the Company herein are, at and as of the commencement of the Offerings
and at and as of the Closing Date, true and correct in all material respects,
the condition that the Bank and the Company shall have performed in all material
respects all of its obligations hereunder to be performed on or before such
dates, and to the following further conditions:
(a) The Registration Statement shall have been declared effective by the
Commission. The Plan shall have been approved by the Superintendent and the OTS,
and the Holding Company Application shall have been approved by the OTS,
respectively, not later than 5:30 p.m. on the date of this Agreement, or with
your consent at a later time and date, and at the Closing Date no stop order
suspending the effectiveness or approval of the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application,
or the consummation of the Conversion shall have been issued under the 1933 Act,
the 1933 Act Regulations or the Conversion Regulations or proceedings therefor
initiated or threatened by the Commission, the Superintendent, the OTS or any
state authority, and no order or other action suspending the effectiveness of
the Prospectus or the consummation of the Conversion shall have been issued or
proceedings therefore initiated or threatened by the Commission, the
Superintendent, the OTS or any state authority.
(b) At the Closing Date, Webb shall have received:
(1) The opinion, dated as of the Closing Date, addressed to Webb and for
its benefit, of Vorys, Sater, Seymour and Pease, counsel for the Company and the
Bank, in form and substance satisfactory to Webb to the effect that:
(i) The Company has been incorporated and duly organized and is validly
existing as a corporation in good standing under the laws of the State of Ohio,
with corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application
and the Prospectus; to the best of such counsel's knowledge the Company is duly
qualified as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required, except where
failure to so qualify would not have a material adverse effect on the business,
financial condition, results of operations or affairs of the Company or the
Bank.
(ii) Prior to the Closing Date, the Bank has been an Ohio state-chartered
mutual savings and loan association, and, at the Closing Date, has become a duly
incorporated and validly existing Ohio
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Charles Webb & Company
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August __, 1996
state-chartered capital stock savings and loan association, in both instances
with corporate power and authority to own, lease and operate its properties and
to conduct its business substantially as described in the Registration
Statement, the Conversion Application, the Ohio Application, the Holding Company
Application and the Prospectus.
(iii) The Bank is a member of the FHLB of Cincinnati. The deposit accounts
of the Bank are insured by the FDIC up to the current maximum amount for each
depositor, as defined by applicable law, and no proceeding for the revocation of
such membership or insurance is pending or, to the best of such counsel's
knowledge, threatened.
(iv) To the best of such counsel's knowledge, the Company and the Bank have
good and marketable title to all properties and assets which are material to the
business of the Company and the Bank and to those properties and assets
described in the Prospectus as owned by them, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in the
Prospectus; and all of the leases and subleases material to the business of the
Company and the Bank under which the Company and the Bank hold properties, as
described in the Prospectus, are in full force and effect.
(v) No material default by the Company or the Bank exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note
or lease or other instrument so described, referred to or filed.
(vi) The information in the Prospectus describing the liquidation account,
to the extent that such information constitutes matters of law and legal
conclusions, has been reviewed by such counsel and is described accurately.
(vii) Upon consummation of the Conversion, the authorized, issued and
outstanding capital stock of the Company will be within the range set forth in
the Prospectus under the caption "Capitalization," and no shares of Common Stock
have been issued and outstanding prior to the Closing Date, except for shares
issued to the incorporator of the Company, which shares were canceled on the
Closing Date. At the Closing Date, the shares of Common Stock subscribed for
pursuant to the Offerings will have been duly and validly authorized for
issuance, and when issued and delivered by the Company pursuant to the Plan
against payment of the consideration therefor, will be duly and validly issued,
fully paid and nonassessable. To the best of such counsel's knowledge, the
holders of the Common Stock will acquire good title thereto, free and clear of
any security interest, mortgage, pledge, lien, claim or other encumbrance or
other defect in title (other than restrictions on transfer under applicable law
and subject to such claims as may be asserted against the purchasers thereof by
third party claimants) and except for the subscription rights under the Plan,
there are no preemptive or other rights to subscribe for or to purchase, or,
except as
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Charles Webb & Company
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August __, 1996
otherwise set forth in the articles of incorporation and bylaws of the Company,
any restriction upon the voting of the Common Stock.
(viii) Upon consummation of the Conversion, when issued and delivered by
the Company pursuant to the Plan against payment of consideration therefor, all
of the issued and outstanding capital stock of the Bank will be duly authorized,
validly issued, fully paid and nonassessable, and all such capital stock will be
owned beneficially and of record by the Company, free and clear of any security
interest, mortgage, pledge, lien, claim or other encumbrances or other defect in
title.
(ix) The OTS has approved the Holding Company Application, subject to
certain conditions, and no order has been issued by the OTS suspending or
revoking such approval, and no action for such purpose has been instituted or,
to the best of such counsel's knowledge, threatened with respect to the Holding
Company Application and, to the best of such counsel's knowledge, no person has
sought to obtain review of the final action of the OTS in approving the Holding
Company Application. The Holding Company Application complies as to form with
the applicable requirements of OTS regulations; and the Company and the Bank
have obtained all necessary approvals under and are duly authorized pursuant to
OTS regulations to consummate the acquisition of the Bank as contemplated by the
Holding Company Application and as described in the Registration Statement, the
Conversion Application, the Ohio Application and the Prospectus.
(x) The Conversion Application and the Ohio Application, including the
Prospectus and Proxy Statement, as filed with the OTS and the Superintendent,
respectively, comply as to form in all material respects with the Conversion
Regulations and have been approved by the OTS and the Superintendent,
respectively. The Prospectus and Proxy Statement have been authorized for use by
the Superintendent and the OTS. The Superintendent and the OTS have authorized
the Conversion, and no action has been taken, is pending or, to the best of such
counsel's knowledge, been threatened to revoke such approvals or authorizations.
(xi) The Plan complies in all material respects with the Conversion
Regulations. To the best of such counsel's knowledge, the Company and the Bank
have conducted the Conversion in all material respects in accordance with the
Plan and the Conversion Regulations and all applicable rules, decisions and
orders thereunder; the Plan has been duly authorized by the Boards of Directors
of the Company and the Bank and approved by the required vote of the members of
the Bank.
(xii) The Bank has duly amended its articles of incorporation,
constitution, and bylaws effective upon consummation of the Conversion to read
in the form of an Ohio state-chartered capital stock savings and loan
association; all applicable terms, conditions, requirements and conditions
precedent to the Conversion imposed upon the Company and the Bank by the
Commission, the Superintendent or the OTS, except with respect to the filing of
certain post-Conversion reports and any other actions required to be performed
after the Closing Date, have been
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Charles Webb & Company
Page 25
August __, 1996
complied with by the Company and the Bank, and no order has been issued by the
Commission, the Superintendent or the OTS to suspend the Offerings, and no
action for such purpose has been instituted or to the best of such counsel's
knowledge threatened by the Commission, the Superintendent or the OTS or any
other agency; and, to the best of such counsel's knowledge, no person has sought
to obtain review of the final action of the Superintendent or the OTS in
approving the Conversion Application or the OTS Application, respectively, or
the Plan.
(xiii) The execution and delivery of this Agreement has been duly
authorized by all necessary corporate action on the part of the Company and the
Bank and this Agreement is a valid and binding obligation of the Company and the
Bank, subject to the execution of this Agreement by a duly authorized officer of
Webb and subject, as to enforceability, to bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership and other laws of
general applicability relating to or affecting creditors' rights, laws relating
to the safety and soundness of insured depository institutions as set forth in
12 U.S.C. Section 1818(b) or the appointment of a conservator or receiver by the
FDIC, to general principles of equity (whether considered in an action at law or
in equity) and to the extent that rights to indemnity and contribution
thereunder may be limited under applicable laws or under considerations of
public policy. The Bank and the Company have full corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
thereby and by the Plan.
(xiv) The Registration Statement is effective under the 1933 Act and no
stop order suspending effectiveness has been issued under the 1933 Act or
proceedings therefore initiated or, to the best knowledge of such counsel,
threatened by the Commission or any state authority.
(xv) Subject to the satisfaction of the conditions to the Superintendent's
and the OTS's approval of the Conversion, and the OTS' approval of the Holding
Company Application, no further approval, authorization, consent or other order
of any public board or body is required in connection with the execution and
delivery of this Agreement, the issuance of the Common Stock and the
consummation of the Conversion, except as may be required under the securities
or blue sky laws of various jurisdictions (as to which no opinion need be
rendered) and except as may be required under the regulations of the NASD or the
Nasdaq Small Cap Market.
(xvi) At the time the Registration Statement became effective and the
Conversion Application and the Ohio Application were approved by the OTS and the
Superintendent, respectively, (i) the Registration Statement and the Prospectus
(other than the financial statements, notes to financial statements, tables,
schedules or other financial and statistical data included therein, as to which
no opinion need be rendered) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and (ii) the
Conversion Application, the Ohio Application, the Proxy Statement and the
Prospectus (other than the financial statements, notes to financial statements,
tables, schedules or other financial and statistical data included therein, as
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Charles Webb & Company
Page 26
August __, 1996
to which no opinion need be rendered) complied as to form in all material
respects with the requirements of the Conversion Regulations.
(xvii) The information in the Prospectus under the captions "Regulation,"
"Taxation," "Restrictions on Acquisition of MFC and the Association and Related
Anti-Takeover Provisions," "The Conversion" and "Description of Authorized
Shares" to the extent that it constitutes matters of law, summaries of legal
matters, documents or proceedings, or legal conclusions, has been reviewed by
such counsel and is correct in all material respects (except as to the financial
statements and other financial and statistical data included therein as to which
no opinion need be expressed), and the information under the caption "The
Conversion - Principal Effects of the Conversion-Tax Consequences" has been
reviewed by them and constitutes a correct summary of the opinions rendered to
the Bank with respect to such matters.
(xviii) The form of certificate used to evidence the shares of Common Stock
is in due and proper form and complies with Ohio law and requirements of the
Superintendent and the OTS applicable thereto.
(xix) To the best of such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or the Bank
which are required to be disclosed in the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application or the
Prospectus, other than those disclosed therein, and all pending legal and
governmental proceedings to which the Company, or the Bank is the subject, if
any, which are not disclosed in the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application and the
Prospectus including ordinary routine litigation incidental to the business,
are considered in the aggregate, not material.
(xx) To the best of such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments
required to be described or referred to in the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application or
the Prospectus or to be filed as exhibits to the Registration Statement, the
Conversion Application, the Ohio Application or the Holding Company Application,
other than those described or referred to therein or filed as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xxi) To the best of such counsel's knowledge, the Company and the Bank
have obtained all licenses, permits and other governmental authorizations
currently required for the conduct of their respective businesses as described
in the Registration Statement, the Conversion Application, the Ohio Application,
the Holding Company Application, and the Prospectus except where failure to
obtain the same would not have a material adverse effect on the business,
financial condition, results of operations or affairs of the Company and the
Bank, and all such licenses, permits and other
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Charles Webb & Company
Page 27
August __, 1996
governmental authorizations are in full force and effect, and the Company and
the Bank are in all material respects complying therewith.
(xxii) Neither the Company nor the Bank is in violation of its articles of
incorporation, constitution or bylaws (and the Bank will not be in violation of
its articles of incorporation or constitution in stock form upon consummation of
the Conversion) or, to the best of such counsel's knowledge, is in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which the Company or the Bank is a party or by
which the Company or the Bank or any of their property may be bound except for
such defaults which would not have a material adverse impact on the financial
condition or results of operations of the Company and the Bank on a consolidated
basis; to the best of such counsel's knowledge, the execution and delivery of
this Agreement, the incurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any material lien, charge or encumbrance upon any property or
assets of the Company or the Bank pursuant to any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which the Company or the Bank
is a party or by which any of them may be bound, or to which any of the property
or assets of the Company or the Bank is subject, nor will such action result in
any violation of the provisions of the articles of incorporation, constitution
or bylaws of the Company or the Bank (and will not result in any violation of
the Bank's articles of incorporation or constitution in stock form upon
consummation of the Conversion).
(xxiii) To the best of such counsel's knowledge, the Company and the Bank
are not in violation of any directive from the Commission, the Superintendent or
the OTS to make any change in the method of conducting their businesses.
Such counsel shall include an additional statement to the effect that,
during the preparation of the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application, and the
Prospectus, counsel participated in conferences with certain officers and other
representatives of the Bank and the Company, representatives of Webb, counsel to
Webb, representatives of the independent public accountants for the Bank and the
Company at which conferences the contents of the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application,
and the Prospectus and related matters were discussed and, although they are not
passing upon and do not assume the responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application,
and the Prospectus, on the basis of the foregoing (relying as to factual matters
on certificates of officers and other factual representations by the Bank and
the Company), nothing has come to such counsel's attention that caused them to
believe that the Registration Statement at the time it was declared effective by
the SEC, the Conversion Application at the time it was approved by the OTS, the
Ohio
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Charles Webb & Company
Page 28
August __, 1996
Application at the time it was approved by the Superintendent, the Holding
Company Application at the time it was approved by the OTS, or the Prospectus as
of its date and as of the Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that such counsel shall express no comment or opinion with
respect to the financial statements, schedules and other financial and
statistical data included, or statistical methodology employed, in the
Registration Statement, the Conversion Application, the Ohio Application, the
Holding Company Application and the Prospectus).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the United
States and Ohio, to the extent such counsel deems proper and specified in such
opinion, upon the opinion of other counsel of good standing, and (B) as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and the Bank and public officials; provided
copies of any such opinion or certificates of public officials are delivered to
you together with the opinion to be rendered hereunder by counsel to the Company
and the Bank. The opinion of such counsel for the Company and the Bank shall
state that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you are justified in relying thereon. Such
counsel may assume that any agreement is the valid and binding obligation of any
parties to such agreement other than the Company and the Bank.
(2) The favorable opinion, dated as of the Closing Date, of Luse Lehman
Gorman Pomerenk & Schick, P.C., your counsel, with respect to such matters as
you may reasonably require. Such opinion may rely upon the opinions of counsel
to the Bank and the Company, and as to matters of fact, upon certificates of
officers and directors of the Company and the Bank delivered pursuant hereto.
(c) At the Closing Date, you shall receive a certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company and of the
Chief Executive Officer and Chief Financial Officer of the Bank, dated as of
such Closing Date, to the effect that: (i) since the respective dates as of
which information is given in the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application and the
Prospectus, there has been no material adverse change in the business, financial
condition, earnings, properties or affairs of the Company or the Bank, whether
or not arising in the ordinary course of business; (ii) the representations and
warranties in Section 5 are true and correct with the same force and effect as
though expressly made at and as of the Closing Date; (iii) the Company and the
Bank have complied with all agreements and satisfied all conditions on their
part to be performed or satisfied at or prior to the Closing Date, and the
Company and Bank will comply with all obligations to be satisfied by them after
the Conversion; (iv) no stop order suspending the effectiveness of the
Registration Statement has been
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Charles Webb & Company
Page 29
August __, 1996
initiated or, to the best knowledge of such officers, threatened by the
Commission or any other authority; and (v) no order suspending the Offerings,
the Conversion, the acquisition of all of the shares of the Bank by the Company
or the effectiveness of the Prospectus has been issued and no proceedings for
that purpose have been initiated or, to the best knowledge of such officers,
threatened by the Commission, the Superintendent, the OTS or any other state
authority.
(d) Prior to and at the Closing Date: (i) in the reasonable opinion of
Webb, there shall have been no material adverse change in the business,
financial condition, earnings, affairs of the Company or the Bank from that as
of the latest dates as of which such condition is set forth in the Prospectus,
except as referred to therein; (ii) there shall have been no material
transaction entered into by the Company or the Bank from the latest date as of
which the financial condition of the Company or the Bank is set forth in the
Prospectus other than transactions referred to or contemplated therein; (iii)
the Company or the Bank shall not have received from the Commission, the
Superintendent or the OTS any direction (oral or written) to make any material
change in the method of conducting their business with which it has not complied
(which direction, if any, shall have been disclosed to Webb) or which materially
and adversely would affect the business, financial condition, results of
operations or affairs of the Company or the Bank; (iv) neither the Company nor
the Bank shall have been in default (nor shall an event have occurred which,
with notice or lapse of time or both, would constitute a default) under any
provision of any agreement or instrument relating to any material outstanding
indebtedness; (v) no action, suit or proceedings, at law or in equity or before
or by any federal or state commission, board or other administrative agency,
shall be pending or, to the best knowledge of the Company and the Bank,
threatened against the Company or the Bank or affecting any of their properties
wherein an unfavorable decision, ruling or finding would materially and
adversely affect the business, financial condition, results of operations or
affairs of the Company or the Bank; and (vi) the Common Stock shall have been
qualified or registered for offering and sale in the jurisdictions in which the
Common Stock will he offered for sale.
(e) Concurrently with the execution of this Agreement, Webb and the Bank
shall receive a letter from Grant Thornton, LLP, dated the date hereof and
addressed to Webb: (i) confirming that Grant Thornton, LLP, is a firm of
independent public accountants within the meaning of the 1933 Act, the 1933 Act
Regulations, the Conversion Regulations and the Code of Professional Conduct of
the American Institute of Certified Public Accountants, and stating in effect
that in their opinion the financial statements of the Bank at June 30, 1996 and
1995 and for the years ended September 30, 1995, 1994, and 1993 included in the
Prospectus and covered by their opinion included therein comply as to form in
all material respects with the applicable accounting requirements of the 1933
Act, the 1933 Act Regulations, the Conversion Regulations, and GAAP applied
consistently; (ii) stating in effect that, on the basis of certain agreed upon
procedures (but not an audit examination in accordance with generally accepted
auditing standards) consisting of a reading of the latest available unaudited
interim consolidated financial statements of the Bank prepared by the Bank, a
reading of the minutes of the meetings of the Boards of Directors of the Bank
and the Company and
<PAGE>
Charles Webb & Company
Page 30
August __, 1996
the members of the Bank and consultations with officers of the Bank responsible
for financial and accounting matters, nothing came to its attention which caused
it to believe that: (A) the unaudited financial statements of the Bank included
in the Prospectus are not in conformity with GAAP applied on a basis
substantially consistent with that of the audited financial statements included
in the Prospectus; and (B) during the period from the date of the latest audited
financial statements included in the Prospectus to a specified date not more
than three business days prior to the date hereof, there was any increase in
borrowing or in non-performing assets by the Company or the Bank; and (C) except
as otherwise discussed in the Prospectus there was any decrease in retained
earnings of the Bank at the date of such letter as compared with amounts shown
in the latest audited statement of condition included in the Prospectus or there
was any decrease in net income or net interest income of the Bank for the number
of full months commencing immediately after the period covered by the latest
income statement included in the Prospectus and ended on the latest month end
prior to the date of the Prospectus or in such letter as compared to the
corresponding period in the preceding year (included in the "Recent
Developments" section of the Prospectus, if any); and (iii) stating that, in
addition to the audit referred to in its opinion included in the Prospectus and
the performance of the procedures referred to in clause (ii) of this subsection
(e), it has compared with the general accounting records of the Company and/or
the Bank, as applicable, which are subject to the internal controls of the
Company's and/or the Bank's, as applicable, accounting system and other data
prepared by the Company and/or the Bank, as applicable, directly from such
accounting records, to the extent specified in such letter, such amounts and/or
percentages set forth in the Prospectus as you may reasonably request, and they
have found such amounts and percentages to be in agreement therewith.
(f) At the Closing Date, Webb shall receive a letter from Grant Thornton,
LLP, dated the Closing Date, addressed to Webb, confirming the statements made
by it in the letter delivered by it pursuant to subsection (e) of this Section
9, the "specified date" referred to in clause (ii) (C) thereof to be a date
specified in such letter, which shall not be more than three business days prior
to the Closing Date.
(g) At the Closing Date, you shall have received a letter from Keller &
Co., Inc., dated as of the Closing Date, confirming its independent appraisal.
Such independent appraisal shall be in form and substance satisfactory to you
and shall be consistent with the terms of the Plan.
(h) At the Closing Date, your counsel shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the sale of the Common Stock as herein contemplated
and related proceedings or in order to evidence the accuracy or completeness of
any of the representations or warranties or the fulfillment of any of the
conditions contained herein; and all proceedings taken by the Company and the
Bank in connection with the Conversion and the sale of the Common Stock as
herein contemplated shall be satisfactory in form and substance to you and your
counsel.
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Charles Webb & Company
Page 31
August __, 1996
(i) The Company and the Bank shall not have sustained since the date of the
latest audited financial statements included in the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application,
and the Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application, and the
Prospectus, and since the respective dates as of which information is given in
the Registration Statement, the Conversion Application, the Ohio Application,
the Holding Company Application, and the Prospectus, there shall not have been
any material change in the consolidated long-term debt of the Company or the
Bank other than debt incurred in relation to the purchase of Common Stock by the
ESOP, if any, or any material change, or any development involving a prospective
change, in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company or the Bank,
otherwise than as set forth or contemplated in the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Registration,
and the Prospectus, the effect of which, in any such case described above, is in
your judgment sufficiently material and adverse as to make it impracticable or
inadvisable to proceed with the Offerings or the delivery of the Common Stock on
the terms and in the manner contemplated in the Registration Statement, the
Conversion Application, the Ohio Application, the Holding Company Application,
and the Prospectus.
(j) Subsequent to the date hereof, there shall not have occurred any of the
following: (i) a suspension or limitation in trading in securities generally on
the New York Stock Exchange, American Stock Exchange or the over-the-counter
market, or quotations halted generally on the Nasdaq National Market, Nasdaq
Small Cap Market, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required by either of such
exchanges or the NASD or by order of the Commission or any other governmental
authority; (ii) a general moratorium on commercial banks, federal savings banks
or savings and loan association in Ohio or a general moratorium on the
withdrawal of deposits from commercial banks, federal savings banks or savings
and loan associations in Ohio, declared by either federal or Ohio authorities;
(iii) the engagement by the United States in hostilities which have resulted in
the declaration, on or after the date hereof, of a national emergency or war; or
(iv) a material decline in the price of equity or debt securities if the effect
of such a decline, in your judgment, makes it impracticable or inadvisable to
proceed with the Offerings or the delivery of the Common Stock on the terms and
in the manner contemplated in the Registration Statement, the Conversion
Application, the Ohio Application, the Holding Company Application, and the
Prospectus.
SECTION 10. TERMINATION AND CANCELLATION.
(a) If the Company fails to sell the minimum amount of Common Stock
required to be sold
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Charles Webb & Company
Page 32
August __, 1996
by the Superintendent and the OTS within the period specified, and in accordance
with the provisions of the Plan or as required by the Conversion Regulations,
this Agreement shall terminate upon refund by the Bank to each person who has
subscribed for or ordered any of the Common Stock the full amount which it may
have received from such person, together with interest as provided in the
Prospectus, and no party to this Agreement shall have any obligation to the
other hereunder, except for payment by the Bank and/or the Company as set forth
in Sections 1, 2, 7, and 8 hereof.
(b) This Agreement may be terminated by the Agent, with respect to the
Agent's obligations hereunder, by notifying the Company or the Bank at any time
at or prior to the Closing Date, if any of the conditions specified in Section 9
hereof shall not have been fulfilled when and as required by this Agreement or
if the Conversion has not been completed by December 31, 1996.
(c) If any of the conditions specified herein shall not have been fulfilled
when and as required by this Agreement, or by December 31, 1996, this Agreement
and all of Webb's obligations hereunder may be canceled by Webb by notifying the
Bank of such cancellation in writing or by telegram at any time at or prior to
the Closing Date, and any such cancellation shall be without liability of any
party to any other party except as otherwise provided in Sections 1, 2, 7 and 8
hereof. Notwithstanding the above, if this Agreement is canceled pursuant to
this paragraph, the Bank and the Company jointly and severally agree to
reimburse you for all of your out-of-pocket expenses (including the reasonable
fees and expenses of Webb's counsel) subject to the applicable provision of
Sections 1 and 2 reasonably incurred by you and your counsel in contemplation of
the Offerings.
SECTION 11. SURVIVAL. The respective indemnities, contributions,
agreements, representations, warranties and other statements of the Bank, the
Company and you, as set forth in this Agreement, shall remain in full force and
effect, regardless of (i) any investigation (or any statement as to the results
thereof) made by or on behalf of Webb or its officers, directors, controlling
persons, agents or employees or by or on behalf of the Company or the Bank or
any officers, directors, controlling persons, agents or employees of the Company
or the Bank; (ii) delivery of and payment hereunder for the Common Stock; or
(iii) any termination of this Agreement.
SECTION 12. NOTICES. Notices hereunder, except as otherwise provided
herein, shall be given in writing or by telegraph, addressed (a) to the Agent at
211 Bradenton, Dublin, Ohio 43017 (Attention: Patricia A. McJoynt), with a copy
to Luse Lehman Gorman Pomerenk & Schick, P.C., 5335 Wisconsin Avenue, N.W.,
Suite 400, Washington, D.C. 20015 (Attention: Kenneth R. Lehman, Esq.) and (b)
to the Company and the Bank at the Bank's principal office, 7522 Hamilton
Avenue, Mt. Healthy, Ohio 45231 (Attention: John T. Larimer, President and Chief
Executive Officer) with a copy to Vorys, Sater, Seymour and Pease, 221 East
Fourth Street, Atrium II, Suite 2100, Cincinnati, Ohio 45202 (Attention: Cynthia
A. Shafer, Esq.).
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Charles Webb & Company
Page 33
August __, 1996
SECTION 13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio except if federal law
shall be deemed to apply.
SECTION 14. SEVERABILITY. Any provision or term of this Agreement found to
be invalid or unenforceable shall not effect the validity or enforceability of
the remaining provisions and terms of this Agreement.
SECTION 15. MISCELLANEOUS.
(a) Time shall be of the essence of this Agreement.
(b) This Agreement is made solely for the benefit of and will be binding
upon the parties hereto and their respective successors and the controlling
persons, directors and officers referred to in Section 7 hereof, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of any of the Common Stock.
(c) This Agreement sets forth the entire understanding and agreement among
the parties hereto representing the subject matter hereof and supersedes and
cancels all prior agreements and understanding, written or oral, including the
Letter Agreement (except to the extent of the reference to Exhibit A of the
Letter Agreement in Section 1 hereof.
(d) This Agreement may be signed in various counterparts which together
will constitute one agreement.
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Charles Webb & Company
Page 34
August __, 1996
If the foregoing correctly sets forth the arrangement among the Company,
the Bank and the Agent, please indicate acceptance thereof in the space provided
below for that purpose, whereupon this letter and your acceptance shall
constitute a binding agreement.
Very truly yours,
MARKET FINANCIAL CORPORATION THE MARKET BUILDING AND SAVING
COMPANY
By: By:
-------------------------------- ------------------------------
John T. Larimer John T. Larimer
President and Chief Officer President and Chief Officer
Accepted as of the date first above written.
CHARLES WEBB & COMPANY
By:
----------------------------------
Patricia A. McJoynt
<PAGE>
EXHIBIT A
SUPPLEMENTAL AGREEMENT
This Supplemental Agreement ("Agreement") is entered into this ______ day
of __________1996, by and between The Market Building and Saving Company
("Bank") and Charles Webb & Company ("Webb");
W I T N E S S E T H:
WHEREAS, the Bank has retained Webb as its financial agent to assist in the
sale of the stock of its proposed holding company, Market Financial Corporation
("Company"), pursuant to the Agency Agreement dated __________, 1996 ("Agency
Agreement");
WHEREAS, in consideration for the rendering of its services, Webb seeks the
Bank to indemnify and provide contribution to it to the same extent the Company
has agreed to indemnify and provide contribution to Webb pursuant to Sections 7
and 8 of the Agency Agreement, and the Bank desires Webb to indemnify and
provide contribution to it to the same extent Webb has agreed to indemnify and
provide contribution to the Company pursuant to Sections 7 and 8 of the Agency
Agreement;
WHEREAS, the Bank has been informed by its special counsel, Vorys, Sater,
Seymour and Pease, that such an indemnification and contribution by the Bank may
not comply with the quantitative limitations and collateral requirements of
Section 23A of the Federal Reserve Act ("Section 23A") and may be violative of
federal law and, therefore, should not be entered into by the Bank;
WHEREAS, the Bank and Webb mutually desire the provisions of this Agreement
to become a part of, and not be superseded by, the Agency Agreement;
NOW THEREFORE, in consideration of the promises and the mutual covenants,
and agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is agreed that:
1. INDEMNIFICATION
(a) The Bank will indemnify Webb to the extent permissible under Section
23A. Such indemnification by the Bank, if any, permitted shall be in conformity
with and subject to the conditions and limitations contained in Section 7 of the
Agency Agreement; provided such conditions and limitations do not conflict with
the applicable requirements of Section 23A.
(b) Webb will indemnify the Bank to the same extent Webb has agreed to
indemnify the Company pursuant to Section 7 of the Agency Agreement.
<PAGE>
2. CONTRIBUTION
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in Section 1 of this Agreement is due,
the Bank and Webb hereby agree that the contribution provision contained in
Section 8 of the Agency Agreement shall apply to the extent that the Bank's
contribution does not exceed the provisions of Section 23A.
3. EXISTING OBLIGATIONS
This Agreement shall not in any way, other than as stated in Sections 1 and
2 above, be viewed as affecting, either by limiting or expanding, the rights,
obligations and duties set forth in the Agency Agreement.
4. MISCELLANEOUS PROVISIONS
(a) This Agreement shall be construed in accordance with the laws of the
State of Ohio.
(b) This Agreement shall be binding upon the Bank and Webb and shall inure
to the benefit of their successors and assigns.
(c) No amendment, modification, or cancellation of this Agreement shall be
effective unless in writing signed by all parties hereto.
(d) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(e) This Agreement shall become effective upon execution and delivery
hereof by all the parties hereto; delivery of this Agreement may be made by
telecopier to the parties with original copies promptly to follow by
overnight courier.
<PAGE>
IN WITNESS WHEREOF, the Bank and Webb have executed this Agreement by their
duly authorized representatives.
THE MARKET BUILDING AND SAVING
COMPANY
By:
----------------------------------
John T. Larimer
President and Chief Executive Officer
CHARLES WEBB & COMPANY
By:
------------------------------------
Patricia A. McJoynt
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
PLAN OF CONVERSION
TABLE OF CONTENTS
1. Introduction..............................................................1
2. Definitions...............................................................1
3. Procedures for the Conversion.............................................4
4. Purchase Price of Common Shares and Number of Shares to be Offered in
Connection with the Conversion............................................5
5. Subscription Rights of Eligible Account Holders...........................6
6. Subscription Rights of Tax-Qualified Employee Stock Benefit Plans.........6
7. Subscription Rights of Supplemental Eligible Account Holders..............6
8. Subscription Rights of Other Eligible Members.............................7
9. Community Offering........................................................7
10. Additional Limitations on Purchases.......................................8
11. Procedures for the Subscription Offering and the Community Offering.......9
12. Payment for Common Shares.................................................9
13. Expiration of Subscription Rights; Undelivered, Defective or Late Order
Forms; Insufficient Payment..............................................10
14. Compliance with Securities Laws..........................................11
15. Rights of Shareholders After Completion of Conversion....................11
16. Establishment of Liquidation Account.....................................11
17. Accounts in Converted Association........................................12
18. Restrictions on Purchases and Sales of Common Shares by Officers and
Directors Following Conversion...........................................12
19. Restrictions on Acquisition of Market or Holding Company.................13
20. Amendment or Termination of this Plan....................................13
21. Consummation of Conversion...............................................13
22. Tax Rulings/Opinions.....................................................13
23. Directors and Officers of Market.........................................14
24. Stock Benefit Plans......................................................14
25. Registration of Common Shares; Market for Common Shares..................14
26. Expenses of Conversion...................................................14
27. Mailing of Proxy Materials...............................................14
28. Interpretation of the Plan...............................................14
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
PLAN OF CONVERSION
1. INTRODUCTION.
This Plan of Conversion, adopted by the Board of Directors of The Market
Building and Saving Company (hereinafter referred to as "Market") on April 16,
1996 (hereinafter referred to as this "Plan"), provides for the conversion of
Market from a mutual savings and loan association incorporated under Ohio law to
a permanent capital stock savings association incorporated under Ohio law
(hereinafter referred to as the "Conversion") and the acquisition by a holding
company to be formed at the direction of Market of all of the capital stock to
be issued by Market in the Conversion. The purpose of the Conversion is to
provide Market with additional capital to increase regulatory capital, expand
lending and investment activities, enhance customer services and pursue other
lawful activities which the Board of Directors may deem to be in the best
interests of Market.
After the completion of the Conversion, savings accounts in Market will be
equivalent in amount, interest rate and other terms to the savings accounts in
Market immediately prior to the Conversion and will continue to be insured by
the Federal Deposit Insurance Corporation to the maximum amount permitted by
law. Rights of account holders with respect to liquidation and voting will
change, however, as a result of the Conversion. As a permanent capital stock
savings association, Market will succeed to all of the presently existing
rights, interests, duties and obligations of the mutual savings and loan
association to the extent provided by law, including, but not limited to, all
rights to and interests in its assets and properties, both real and personal.
This Plan must be approved at the Special Meeting (hereinafter defined) of
Members (hereinafter defined) by the affirmative vote of a majority of the total
outstanding votes entitled to be cast at the Special Meeting hereinafter
defined). Before this Plan may be submitted at the Special Meeting to the
members of Market for approval, however, this Plan must be approved by the OTS
(hereinafter defined) and the Division (hereinafter defined). The Amended
Articles of Incorporation and Amended Constitution of Market must also be
approved at the Special Meeting by the affirmative vote of at least three-fifths
of the votes cast in person or by proxy at the Special Meeting.
2. DEFINITIONS.
As used in this Plan, the following terms have the corresponding meanings:
ACTING IN CONCERT means (a) knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or
not pursuant to an express agreement, or (b) a combination or pooling of
voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise.
AFFILIATE, when used to indicate a relationship with a specified Person,
means a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with
the Person specified.
AMENDED ARTICLES means the Amended Articles of Incorporation of Market
which are in the form attached hereto as Exhibit I and which authorize the
Common Shares and which will be filed with the Ohio Secretary of State on
the date on which the Conversion becomes effective.
AMENDED CONSTITUTION means the Amended Constitution of Market in the form
which is attached hereto as Exhibit II and which will be filed with the
Division on the date on which the Conversion becomes effective.
APPLICATION means the Application for Conversion on Form AC to be filed by
Market with the OTS pursuant to Title 12, Code of Federal Regulations, Part
563b and with the Division pursuant to Ohio Administrative Code Section
1301-2-1-16.
<PAGE>
ASSOCIATE, when used to indicate a relationship with any Person, means (i)
any corporation or organization (other than Market, the Holding Company or
a majority-owned subsidiary of Market or the Holding Company) of which such
Person is an Officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, except that such term will not include a Tax-Qualified
Employee Stock Benefit Plan, and (iii) any relative or spouse of such
Person, or any relative of such spouse, who has the same home as such
Person or who is a director or Officer of Market, the Holding Company or
any of their subsidiaries.
BROKER means any Person engaged in the business of effecting transactions
in securities for the account of others.
COMMON SHARES means the common shares of the Holding Company to be offered
and sold by the Holding Company in connection with the Conversion.
COMMUNITY MEMBER means any natural person who, on the date of submission of
an Order Form, is a resident of Hamilton County, the county in which the
office of Market is located.
COMMUNITY OFFERING means the offering of Common Shares to the public
concurrently with or after the completion of the Subscription Offering in a
manner by which Community Members are given preference.
CONVERSION means the change in the form of Market from the mutual to the
permanent capital stock form upon (i) the filing of the Amended Articles;
(ii) the sale and issuance of Common Shares by the Holding Company in the
Subscription Offering and the Community Offering, and (iii) the purchase by
the Holding Company of the capital stock of Market.
DEALER means any Person who engages either for all or part of such person's
time, directly or indirectly, as an agent, Broker or principal, in the
business of offering, buying, selling or otherwise dealing or trading in
securities issued by another Person.
DIVISION means the Division of Financial Institutions of the Department of
Commerce of the State of Ohio.
ELIGIBILITY RECORD DATE means the close of business on December 31, 1994,
the record date set by Market for determining Eligible Account Holders.
ELIGIBLE ACCOUNT HOLDER means any person holding a Qualifying Deposit in
Market on the Eligibility Record Date.
FDIC means the Federal Deposit Insurance Corporation, an agency of the
United States Government.
HOLDING COMPANY means a corporation to be formed at the direction of Market
under Ohio law for the purpose of becoming a savings and loan holding
company through the acquisition of all of the capital stock to be issued by
Market in connection with the Conversion.
INDEPENDENT APPRAISER means the firm employed by Market to determine the
estimated pro forma market valuation of Market to be used as the basis for
determining the price of the Common Shares.
LIQUIDATION ACCOUNT means the account established in accordance with
Section 16 of this Plan for Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain a Savings Account at
Market after the Conversion.
MARKET means The Market Building and Saving Company, in its mutual form or
stock form, as appropriate.
MEMBER means any Person qualifying as a member of Market under its Articles
of Incorporation and Constitution.
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<PAGE>
OFFICER means an executive officer of the Holding Company or Market,
including the Chairman of the Board of Directors, the President, a Vice
President, the Secretary, the Treasurer or principal financial officer, or
the comptroller or principal accounting officer of the Holding Company or
Market and any other person performing similar functions for the Holding
Company or Market.
ORDER FORMS means the original forms which will be sent to the Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Eligible Members to enable such Persons
to exercise their respective Subscription Rights in accordance with this
Plan and which may be sent to others in the Community Offering.
OTHER ELIGIBLE MEMBERS means those Persons, other than Eligible Account
Holders and Supplemental Eligible Account Holders, who are eligible to
purchase Common Shares pursuant to this Plan by reason of being Voting
Members.
OTS means the Office of Thrift Supervision, an agency of the United States
Government.
PERSON means an individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a
government or political subdivision thereof.
PROSPECTUS means the document describing the terms and conditions of the
Subscription Offering and the Community Offering, including a complete
description of the business and affairs of Market and the Holding Company.
PROXY means the form of authorization by which a Person is, or may be
deemed to be, designated to act for a Voting Member in the exercise of his
or her voting rights in the affairs of Market.
PROXY MATERIALS means the Notice of Special Meeting, the Proxy Statement
and the form of Proxy used in connection with soliciting Proxies from
Members for use at the Special Meeting.
PURCHASE PRICE means the actual uniform price per share at which Common
Shares will be sold in the Subscription Offering and may be offered in the
Community Offering. Such price shall be based upon the appraised estimated
pro forma market value of such shares, determined as provided in Section 4
of this Plan.
QUALIFYING DEPOSIT means the aggregate balance of all Savings Accounts
owned by an Eligible Account Holder or a Supplemental Eligible Account
Holder at the close of business on the Eligibility Record Date or the
Supplemental Eligibility Record Date, respectively; provided, however, that
Savings Accounts with aggregate deposit balances of less than $50 will not
constitute Qualifying Deposits.
RESIDENT means any person who, on the Voting Record Date, maintains a bona
fide residence within Hamilton County, Ohio, as determined in the sole
discretion of Market and the Holding Company.
SEC means the Securities and Exchange Commission, an agency of the United
States Government.
SAVINGS ACCOUNT has the same meaning as that specified in Title 12, Code of
Federal Regulations, Part 561, as in effect on the date this Plan is
adopted by the Board of Directors of Market, and includes certificates of
deposit.
SPECIAL MEETING means the meeting of the Voting Members of Market called
for the specific purpose of submitting this Plan to the Voting Members for
approval.
SUBSCRIPTION OFFERING means the offering of Common Shares to the holders of
Subscription Rights.
SUBSCRIPTION RIGHTS means the nontransferable rights issued by Market to
the Eligible Account Holders, the Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Eligible Members to
purchase Common Shares in the Subscription Offering pursuant to this Plan.
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<PAGE>
SUPPLEMENTAL ELIGIBILITY RECORD DATE means the record date used for
determining Supplemental Eligible Account Holders. Such date will be the
last day of the calendar quarter preceding the approval of the Application
by the OTS.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER means any person holding a Qualifying
Deposit at the close of business on the Supplemental Eligibility Record
Date, except Officers and directors of Market and the Holding Company and
their Associates.
TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLAN means any defined benefit plan or
defined contribution plan of the Holding Company or Market, such as an
employee stock ownership plan, stock bonus plan, profit sharing plan or
other plan which, with its related trust, meets the requirements for
qualification under Section 401 of the Internal Revenue Code of 1986, as
amended.
VOTING MEMBER means any Member of Market eligible to vote at the Special
Meeting.
VOTING RECORD DATE means the record date fixed by the Board of Directors of
Market in accordance with Ohio law and the Articles of Incorporation and
Constitution of Market for determining the eligibility of Members to vote
on this Plan at the Special Meeting.
PROCEDURES FOR THE CONVERSION.
The following procedures will be followed to effect the Conversion:
(a) Promptly after the adoption of this Plan by a vote of at least
two-thirds of the members of the Board of Directors of Market, Market will
publish a notice of the adoption of this Plan in an English language
newspaper having general circulation in each community in which an office
of Market is located. Copies of such notice will also be made available
for inspection by Members at the office of Market.
(b) The Holding Company will be incorporated under Ohio law, after
which the Board of Directors of the Holding Company will consent to the
Plan by at least a two-thirds vote.
(c) Market will submit this Plan for approval, together with all
other requisite materials, to the OTS and the Division in the form of the
Application.
(d) After the filing of the Application with the OTS and the
Division, Market (i) will prominently post in the office of Market and
publish in an English language newspaper having general circulation in the
community in which the office of Market is located a notice to the effect
that Market has filed the Application with the OTS, and (ii) when advised
by the Division, will prominently post in the office of Market and publish
in an English language newspaper having general circulation in the
community in which the office of Market is located a notice to the effect
that Market has filed the Application with the Division.
(e) After the OTS and the Division approve the Application, Market
will mail Proxy Materials to each of the Voting Members as of the Voting
Record Date at their last known addresses appearing on the records of
Market for the purpose of soliciting the Proxies of Voting Members for use
at the Special Meeting. The approval of this Plan will require the
affirmative vote, cast in person or by Proxy, of a majority of the total
outstanding votes entitled to be cast at the Special Meeting.
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<PAGE>
(f) Subject to the approval of this Plan by the Voting Members at the
Special Meeting, the following will occur:
(i) Common Shares will be offered simultaneously to the Eligible
Account Holders, the Tax-Qualified Employee Stock Benefit Plans, the
Supplemental Eligible Account Holders and the Other Eligible Members
in the respective priorities set forth in Sections 5, 6, 7 and 8 of
this Plan. All sales of Common Shares to Eligible Account Holders,
the Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Eligible Members will be completed at the
earliest practicable date following expiration of the Subscription
Rights provided for in this Plan. Notwithstanding anything in this
Plan to the contrary, Market, in its sole discretion, may commence the
Subscription Offering concurrently with or at any time after the
mailing to the Voting Members of the Proxy Materials and may complete
the Subscription Offering before the Special Meeting if the completion
of the offer and sale of the Common Shares is conditioned upon the
approval of this Plan by the Voting Members. In the event that Market
elects, in its discretion, to commence the Subscription Offering after
the Special Meeting, the Subscription Offering will be commenced not
later than 45 days after the date on which the Special Meeting is
adjourned, except as may otherwise be approved by the OTS.
(ii) Concurrently with, following the commencement of or
following the completion of the Subscription Offering, Market may also
offer Common Shares in the Community Offering, subject to the prior
satisfaction of the Subscription Rights of the Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Eligible Members.
(g) All other steps considered necessary or desirable by the Boards
of Directors of Market and the Holding Company to effect the Conversion
will be taken pursuant to applicable laws and regulations.
4. PURCHASE PRICE OF COMMON SHARES AND NUMBER OF COMMON SHARES TO BE OFFERED
IN CONNECTION WITH THE CONVERSION.
The Purchase Price will be determined by the Boards of Directors of Market
and the Holding Company before the commencement of the Subscription Offering,
subject to adjustment as described below. The number of Common Shares to be
sold in connection with the Conversion will be determined by the Boards of
Directors of Market and the Holding Company before the completion of all sales
of Common Shares contemplated by this Plan on the basis of the estimated pro
forma market value of Market, as converted, and the Purchase Price. No
fractional shares will be issued in connection with the Conversion.
The estimated pro forma market value of Market, as converted, will be
determined by the Independent Appraiser, based upon such factors as the
Independent Appraiser deems appropriate and as are consistent with the
regulations of the OTS and the Division. Immediately before the commencement of
the Subscription Offering, a range will be established for the aggregate
Purchase Price of Common Shares to be offered in the Subscription Offering and
the Community Offering. The maximum of such range shall be 15% above the pro
forma market value of Market, and the minimum of such range shall be 15% below
the pro forma market value of Market. The Independent Appraiser will review,
from time to time as appropriate, or as required by law or regulation,
developments subsequent to its valuation to determine whether the estimated pro
forma market value of Market, as converted, should be revised. If, after the
commencement of the Subscription Offering, the Independent Appraiser determines
that the estimated pro forma market value of Market, as converted, has increased
or decreased due to subsequent developments, the Conversion may be completed
without notifying Persons who have subscribed for Common Shares and without a
resolicitation of subscriptions from such Persons if such pro forma market value
is not less than the minimum of the valuation range approved by the OTS and the
Division and does not exceed the maximum point of the valuation range by more
than 15%. If, however, as a result of any such change, the estimated pro forma
market value of Market is less than the minimum of the valuation range or
exceeds the maximum point of such valuation range by more than 15%, a new
estimated pro forma market valuation range may be established, and the Board of
Directors may, with the approval of the OTS and the Division, elect to increase
or decrease the number of Common Shares to be sold in connection with the
Conversion or increase or decrease the Purchase Price, in which case Persons who
have subscribed for Common Shares will be notified and will be given the
opportunity to increase, decrease or rescind their subscription.
-5-
<PAGE>
5.. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
Eligible Account Holders will have the following rights to subscribe for
and to purchase Common Shares:
(a) Each Eligible Account Holder will receive, without payment, a
nontransferable Subscription Right to purchase a number of Common Shares up
to the greater of (i) the amount which may be purchased in the Community
Offering, (ii) .10% of the total number of Common Shares to be sold in
connection with the Conversion, or (iii) 15 times the product (rounded
down to the next whole number) obtained by multiplying the total number of
Common Shares to be sold in connection with the Conversion by a fraction
the numerator of which is the amount of the Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date, subject to the overall purchase limitations set
forth in Section 10 of this Plan and subject to adjustment by the Boards of
Directors of Market and the Holding Company as set forth in Section 10 of
this Plan.
(b) In the event that subscriptions for Common Shares are received
from Eligible Account Holders upon the exercise of Subscription Rights
pursuant to paragraph (a) of this Section 5 in excess of the number of
Common Shares available for such subscriptions, the Common Shares available
for purchase will be allocated among the subscribing Eligible Account
Holders in a manner by which each subscribing Eligible Account Holder, to
the extent possible, will be permitted to subscribe for a number of shares
sufficient to make such Eligible Account Holder's total allocation of
Common Shares equal to the lesser of (i) 100 shares and (ii) the number of
shares subscribed for by such Eligible Account Holder. Any shares
remaining after such allocation will be allocated among the subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion which the amount of each Eligible Account Holder's Qualifying
Deposit bears to the total of the Qualifying Deposits of all subscribing
Eligible Account Holders. No fractional shares will, however, be issued in
connection with the Conversion.
(c) Subscription Rights held by Eligible Account Holders who are also
Officers or directors of Market or the Holding Company, and their
Associates, to the extent that they are attributable to increased deposits
during the one-year period preceding the Eligibility Record Date, will be
subordinated to the Subscription Rights of all other Eligible Account
Holders.
(d) The Subscription Rights of the Eligible Account Holders will be
subordinate to the limited priority rights of the Tax-Qualified Employee
Stock Benefit Plans of Market as set forth in Section 6 of this Plan.
6. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
The Tax-Qualified Employee Stock Benefit Plans of Market will receive non-
transferable Subscription Rights to purchase up to 10% of the Common Shares
offered in connection with the Conversion, subject to adjustment by the Boards
of Directors of Market and the Holding Company as set forth in Section 10 of
this Plan. The Subscription Rights of the Tax-Qualified Employee Stock Benefit
Plans are subordinate to the Subscription Rights of the Eligible Account Holders
pursuant to Section 5 of this Plan, except that if the final pro forma market
value of Market exceeds the maximum of the valuation range determined pursuant
to Section 4 of this Plan, the employee stock ownership plan to be adopted by
the Holding Company in connection with the Conversion shall have first priority
with respect to the amount of Common Shares sold in excess of the maximum of the
valuation range.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.
Supplemental Eligible Account Holders will have the following rights to
subscribe for and to purchase Common Shares:
(a) Each Supplemental Eligible Account Holder will receive, without
payment, a nontransferable Subscription Right to purchase a number of
Common Shares up to the greater of (i) the amount which may be purchased in
the Community Offering, (ii) .10% of the total number of Common Shares to
be sold in connection with the Conversion, or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total
number of Common shares to be sold in connection with the Conversion by a
fraction the
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<PAGE>
numerator of which is the amount of the Supplemental Eligible Account
Holder's Qualifying Deposit and the denominator of which is the total
amount of Qualifying Deposits of all Supplemental Eligible Account Holders,
in each case on the Supplemental Eligibility Record Date, subject to the
overall purchase limitations set forth in Section 10 of this Plan and
subject to adjustment by the Boards of Directors of Market and the Holding
Company as set forth in Section 10 of this Plan.
(b) In the event that subscriptions for Common Shares are received
from Supplemental Eligible Account Holders upon the exercise of
Subscription Rights pursuant to paragraph (a) of this Section 7 in excess
of the number of Common Shares available for such subscriptions, the Common
Shares available for purchase will be allocated among the subscribing
Supplemental Eligible Account Holders in a manner by which each subscribing
Supplemental Eligible Account Holder, to the extent possible, will be
permitted to subscribe to a number of Common Shares sufficient to make such
Supplemental Eligible Account Holder's total allocation of Common Shares
equal to the lesser of (i) 100 shares and (ii) the number of Common Shares
subscribed for by such Supplemental Eligible Account Holder. Any Common
Shares remaining after such allocation will be allocated among the
subscribing Supplemental Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion which the amount of each such
Supplemental Eligible Account Holder's Qualifying Deposit bears to the
total amount of the Qualifying Deposits of all such subscribing
Supplemental Eligible Account Holders. No fractional shares will be
issued, however, in connection with the Conversion.
(c) Subscription Rights received pursuant to this Section 7 will be
subordinate to all the Subscription Rights of Eligible Account Holders and
the Tax-Qualified Employee Stock Benefit Plans pursuant to Sections 5 and 6
of this Plan. Any Subscription Rights received by an Eligible Account
Holder pursuant to Section 5 of this Plan will be applied in partial
satisfaction of Subscription Rights received pursuant to this Section 7.
8. SUBSCRIPTION RIGHTS OF OTHER ELIGIBLE MEMBERS.
Other Eligible Members will have the following rights to subscribe for and
to purchase Common Shares:
(a) Each Other Eligible Member will receive, without payment, a
nontransferable Subscription Right to purchase a number of Common Shares up
to the greater of (i) the amount of Common Shares which may be purchased in
the Community Offering and (ii) .10% of the total number of Common Shares
to be sold in connection with the Conversion, subject to adjustment by the
Boards of Directors of Market and the Holding Company as set forth in
Section 10 of this Plan.
(b) In the event that subscriptions for Common Shares are received
from Other Eligible Members upon the exercise of Subscription Rights
pursuant to paragraph (a) of this Section 8 in excess of the number of
Common Shares available for such subscriptions, the Common Shares available
for purchase will be allocated among the subscribing Other Eligible Members
in the same proportion that their respective subscriptions bear to the
aggregate subscriptions of all Other Eligible Members; provided, however,
that, to the extent sufficient Common Shares are available, each
subscribing Other Eligible Member shall be permitted to purchase 25 Common
Shares before the remaining available Common Shares are allocated.
(c) Subscription Rights received by Other Eligible Members pursuant
to this Section 8 will be subordinate to all the Subscription Rights
Eligible Account Holders, the Tax-Qualified Employee Stock Benefit Plans
and Supplemental Eligible Account Holders received pursuant to Sections 5,
6 and 7 of this Plan.
9. COMMUNITY OFFERING.
Concurrently with or at any time after the commencement or completion of
the Subscription Offering, the Holding Company may offer Common Shares in the
Community Offering in accordance with the following procedures and conditions:
(a) Any Common Shares not subscribed for in the Subscription Offering
may be offered and sold in the Community Offering. If conducted, the
Community Offering will be conducted in a manner which will give
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<PAGE>
Community Members a preference in the purchase of Common Shares and will
seek to achieve the widest distribution of Common Shares.
(b) The maximum number of Common Shares which may be subscribed for
or purchased in the Community Offering by any Person, together with any
Associates or group of Persons Acting in Concert, will be 2% of the Common
Shares sold in connection with the Conversion, subject to the overall
purchase limitations set forth in Section 10 of this Plan and subject to
adjustment by the Boards of Directors of Market and the Holding Company as
set forth in Section 10 of this Plan.
(c) Orders for Common Shares in the Community Offering will first be
filled up to a maximum of 2% of the Common Shares sold in connection with
the Conversion and thereafter any remaining shares will be allocated on an
equal number of shares per order basis until all orders for Common Shares
have been filled, subject to the limitations provided in Section 10 of this
Plan.
(d) Market or the Holding Company may retain a Broker to assist in
selling the Common Shares in the Community Offering.
(e) Market and the Holding Company reserve the right to reject, in
whole or in part, any order to purchase Common Shares from any Person in
the Community Offering.
10. ADDITIONAL LIMITATIONS ON PURCHASES
The minimum number and maximum number of Common Shares which may be
subscribed for or purchased in connection with the Conversion are as follows:
(a) A minimum of 25 Common Shares must be purchased by each Person
purchasing Common Shares in connection with the Conversion to the extent
Common Shares are available; provided, however, that if the Purchase Price
is greater than $20 per share, the minimum number of Common Shares to which
a Person may subscribe will be adjusted in a manner by which the aggregate
Purchase Price required to be paid for such minimum number of Common Shares
does not exceed $500. No fractional shares will be issued, however, in
connection with the Conversion.
(b) Eligible Account Holders, Supplemental Eligible Account Holders
and Other Eligible Members may purchase Common Shares in the Community
Offering subject to the purchase limitations set forth in Section 9 of this
Plan; provided, however, that the maximum number of Common Shares which may
be subscribed for or purchased in connection with the Conversion by any
Person, together with any Associate or group of Persons Acting in Concert,
will be 4% of the Common Shares sold in connection with the Conversion,
except that any one or more of the Tax-Qualified Employee Stock Benefit
Plans may purchase in the aggregate not more than 10% of the Common Shares
sold in connection with the Conversion and will be entitled to purchase
such amount regardless of the number of Common Shares purchased by other
Persons. Common Shares held by one or more Tax-Qualified Employee Stock
Benefit Plans or non-tax-qualified employee stock benefit plans and
attributed to a Person will not be aggregated with Common Shares purchased
directly by or otherwise attributable to such Person. For the purpose of
this Section 10, the members of the Boards of Directors of Market and the
Holding Company will not be deemed to be Associates or a group of Persons
Acting in Concert solely as a result of their membership on such Boards of
Directors.
(c) The maximum number of Common Shares which may be subscribed for
or purchased in connection with the Conversion by Officers and directors of
Market and their Associates, will not exceed, in the aggregate, 35% of the
total number of Common Shares. Common Shares held by one or more Tax-
Qualified Employee Stock Benefit Plans or non-tax-qualified employee stock
benefit plans and attributed to a Person will not be aggregated with Common
Shares purchased directly by or otherwise attributable to such Person.
(d) Subject to any required regulatory approval and the requirements
of applicable laws and regulations, but without further approval of the
Members, purchase limitations may be increased or decreased at the sole
discretion of the Boards of Directors of Market and the Holding Company at
any time. If such amount is
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increased, persons who subscribed for the maximum amount will be given the
opportunity to increase their subscriptions up to the then applicable
limit, subject to the rights and preferences of any person who has priority
Subscription Rights. The Boards of Directors of Market and the Holding
Company may, in their sole discretion, increase such maximum purchase
limitation up to 9.99%; provided, however, that orders for Common Shares
exceeding 5% of the Common Shares to be sold in connection with the
Conversion shall not exceed, in the aggregate, 10% of the Common Shares to
be sold in connection with the Conversion. In the event that the purchase
limitation is decreased after commencement of the Subscription Offering,
the order of any Person who subscribed for the maximum number of Common
Shares shall be decreased by the minimum amount necessary so that such
Person shall be in compliance with the then maximum number of Common Shares
permitted to be subscribed for by such Person. The maximum purchase
limitation for Eligible Account Holders, Supplemental Eligible Account
Holders and Other Eligible Members shall not be decreased below 1% of the
total number of Common Shares to be issued in connection with the
Conversion.
(e) The Subscription Rights granted under this Plan are
nontransferable. Each Subscription Right may be exercised only by the
Person to whom it is issued and only for such Person's own account. Each
Person exercising Subscription Rights will be required to certify that he
or she is purchasing for his or her own account and that he or she has no
agreement or understanding for the sale or transfer of the stock to which
he or she subscribes. The Board of Directors of Market may reject any
subscription which such Board reasonably believes involves an impermissible
transfer of a Subscription Right. The Board of Directors of Market may
require any Person who the Board reasonably believes to be involved in an
impermissible transfer of a Subscription Right to provide such information
or assurances as the Board may request to verify the validity of a
Subscription Right.
11. PROCEDURES FOR THE SUBSCRIPTION OFFERING AND THE COMMUNITY OFFERING.
The Subscription Offering and the Community Offering shall be conducted in
the following manner:
(a) Prior to the commencement of the Subscription Offering, the
Holding Company will file a registration statement with the SEC. No
Prospectus may be distributed to Persons who have Subscription Rights or to
Community Members or to any other person who is not a participant in the
preparation of the Prospectus until and unless the SEC has declared the
Prospectus effective.
(b) At the time the Proxy Materials are mailed to Voting Members at
their last known addresses appearing on the records of Market, pursuant to
the authorization of the OTS and the Division, Market and the Holding
Company may commence the Subscription Offering and the Community Offering.
(c) The Prospectus will contain all the information required by the
OTS, the Division, the SEC and all applicable laws and regulations
necessary to enable the recipients of the Order Forms to make informed
investment decisions regarding the purchase of Common Shares.
(d) The Order Forms will contain all the information required by the
OTS and all applicable laws and regulations.
(e) The offer of Common Shares to Persons who have Subscription
Rights, to Community Members and to others will be conditioned upon the
approval of this Plan by the Voting Members at the Special Meeting.
(f) Orders for Common Shares received in the Subscription Offering
and the Community Offering will first be filled, in the order of priority
set forth in this Plan, by the orders of Persons holding Subscription
Rights.
(g) The Subscription Offering and the Community Offering may be
closed before the Special Meeting.
12. PAYMENT FOR COMMON SHARES.
Common Shares will be paid for in accordance with the following procedure:
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(a) Full payment for all Common Shares subscribed for must be
received by Market, together with properly completed and executed Order
Forms therefor, before the expiration time, which will be specified on the
Order Forms, unless such date is extended by Market. Photocopied or
telecopied Order Forms will not be accepted. The amount of such required
payment will be the amount which equals the Purchase Price (which will be
specified in the Order Forms or accompanying materials), multiplied by the
number of Common Shares subscribed for in accordance with the terms of this
Plan.
(b) Payment for Common Shares ordered in the Subscription Offering
will be permitted to be made:
(i) In cash, if delivered in person;
(ii) By check, bank draft, money order or negotiable order of
withdrawal; provided, however, that checks will be accepted subject to
payment and payment, as to any check, will be deemed received upon
first presentation of such check to the drawee of such check; or
(iii) By appropriate authorization of withdrawal from any
Savings Account at Market.
For the purpose of determining the withdrawal balance of any Savings
Account, such withdrawals will be deemed to have been made upon receipt of
appropriate authorization therefor, but interest at the rates applicable to
such accounts will be paid by Market on the amounts deemed to have been
withdrawn until the date on which the Conversion is completed or
terminated, at which time the authorized withdrawal actually will be made.
Interest will be paid by Market on payments for Common Shares paid in cash
or by check, negotiable order of withdrawal or money order at an annual
rate equal to the passbook account rate at Market or such higher rate as
may be determined by Market. Such interest will be paid from the date
payments are received by Market until consummation or termination of the
Conversion.
(c) The Order Forms will contain appropriate means by which
authorization of withdrawals from Savings Accounts may be made to pay for
subscribed Common Shares. Once a withdrawal has been authorized, none of
the designated withdrawal amount may be withdrawn from the designated
Savings Account (except by Market as payment for Common Shares) while this
Plan remains in effect. Savings Accounts will be permitted to be
established for the purpose of making payment for subscribed Common Shares.
Notwithstanding any regulatory provisions regarding penalties for early
withdrawal from certificate accounts and minimum qualifying balances for
such accounts, payment for Common Shares will be permitted through
authorization of withdrawals from such accounts without the assessment of
such penalties. If, after such withdrawal, the applicable minimum balance
requirement ceases to be met, such certificate account will be canceled and
the remaining balance thereof will earn interest only at the passbook
account rate at Market.
(d) Market will not lend funds or otherwise extend credit to any
Person to purchase Common Shares.
13. EXPIRATION OF SUBSCRIPTION RIGHTS; UNDELIVERED, DEFECTIVE OR LATE ORDER
FORMS; INSUFFICIENT PAYMENT.
Subscription Rights will expire or terminate in accordance with the
following:
(a) All Subscription Rights provided for in this Plan, including
without limitation the Subscription Rights of all Persons whose Order Forms
are returned by the United States Post Office as undeliverable, will expire
at a specified time on a specified date which will be not less than 20 days
nor more than 45 days following the date on which Order Forms are first
sent to Eligible Account Holders, Supplemental Eligible Account Holders and
Other Eligible Members; provided, however, that Market will have the power
to extend such expiration time in its discretion only for a reasonable time
beyond such 45-day period.
(b) If Market is unable to locate particular persons granted
Subscription Rights under this Plan, or if Order Forms (i) are returned as
undeliverable by the United States Post Office, (ii) are not received by
Market prior to the expiration date specified thereon, (iii) are
defectively filled out or executed, or (iv) are not, when received by
Market, accompanied by the full required payment for the Common Shares
subscribed for (including cases in which Savings Accounts from which
withdrawals are authorized contain insufficient funds to satisfy the
required payment or the check, bank draft, negotiable order of withdrawal
or money order is not presented to the drawee
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thereof by the expiration time), the Subscription Rights will lapse as
though the Person to whom such rights have been granted failed to return
the completed Order Form within the time period specified thereon. In any
such case as discussed in this paragraph (b), all payments accompanying the
Order Forms will be refunded and, in the case of payments authorized
through withdrawal from Savings Accounts as permitted by Section 12 of this
Plan, such withdrawals will not be made.
(c) Market may, but will not be obligated to, waive any irregularity
on any Order Form or require the submission of a corrected Order Form or
waive the remittance of full payment for shares subscribed for by such date
as it may specify. An executed Order Form, once received by Market, may
not be modified, amended or rescinded without the consent of Market prior
to the expiration of the 45-day period, and any extensions thereof,
following termination of the Subscription Offering. Subject to the
authority of the OTS and the Division, all interpretations by Market and
the Holding Company of the terms and conditions of this Plan and of the
Order Forms will be final.
(d) The sale of all Common Shares must be completed within 45 days
after the termination of the Subscription Offering, unless extended by
Market with the consent of the OTS and the Division, and within 24 months
of approval of this Plan by the Voting Members at the Special Meeting. The
24-month period may not be extended by Market, the OTS or the Division.
14. COMPLIANCE WITH SECURITIES LAWS.
Market and the Holding Company will make reasonable efforts to comply with
the securities laws of the United States and all other jurisdictions in which
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Eligible Members reside. No person, however, will be offered any Subscription
Rights or sold any Common Shares under this Plan if such Person resides in a
foreign country or in any jurisdiction of the United States in respect of which
(a) the granting of Subscription Rights or the offer or sale of Common Shares
under this Plan to such persons would require Market, the Holding Company or
their directors, Officers or employees to register under the securities laws of
such jurisdiction as a Broker, Dealer or agent or to register or otherwise
qualify the Common Shares for sale in such state or (b) Market determines that
compliance with the securities laws of such jurisdiction would be impracticable
for reasons of cost or otherwise. No payments will be made in lieu of the
granting of Subscription Rights to such persons.
15. RIGHTS OF SHAREHOLDERS AFTER COMPLETION OF CONVERSION.
After the Conversion, the Holding Company will be the sole shareholder of
Market and will exercise all rights attendant to owning the shares of Market.
Persons owning common shares of the Holding Company will have the following
rights after the Conversion:
(a) Voting rights in respect of the Holding Company will be held
and exercised exclusively by the holders of the issued and outstanding
common shares of the Holding Company. Neither borrowers from Market nor
holders of Savings Accounts in Market will have any voting rights in Market
or the Holding Company on the basis of such borrowings or Savings Accounts.
(b) The shareholders of the Holding Company will have the
exclusive rights, subject to the rights of Eligible Account Holders and
Supplemental Eligible Account Holders in the Liquidation Account provided
for in Section 16 of this Plan, to receive the distribution of any assets
remaining after payment of creditors' claims, including the claims of
Savings Account holders to the withdrawal value of their accounts, in the
event of any voluntary or involuntary liquidation of Market after the
Conversion.
16. ESTABLISHMENT OF LIQUIDATION ACCOUNT.
A Liquidation Account will be established on the effective date of the
Conversion in accordance with the following:
(a) For purposes of granting a limited priority claim to the assets
of Market in the event of a complete liquidation thereof to Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain a Savings Account at Market after the Conversion, Market will, at
the time of Conversion, establish the Liquidation Account in an amount
equal to the regulatory capital of Market as set forth in its latest
statement
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of financial condition contained in the Prospectus for the sale of Common
Shares. The Liquidation Account will not operate to restrict the use or
application of any of the regulatory capital of Market.
(b) Each Eligible Account Holder and Supplemental Eligible Account
Holder will have a separate inchoate interest in a portion of the
Liquidation Account for each Savings Account making up such account
holder's Qualifying Deposit (hereinafter referred to as the "Subaccount").
(c) The initial balance of each Subaccount will be an amount
determined by multiplying the amount in the Liquidation Account by a
fraction, the numerator of which is the amount of the account holder's
Qualifying Deposits as of the close of business on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as the case may be, and
the denominator of which is the total amount of all Qualifying Deposits of
Eligible Account Holders and Supplemental Eligible Account Holders on the
corresponding record date. For Savings Accounts in existence on both the
Eligibility Record Date and the Supplemental Eligibility Record Date,
separate Subaccounts will be determined on the basis of the Qualifying
Deposits in such Savings Accounts on each such date. The balance of each
Subaccount will never be increased above the initial balance. If the
balance in the Savings Account to which a Subaccount relates, at the close
of business on the last day of each fiscal year of the Holding Company
subsequent to the respective record dates, is less than the lesser of (i)
the deposit balance in such Savings Account at the close of business on the
last day of each fiscal year of the Holding Company subsequent to the
Eligibility Record Date or Supplemental Eligibility Record Date or (ii) the
amount of the Qualifying Deposit as of the Eligibility Record Date or the
Supplemental Eligibility Record Date, the balance of the Subaccount for
such Savings Account will be adjusted proportionate to the reduction in
such Savings Account balance. In the event of any such downward
adjustment, such Subaccount balance will not be subsequently increased
notwithstanding any increase in the deposit balance of the related Savings
Account. If any Savings Account is closed, its related Subaccount will be
reduced to zero upon such closing. The Subaccount of an account holder
will be maintained for as long as the account holder maintains an account
with the same Social Security or tax identification number.
(d) In the event of a complete liquidation of the converted Market
(and only in such event), each Eligible Account Holder and Supplemental
Eligible Account Holder will be entitled to receive from the Liquidation
Account a distribution equal to the current adjusted balance in each of
such account holder's Subaccounts before any liquidation distribution
may be made to any holders of the capital stock of Market. No merger,
consolidation, sale of bulk assets or similar combination or transaction
with another savings association, the accounts of which are insured by the
FDIC, will be deemed to be a complete liquidation for this purpose and, in
any such transaction, the Liquidation Account will be assumed by the
surviving insured institution.
17. ACCOUNTS IN CONVERTED ASSOCIATION.
Each Savings Account in Market at the time of the Conversion will constitute,
without payment or further action by the account holder, a Savings Account in
Market as converted, equal in withdrawable amount to the withdrawal value, and
subject to the same terms and conditions, except as to voting and liquidation
rights, as such Savings Account in Market immediately before the Conversion.
18. RESTRICTIONS ON PURCHASES AND SALES OF COMMON SHARES BY OFFICERS AND
DIRECTORS FOLLOWING CONVERSION.
Purchases and sales of shares of the Holding Company after the Conversion will
be restricted in accordance with the following:
(a) All Common Shares purchased by Officers or directors of the
Holding Company or Market or the Associates pursuant to this Plan will be
subject to the restriction that no such shares will be sold for a period of
one year following the date of purchase of such shares, except in the event
of the death of the Officer, director or Associate.
(b) With respect to all Common Shares subject to the restriction on
subsequent disposition pursuant to paragraph (a) of this Section 18, each
of the following provisions will apply:
(i) Each certificate representing such shares will bear the
following legend prominently stamped thereon giving notice of such
restriction on transfer:
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THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD BY THE
REGISTERED HOLDER HEREOF FOR A PERIOD OF NOT LESS THAN ONE YEAR
FROM THE DATE OF ISSUANCE HEREOF, EXCEPT IN THE EVENT OF THE
DEATH OF THE REGISTERED HOLDER OF SUCH SHARES.
(ii) Instructions will be given to the transfer agent for the
Holding Company, if any, not to recognize or effect any transfer of
any certificates representing such shares, or any change of record
ownership thereof in violation of such restriction on transfer; and
(iii) Any shares of capital stock of the Holding Company issued as
a stock dividend, stock split or otherwise with respect to outstanding
Common Shares subject to restrictions on transfer hereunder will be
subject to the same restrictions as are applicable to the Common
Shares with respect to which such shares of stock are issued.
(c) For a period of three years following the Conversion, no Officer
or director of Market or the Holding Company, or any Associates of such
Officer or director shall, without the prior written approval of the OTS,
purchase the capital stock of the Holding Company other than from a Broker
or Dealer registered with the SEC. This provision will not apply to (i)
negotiated transactions involving more than 1% of a class of outstanding
capital stock of the Holding Company or (ii) purchases of shares of capital
stock made by and held by any one or more tax-qualified or non-tax-qualified
employee stock benefit plans which may be attributable to individual
Officers or directors of the Holding Company or Market.
19. RESTRICTIONS ON ACQUISITION OF MARKET OR HOLDING COMPANY.
Acquisition of capital stock of Market or the Holding Company after
the Conversion will be subject to various restrictions contained in the Amended
Articles, the Articles of Incorporation of the Holding Company, the Amended
Constitution, the Code of Regulations of the Holding Company and various state
and federal laws and regulations. In addition, the Articles of Incorporation of
the Holding Company or the Amended Articles may include the limitation that, for
a period of up to five years from the date of completion of the Conversion of
Market from mutual to stock form, no Person may directly or indirectly offer to
acquire or acquire beneficial ownership of more than 10% of any class of an
equity security of Market or the Holding Company.
20. AMENDMENT OR TERMINATION OF THIS PLAN.
If deemed necessary or desirable by the Boards of Directors of
Market and the Holding Company, this Plan may be amended by the Boards of
Directors of Market and the Holding Company in their sole discretion at any
time prior to the solicitation of Proxies from Voting Members entitled to
vote on this Plan and at any time thereafter with the concurrence of the OTS
and the Division. The Conversion pursuant to this Plan may be terminated by
the Boards of Directors of Market and the Holding Company in their sole
discretion at any time prior to the Special Meeting and at any time
thereafter with the concurrence of the OTS and the Division.
21. CONSUMMATION OF CONVERSION.
The Conversion of the mutual Market into the stock Market will be
deemed to have taken place and to be effective at the time and date provided
in the regulations of the OTS and the Division. The Conversion must be
completed within 24 months of the approval of this Plan by the Members.
22. TAX RULINGS/OPINIONS.
The Conversion is expressly conditioned upon the prior receipt by
Market and the Holding Company of either rulings from the Internal Revenue
Service and the appropriate Ohio taxing authorities or opinions of legal
counsel or other tax advisors to Market in form and substance satisfactory to
Market and to the effect, among other things, that the Conversion will
constitute a tax-free "reorganization" as defined in Section 368(a) of the
Internal Revenue Code of 1986, as amended, and comparable provisions of
applicable state law, or that consummation of the transactions provided for
in this
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Plan will not otherwise result in any federal, state or other tax consequences
to Market or the converted Market deemed materially adverse by the Board of
Directors of Market or the Board of Directors of the Holding Company.
23. DIRECTORS AND OFFICERS OF MARKET.
It is not intended that the Conversion will result in any change in
the directors or Officers of Market. The persons serving as Officers on the
date the Application is filed with the OTS and the Division will continue to
serve at the discretion of the Board of Directors of Market in their
respective capacities as Officers of the converted Market. The persons
serving as directors of Market on the date the Application is filed with the
OTS and the Division will continue to serve as directors following the
Conversion until their terms expire or their earlier death, resignation or
removal from office.
24. STOCK BENEFIT PLANS.
Following the completion of the Conversion, Market or the Holding
Company may establish one or more stock option plans and management
recognition plans to the extent permitted by OTS regulations. Market and the
Holding Company may make scheduled or discretionary contributions to one or
more stock benefit plans maintained by Market or the Holding Company for the
benefit of the directors, Officers or employees of Market or the Holding
Company, provided such contributions do not cause Market to fail to meet its
regulatory capital requirement.
25. REGISTRATION OF COMMON SHARES; MARKET FOR COMMON SHARES.
(a) Before or promptly following the Conversion, the Holding Company
will register the Common Shares with the SEC pursuant to the Securities
Exchange Act of 1934 and will not deregister such shares for a period of
three years thereafter.
(b) While there is no assurance that an active market for the Common
Shares will develop following the Conversion, the Holding Company will use
its best efforts to encourage and assist a market maker to establish and
maintain a market for the Common Shares and will use its best efforts to
cause such shares to be quoted on The Nasdaq Stock Market (or any
comparable quotation system which may hereafter be developed) or listed on
a national or regional securities exchange.
26. EXPENSES OF CONVERSION.
Market and the Holding Company will use their best efforts to ensure
that the expenses incurred in connection with the Conversion will be
reasonable.
27. MAILING OF PROXY MATERIALS.
The Proxy Materials will only be sent to Voting Members as of the
Voting Record Date.
28. INTERPRETATION OF THE PLAN.
The Boards of Directors of Market and the Holding Company will
interpret this Plan. To the extent permitted by law, all interpretations of
this Plan by the Boards of Directors of Market and the Holding Company will
be final.
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EXHIBIT I
AMENDED
ARTICLES OF INCORPORATION
OF
THE MARKET BUILDING AND SAVING COMPANY
FIRST: The name of the corporation shall be The Market Building and
Saving Company.
SECOND: The place in Ohio where the principal office of the
corporation is to be located is Mt. Healthy, Hamilton County.
THIRD: The purposes for which the corporation is formed are to
raise money to be loaned to the public and to engage in any other lawful act or
activity for which corporations may be formed under Chapter 1151 of the Ohio
Revised Code.
FOURTH: The authorized capital of the corporation shall be
$10,000,000 divided into 10,000,000 shares, all of which shall be common shares,
$1.00 par value.
FIFTH: To the extent permitted by law, the directors of the
corporation shall have the power to cause the corporation from time to time and
at any time to purchase, hold, sell, transfer or otherwise deal with (A) shares
of any class or series issued by it, (B) any security or other obligation of the
corporation which may confer upon the holder thereof the right to convert the
same into shares of any class or series authorized by the articles of the
corporation and (C) any security or other obligation which may confer upon the
holder thereof the right to purchase shares of any class or series authorized by
the articles of the corporation. To the extent permitted by law, the
corporation shall have the right to repurchase, if and when any shareholder
desires to sell, or on the happening of any event is required to sell, shares of
any class or series issued by the corporation. The authority granted in this
Article Fifth of these articles shall not otherwise limit the authority of the
directors to purchase, hold, sell, transfer or otherwise deal with shares of any
class or series, securities, or other obligations issued by the corporation or
authorized by its articles.
SIXTH: No shareholder of the corporation shall have, as a matter of
right, the pre-emptive right to purchase or subscribe for shares of any class,
now or hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such share.
SEVENTH: No shareholder shall have the right to vote cumulatively in
the election of directors.
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EIGHTH: Until the expiration of five years from the date of the
acquisition by Market Financial Corporation of the capital stock of the
corporation to be issued in connection with the conversion of the corporation
from mutual to stock form, no Person (hereinafter defined) shall directly or
indirectly Offer (hereinafter defined) to Acquire (hereinafter defined) or
Acquire the Beneficial Ownership (hereinafter defined) of more than ten percent
(10%) of any class of any equity security of the corporation; provided, however,
that such prohibition shall not apply to the purchase of shares by underwriters
in connection with a public offering, or to the purchase of up to twenty five
percent (25%) of any class of equity security of the corporation by a
tax-qualified employee stock benefit plan. In the event that any shares of the
corporation are Acquired in violation of this Article Eighth, all shares
Beneficially Owned by any Person in excess of ten percent (10%) of any class of
equity security of the corporation shall not be counted as shares entitled to
vote, shall not be voted by any Person and shall not be counted as voting shares
in connection with any matter submitted to the shareholders for a vote. For
purposes of this Article Eighth, the following terms shall have the meaning set
forth below:
(A) "Person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of
acquiring or disposing of the equity securities of the
corporation, but does not include any employee stock benefit plan
of the corporation or subsidiary of the corporation.
(B) "Offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security
for value.
(C) "Acquire" includes every type of acquisition, whether effected by
purchase, exchange, operation of law or otherwise.
(D) "Acting in concert" means (i) participation in a joint activity
or conscious parallel action towards a common goal, whether or
not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement,
whether written or otherwise.
(E) "Beneficial Ownership" shall include, without limitation, (i) all
shares directly or indirectly owned by a Person, by an Affiliate
(hereinafter defined) of such Person or by an Associate
(hereinafter defined) of such Person or such Affiliate, (ii) all
shares which such Person, Affiliate or Associate has the right to
acquire through the exercise of any option, warrant or right
(whether or not currently exercisable), through the conversion of
a security, pursuant to the power to revoke a trust,
discretionary account or similar arrangement, or pursuant to the
automatic termination of a trust, discretionary account or
similar arrangement, and (iii) all shares as to which such
Person, Affiliate or Associate directly or indirectly through any
contract, arrangement, understanding, relationship or otherwise
(including, without limitation, any written or unwritten
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agreement to act in concert) has or shares voting power (which
includes the power to vote or to direct the voting of such
shares) or investment power (which includes the power to dispose
or to direct the disposition of such shares) or both.
(F) "Affiliate" shall mean a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by,
or is under common control with another Person.
(G) "Associate" of a Person shall mean (i) any corporation or
organization (other than the corporation or a subsidiary of the
corporation) of which the Person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten percent or
more of any class of equity securities, (ii) any trust or other
estate, except any employee stock benefit plan, in which the
Person has a substantial beneficial interest or as to which the
Person serves as trustee or in a similar fiduciary capacity, and
(iii) any relative or spouse of the Person, or any relative of
such spouse, who has the same home as the Person or is a director
or officer of the corporation or any of its parents or
subsidiaries.
NINTH: These Amended Articles of Incorporation supersede the
existing articles of incorporation of the corporation.
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EXHIBIT II
AMENDED
CONSTITUTION
OF
THE MARKET BUILDING AND SAVING COMPANY
ARTICLE ONE
SECTION 1. NAME. The name of this savings and loan association shall
be The Market Building and Saving Company (this "Association"), and the
principal office of this Association shall be located in Hamilton County, Ohio.
ARTICLE TWO
SECTION 1. PURPOSES. The purposes for which this Association is
formed are to raise money to be loaned to the public and to engage in any other
lawful act or activity for which corporations may be formed under Chapter 1151
of the Ohio Revised Code.
ARTICLE THREE
SECTION 1. AUTHORIZED SHARES. The authorized capital of this
Association shall be $10,000,00, divided into 10,000,000 shares, all of which
shall be common shares, $1.00 par value per share.
SECTION 2. REPURCHASE OF SHARES. This Association shall have the
power to repurchase its common shares to the fullest extent provided by law.
ARTICLE FOUR
SECTION 1. MEMBERS. Any person who subscribes for, or in any manner
according to law becomes the owner of, any of the common shares of this
Association shall be a member of this Association entitled to all of the
benefits and privileges and subject to all of the liabilities and duties
prescribed by this Amended Constitution, the Bylaws of this Association and the
laws of the State of Ohio.
SECTION 2. ANNUAL MEETINGS. The annual meeting of the shareholders
of this Association for the election of directors, the consideration of reports
to be laid before such meeting and the transaction of such other business as may
properly come before such meeting shall be held on the second Tuesday of January
in each year, at 2:45 P.M., or on such other date and at such other time as may
be fixed from time to time by the directors.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders of
this Association may be called only by the chairman of the board, president,
vice president, a majority of the members of the board of
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directors, or by persons who hold at least twenty-five percent of all shares
outstanding and entitled to vote thereat.
SECTION 4. PLACE OF MEETINGS. All meetings of shareholders of this
Association shall be held at the principal office of this Association, unless
otherwise provided by action of the directors. Meetings of shareholders may be
held at any place within or outside the State of Ohio.
SECTION 5. NOTICE OF MEETINGS.
(A) Written notice stating the time, place and purposes of a meeting
of the shareholders of this Association shall be given, by or at the direction
of the president or the secretary, either by personal delivery or by mail not
less than seven nor more than sixty days before the date of the meeting to each
shareholder of record entitled to notice of the meeting. If mailed, such notice
shall be addressed to the shareholder at his address as it appears on the
records of this Association. Notice of adjournment of a meeting need not be
given if the time and place to which it is adjourned are fixed and announced at
such meeting. In the event of a transfer of shares after the record date for
determining the shareholders who are entitled to receive notice of a meeting of
shareholders, it shall not be necessary to give notice to the transferee.
Nothing herein contained shall prevent the setting of a record date in the
manner provided by law, the amended articles of incorporation of this
Association (the "Amended Articles") or this Amended Constitution for the
determination of shareholders who are entitled to receive notice of or to vote
at any meeting of shareholders or for any purpose required or permitted by law.
(B) Following receipt by the president or the secretary of a request
in writing, specifying the purpose or purposes for which the persons properly
making such request have called a meeting of the shareholders, delivered either
in person or by registered mail to such officer by any persons entitled to call
a meeting of shareholders, such officer shall cause to be given to the
shareholders entitled thereto notice of a meeting to be held on a date not less
than seven nor more than sixty days after the receipt of such request, as such
officer may fix. If such notice is not given within fifteen days after the
receipt of such request by the president or the secretary, then, and only then,
the persons properly calling the meeting may fix the time of the meeting and
give notice thereof in accordance with the provisions of this Constitution.
SECTION 6. WAIVER OF NOTICE. Notice of the time, place and purpose
or purposes of any meeting of shareholders of this Association may be waived in
writing either before or after the holding of such meeting, by any shareholder,
which writing shall be filed with or entered upon the records of such meeting.
The attendance of any shareholder, in person or by proxy, at any such meeting
without protesting the lack of proper notice, prior to or at the commencement of
the meeting, shall be deemed to be a waiver by such shareholder of notice of
such meeting.
SECTION 7. QUORUM. At any meeting of shareholders of this
Association, the holders of a majority of the voting shares of this Association
then outstanding and entitled to vote thereat, present in person or by proxy,
shall constitute a quorum for such meeting. The holders of a majority of the
voting shares represented at a meeting, whether or not a quorum is present, or
the chairman of the board, the president, or the officer of the corporation
acting as chairman of the meeting, may adjourn such meeting from time to time,
and if a quorum is present at such adjourned meeting any business may be
transacted as if the meeting had been held as originally called.
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SECTION 8. VOTES REQUIRED. At all elections of directors the
candidates receiving the greatest number of votes shall be elected. Any other
matter submitted to the shareholders for their vote shall be decided by the vote
of such proportion of the shares, or of any class of shares, or of each class,
as is required by law, the Amended Articles or this Amended Constitution.
SECTION 9. ORDER OF BUSINESS. The order of business at any meeting
of shareholders shall be determined by the officer of this Association acting as
chairman of such meeting unless otherwise determined by a vote of the holders of
a majority of the voting shares of this Association then outstanding, present in
person or by proxy, and entitled to vote at such meeting.
SECTION 10. SHAREHOLDERS ENTITLED TO VOTE. Each shareholder of
record on the books of this Association on the record date for determining the
shareholders who are entitled to vote at a meeting of shareholders shall be
entitled at such meeting to one vote for each share of this Association standing
in his name on the books of this Association on such record date. The directors
may fix a record date for the determination of the shareholders who are entitled
to receive notice of and to vote at a meeting of shareholders, which record date
shall not be a date earlier than the date on which the record date is fixed and
which record date may be a maximum of sixty days preceding the date of the
meeting of shareholders.
SECTION 11. PROXIES. At meetings of the shareholders, any
shareholder of record entitled to vote thereat may be represented and may vote
by a proxy or proxies appointed by an instrument in writing signed by such
shareholder, but such instrument shall be filed with the secretary of the
meeting before the person holding such proxy shall be allowed to vote
thereunder. No proxy shall be valid after the expiration of eleven months after
the date of its execution, unless the shareholder executing it shall have
specified therein the length of time it is to continue in force.
SECTION 12. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders of this Association, the directors may appoint one or more
inspectors of election to act at such meeting or any adjournment thereof; if
inspectors are not so appointed, the officer of this Association acting as
chairman of any such meeting may make such appointment. In case any person
appointed as inspector fails to appear or act, the vacancy may be filled only by
appointment made by the directors in advance of such meeting or, if not so
filled, at the meeting by the officer of this Association acting as chairman of
such meeting. No other person or persons may appoint or require the appointment
of inspectors of election.
ARTICLE FIVE
DIRECTORS
SECTION 1. AUTHORITY AND QUALIFICATIONS. Except where the law, the
Amended Articles or this Amended Constitution otherwise provide, all authority
of this Association shall be vested in and exercised by its directors.
Directors need not be shareholders of this Association.
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SECTION 2. NUMBER OF DIRECTORS AND TERM OF OFFICE.
(A) Until changed in accordance with the provisions of this Amended
Constitution, the number of directors of this Association shall be five (5).
Each director shall be elected to serve a term of one (1) year and until his
successor is duly elected and qualified or until his earlier resignation,
removal from office or death.
(B) The number of directors may be fixed or changed, but in no event
to fewer than five (5) or more than seven (7) directors, by the directors or by
the shareholders at a meeting of the shareholders of this Association called for
the purpose of electing directors at which a quorum is present, only by the
affirmative vote of the holders of not less than a majority of the voting shares
which are represented at the meeting, in person or by proxy, and entitled to
vote on such proposal.
(C) The directors may fill any director's office that is created by
an increase in the number of directors.
(D) No reduction in the number of directors shall of itself have the
effect of shortening the term of any incumbent director.
SECTION 3. NOMINATION AND ELECTION.
(A) Any nominee for election as a director of this Association may be
proposed only by the directors or by any shareholder entitled to vote for the
election of directors. No person, other than a nominee proposed by the
directors, may be nominated for election as a director of this Association
unless such person shall have been proposed in a written notice, delivered or
mailed by first-class United States mail, postage prepaid, to the secretary of
this Association at the principal offices of this Association. In the case of a
nominee proposed for election as a director at an annual meeting of
shareholders, such written notice of a proposed nominee shall be received by the
secretary of this Association not later than the close of business on the
fourteenth calendar day preceding such annual meeting. In the case of a nominee
proposed for election as a director at a special meeting of shareholders at
which directors are to be elected, such written notice of a proposed nominee
shall be received by the secretary of this Association not later than the close
of business on the fourteenth calendar day preceding such special meeting.
Each such written notice of a proposed nominee shall set forth (i) the
name, age, business or residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, and
(iii) the number of common shares of this Association owned beneficially and/or
of record by each such nominee and the length of time any such shares have been
so owned.
(B) If a shareholder shall attempt to nominate one or more persons
for election as a director at any meeting at which directors are to be elected
without having identified each such person in a written notice given as
contemplated by, and/or without having provided therein the information
specified in, subparagraph (A) of this Section 3, each such attempted nomination
shall be invalid and shall be disregarded unless the person acting as chairman
of the meeting determines that the facts warrant the acceptance of such
nomination.
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(C) The election of directors shall be by ballot whenever requested
by the person acting as chairman of the meeting or by the holders of a majority
of the outstanding shares entitled to vote at such meeting and present in person
or by proxy, but unless such request is made, the election shall be by voice
vote.
SECTION 4. REMOVAL. A director or directors may be removed from
office, with or without assigning any cause, only by the vote of the holders of
shares entitling them to exercise not less than 75% of the voting power of this
Association to elect directors in place of those to be removed. In case of any
such removal, a new director may be elected at the same meeting for the
unexpired term of each director removed. Failure to elect a director to fill
the unexpired term of any director removed shall be deemed to create a vacancy
in the board.
SECTION 5. VACANCIES. Vacancies in the board may be filled in the
manner provided by law, the Amended Articles or this Amended Constitution. The
directors shall have the right to fill all vacancies occurring in the board for
the unexpired term.
SECTION 6. MEETINGS. A meeting of the directors shall be held
immediately following the adjournment of each annual meeting of shareholders of
this Association at which directors are elected, and notice of such meeting need
not be given. The directors shall hold a regular meeting at least once each
month at a day and hour fixed by resolution of the board and may hold such other
meetings as may from time to time be called. Such meetings of directors may be
called only by the chairman of the board, the president, or directors. Meetings
of the directors may be held through any communications equipment if all persons
participating can hear each other, and participation in a meeting pursuant to
this provision shall constitute presence at such meeting.
SECTION 7. NOTICE OF MEETINGS. Notice of the time and place of each
meeting of directors for which such notice is required by law, the Amended
Articles, this Amended Constitution or the Bylaws shall be given to each of the
directors by at least one of the following methods:
(A) In a writing mailed not less than three days before such meeting
and addressed to the residence or usual place of business of a director, as such
address appears on the records of the corporation; or
(B) By telegraph, facsimile or a writing sent or delivered to the
residence or usual place of business of a director as the same appears on the
records of the corporation, not later than the day before the date on which such
meeting is to be held.
Notice given to a director by either one of the methods specified in this
Amended Constitution shall be sufficient, and the method of giving notice to all
directors need not be uniform. Notice of any meeting of directors may be given
only by the chairman of the board, the president or the secretary of this
Association. Any such notice need not specify the purpose or purposes of the
meeting. Notice of adjournment of a meeting of directors need not be given if
the time and place to which it is adjourned are fixed and announced at such
meeting.
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SECTION 8. WAIVER OF NOTICE. Notice of any meeting of directors may
be waived in writing, either before or after the holding of such meeting, by any
director, which writing shall be filed with or entered upon the records of the
meeting. The attendance of any director at any meeting of directors without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice, shall be deemed to be a waiver by him of notice of such meeting.
SECTION 9. QUORUM. A majority of the whole authorized number of
directors shall be necessary to constitute a quorum for a meeting of directors,
except that a majority of the directors in office shall constitute a quorum for
filling a vacancy in the board. The act of a majority of the directors present
at a meeting at which a quorum is present is the act of the board, except as
otherwise provided by law, the Amended Articles or this Amended Constitution.
SECTION 10. EXECUTIVE COMMITTEE. The directors may create an
executive committee or any other committee of directors, to consist of not less
than three directors, and may authorize the delegation to such executive
committee or other committees of any of the authority of the directors, however
conferred, other than that of filling vacancies among the directors or in the
executive committee or in any other committee of the directors.
Such executive committee or any other committee of directors shall
serve at the pleasure of the directors, shall act only in the intervals between
meetings of the directors, and shall be subject to the control and direction of
the directors. Such executive committee or other committee of directors may act
by a majority of its members at a meeting or by a writing or writings signed by
all of its members.
Any act or authorization of any act by the executive committee or any
other committee within the authority delegated to it shall be as effective for
all purposes as the act or authorization of the directors. No notice of a
meeting of the executive committee or of any other committee of directors shall
be required. A meeting of the executive committee or of any other committee of
directors may be called only by the president or by a member of such executive
or other committee of directors. Meetings of the executive committee or of any
other committee of directors may be held through any communications equipment if
all persons participating can hear each other, and participation in such a
meeting shall constitute presence thereat.
SECTION 11. COMPENSATION. The compensation of the directors shall be
fixed by the shareholders at the annual meeting of shareholders and shall be
reasonable in view of the services performed and the financial condition of this
Association.
SECTION 12. DIRECTORS' BYLAWS. The directors shall have the power to
adopt, amend, repeal, and enforce such bylaws, resolutions and orders as they
may deem necessary to enable them to manage and control all the business,
property and rights of this Association.
SECTION 13. ASSESSMENTS. The directors shall have the power to
assess and collect from members and others such fines for late payment of loans
and such premiums on loans made or other assessments as they may deem
appropriate.
SECTION 14. DIRECTORS EMERITUS. The directors may employ directors
emeritus to serve as consultants or advisers to the board and may provide for
their compensation.
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ARTICLE SIX
OFFICERS
SECTION 1. OFFICERS. The officers of this Association to be elected
by the directors shall include a president, a vice president, a secretary, and a
treasurer and such other officers and assistant officers as the directors may
from time to time elect. One officer shall be designated as the executive
managing officer of the Association. The directors may elect a chairman of the
board, who must be a director. Officers need not be shareholders of this
Association, and may be paid such compensation as the board of directors may
determine. Any two or more offices may be held by the same person, but no
officer shall execute, acknowledge, or verify any instrument in more than one
capacity if such instrument is required by law, the Amended Articles, this
Amended Constitution or the Bylaws to be executed, acknowledged, or verified by
two or more officers.
SECTION 2. TENURE OF OFFICE. The officers of this Association shall
hold office at the pleasure of the directors. Any officer may be removed,
either with or without cause, at any time, by the affirmative vote of a majority
of all of the directors then in office; such removal, however, shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 3. DUTIES OF THE OFFICERS. The duties of the officers shall
be established by the directors either in the Bylaws of this Association or by
resolution.
SECTION 4. COMPENSATION. The directors shall set the compensation of
the officers of this Association. The compensation of all officers of this
Association shall be reasonable in view of the services performed and the
financial condition of this Association.
ARTICLE SEVEN
SHARES
SECTION 1. CERTIFICATES. Certificates evidencing ownership of shares
of this Association shall be issued to those entitled to them. Each certificate
evidencing shares of this Association shall bear a distinguishing number; the
signatures of the chairman of the board, the president, or a vice president, and
of the secretary or an assistant secretary (except that when any such
certificate is countersigned by an incorporated transfer agent or registrar,
such signatures may be facsimile, engraved, stamped or printed); and such
recitals as may be required by law. Certificates evidencing shares of this
Association shall be of such tenor and design as the directors may from time to
time adopt and may bear such recitals as are permitted by law.
SECTION 2. TRANSFERS. Where a certificate evidencing a share or
shares of this Association is presented to this Association or its proper agents
with a request to register transfer, the transfer shall be registered as
requested if:
(A) An appropriate person signs on each certificate so presented or
signs on a separate document an assignment or transfer of shares evidenced by
each such certificate, or signs a power to assign or transfer such shares, or
when the signature of an appropriate person is written without more on the back
of each such certificate; and
(B) Reasonable assurance is given that the endorsement of each
appropriate person is genuine and effective; this Association may refuse to
register a transfer of shares unless the signature of each
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appropriate person is guaranteed by a commercial bank or trust company having an
office or a correspondent in the City of New York or by a firm having membership
in the New York Stock Exchange; and
(C) All applicable laws, if any, relating to the collection of
transfer or other taxes have been complied with; and
(D) This Association or its agents are not otherwise required or
permitted to refuse to register such transfer.
SECTION 3. TRANSFER AGENTS AND REGISTRARS. The directors may appoint
one or more agents to transfer or to register shares of this Association, or
both.
SECTION 4. LOST, WRONGFULLY TAKEN OR DESTROYED CERTIFICATES. Except
as otherwise provided by law, where the owner of a certificate evidencing shares
of this Association claims that such certificate has been lost, destroyed or
wrongfully taken, the directors must cause this Association to issue a new
certificate in place of the original certificate if the owner:
(A) So requests before this Association has notice that such original
certificate has been acquired by a bona fide purchaser; and
(B) Files with this Association, unless waived by the directors, an
indemnity bond, with surety or sureties satisfactory to this Association, in
such sums as the directors may, in their discretion, deem reasonably sufficient
as indemnity against any loss or liability that this Association may incur by
reason of the issuance of each such new certificate; and
(C) Satisfies any other reasonable requirements which may be imposed
by the directors, in their discretion.
ARTICLE EIGHT
INDEMNIFICATION AND INSURANCE
SECTION 1. This Association shall indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of this Association, by reason of the fact that he is or was a director or
officer of this Association, or is or was serving at the request of this
Association as a director, trustee, officer, employee, or agent of another
corporation, domestic or foreign, nonprofit or for profit, partnership, joint
venture, trust, or other enterprise, against expenses, including attorney's
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of this Association and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
this Association and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
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SECTION 2. This Association shall indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending or completed action or suit by or in the right of this
Association to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of this Association or is or was serving at the
request of this Association as a director, trustee, officer, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust or other enterprise, against expenses,
including attorney's fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of this Association, except that no indemnification shall be made in
respect of any of the following:
(A) Any claim, issue, or matter as to which such person is adjudged
to be liable for negligence or misconduct in the performance of his duty to this
Association unless, and only to the extent that, the Court of Common Pleas of
Hamilton County, Ohio, or the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the Court of Common Pleas of Hamilton
County, Ohio, or such other court shall deem proper;
(B) Any action or suit in which the only liability asserted against a
director is pursuant to 1701.95 of the Ohio Revised Code.
SECTION 3. To the extent that a director or officer has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2 of this Article Eight, or in defense
of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorney's fees, actually and reasonably incurred by him in
connection with the action, suit, or proceeding.
SECTION 4. Any indemnification under Sections 1 or 2 of this Article
Eight, unless ordered by a court, shall be made by this Association only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 or 2 of this Article
Eight. Such determination shall be made as follows:
(A) By a majority vote of a quorum consisting of directors of this
Association who were not and are not parties to or threatened with any such
action, suit, or proceeding;
(B) If the quorum described in Subsection (A) of this Section 4 is
not obtainable or if a majority vote of a quorum of disinterested directors so
directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been retained
by or who has performed services for this Association or any person to be
indemnified within the past five years;
(C) By the shareholders;
(D) By the Court of Common Pleas of Hamilton County, Ohio, or the
court in which such action, suit, or proceeding was brought.
Any determination made by the disinterested directors under Subsection
(A) of this Section 4 or by independent legal counsel under Subsection (B) of
this Section 4 shall be promptly communicated to the
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person who threatened or brought the action or suit by or in the right of this
Association under Section 2 of this Article Eight, and within ten days after
receipt of such notification, such person shall have the right to petition the
Court of Common Pleas of Hamilton County, Ohio, or the court in which such
action or suit was brought to review the reasonableness of such determination.
SECTION 5.
(A) Expenses, including attorney's fees, incurred by a director in
defending the action, suit, or proceeding shall be paid by this Association as
they are incurred, in advance of the final disposition of the action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the director in
which he agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing
evidence in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
this Association or undertaken with reckless disregard for the best interests of
this Association; and
(ii) Reasonably cooperate with this Association concerning the
action, suit, or proceeding.
(B) Expenses, including attorney's fees, incurred by a director,
trustee, officer, employee, or agent in defending any action, suit, or
proceeding referred to in Section 2 of this Article Eight, may be paid by this
Association as they are incurred, in advance of the final disposition of the
action, suit, or proceeding as authorized by the directors in the specific case
upon receipt of an undertaking by or on behalf of the director, trustee,
officer, employee, or agent to repay such amount, if it ultimately is determined
that he is not entitled to be indemnified by this Association.
SECTION 6. The indemnification authorized by this Article Eight shall
not be exclusive of, and shall be in addition to, any other rights granted to
those seeking indemnification under the Amended Articles or the Amended
Constitution of this Association or any agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors, and administrators of such a
person.
SECTION 7. This Association may purchase and maintain insurance or
furnish similar protection including, but not limited to, trust funds, letters
of credit, or self-insurance, on behalf of or for any person who is or was a
director, officer, employee, or agent of this Association, or is or was serving
at the request of this Association as a director, trustee, officer, employee, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not this Association would have the power to
indemnify him against such liability under this section. Insurance may be
purchased from or maintained with a person in which this Association has a
financial interest.
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SECTION 8. The authority of this Association to indemnify persons
pursuant to Sections 1 or 2 of this Article Eight does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other protection
that may be provided pursuant to Sections 5, 6 and 7. Sections 1 and 2 of this
Article Eight do not create any obligation to repay or return payments made by
this Association pursuant to Sections 5, 6 or 7.
SECTION 9. As used in this Article Eight, references to this
Association include all constituent corporations in a consolidation or merger
and the new or surviving corporation, so that any person who is or was a
director, officer, employee, or agent of such a constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
trustee, officer, employee, or agent of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, shall stand in the same position under this section with respect to
the new or surviving corporation as he would if he had served the new or
surviving corporation in the same capacity.
SECTION 10. Any action, suit or proceeding to determine a claim for
indemnification under this Article Eight may be maintained by the person
claiming such indemnification, or by the corporation, in the Court of Common
Pleas of Hamilton County, Ohio. This Association and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Hamilton County, Ohio, in any
such action, suit or proceeding.
ARTICLE NINE
DISSOLUTION
SECTION 1. To dissolve this Association, a resolution in writing
asking for such dissolution shall be adopted by the board of directors, or
requested in writing in the form of a resolution by the holders of at least
twenty-five percent of the voting shares of this Association.
SECTION 2. Upon the presentation to the board of directors of one of
the resolutions specified in Section 1 above, the board of directors shall call
a special meeting of the shareholders for the purpose of considering and acting
upon such resolution. If at such special meeting, the holders of a majority of
the voting shares of this Association entitled to vote under the provisions of
this Constitution vote for dissolution, the board of directors shall take the
necessary steps to wind up the affairs of this Association, subject to the
contract rights of its borrowers, in accordance with statutory requirements
existing at the date such action is taken.
ARTICLE TEN
MISCELLANEOUS
SECTION 1. AMENDMENTS. This Constitution may be amended at any
annual or special meeting of the shareholders of this Association by the
affirmative vote of the holders of three-fifths of the shares of record
represented in person or by proxy at such meeting. All proposals to amend this
Constitution shall be presented in writing to the board of directors at a
regular meeting thereof at least thirty (30) days before such annual or special
meeting of the shareholders, and the amendment adopted shall be substantially
the same as proposed.
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SECTION 2. ACTION BY SHAREHOLDERS OR DIRECTORS WITHOUT A MEETING.
Anything contained in this Constitution to the contrary notwithstanding, any
action which may be authorized or taken at a meeting of the shareholders or of
the directors or of a committee of the directors, as the case may be, may be
authorized or taken without a meeting with the affirmative vote or approval of,
and in a writing or writings signed by, all the shareholders who would be
entitled to notice of a meeting of the shareholders held for such purpose, or
all the directors, or all the members of such committee of the directors,
respectively, which writings shall be filed with or entered upon the records of
this Association.
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ARTICLES OF INCORPORATION
OF
MARKET FINANCIAL CORPORATION
The undersigned, desiring to form a corporation for profit under
Chapter 1701 of the Ohio Revised Code, does hereby certify:
FIRST: The name of the corporation shall be Market Financial
Corporation.
SECOND: The place in Ohio where the principal office of the
corporation is to be located is the City of Mt. Healthy, County of Hamilton.
THIRD: The purpose for which the corporation is formed is to engage
in any lawful act or activity for which corporations may be formed under Section
1701.01 to 1701.98, inclusive, of the Ohio Revised Code.
FOURTH: The authorized shares of the corporation shall be eight
hundred and fifty (850) common shares, each without par value. The directors of
the corporation may adopt an amendment to the Articles of Incorporation of the
corporation in respect of any unissued or treasury shares of any class and
thereby fix or change: the division of such shares into series and the
designation and authorized number of each series; the dividend rate; the dates
of payment of dividends and the dates from which they are cumulative; the
liquidation price; the redemption rights and price; the sinking fund
requirements; the conversion rights; and the restrictions on the issuance of
shares of any class or series.
FIFTH: (A) The board of directors of the corporation shall have
the power to cause the corporation from time to time and at any time to
purchase, hold, sell, transfer or otherwise deal with (i) shares of any class or
series issued by it, (ii) any security or other obligation of the corporation
which may confer upon the holder thereof the right to convert the same into
shares of any class or series authorized by the articles of the corporation, and
(iii) any security or other obligation which may confer upon the holder thereof
the right to purchase shares of any class or series authorized by the Articles
of Incorporation of the corporation.
(B) The corporation shall have the right to repurchase, if and when
any shareholder desires to sell, or on the happening of any event is required to
sell, shares of any class or series issued by the corporation.
(C) The authority granted in this Article Fifth shall not limit the
plenary authority of the directors to purchase, hold, sell, transfer or
otherwise deal with shares of any class or series, securities or other
obligations issued by the corporation or authorized by the Articles of
Incorporation of the corporation.
SIXTH: Notwithstanding any provision of the Ohio Revised Code
requiring for any purpose the vote, consent, waiver or release of the holders of
shares of the corporation
<PAGE>
entitling them to exercise any proportion of the voting power of the corporation
or of any class or classes thereof, such action, unless expressly otherwise
provided by statute, may be taken by the vote, consent, waiver or release of the
holders of shares entitling them to exercise not less than a majority of the
voting power of the corporation or of such class or classes; provided, however,
that if the board of directors of the corporation shall recommend against the
approval of any of the following matters, the affirmative vote of the holders of
shares entitling them to exercise not less than seventy-five percent (75%) of
the voting power of any class or classes of shares of the corporation which
entitle the holders thereof to vote in respect of any such matter as a class
shall be required to adopt:
(A) A proposed amendment to the Articles of Incorporation of the
corporation;
(B) A proposed amendment to the Code of Regulations of the
corporation;
(C) A proposal to change the number of directors by action of the
shareholders;
(D) An agreement of merger or consolidation providing for the
proposed merger or consolidation of the corporation with or into
one or more other corporations;
(E) A proposed combination or majority share acquisition involving
the issuance of shares of the corporation and requiring
shareholder approval;
(F) A proposal to sell, exchange, transfer or otherwise dispose of
all, or substantially all, of the assets, with or without the
goodwill, of the corporation; or
(G) A proposed dissolution of the corporation.
SEVENTH: Until the expiration of five years from the date of the
acquisition of the corporation of the capital stock of The Market Building and
Saving Company ("Market") to be issued in connection with the conversion of
Market from mutual to stock form, no Person (hereinafter defined) shall directly
or indirectly Offer (hereinafter defined) to Acquire (hereinafter defined) or
Acquire the Beneficial Ownership (hereinafter defined) of more than ten percent
(10%) of any class of any equity security of the corporation; provided, however,
that such prohibition shall not apply to the purchase of shares by underwriters
in connection with a public offering, or to the purchase of up to twenty five
percent (25%) of any class of equity security of the corporation by a tax-
qualified employee stock benefit plan. In the event that any shares of the
corporation are Acquired in violation of this Article Seventh, all shares
Beneficially Owned by any Person in excess of ten percent (10%) of any class of
equity security of the corporation shall not be counted as shares entitled to
vote, shall not be voted by any Person and shall not be counted as voting shares
in connection with any matter submitted to the
2
<PAGE>
shareholders for a vote. For purposes of this Article Seventh, the following
terms shall have the meaning set forth below:
(A) "Person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of
acquiring or disposing of the equity securities of the
corporation, but does not include any employee stock benefit plan
of the corporation or subsidiary of the corporation.
(B) "Offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security
for value.
(C) "Acquire" includes every type of acquisition, whether effected by
purchase, exchange, operation of law or otherwise.
(D) "Acting in concert" means (i) participation in a joint activity
or conscious parallel action towards a common goal, whether or
not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement,
whether written or otherwise.
(E) "Beneficial Ownership" shall include, without limitation, (i) all
shares directly or indirectly owned by a Person, by an Affiliate
(hereinafter defined) of such Person or by an Associate
(hereinafter defined) of such Person or such Affiliate, (ii) all
shares which such Person, Affiliate or Associate has the right to
acquire through the exercise of any option, warrant or right
(whether or not currently exercisable), through the conversion of
a security, pursuant to the power to revoke a trust,
discretionary account or similar arrangement, or pursuant to the
automatic termination of a trust, discretionary account or
similar arrangement, and (iii) all shares as to which such
Person, Affiliate or Associate directly or indirectly through any
contract, arrangement, understanding, relationship or otherwise
(including, without limitation, any written or unwritten
agreement to act in concert) has or shares voting power (which
includes the power to vote or to direct the voting of such
shares) or investment power (which includes the power to dispose
or to direct the disposition of such shares) or both.
3
<PAGE>
(F) "Affiliate" shall mean a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by,
or is under common control with another Person.
(G) "Associate" of a Person shall mean (i) any corporation or
organization (other than the corporation or a subsidiary of the
corporation) of which the Person is an officer or partner or is,
directly or indirectly, the beneficial owner of ten percent or
more of any class of equity securities, (ii) any trust or other
estate, except any employee stock benefit plan, in which the
Person has a substantial beneficial interest or as to which the
Person serves as trustee or in a similar fiduciary capacity, and
(iii) any relative or spouse of the Person, or any relative of
such spouse, who has the same home as the Person or is a director
or officer of the corporation or any of its parents or
subsidiaries.
EIGHTH: No shareholder of the corporation shall have, as a matter of
right, the pre-emptive right to purchase or subscribe for shares of any class,
now or hereafter authorized, or to purchase or subscribe for securities or other
obligations convertible into or exchangeable for such shares or which by
warrants or otherwise entitle the holders thereof to subscribe for or purchase
any such shares.
IN WITNESS WHEREOF, I have hereunto signed my name this 18th day of
April, 1996.
/s/ John T. Larimer
------------------------------
John T. Larimer, Incorporator
4
<PAGE>
CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS TO THE ARTICLES OF INCORPORATION OF
MARKET FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Name Of Corporation)
John T. Larimer, who is:
/ / Chairman of the Board /X/ President / / Vice President (Check one)
and
Rae Skirvin Larimer, who is: /X/ Secretary / / Assistant Secretary (Check one)
of the above named Ohio corporation for profit do hereby certify that: (check
the appropriate box and complete the appropriate statements)
/ / a meeting of the shareholders was duly called for the purpose of adopting
this amendment and held on __________________, 19___ at which meeting a
quorum of the shareholders was present in person or by proxy, and by the
affirmative vote of the holders of shares entitling them to exercise
___________% of the voting power of the corporation.
/X/ in a writing signed by all of the shareholders who would be entitled to
notice of a meeting held for that purpose, the following resolution to
amend the articles was adopted:
See Exhibit A.
IN WITNESS WHEREOF, the above named officers, acting for and on the behalf of
the corporation, have hereto subscribed their names this 22nd day of July, 1996.
By /s/ John T. Larimer
---------------------------
President
By /s/ Rae Skirvin Larimer
---------------------------
Secretary
NOTE: Ohio law does not permit one officer to sign in two capacities, Two
separate signatures are required, even if this necessitates the election of a
second officer before the filing can be made.
<PAGE>
EXHIBIT A
RESOLVED, that the Articles of Incorporation of Market Financial Corporation be
amended by deleting Article FOURTH in its entirety and substituting
therefor the following new Article FOURTH:
FOURTH: The authorized shares of the corporation shall be five
million (5,000,000), four million (4,000,000) of which shall be
common shares, each without par value, and one million
(1,000,000) of which shall be preferred shares, each without par
value. The directors of the corporation may adopt an amendment
to the Articles of Incorporation in respect of any unissued or
treasury shares of any class and thereby fix or change: the
division of such shares into series and the designation and
authorized number of each series; the dividend rate; the dates of
payment of dividends and the dates from which they are
cumulative; the liquidation price; the redemption rights and
price; the sinking fund requirements; the conversion rights; and
the restrictions on the issuance of shares of any class or
series.
FURTHER RESOLVED, that the Articles of Incorporation of Market
Financial Corporation be amended by adding thereto the following
Article NINTH:
NINTH: No shareholder of the corporation shall have the right to
vote cumulatively in the election of directors.
<PAGE>
REGULATIONS
OF
MARKET FINANCIAL CORPORATION
INDEX
SECTION CAPTION PAGE NO.
- ------- ------- --------
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
1.01 Annual Meetings . . . . . . . . . . . . . . . . . . . . 1
1.02 Calling of Meetings . . . . . . . . . . . . . . . . . . . . 1
1.03 Place of Meetings . . . . . . . . . . . . . . . . . . . . . 1
1.04 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . 1
1.05 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . 2
1.06 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.07 Votes Required. . . . . . . . . . . . . . . . . . . . . . . 2
1.08 Order of Business . . . . . . . . . . . . . . . . . . . . . 2
1.09 Shareholders Entitled to Vote . . . . . . . . . . . . . . . 2
1.10 Cumulative Voting . . . . . . . . . . . . . . . . . . . . . 2
1.11 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 Inspectors of Election. . . . . . . . . . . . . . . . . . . 3
ARTICLE TWO
DIRECTORS
2.01 Authority and Qualifications. . . . . . . . . . . . . . . . 3
2.02 Number of Directors and Term of Office. . . . . . . . . . . 3
2.03 Nomination . . . . . . . . . . . . . . . . . . . . . . . . 4
2.04 Election. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.05 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.06 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.07 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.08 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . 5
2.09 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . 6
2.10 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.11 Executive Committee . . . . . . . . . . . . . . . . . . . . 6
2.12 Compensation. . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 7
<PAGE>
ARTICLE THREE
OFFICERS
SECTION CAPTION PAGE NO.
- ------- ------- --------
3.01 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.02 Tenure of Office. . . . . . . . . . . . . . . . . . . . . . 7
3.03 Duties of the Chairman of the Board . . . . . . . . . . . . 7
3.04 Duties of the President . . . . . . . . . . . . . . . . . . 7
3.05 Duties of the Vice Presidents . . . . . . . . . . . . . . . 7
3.06 Duties of the Secretary . . . . . . . . . . . . . . . . . . 8
3.07 Duties of the Treasurer . . . . . . . . . . . . . . . . . . 8
ARTICLE FOUR
SHARES
4.01 Certificates. . . . . . . . . . . . . . . . . . . . . . . . 8
4.02 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.03 Transfer Agents and Registrars. . . . . . . . . . . . . . . 9
4.04 Lost, Wrongfully Taken or Destroyed
Certificates. . . . . . . . . . . . . . . . . . . . . . . 9
4.05 Uncertificated Shares . . . . . . . . . . . . . . . . . . . 9
ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
5.01 Mandatory Indemnification . . . . . . . . . . . . . . . . . 10
5.02 Court-Approved Indemnification. . . . . . . . . . . . . . . 10
5.03 Indemnification for Expenses. . . . . . . . . . . . . . . . 10
5.04 Determination Required. . . . . . . . . . . . . . . . . . . 11
5.05 Advances for Expenses . . . . . . . . . . . . . . . . . . . 11
5.06 Article Five Not Exclusive. . . . . . . . . . . . . . . . . 12
5.07 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.08 Certain Definitions . . . . . . . . . . . . . . . . . . . . 12
5.09 Venue . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE SIX
MISCELLANEOUS
6.01 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . 12
6.02 Action by Shareholders or Directors
Without a Meeting . . . . . . . . . . . . . . . . . . . . 13
-ii-
<PAGE>
CODE OF REGULATIONS
MARKET FINANCIAL CORPORATION
ARTICLE ONE
MEETINGS OF SHAREHOLDERS
SECTION 1.01. ANNUAL MEETINGS. The annual meeting of the
shareholders for the election of directors, for the consideration of reports to
be laid before such meeting and for the transaction of such other business as
may properly come before such meeting shall be held on the second Tuesday of
January in each year at 2:45 p.m., or on such other date and at such other time
as may be fixed from time to time by the directors.
SECTION 1.02. CALLING OF MEETINGS. Meetings of the shareholders may
be called only by the chairman of the board, the president, or, in case of the
president's absence, death, or disability, the vice president authorized to
exercise the authority of the president; the secretary; the directors by action
at a meeting, or a majority of the directors acting without a meeting; or the
holders of at least twenty-five percent of all shares outstanding and entitled
to vote thereat.
SECTION 1.03. PLACE OF MEETINGS. All meetings of shareholders shall
be held at the principal office of the corporation, unless otherwise provided by
action of the directors. Meetings of shareholders may be held at any place
within or without the State of Ohio.
SECTION 1.04. NOTICE OF MEETINGS. (A) Written notice stating the
time, place and purposes of a meeting of the shareholders shall be given either
by personal delivery or by mail not less than seven nor more than sixty days
before the date of the meeting (1) to each shareholder of record entitled to
notice of the meeting, (2) by or at the direction of the president or the
secretary. If mailed, such notice shall be addressed to the shareholder at his
address as it appears on the records of the corporation. Notice of adjournment
of a meeting need not be given if the time and place to which it is adjourned
are fixed and announced at such meeting. In the event of a transfer of shares
after the record date for determining the shareholders who are entitled to
receive notice of a meeting of shareholders, it shall not be necessary to give
notice to the transferee. Nothing herein contained shall prevent the setting of
a record date in the manner provided by law, the Articles or the Regulations for
the determination of shareholders who are entitled to receive notice of or to
vote at any meeting of shareholders or for any purpose required or permitted by
law.
(B) Following receipt by the president or the secretary of a
request in writing, specifying the purpose or purposes for which the persons
properly making such request have called a meeting of the shareholders,
delivered either in person or by registered mail to such officer by any persons
entitled to call a meeting of shareholders, such officer shall cause to be given
to the shareholders entitled thereto notice of a meeting to be held on a date
not less than seven nor more than sixty days after the receipt of such request,
as such officer may fix. If such notice is not given within fifteen days after
the receipt of such request by the president or the secretary, then, and only
then, the
<PAGE>
persons properly calling the meeting may fix the time of meeting and give notice
thereof in accordance with the provisions of the Regulations.
SECTION 1.05. WAIVER OF NOTICE. Notice of the time, place and
purpose or purposes of any meeting of shareholders may be waived in writing,
either before or after the holding of such meeting, by any shareholders, which
writing shall be filed with or entered upon the records of such meeting. The
attendance of any shareholder, in person or by proxy, at any such meeting
without protesting the lack of proper notice, prior to or at the commencement of
the meeting, shall be deemed to be a waiver by such shareholder of notice of
such meeting.
SECTION 1.06. QUORUM. At any meeting of shareholders, the holders of
a majority of the voting shares of the corporation then outstanding and entitled
to vote thereat, present in person or by proxy, shall constitute a quorum for
such meeting. The holders of a majority of the voting shares represented at a
meeting, whether or not a quorum is present, or the chairman of the board, the
president, or the officer of the corporation acting as chairman of the meeting,
may adjourn such meeting from time to time, and if a quorum is present at such
adjourned meeting, any business may be transacted as if the meeting had been
held as originally called.
SECTION 1.07. VOTES REQUIRED. At all elections of directors, the
candidates receiving the greatest number of votes shall be elected. Any other
matter submitted to the shareholders for their vote shall be decided by the vote
of such proportion of the shares, or of any class of shares, or of each class,
as is required by law, the Articles or the Regulations.
SECTION 1.08. ORDER OF BUSINESS. The order of business at any
meeting of shareholders shall be determined by the officer of the corporation
acting as chairman of such meeting unless otherwise determined by a vote of the
holders of a majority of the voting shares of the corporation then outstanding,
present in person or by proxy, and entitled to vote at such meeting.
SECTION 1.09. SHAREHOLDERS ENTITLED TO VOTE. Each shareholder of
record on the books of the corporation on the record date for determining the
shareholders who are entitled to vote at a meeting of shareholders shall be
entitled at such meeting to one vote for each share of the corporation standing
in his name on the books of the corporation on such record date. The directors
may fix a record date for the determination of the shareholders who are entitled
to receive notice of and to vote at a meeting of shareholders, which record date
shall not be a date earlier than the date on which the record date is fixed and
which record date may be a maximum of sixty days preceding the date of the
meeting of shareholders.
SECTION 1.10. CUMULATIVE VOTING. If the articles of incorporation of
the corporation do not eliminate the right of shareholders to vote cumulatively
in the election of directors, the following procedures shall apply: if notice
in writing shall be given by a shareholder to the president, a vice president or
the secretary of the corporation not less than forty-eight hours before the time
fixed for holding a meeting of the shareholders for the purpose of electing
directors if notice of such meeting shall have been given at least ten days
prior thereto, and otherwise not less than twenty-four hours before such time,
that such shareholder desires that the voting at such election shall be
cumulative, and if an announcement of the giving of such notice is made upon the
convening of the meeting by the
-2-
<PAGE>
chairman or secretary or by or on behalf of the shareholder giving such notice,
each shareholder shall have the right to cumulate such voting power as he
possesses and to give one candidate as many votes as is determined by
multiplying the number of directors to be elected by the number of votes to
which such shareholder is entitled, or to distribute such number of votes on the
same principle among two or more candidates, as he sees fit.
SECTION 1.11. PROXIES. At meetings of the shareholders, any
shareholder of record entitled to vote thereat may be represented and may vote
by a proxy or proxies appointed by an instrument in writing signed by such
shareholder, but such instrument shall be filed with the secretary of the
meeting before the person holding such proxy shall be allowed to vote
thereunder. No proxy shall be valid after the expiration of eleven months after
the date of its execution, unless the shareholder executing it shall have
specified therein the length of time it is to continue in force.
SECTION 1.12. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the directors may appoint inspectors of election to act at such
meeting or any adjournment thereof; if inspectors are not so appointed, the
officer of the corporation acting as chairman of any such meeting may make such
appointment. In case any person appointed as inspector fails to appear or act,
the vacancy may be filled only by appointment made by the directors in advance
of such meeting or, if not so filled, at the meeting by the officer of the
corporation acting as chairman of such meeting. No other person or persons may
appoint or require the appointment of inspectors of election.
ARTICLE TWO
DIRECTORS
SECTION 2.01. AUTHORITY AND QUALIFICATIONS. Except where the law,
the Articles or the Regulations otherwise provide, all authority of the
corporation shall be vested in and exercised by its directors. Directors need
not be shareholders of the corporation.
SECTION 2.02. NUMBER OF DIRECTORS AND TERM OF OFFICE.
(A) Until changed in accordance with the provisions of the
Regulations, the number of directors of the corporation shall be 7. Directors
shall be elected for such terms that the terms of an equal number of directors,
as nearly as possible, will expire each year. A term may not exceed three
years. Directors shall serve until their successors are duly elected and
qualified or until their earlier resignation, removal from office, or death.
(B) The number of directors may be fixed or changed at a meeting of
the shareholders called for the purpose of electing directors at which a quorum
is present, only by the affirmative vote of the holders of not less than a
majority of the voting shares which are represented at the meeting, in person or
by proxy, and entitled to vote on such proposal.
(C) The directors may fix or change the number of directors and may
fill any director's office that is created by an increase in the number of
directors; provided, however, that the
-3-
<PAGE>
directors may not increase the number of directors to greater than fifteen nor
reduce the number of directors to fewer than five.
(D) No reduction in the number of directors shall of itself have the
effect of shortening the term of any incumbent director.
SECTION 2.03. NOMINATION .
(A) Any nominee for election as a director of the corporation may be
proposed only by the directors or by any shareholder entitled to vote for the
election of directors. No person, other than a nominee proposed by the
directors, may be nominated for election as a director of the corporation unless
such person shall have been proposed in a written notice, delivered or mailed by
first class United States mail, postage prepaid, to the Secretary of the
corporation at the principal offices of the corporation. In the case of a
nominee proposed for election as a director at an annual meeting of
shareholders, such written notice of a proposed nominee shall be received by the
Secretary of the corporation on or before the later of (i) the October 31st
immediately preceding such annual meeting, or (ii) the sixtieth (60th) day
before the first anniversary of the most recent annual meeting of shareholders
of the corporation held for the election of directors; provided, however, that
if the annual meeting for the election of directors in any year is not held on
or before the thirty-first (31st) day next following such anniversary, then the
written notice required by this subparagraph (A) shall be received by the
Secretary within a reasonable time prior to the date of such annual meeting. In
the case of a nominee proposed for election as a director at a special meeting
of shareholders at which directors are to be elected, such written notice of a
proposed nominee shall be received by the Secretary of the corporation no later
than the close of business on the seventh day following the day on which notice
of the special meeting was mailed to shareholders. Each such written notice of
a proposed nominee shall set forth (1) the name, age and business or residence
address of each nominee proposed in such notice, (2) the principal occupation or
employment of each such nominee, and (3) the number of common shares of the
corporation owned beneficially and/or of record by each such nominee and the
length of time any such shares have been so owned.
(B) If a shareholder shall attempt to nominate one or more persons
for election as a director at any meeting at which directors are to be elected
without having identified each such person in a written notice given as
contemplated by, and/or without having provided therein the information
specified in, subparagraph (A) of this Section, each such attempted nomination
shall be invalid and shall be disregarded unless the person acting as Chairman
of the meeting determines that the facts warrant the acceptance of such
nomination.
SECTION 2.04. ELECTION. At each annual meeting of shareholders for
the election of directors, the successors to the directors whose terms, shall
expire in that year shall be elected, but if the annual meeting is not held or
if one or more of such directors are not elected thereat, they may be elected at
a special meeting called for that purpose. The election of directors shall be
by ballot whenever requested by the presiding officer of the meeting or by the
holders of a majority of the voting shares outstanding, entitled to vote at such
meeting and present in person or by proxy, but unless such request is made, the
election shall be by voice vote.
-4-
<PAGE>
SECTION 2.05. REMOVAL. A director or directors may be removed from
office, with or without assigning any cause, only by the vote of the holders of
shares entitling them to exercise not less than a majority of the voting power
of the corporation to elect directors in place of those to be removed, provided
that unless all the directors, or all the directors of a particular class (if
the directors of the corporation are divided into classes), are removed, no
individual director shall be removed in case the votes of a sufficient number of
shares are cast against his removal that, if cumulatively voted at an election
of all directors, or all the directors of a particular class, as the case may
be, would be sufficient to elect at least one director. In case of any such
removal, a new director may be elected at the same meeting for the unexpired
term of each director removed. Failure to elect a director to fill the
unexpired term of any director removed shall be deemed to create a vacancy in
the board.
SECTION 2.06. VACANCIES. The remaining directors, though less than a
majority of the whole authorized number of directors, may, by the vote of a
majority of their number, fill any vacancy in the board for the unexpired term.
A vacancy in the board exists within the meaning of this Section 2.06 in case
the shareholders increase the authorized number of directors but fail at the
meeting at which such increase is authorized, or an adjournment thereof, to
elect the additional directors provided for, or in case the shareholders fail at
any time to elect the whole authorized number of directors.
SECTION 2.07. MEETINGS. A meeting of the directors shall be held
immediately following the adjournment of each annual meeting of shareholders at
which directors are elected, and notice of such meeting need not be given. The
directors shall hold such other meetings as may from time to time be called, and
such other meetings of directors may be called only by the chairman of the
board, the president, or any two directors. All meetings of directors shall be
held at the principal office of the corporation or at such other place as the
directors may from time to time determine by resolution. Meetings of the
directors may be held through any communications equipment if all persons
participating can hear each other, and participation in a meeting pursuant to
this provision shall constitute presence at such meeting.
SECTION 2.08. NOTICE OF MEETINGS. Notice of the time and place of
each meeting of directors for which such notice is required by law, the
Articles, the Regulations or the By-Laws shall be given to each of the directors
by at least one of the following methods:
(A) In a writing mailed not less than three days before such meeting
and addressed to the residence or usual place of business of a
director, as such address appears on the records of the
corporation; or
(B) By telegraph, cable, radio, wireless, or a writing sent or
delivered to the residence or usual place of business of a
director as the same appears on the records of the corporation,
not later than the day before the date on which such meeting is
to be held; or
(C) Personally or by telephone not later than the day before the date
on which such meeting is to be held.
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Notice given to a director by any one of the methods specified in the
Regulations shall be sufficient, and the method of giving notice to all
directors need not be uniform. Notice of any meeting of directors may be given
only by the chairman of the board, the president or the secretary of the
corporation. Any such notice need not specify the purpose or purposes of the
meeting. Notice of adjournment of a meeting of directors need not be given if
the time and place to which it is adjourned are fixed and announced at such
meeting.
SECTION 2.09. WAIVER OF NOTICE. Notice of any meeting of directors
may be waived in writing, either before or after the holding of such meeting, by
any director, which writing shall be filed with or entered upon the records of
the meeting. The attendance of any director at any meeting of directors without
protesting, prior to or at the commencement of the meeting, the lack of proper
notice, shall be deemed to be a waiver by him of notice of such meeting.
SECTION 2.10. QUORUM. A majority of the whole authorized number of
directors shall be necessary to constitute a quorum for a meeting of directors,
except that a majority of the directors in office shall constitute a quorum for
filling a vacancy in the board. The act of a majority of the directors present
at a meeting at which a quorum is present is the act of the board, except as
otherwise provided by law, the Articles or the Regulations.
SECTION 2.11. COMMITTEES. The directors may create an executive
committee or any other committee of directors, to consist of not less than three
directors, and may authorize the delegation to such executive committee or other
committees of any of the authority of the directors, however conferred, other
than that of filling vacancies among the directors or in the executive committee
or in any other committee of the directors.
Such executive committee or any other committee of directors shall
serve at the pleasure of the directors, shall act only in the intervals between
meetings of the directors, and shall be subject to the control and direction of
the directors. Such executive committee or other committee of directors may act
by a majority of its members at a meeting or by a writing or writings signed by
all of its members.
Any act or authorization of any act by the executive committee or any
other committee within the authority delegated to it shall be as effective for
all purposes as the act or authorization of the directors. No notice of a
meeting of the executive committee or of any other committee of directors shall
be required. A meeting of the executive committee or of any other committee of
directors may be called only by the president or by a member of such executive
or other committee of directors. Meetings of the executive committee or of any
other committee of directors may be held through any communications equipment if
all persons participating can hear each other and participation in such a
meeting shall constitute presence thereat.
SECTION 2.12. COMPENSATION. Directors shall be entitled to receive
as compensation for services rendered and expenses incurred as directors such
amounts as the directors may determine.
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SECTION 2.13. BY-LAWS. The directors may adopt, and amend from time
to time, By-Laws for their own government, which By-Laws shall not be
inconsistent with the law, the Articles or the Regulations.
ARTICLE THREE
OFFICERS
SECTION 3.01. OFFICERS. The officers of the corporation to be
elected by the directors shall be a president, a secretary, a treasurer, and, if
desired, one or more vice presidents and such other officers and assistant
officers as the directors may from time to time elect. The directors may elect
a chairman of the board, who must be a director. Officers need not be
shareholders of the corporation and may be paid such compensation as the board
of directors may determine. Any two or more offices may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity if such instrument is required by law, the Articles, the
Regulations or the By-Laws to be executed, acknowledged or verified by two or
more officers.
SECTION 3.02. TENURE OF OFFICE. The officers of the corporation
shall hold office at the pleasure of the directors. Any officer of the
corporation may be removed, either with or without cause, at any time, by the
affirmative vote of a majority of all the directors then in office; such
removal, however, shall be without prejudice to the contract rights, if any, of
the person so removed.
SECTION 3.03. DUTIES OF THE CHAIRMAN OF THE BOARD. The chairman of
the board, if any, shall preside at all meetings of the directors. He shall
have such other powers and duties as the directors shall from time to time
assign to him.
SECTION 3.04. DUTIES OF THE PRESIDENT. The president shall be the
chief executive officer of the corporation, shall exercise supervision over the
business of the corporation and shall have, among such additional powers and
duties as the directors may from time to time assign to him, the power and
authority to sign all certificates evidencing shares of the corporation and all
deeds, mortgages, bonds, contracts, notes and other instruments requiring the
signature of the president of the corporation. It shall be the duty of the
president to preside at all meetings of shareholders.
SECTION 3.05. DUTIES OF THE VICE PRESIDENTS. In the absence of the
president or in the event of his inability or refusal to act, the vice
president, if any (or in the event there be more than one vice president, the
vice presidents in the order designated, or in the absence of any designation,
then in the order of their election), shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all
restrictions upon the president. The vice presidents shall perform such other
duties and have such other powers as the directors may from time to time
prescribe.
SECTION 3.06. DUTIES OF THE SECRETARY. It shall be the duty of the
secretary, or of an assistant secretary, if any, in case of the absence or
inability to act of the secretary, to keep minutes of all the proceedings of the
shareholders and the directors and to make a proper record of the same; to
perform such other duties as may be required by law, the Articles or the
Regulations; to perform such other and further duties as may from time to time
be assigned to him by the directors or the president;
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and to deliver all books, paper and property of the corporation in his
possession to his successor, or to the president.
SECTION 3.07. DUTIES OF THE TREASURER. The treasurer, or an
assistant treasurer, if any, in case of the absence or inability to act of the
treasurer, shall receive and safely keep in charge all money, bills, notes,
choses in action, securities and similar property belonging to the corporation,
and shall do with or disburse the same as directed by the president or the
directors; shall keep an accurate account of the finances and business of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, stated capital and shares, together with such
other accounts as may be required and hold the same open for inspection and
examination by the directors; shall give bond in such sum with such security as
the directors may require for the faithful performance of his duties; shall,
upon the expiration of his term of office, deliver all money and other property
of the corporation in his possession or custody to his successor or the
president; and shall perform such other duties as from time to time may be
assigned to him by the directors.
ARTICLE FOUR
SHARES
SECTION 4.01. CERTIFICATES. Certificates evidencing ownership of
shares of the corporation shall be issued to those entitled to them. Each
certificate evidencing shares of the corporation shall bear a distinguishing
number; the signatures of the chairman of the board, the president, or a vice
president, and of the secretary or an assistant secretary (except that when any
such certificate is countersigned by an incorporated transfer agent or
registrar, such signatures may be facsimile, engraved, stamped or printed); and
such recitals as may be required by law. Certificates evidencing shares of the
corporation shall be of such tenor and design as the directors may from time to
time adopt and may bear such recitals as are permitted by law.
SECTION 4.02. TRANSFERS. Where a certificate evidencing a share or
shares of the corporation is presented to the corporation or its proper agents
with a request to register transfer, the transfer shall be registered as
requested if:
(1) An appropriate person signs on each certificate so presented or
signs on a separate document an assignment or transfer of shares evidenced by
each such certificate, or signs a power to assign or transfer such shares, or
when the signature of an appropriate person is written without more on the back
of each such certificate; and
(2) Reasonable assurance is given that the endorsement of each
appropriate person is genuine and effective; the corporation or its agents may
refuse to register a transfer of shares unless the signature of each appropriate
person is guaranteed by a commercial bank or trust company having an office or a
correspondent in the City of New York or by a firm having membership in the New
York Stock Exchange; and
(3) All applicable laws relating to the collection of transfer or
other taxes have been complied with; and
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(4) The corporation or its agents are not otherwise required or
permitted to refuse to register such transfer.
SECTION 4.03. TRANSFER AGENTS AND REGISTRARS. The directors may
appoint one or more agents to transfer or to register shares of the corporation,
or both.
SECTION 4.04. LOST, WRONGFULLY TAKEN OR DESTROYED CERTIFICATES.
Except as otherwise provided by law, where the owner of a certificate evidencing
shares of the corporation claims that such certificate has been lost, destroyed
or wrongfully taken, the directors must cause the corporation to issue a new
certificate in place of the original certificate if the owner:
(1) So requests before the corporation has notice that such original
certificate has been acquired by a bona fide purchaser; and
(2) Files with the corporation, unless waived by the directors, an
indemnity bond, with surety or sureties satisfactory to the corporation, in such
sums as the directors may, in their discretion, deem reasonably sufficient as
indemnity against any loss or liability that the corporation may incur by reason
of the issuance of each such new certificate; and
(3) Satisfies any other reasonable requirements which may be imposed
by the directors, in their discretion.
SECTION 4.05. UNCERTIFICATED SHARES. Anything contained in this
Article Fourth to the contrary notwithstanding, the directors may provide by
resolution that some or all of any or all classes and series of shares of the
corporation shall be uncertificated shares, provided that such resolution shall
not apply to (A) shares of the corporation represented by a certificate until
such certificate is surrendered to the corporation in accordance with applicable
provisions of Ohio law or (B) any certificated security of the corporation
issued in exchange for an uncertificated security in accordance with applicable
provisions of Ohio law. The rights and obligations of the holders of
uncertificated shares and the rights and obligations of the holders of
certificates representing shares of the same class and series shall be
identical, except as otherwise expressly provided by law.
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ARTICLE FIVE
INDEMNIFICATION AND INSURANCE
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action threatened or instituted by or in the
right of the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee or agent of
another corporation (domestic or foreign, nonprofit or for profit), partnership,
joint venture, trust or other enterprise, against expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful.
A person claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for indemnification, to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal matter, to have had no reasonable cause to believe his conduct was
unlawful, and the termination of any action, suit or proceeding by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
SECTION 5.02. COURT-APPROVED INDEMNIFICATION. Anything contained in
the Regulations or elsewhere to the contrary notwithstanding:
(A) the corporation shall not indemnify any officer or director of
the corporation who was a party to any completed action or suit instituted by or
in the right of the corporation to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of another corporation (domestic
or foreign, nonprofit or for profit), partnership, joint venture, trust or other
enterprise, in respect of any claim, issue or matter asserted in such action or
suit as to which he shall have been adjudged to be liable for acting with
reckless disregard for the best interests of the corporation or misconduct
(other than negligence) in the performance of his duty to the corporation unless
and only to the extent that the Court of Common Pleas of Hamilton County, Ohio,
or the court in which such action or suit was brought shall determine upon
application that, despite such adjudication of liability, and in view of all the
circumstances of the case, he is fairly and reasonably entitled to such
indemnity as such Court of Common Pleas or such other court shall deem proper;
and
(B) the corporation shall promptly make any such unpaid
indemnification as is determined by a court to be proper as contemplated by this
Section 5.02.
SECTION 5.03. INDEMNIFICATION FOR EXPENSES. Anything contained in
the Regulations or elsewhere to the contrary notwithstanding, to the extent that
an officer or director of the corporation
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has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 5.01, or in defense of any claim, issue or
matter therein, he shall be promptly indemnified by the corporation against
expenses (including, without limitation, attorneys' fees, filing fees, court
reporters' fees and transcript costs) actually and reasonably incurred by him in
connection therewith.
SECTION 5.04. DETERMINATION REQUIRED. Any indemnification required
under Section 5.01 and not precluded under Section 5.02 shall be made by the
corporation only upon a determination that such indemnification of the officer
or director is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 5.01. Such determination may be made
only (A) by a majority vote of a quorum consisting of directors of the
corporation who were not and are not parties to, or threatened with, any such
action, suit or proceeding, or (B) if such a quorum is not obtainable or if a
majority of a quorum of disinterested directors so directs, in a written opinion
by independent legal counsel other than an attorney, or a firm having associated
with it an attorney, who has been retained by or who has performed services for
the corporation, or any person to be indemnified, within the past five years, or
(C) by the shareholders, or (D) by the Court of Common Pleas of Hamilton County,
Ohio, or (if the corporation is a party thereto) the court in which such action,
suit or proceeding was brought, if any; any such determination may be made by a
court under division (D) of this Section 5.04 at any time including, without
limitation, any time before, during or after the time when any such
determination may be requested of, be under consideration by or have been denied
or disregarded by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by the shareholders under
division (C) of this Section 5.04; and no failure for any reason to make any
such determination, and no decision for any reason to deny any such
determination, by the disinterested directors under division (A) or by
independent legal counsel under division (B) or by shareholders under
division (C) of this Section 5.04 shall be evidence in rebuttal of the
presumption recited in Section 5.01. Any determination made by the
disinterested directors under division (A) or by independent legal counsel under
division (B) of this Section 5.04 to make indemnification in respect of any
claim, issue or matter asserted in an action or suit threatened or brought by or
in the right of the corporation shall be promptly communicated to the person who
threatened or brought such action or suit, and within ten (10) days after
receipt of such notification such person shall have the right to petition the
Court of Common Pleas of Hamilton County, Ohio, or the court in which such
action or suit was brought, if any, to review the reasonableness of such
determination.
SECTION 5.05. ADVANCES FOR EXPENSES. Expenses (including, without
limitation, attorneys' fees, filing fees, court reporters' fees and transcript
costs) incurred in defending any action, suit or proceeding referred to in
Section 5.01 shall be paid by the corporation in advance of the final
disposition of such action, suit or proceeding to or on behalf of the officer or
director promptly as such expenses are incurred by him, but only if such officer
or director shall first agree, in writing, to repay all amounts so paid in
respect of any claim, issue or other matter asserted in such action, suit or
proceeding in defense of which he shall not have been successful on the merits
or otherwise:
(A) if it shall ultimately be determined as provided in Section 5.04
that he is not entitled to be indemnified by the corporation as provided under
Section 5.01; or
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(B) if, in respect of any claim, issue or other matter asserted by or
in the right of the corporation in such action or suit, he shall have been
adjudged to be liable for acting with reckless disregard for the best interests
of the corporation or misconduct (other than negligence) in the performance of
his duty to the corporation, unless and only to the extent that the Court of
Common Pleas of Hamilton County, Ohio, or the court in which such action or suit
was brought shall determine upon application that, despite such adjudication of
liability, and in view of all the circumstances, he is fairly and reasonably
entitled to all or part of such indemnification.
SECTION 5.06. ARTICLE FIVE NOT EXCLUSIVE. The indemnification
provided by this Article Five shall not be deemed exclusive of any other rights
to which any person seeking indemnification may be entitled under the Articles
or the Regulations or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be an officer or director of the corporation and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
SECTION 5.07. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, employee, or agent of another corporation
(domestic or foreign, nonprofit or for profit), partnership, joint venture,
trust or other enterprise, against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the obligation or the power to
indemnify him against such liability under the provisions of this Article Five.
SECTION 5.08. CERTAIN DEFINITIONS. For purposes of this Article
Five, and as examples and not by way of limitation:
(A) A person claiming indemnification under this Article 5 shall be
deemed to have been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 5.01, or in defense of any
claim, issue or other matter therein, if such action, suit or proceeding shall
be terminated as to such person, with or without prejudice, without the entry of
a judgment or order against him, without a conviction of him, without the
imposition of a fine upon him and without his payment or agreement to pay any
amount in settlement thereof (whether or not any such termination is based upon
a judicial or other determination of the lack of merit of the claims made
against him or otherwise results in a vindication of him); and
(B) References to an "other enterprise" shall include employee
benefit plans; references to a "fine" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the best
interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" within the meaning of that term as used in this Article Five.
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SECTION 5.09. VENUE. Any action, suit or proceeding to determine a
claim for indemnification under this Article Five may be maintained by the
person claiming such indemnification, or by the corporation, in the Court of
Common Pleas of Hamilton County, Ohio. The corporation and (by claiming such
indemnification) each such person consent to the exercise of jurisdiction over
its or his person by the Court of Common Pleas of Hamilton County, Ohio, in any
such action, suit or proceeding.
ARTICLE SIX
MISCELLANEOUS
SECTION 6.01. AMENDMENTS. The Regulations may be amended, or new
regulations may be adopted, at a meeting of shareholders held for such purpose,
only by the affirmative vote of the holders of shares entitling them to exercise
not less than a majority of the voting power of the corporation on such
proposal, or without a meeting by the written consent of the holders of shares
entitling them to exercise not less than a majority of the voting power of the
corporation on such proposal.
SECTION 6.02. ACTION BY SHAREHOLDERS OR DIRECTORS WITHOUT A MEETING.
Anything contained in the Regulations to the contrary notwithstanding, except as
provided in Section 6.01, any action which may be authorized or taken at a
meeting of the shareholders or of the directors or of a committee of the
directors, as the case may be, may be authorized or taken without a meeting with
the affirmative vote or approval of, and in a writing or writings signed by, all
the shareholders who would be entitled to notice of a meeting of the
shareholders held for such purpose, or all the directors, or all the members of
such committee of the directors, respectively, which writings shall be filed
with or entered upon the records of the corporation.
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(513) 723-4000
August 14, 1996
Board of Directors
Market Financial Corporation
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
Dear Ladies and Gentleman:
We are familiar with the proceedings taken and proposed to be taken by
Market Financial Corporation ("MFC") in connection with the issuance and sale by
MFC of up to 1,335,725 of its common shares, without par value (the "Common
Shares"). The Common Shares are being offered by MFC in connection with the
conversion of The Market Building and Saving Company ("Market") from a mutual
savings and loan association incorporated under the laws of the State of Ohio to
a permanent capital stock savings association incorporated under the laws of the
State of Ohio (the "Conversion").
MFC has been incorporated at the direction of Market for the
purpose of purchasing all of the capital stock to be issued by Market in
connection with the Conversion. We have assisted Market with matters related
to the incorporation and organization of MFC. In addition, we have
collaborated in the preparation of the Registration Statement on Form S-1
(the "Registration Statement") to be filed by MFC with the Securities and
Exchange Commission for the registration of the Common Shares under the
Securities Act of 1933, as amended. In connection therewith, we have
examined, among other things, such records and documents as we have deemed
necessary in order to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that MFC is a duly
organized and legally existing corporation under the laws of the State of Ohio.
Assuming compliance with applicable federal and state securities laws, we are
also of the opinion that the Common Shares to be issued and sold by MFC, when
the purchase orders have
<PAGE>
Board of Directors
August 14, 1996
Page 2
been accepted and the purchase price for the Common Shares has been paid in
money as specified in the Registration Statement when it shall become effective,
will be validly issued and outstanding, fully paid and non-assessable.
Notwithstanding the foregoing, until payments are received by MFC from the
Market Financial Corporation Employee Stock Ownership Plan (the "ESOP") in
accordance with the terms of a loan agreement to be entered into by and between
MFC and the ESOP, shares for which payment in money has not been received will
not be fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus included
therein.
Very truly yours,
Vorys, Sater, Seymour and Pease
<PAGE>
(513) 723-4000
August 14, 1996
Board of Directors
Market Financial Corporation
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
Board of Directors
The Market Building and Saving Company
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
Re: Conversion from a State Mutual Savings and Loan Association
to a State Stock Savings and Loan Association - Federal and
State Tax Matters
Gentlemen:
You have requested our opinion regarding certain federal income tax and
state tax consequences resulting from the proposed conversion (the
"Conversion") of The Market Building and Saving Company (the "Association"),
from a mutual savings and loan association incorporated under Ohio law to a
permanent capital stock savings and loan association under Ohio law (the
"Stock Association") and the simultaneous acquisition by Market Financial
Corporation, an Ohio corporation (the "Holding Company"), of all of the
capital stock to be issued by the Stock Association upon the Conversion.
We have reviewed the Plan of Conversion adopted by the Association's
Board of Directors on April 16, 1996 (the "Plan"), the Application for
Conversion on Form AC (the "Application") filed with the Office of Thrift
Supervision (the "OTS"), the Summary Proxy Statement, the Prospectus and
other solicitation materials included in the Application, and have examined
such other legal and factual matters we have considered appropriate. Unless
otherwise indicated, defined terms in this letter have the same meaning as in
the Plan and the Prospectus.
<PAGE>
Board of Directors
August 14, 1996
Page 2
We have not requested on your behalf nor have we received any rulings
from the Internal Revenue Service ("IRS") in connection with the Conversion
or the attendant federal income tax consequences.
FACTS
A. THE MARKET BUILDING AND SAVING COMPANY
The Association is a mutual savings and loan association which was
incorporated in 1883 as an Ohio savings and loan association under the name "The
Court Street Market Building and Saving Company." In 1926, the Association
adopted its current name. In 1960, the Hilltop Savings and Loan Company of Mt.
Healthy, Ohio, was merged into the Association, and in 1994, the Cleves-North
Bend Building and Loan Company of North Bend, Ohio, was merged into the
Association. As an Ohio savings and loan association, the Association is
subject to supervision and regulation by the OTS and the Division of Financial
Institutions (the "Division"). The Association is a member of the Federal Home
Loan Association ("FHLB") of Cincinnati and the deposits of the Association are
insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC").
The Association is principally engaged in the business of originating
loans secured by first mortgages on one- to four-family residential real estate
located in the Association's primary market area. The Association also
originates a limited number of loans for the construction of residential real
estate and loans secured by multifamily real estate and nonresidential real
estate in its market area. In addition to real estate lending, the Association
originates a limited number of loans secured by deposits in the Association.
The Association also invests in mortgage-backed securities, U.S. Government
agency obligations, and deposits in other financial institutions. Funds for
lending and other investment activities are obtained primarily from savings
deposits, which are insured up to applicable limits by the FDIC, and principal
repayments on loans.
The Association conducts business from its main office located at 7522
Hamilton Avenue, Mt. Healthy, Ohio, and its branch office at 125 Miami Avenue
North Bend, Ohio. The Association's primary market area consists of Hamilton
County, Ohio.
<PAGE>
Board of Directors
August 14, 1996
Page 3
MARKET FINANCIAL CORPORATION
The Holding Company was incorporated under Ohio law in April 1996 at
the direction of the Association for the purpose of becoming the holding company
of the Stock Association after the Conversion. The Holding Company has not
conducted and will not conduct any business other than business related to the
Conversion prior to the completion of the Conversion. The Holding Company has
applied to the OTS for approval to acquire the capital stock to be issued by the
Stock Association in the Conversion. Upon the consummation of the Conversion,
the Holding Company will be a unitary savings and loan holding company, and its
principal asset will be the capital stock of the Stock Association. As a
savings and loan holding company, the Holding Company will be required to
register with, and be subject to, examination and supervision by the OTS.
B. THE PLAN OF CONVERSION
On April 16, 1996, the Board of Directors of the Association
unanimously adopted the Plan and recommended that the voting members
of the Association approve the Plan at a special meeting of members of the
Association to be held after the Association receives approval of the
Application from the OTS (the "Special Meeting"). Under the Plan, (i) the
Association will be converted from a mutual savings and loan association
incorporated under Ohio law to a stock savings and loan association incorporated
under Ohio law, (ii) all of the capital stock of the Stock Association, which
will be one class of voting common shares, will be issued to the Holding
Company, and (iii) the Holding Company will offer for sale and issue common
shares of the Holding Company (the "Common Shares") to eligible persons in a
subscription offering (the "Subscription Offering") and to the general public in
a concurrent direct community offering (the "Community Offering").
The aggregate purchase price at which the Common Shares will be
offered and sold pursuant to the Plan will be based upon the estimated pro
form a market value of the Association, as determined by an independent
appraiser. Keller & Company, Inc. ("Keller"), a firm experienced in valuing
thrift institutions, has prepared an independent appraisal of the pro forma
market value of the Association. Keller's valuation of the estimated pro
forma market value of the Association, as converted, is $10,100,000 as of
August 2, 1996 (the "Pro Form a Value"). The Association will issue the
Common Shares at a fixed price of $10 per share and, by dividing the price
per share into the Pro Forma Value, will determine the number of Common
Shares to be issued. Applicable regulations require, however, that the
Association establish a range of 15% above and below the Pro Forma Value (the
"Valuation Range") to allow for fluctuations in the aggregate value of the
Common Shares due to changes in the market for bank and thrift shares and
other factors from the time of commencement of the Subscription Offering
until the completion of the Community Offering. Based on the Pro Forma Value
of the Association as of August 2, 1996, the Valuation Range is $8,585,000 to
$11,615,000, resulting in the sale of between
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Board of Directors
August 14, 1996
Page 4
858,500 and 1,161,500 Common Shares at a purchase price of $10 per share. The
Holding Company may offer additional Common Shares up to 15% above the maximum
of the Valuation Range, resulting in a total offering of up to 1,335,725 Common
Shares.
C. LIQUIDATION ACCOUNT
In the event of a complete liquidation of the Association in its
present mutual form, each depositor in the Association would receive a pro rata
share of any assets of the Association remaining after payment of the claims of
all creditors, including the claims of all depositors to the withdrawable value
of their savings accounts. A depositor's pro rata share of such remaining
assets would be the same proportion of such assets as the value of such
depositor's savings deposits bears to the total aggregate value of all savings
deposits in the Association at the time of liquidation.
In the event of a complete liquidation of the Stock Association after
the Conversion, each depositor in the Stock Association would have a claim of
the same general priority as the claims of all other general creditors of the
Stock Association. Except as described below, each depositor's claim would be
solely in the amount of the balance in such depositor's savings account plus
accrued interest. The depositor would have no interest in the assets of the
Stock Association above that amount. Such assets would be distributed to the
Holding Company as the sole shareholder of the Stock Association.
For the purpose of granting a limited priority claim to the assets of
the Stock Association in the event of a complete liquidation thereof to Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain savings accounts at the Stock Association after the Conversion, the
Association will, at the time of the Conversion, establish the Liquidation
Account in an amount equal to the regulatory capital of the Association as of
the latest practicable date prior to the Conversion at which such regulatory
capital can be determined. The Liquidation Account will not operate to restrict
the use or application of any of the regulatory capital of the Stock
Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on December 30, 1994 (the
"Eligibility Record Date"), or the anticipated supplemental eligibility record
date of September 30, 1996 (the "Supplemental Eligibility Record Date"), as
applicable.
The balance of each initial Subaccount shall be an amount determined
by multiplying the amount in the Liquidation Account by a fraction, the
numerator of which is the closing balance in the account holder's account as of
the close of business on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable, and the denominator of which is the
total
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Board of Directors
August 14, 1996
Page 5
amount of all Qualifying Deposits of Eligible Account Holders or Supplemental
Eligible Account Holders on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable. The balance of each Subaccount may be
decreased but will never be increased. If, at the close of business on the last
day of any fiscal year subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, the deposit balance in the
account to which a Subaccount relates is less than the lesser of (i) the deposit
balance in such deposit account at the close of business on any other annual
closing date subsequent to the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable, or (ii) the amount of the Qualifying
Deposit as of the Eligibility Record Date or the Supplemental Eligibility Record
Date, as applicable, the balance of the Subaccount for such deposit account
shall be adjusted proportionately to the reduction in such deposit account
balance. In the event of any such downward adjustment, such Subaccount balance
shall not be subsequently increased not- withstanding any increase in the
deposit balance of the related savings account. If any savings account is
closed, its related Subaccount shall be reduced to zero upon such closing.
In the event of a complete liquidation of the Stock Association (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to the shareholder of the Stock
Association. Any assets remaining after satisfaction of such liquidation rights
and the claims of the Association's creditors would be distributed to the
Holding Company as the sole shareholder of the Association. No merger,
consolidation, purchase of bulk assets or similar combination or transaction
with another financial institution, the deposits of which are insured by the
SAIF, will be deemed to be a complete liquidation for this purpose and, in any
such transaction, the Liquidation Account shall be assumed by the surviving
institution.
D. ISSUANCE OF SHARES
1. SUBSCRIPTION OFFERING.
Nontransferable subscription rights to purchase Common Shares will be
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. Each person subscribing for Common Shares
must represent to the Association that he or she is purchasing such shares for
his or her own account and that he or she has no agreement or understanding with
any other person for the sale or transfer of such Common Shares
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of such shares for purchase under the
preference categories set forth in the Plan and
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Board of Directors
August 14, 1996
Page 6
certain other limitations. The sale of any Common Shares pursuant to
subscriptions received is contingent upon approval of the Plan by the voting
members of the Association at the Special Meeting.
The preference categories and the preliminary purchase
limitations which have been established by the Plan, in accordance with
applicable regulations, for the allocation of Common Shares are as follows:
CATEGORY 1. Each Eligible Account Holder will receive, without
payment therefor, a nontransferable subscription right to purchase a number of
Common Shares equal to up to the greater of (i) 2% of the total number of Common
Shares to be sold in the Conversion or (ii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of Common
Shares sold in connection with the Conversion by a fraction of which the
numerator is the amount of the Eligible Account Holder's Qualifying Deposit and
the denominator of which is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility Record Date, subject
to the limitation that no person, together with such person's Associates and
other persons acting in concert with such person, may purchase more than 4% of
the Common Shares sold in connection with the Conversion and subject to
adjustments by the Board of Directors of the Holding Company and the
Association, as set forth in the Plan.
If the exercise of subscription rights in Category 1 results in an
over-subscription, the Common Shares available for purchase will be allocated
among the subscribing Eligible Account Holders in a manner by which each
subscribing Eligible Account Holder, to the extent possible, will be permitted
to subscribe to a number of shares sufficient to make such Eligible Account
Holder's total allocation of Common Shares equal to the lesser of (i) 100 shares
or (ii) the number of shares subscribed for by such Eligible Account Holder.
Any shares remaining after such allocation will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each Eligible Account Holder's Qualifying
Deposit bears to the total of the Qualifying Deposits of all subscribing
Eligible Account Holders; provided, however, that subscription rights held by
Eligible Account Holders who are also officers and directors of the Holding
Company or the Association, and their Associates, to the extent that they are
attributable to increased deposits during the one-year period preceding the
Eligibility Record Date, will be subordinated to the subscription rights of all
other Eligible Account Holders. No fractional shares will be issued in
connection with the Conversion.
The subscription rights of the Eligible Account Holders are
subordinate to the limited priority right of the Market Financial Corporation
Employee Stock Ownership Plan (the "ESOP") in Category 2.
<PAGE>
Board of Directors
August 14, 1996
Page 7
CATEGORY 2. The ESOP will receive a non-transferable subscription
right to purchase up to 10% of the Common Shares offered in connection with the
Conversion. The subscription rights of the ESOP are subordinate to the
subscription rights in Category 1, except that if the final Pro Forma Value of
the Association exceeds the maximum of the Valuation Range, the ESOP shall have
first priority with respect to the amount of Common Shares sold in excess of the
maximum of the Valuation Range.
CATEGORY 3. Each Supplemental Eligible Account Holder will receive,
without payment therefor, a nontransferable subscription right to purchase a
number of Common Shares equal to up to the greater of (i) 2% of the total number
of Common Shares to be sold in the commission or (ii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of Common Shares sold in connection with the Conversion by a fraction of which
the numerator is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the limitation that no
person, together with such person's Associates and other persons acting in
concert with such person, may purchase more than 4% of the Common Shares sold in
connection with the Conversion and subject to adjustments by the Board of
Directors of the Holding Company and the Association, as set forth in the Plan.
If the exercise of subscription rights in Category 3 results in an
over-subscription, the Common Shares available for purchase will be allocated
among the subscribing Supplemental Eligible Account Holders in a manner by which
each subscribing Supplemental Eligible Account Holder, to the extent possible,
will be permitted to subscribe to a number of Common Shares sufficient to make
such Supplemental Eligible Account Holder's total allocation of Common Shares
equal to the lesser of (i) 100 shares or (ii) the number of Common Shares
subscribed for by such Supplemental Eligible Account Holder. Any Common Shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each such Supplemental Eligible Account
Holder's Qualifying Deposit bears to the total amount of the Qualifying Deposits
of all such subscribing Supplemental Eligible Account Holders. No fractional
shares will be issued in connection with the Conversion.
Subscription rights received in Category 3 will be subordinate to the
subscription rights in Categories 1 and 2.
CATEGORY 4. Each Other Eligible Member, other than an Eligible
Account Holder or a Supplemental Eligible Account Holder, will receive, without
payment therefor a nontransferable subscription right to purchase a number of
Common Shares equal to up to 2% of the total number of Common Shares to be sold
in the Conversion, subject to the limitation that no person, together with such
person's Associates and other persons acting in concert with such person, may
purchase
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Board of Directors
August 14, 1996
Page 8
more than 4% of the Common Shares sold in connection with the Conversion and
subject to adjustments by the Board of Directors of the Holding Company and the
Association, as set forth in the Plan.
In the event of an oversubscription in Category 4, the Common Shares
available for purchase will be allocated among the Other Eligible Members from
whom subscriptions are received in the same proportion that their respective
subscriptions bear to the total subscriptions of all Other Eligible Members;
provided, however, that, to the extent sufficient Common Shares are available,
each subscribing Other Eligible Member shall receive 25 Common Shares before the
remaining available Common Shares are allocated.
Subscription rights received under this Category 4 will be subordinate
to the subscription rights under Categories 1 through 3.
2. COMMUNITY OFFERING.
Concurrently with the Subscription Offering, the Association expects
to offer Common Shares in the Community Offering to the extent such shares
remain available after the satisfaction of all subscriptions received in the
Subscription Offering. All sales of Common Shares in the Community Offering
will be at the same price as in the Subscription Offering.
If subscriptions are received in the Subscription Offering for up to
833,000 Common Shares, Common Shares may not be available in the Community
Offering. In the event shares are available for the Community Offering, each
person, together with any Associates or groups of persons acting in concert, may
purchase in the Community Offering up to 2% of the Common Shares sold in
connection with the Conversion. If an insufficient number of Common Shares is
available to fill all of the orders received in the Community Offering, the
available Common Shares will be allocated in a manner to be determined by the
Boards of Directors of MFC and the Association, subject to the following:
(i) Preference will be given to natural persons who are
residents of Hamilton County, Ohio, the county in which the offices of the
Association are located;
(ii) Orders received in the Community Offering will first be
filled up to 2% of the total number of Common Shares offered, with any remaining
shares allocated on an equal number of shares per order basis until all orders
have been filled; and
(iii) The right of any person to purchase Common Shares in
the Community Offering is subject to the right of MFC and the Association to
accept or reject such purchases in whole or in part.
<PAGE>
Board of Directors
August 14, 1996
Page 9
E. RESULTS OF CONVERSION
Depositors who are members of the Association will have no voting
rights in the Stock Association and will not participate, therefore, in the
election of directors or otherwise control the Stock Association's affairs.
After the Conversion, voting rights in the Stock Association will be vested
exclusively in the Holding Company as the sole shareholder of the Association.
Each holder of Common Shares will be entitled to one vote for each share owned
on any matter to be considered by the shareholders of the Holding Company.
The Conversion will not interrupt the business of the Association.
During and upon completion of the Conversion, the Association will continue to
provide the services presently offered to depositors and borrowers, will
maintain its existing offices and will retain its existing management and
employees. All deposit accounts in the Stock Association will be equivalent in
amount, interest rate and other terms to the present deposit accounts in the
Association, and the existing FDIC insurance on such deposits will not be
affected by the Conversion. The Conversion will not affect the terms of loan
accounts or the rights and obligations of borrowers under their individual
contractual arrangements with the Association.
ADDITIONAL REPRESENTATIONS
You have made the following additional representations upon which we
have relied:
(1) The Holding Company and the Association have no current plan or
intention to redeem or otherwise acquire any of the Common Shares to be issued
in connection with the Conversion.
(2) Immediately following the consummation of the Conversion, the
Stock Association will possess the same assets and liabilities as the
Association held immediately prior to the Conversion, plus proceeds from the
sale of the Common Shares to the Holding Company in exchange for approximately
50% of the net proceeds of the Conversion. Assets used to pay expenses of the
Conversion and all distributions (except for regular, normal interest payments
made by the Association immediately preceding the Conversion) will, in the
aggregate, constitute less than one percent of the net assets of the Association
and any such expenses and distributions will be paid by the Association and the
Holding Company from the proceeds of the Subscription Offering.
(3) Following the Conversion, the Stock Association will continue to
engage in its business in substantially the same manner as engaged in by the
Association prior to the Conversion, and it has no plan or intention to sell or
otherwise dispose of any of its assets except in the ordinary course of
business.
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Board of Directors
August 14, 1996
Page 10
(4) The Association is not under the jurisdiction of a court in any
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
(5) The aggregate fair market value of the Qualifying Deposits held
by Eligible Account Holders and Supplemental Eligible Account Holders as of the
close of business on the Eligibility Record Date and the Supplemental
Eligibility Record Date, respectively, will equal or exceed ninety-nine percent
(99%) of the aggregate fair market value of all deposit accounts (including
those accounts with less than $50) in the Association as of the close of
business on such dates. No Common Shares will be issued directly to or
purchased by depositor-employees at a discount.
(6) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members in lieu of (a)
nontransferable subscription rights, or (b) an interest in the Liquidation
Account of the Association.
(7) The Association utilizes a reserve for bad debts in accordance
with Section 593 of the Code and, following the Conversion, the Stock
Association shall likewise utilize a reserve for bad debts in accordance with
Section 593 of the Code.
(8) The Holding Company has no plan or intention to sell or otherwise
dispose of the shares of the Stock Association purchased by it in the
Conversion.
(9) The Association's depositors will pay the expenses of the
Conversion solely attributable to them, if any. The Holding Company will pay
the expenses of the transaction and will not pay any expenses solely
attributable to the depositors or to the Holding Company's shareholders.
(10) No Qualifying Deposits as of the Eligibility Record Date or the
Supplemental Eligibility Record Date will be excluded from participation in the
Liquidation Account.
(11) The fair market value of the withdrawable deposit accounts plus
interests in the Liquidation Account of the Stock Association to be
constructively received under the Plan will in each instance be equal to the
fair market value of the withdrawable deposit accounts of the Association
surrendered in exchange therefore. All proprietary rights in the Association
form an integral part of the withdrawable deposit accounts being surrendered in
the exchange.
(12) The Board, as defined in Section 368(a)(3)(D)(iii) of the Code,
has not made the certification described in Section 368(a)(3)(D)(ii), nor will
such certification be made prior to or otherwise in connection with the
Conversion.
<PAGE>
Board of Directors
August 14, 1996
Page 11
STATEMENT OF LAW
In Revenue Ruling 80-105, 1980-1 C.B. 78, the IRS ruled that a
conversion of a federal mutual savings and loan association into a state stock
savings and loan association constituted a tax-free reorganization under Section
368(a)(1)(F) of the Code. Subsequently, the IRS consistently issued private
letter rulings that conversions of savings and loans qualify as tax-free
reorganizations under the code, with the attendant tax consequences to the
depositors and shareholders that follow from such transactions. Although
private letter rulings may not be relied upon by taxpayers other than those to
whom the ruling is directed, such rulings do indicate the administrative
position of the Service.
OPINION OF COUNSEL
Based upon both our understanding of the facts and your
representations set forth above, and in reliance thereon, we are of the opinion
that for federal income tax purposes:
(1) The Conversion of the Association from a mutual savings and loan
association incorporated under the laws of the State of Ohio to a stock and loan
association incorporated under the laws of the State of Ohio constitutes a
reorganization within the meaning of Section 368(a)(1)(F) of the Code, and no
gain or loss will be recognized to the Association or the Stock Association as a
result of the Conversion. The Association and the Stock Association will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code.
(2) No gain or loss will be recognized to the Stock Association upon
the receipt of money from the Holding Company in exchange for shares of the
Stock Association.
(3) The assets of the Stock Association will have the same basis in
its hands immediately after the Conversion as they had in the hands of the
Association immediately prior to the Conversion, and the holding period of the
assets of the Stock Association after the Conversion will include the period
during which the assets were held by the Association before the Conversion.
(4) No gain or loss will be recognized to the deposit account holders
upon the issuance to them, in exchange for their respective withdrawable deposit
accounts in the Association immediately prior to the Conversion, of withdrawable
deposit accounts in the Stock Association immediately after the Conversion, in
the same dollar amount as their withdrawable deposit accounts in the Association
immediately prior to the Conversion, plus, in the case of
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Board of Directors
August 14, 1996
Page 12
Eligible Account Holders and Supplemental Eligible Account Holders, the
interests in the Liquidation Account of the Stock Association, as described
above.
(5) The basis of the withdrawable deposit accounts in the Stock
Association held by its deposit account holders immediately after the Conversion
will be the same as the basis of their deposit accounts in the Association
immediately prior to the Conversion. The basis of the interests in the
Liquidation Account received by the Eligible Account Holders and Supplemental
Eligible Account Holders will be zero. The basis of the nontransferable
subscription rights received by Eligible Account Holders, Supplemental Eligible
Account Holders and Other Eligible Members will be zero (assuming that at
distribution such rights have no ascertainable fair market value).
(6) No gain or loss will be recognized to Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members upon the
distribution to them of nontransferable subscription rights to purchase Common
Shares (assuming that at distribution such rights have no readily ascertainable
fair market value), and no taxable income will be realized by such Eligible
Account Holders, Supplemental Eligible Account Holders and Other Eligible
Members as a result of their exercise of such nontransferable subscription
rights.
(7) The basis of the Common Shares purchased by Eligible Account
Holders, Supplemental Eligible Account Holders and Other Eligible Members
pursuant to the exercise of subscription rights will be the purchase price
thereof (assuming that such rights have no ascertainable fair market value and
that the purchase price is not less than the fair market value of the shares on
the date of such exercise), and the holding period of such Common Shares will
commence on the date of such exercise. The basis of the Common Shares purchased
in the Community Offering will be the purchase price thereof and the holding
period of such shares will commence on the day after the date of the purchase.
(8) For purposes of Section 381 of the Code, the Association will be
treated as if there had been no reorganization. The taxable year of the
Association will not end on the effective date of the Conversion and,
immediately after the Conversion, the Stock Association will succeed to and take
into account the tax attributes of the Association immediately prior to the
Conversion, including the Association's earnings and profits or deficit in
earnings and profits.
(9) The bad debt reserves of the Association immediately prior to the
Conversion will not be required to be restored to the gross income of the Stock
Association as a result of the Conversion, and immediately after the Conversion
such bad debt reserves will have the same character in the hands of the Stock
Association that they would have had if there had been no Conversion. The Stock
Association will succeed to and take into account the dollar amounts of
<PAGE>
Board of Directors
August 14, 1996
Page 13
those accounts of the Association which represent bad debt reserves in respect
of which the Association has taken a bad debt deduction for taxable years ending
on or before the Conversion.
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated earnings
and profits of the Stock Association available for the subsequent distribution
of dividends within the meaning of Section 316 of the Code. The creation of the
Liquidation Account on the records of the Stock Association will have no effect
on its taxable income, deductions for additions to reserves for bad debts under
Section 593 of the Code or distribution to shareholders under Section 593(e) of
the Code.
For Ohio Tax Purposes, we are of the opinion that:
(1) The Association is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status.
(2) The Association is subject to the Ohio corporate franchise tax on
"financial institutions," which is currently imposed annually at a rate of 1.5%
of the Association's equity capital determined in accordance with generally
accepted accounting principles ("GAAP"), and the Conversion will not change such
status.
(3) As a "financial institution," the Association is not subject to
any tax based upon net income or net profit imposed by the State of Ohio, and
the Conversion will not change such status.
(4) The Conversion will not be a taxable transaction to the
Association or the Stock Association for purposes of the Ohio corporate
franchise tax; however, as a consequence of the Conversion, the annual Ohio
corporate franchise tax liability of the Association will increase if the
taxable net worth of the Association (i.e., book net worth computed in
accordance with GAAP at the close of the Association's taxable year for federal
income purposes) increases thereby.
(5) The Conversion will not be a taxable transaction to any deposit
account holder or borrower member of the Association or the Stock Association
for purposes of the Ohio corporate franchise tax and the Ohio personal income
tax.
<PAGE>
Board of Directors
August 14, 1996
Page 14
Unlike private rulings, an opinion of counsel is not binding on the
IRS, and the IRS could disagree with the conclusions reached in this opinion.
In the event of such disagreement, there can be no assurance that the IRS would
not prevail in a judicial proceeding, although counsel believes that the
positions expressed in its opinion should prevail if the matters are
litigated.
Very truly yours,
Vorys, Sater, Seymour and Pease
<PAGE>
MARKET FINANCIAL CORPORATION
1997 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE. The purpose of the Market Financial Corporation 1997 Stock
Option and Incentive Plan (this "Plan") is to promote and advance the interests
of Market Financial Corporation (the "Company") and its shareholders by enabling
the Company to attract, retain and reward directors, managerial and other key
employees of the Company and any Subsidiary (hereinafter defined), and to
strengthen the mutuality of interests between such directors and employees and
the Company's shareholders by providing such persons with a proprietary interest
in pursuing the long-term growth, profitability and financial success of the
Company.
2. DEFINITIONS. For purposes of this Plan, the following terms shall
have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended, or
any successor thereto, together with rules, regulations and interpretations
promulgated thereunder.
(c) "Committee" means the Committee of the Board constituted as
provided in Section 3 of this Plan.
(d) "Common Shares" means the common shares, without par value, of
the Company or any security of the Company issued in substitution, in
exchange or in lieu thereof.
(e) "Company" means Market Financial Corporation, an Ohio
corporation, or any successor corporation.
(f) "Conversion" means the conversion of the Market Building and
Saving Company from a mutual savings association to a stock savings
association incorporated under Ohio law.
(g) "Employment" means regular employment with the Company or a
Subsidiary and does not include service as a director only.
(h) "ERISA" means the Employment Retirement Income Security Act, as
amended, or any successor thereto, together with rules, regulations and
interpretations promulgated thereunder.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
<PAGE>
(j) "Fair Market Value" shall be determined as follows:
(i) If the Common Shares are traded on a national securities
exchange at the time of grant of the Stock Option, then the Fair Market
Value shall be the average of the highest and the lowest selling price
on such exchange on the date such Stock Option is granted or, if there
were no sales on such date, then on the next prior business day on which
there was a sale.
(ii) If the Common Shares are quoted on The Nasdaq Stock Market
at the time of the grant of the Stock Option, then the Fair Market Value
shall be the mean between the closing high bid and low asked quotation
with respect to a Common Share on such date on The Nasdaq Stock Market.
(iii) If the Common Shares are not traded on a national
securities exchange or quoted on The Nasdaq Stock Market, then the Fair
Market Value shall be as determined by the Committee.
(k) "Incentive Stock Option" means any Stock Option granted pursuant
to the provisions of Section 6 of this Plan that is intended to be and is
specifically designated as an "incentive stock option" within the meaning
of Section 422 of the Code.
(l) "Non-Qualified Stock Option" means any Stock Option granted
pursuant to the provisions of Section 6 of this Plan that is not an
Incentive Stock Option.
(m) "OTS" means the Office of Thrift Supervision, Department of the
Treasury.
(n) "Participant" means an employee or director of the Company or a
Subsidiary who is granted an Award under this Plan. Notwithstanding the
foregoing, for the purposes of the granting of any Incentive Stock Option
under this Plan, the term "Participant" shall include only employees of the
Company or a Subsidiary.
(o) "Plan" means the Market Financial Corporation 1997 Stock Option
and Incentive Plan, as set forth herein and as it may be hereafter amended
from time to time.
(p) "Stock Option" means an award to purchase Common Shares granted
pursuant to the provisions of Section 6 of this Plan.
(q) "Subsidiary" means any corporation or entity in which the Company
directly or indirectly controls 50% or more of the total voting power of
all classes of its stock having voting power and includes, without
limitation, The Market Building and Saving Company.
-2-
<PAGE>
(r) "Terminated for Cause" means any removal of a director or
discharge of an employee for the personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of a material provision
of any law, rule or regulation (other than traffic violations or similar
offenses), a material violation of a final cease-and-desist order or any
other action of a director or employee which results in a substantial
financial loss to the Company or a Subsidiary.
3. ADMINISTRATION.
(a) This Plan shall be administered by the Committee to be comprised
of not fewer than three of the members of the Board who are not employees
of the Company. The members of the Committee shall be appointed from time
to time by the Board. Members of the Committee shall serve at the pleasure
of the Board, and the Board may from time to time remove members from, or
add members to, the Committee. A majority of the members of the Committee
shall constitute a quorum for the transaction of business. An action
approved in writing by a majority of the members of the Committee then
serving shall be fully as effective as if the action had been taken by
unanimous vote at a meeting duly called and held.
(b) The Committee is authorized to construe and interpret this Plan
and to make all other determinations necessary or advisable for the
administration of this Plan. The Committee may designate persons other
than members of the Committee to carry out its responsibilities under such
conditions and limitations as it may prescribe. Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration, or application of this Plan shall be final,
conclusive and binding upon all persons participating in this Plan and any
person validly claiming under or through persons participating in this
Plan. The Company shall effect the granting of Stock Options under this
Plan in accordance with the determinations made by the Committee, by
execution of instruments in writing in such form as approved by the
Committee.
4. DURATION OF, AND COMMON SHARES SUBJECT TO, THIS PLAN.
(a) TERM. This Plan shall terminate on the date which is ten (10)
years from the date on which this Plan is adopted by the Board, except with
respect to Stock Options then outstanding. Notwithstanding the foregoing,
no Incentive Stock Option may be granted under this Plan after the date
which is ten (10) years from the date on which this Plan is adopted by the
Board or the date on which this Plan is approved by the shareholders of the
Company, whichever is earlier.
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(b) COMMON SHARES SUBJECT TO PLAN. The maximum number of Common
Shares in respect of which Stock Options may be granted under this Plan,
subject to adjustment as provided in Section 9 of this Plan, shall be ten
percent of the total Common Shares sold in connection with the conversion
of The Market Building and Saving Company from mutual to stock form.
For the purpose of computing the total number of Common Shares available
for Stock Options under this Plan, there shall be counted against the foregoing
limitations the number of Common Shares subject to issuance upon exercise or
settlement of Stock Options as of the dates on which such Stock Options are
granted. If any Stock Options are forfeited, terminated or exchanged for other
Stock Options, or expire unexercised, the Common Shares which were theretofore
subject to such Stock Options shall again be available for Stock Options under
this Plan to the extent of such forfeiture, termination or expiration of such
Stock Options, to the extent permissible under Rule 16b-3 promulgated under the
Exchange Act, or any successor rule or regulation thereto as in effect from time
to time.
Common Shares which may be issued under this Plan may be either authorized
and unissued shares or issued shares which have been reacquired by the Company.
No fractional shares shall be issued under this Plan.
5. ELIGIBILITY AND GRANTS. Persons eligible for Stock Options under this
Plan shall consist of directors and managerial and other key employees of the
Company or a Subsidiary who hold positions with significant responsibilities or
whose performance or potential contribution, in the judgment of the Committee,
will benefit the future success of the Company or a Subsidiary. In selecting
the directors and employees to whom Stock Options will be awarded and the number
of shares subject to such Stock Options, the Committee shall consider the
position, duties and responsibilities of the eligible directors and employees,
the value of their services to the Company and the Subsidiaries and any other
factors the Committee may deem relevant.
6. STOCK OPTIONS. Stock Options granted under this Plan may be in the
form of Incentive Stock Options or Non-Qualified Stock Options, and such Stock
Options shall be subject to the following terms and conditions and in such
form as the Committee may from time to time approve and shall contain such
additional terms and conditions as the Committee shall deem desirable, not
inconsistent with the express provisions of the Plan:
(a) GRANT. Stock Options may be granted under this Plan on terms and
conditions not inconsistent with the provisions of this Plan; provided,
however, that no more than 25% of the shares subject to Stock Options may
be awarded to any individual who is an employee of the Company or a
Subsidiary, no more than 5% of such shares may be awarded to any director
who is not an employee of the Company or a Subsidiary and no more than 30%
of such shares may be awarded to non-employee directors in the aggregate.
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(b) STOCK OPTION PRICE. The option exercise price per Common Share
purchasable under a Stock Option granted to a non-employee director shall
be the Fair Market Value of the Common Shares on the date of grant. The
option exercise price for Common Shares purchasable under a Stock Option
granted to an employee shall be determined by the Committee at the time of
grant; provided, however, that in no event shall the exercise price of a
Stock Option be less than 100% of the Fair Market Value of the Common
Shares on the date of the grant of such Stock Option. Notwithstanding the
foregoing, in the case of a Participant who owns Common Shares representing
more than 10% of the outstanding Common Shares at the time an Incentive
Stock Option is granted, the option exercise price shall in no event be
less than 110% of the Fair Market Value of the Common Shares at the time
the Incentive Stock Option is granted.
(c) STOCK OPTION TERMS. Subject to the right of the Company to
provide for earlier termination in the event of any merger, acquisition or
consolidation involving the Company, the term of each Stock Option shall be
fixed by the Committee; provided, however, that the term of Incentive Stock
Options will not exceed ten years after the date the Incentive Stock Option
is granted; provided further, however, that in the case of a Participant
who owns a number of Common Shares representing more than 10% of the Common
Shares outstanding at the time the Incentive Stock Option is granted, the
term of the Incentive Stock Option shall not exceed five years.
(d) EXERCISABILITY. Except as set forth in Section 6(f) and Section
7 of this Plan, Stock Options awarded under this Plan shall become
exercisable at the rate of one-fifth per year commencing on the date that
is one year after the date of the grant of the Stock Option and shall be
subject to such other terms and conditions as shall be determined by the
Committee at the date of grant.
(e) METHOD OF EXERCISE. A Stock Option may be exercised, in whole or
in part, by giving written notice of exercise to the Company specifying the
number of Common Shares to be purchased. Such notice shall be accompanied
by payment in full of the purchase price in cash or, if acceptable to the
Committee in its sole discretion, in Common Shares already owned by the
Participant, or by surrendering outstanding Stock Options. The Committee
may also permit Participants, either on a selective or aggregate basis, to
simultaneously exercise Options and sell Common Shares thereby acquired,
pursuant to a brokerage or similar arrangement, approved in advance by the
Committee, and use the proceeds from such sale as payment of the purchase
price of such shares.
(f) SPECIAL RULE FOR INCENTIVE STOCK OPTIONS. With respect to
Incentive Stock Options granted under this Plan, to the extent the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the number of shares with respect to which Incentive
Stock Options are exercisable under all plans of the Company or a
Subsidiary for the first time by a Participant during any calendar year
exceeds $100,000, or such other limit as may be required by the Code, such
Stock Options shall be Non-Qualified Stock Options to the extent of such
excess.
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7. TERMINATION OF EMPLOYMENT OR DIRECTORSHIP.
(a) Except in the event of the death or disability of a Participant,
upon the resignation, removal or retirement from the board of directors of
any Participant who is a director of the Company or a Subsidiary or upon
the termination of Employment of a Participant who is not a director of the
Company or a Subsidiary, any Stock Option which has not yet become
exercisable shall thereupon terminate and be of no further force or effect,
and, subject to extension by the Committee, any Stock Option which has
become exercisable shall terminate if it is not exercised within 12 months
of such resignation, removal or retirement.
(b) Unless the Committee shall specifically state otherwise at the
time an Option is granted, all Options granted under this Plan shall become
exercisable in full on the date of termination of a Participant's
employment or directorship with the Company or a Subsidiary because of his
death or disability, and, subject to extension by the Committee, all
Options shall terminate if not exercised within 12 months of the
Participant's death or disability.
(c) In the event the Employment or the directorship of a Participant
is Terminated for Cause (hereinafter defined), any Option which has not
been exercised shall terminate as of the date of such termination for
cause.
8. NON-TRANSFERABILITY OF STOCK OPTIONS. No Stock Option under this
Plan, and no rights or interests therein, shall be assignable or transferable by
a Participant except by will or the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined by the Code or Title I of
ERISA. During the lifetime of a Participant, Stock Options are exercisable only
by, and payments in settlement of Stock Options will be payable only to, the
Participant or his or her legal representative.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) The existence of this Plan and the Stock Options granted
hereunder shall not affect or restrict in any way the right or power of the
Board or the shareholders of the Company to make or authorize the
following: any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business; any merger, acquisition
or consolidation of the Company; any issuance of bonds, debentures,
preferred or prior preference stocks ahead of or affecting the Company's
capital stock or the rights thereof; the dissolution or liquidation of the
Company or any sale or transfer of all or any part of its assets or
business; or any other corporate act or proceeding, including any merger or
acquisition which would result in the exchange of cash, stock of another
company or options to purchase the stock of another company for any Stock
Option outstanding at the time of such corporate transaction or which would
involve the termination of all Stock Options outstanding at the time of
such corporate transaction.
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(b) In the event of any change in capitalization affecting the Common
Shares of the Company, such as a stock dividend, stock split,
recapitalization, merger, consolidation, spin-off, split-up, combination or
exchange of shares or other form of reorganization, or any other change
affecting the Common Shares, such proportionate adjustments, if any, as the
Board in its discretion may deem appropriate to reflect such change shall
be made with respect to the aggregate number of Common Shares for which
Stock Options in respect thereof may be granted under this Plan, the
maximum number of Common Shares which may be sold or awarded to any
Participant, the number of Common Shares covered by each outstanding Stock
Option, and the exercise price per share in respect of outstanding Stock
Options.
10. AMENDMENT AND TERMINATION OF THIS PLAN. Without further approval of
the shareholders, the Board may at any time terminate this Plan, or may amend it
from time to time in such respects as the Board may deem advisable, except that
the Board may not, without approval of the shareholders, make any amendment
which would (a) increase the aggregate number of Common Shares which may be
issued under this Plan (except for adjustments pursuant to Section 9 of this
Plan), (b) materially modify the requirements as to eligibility for
participation in this Plan, or (c) materially increase the benefits accruing to
Participants under this Plan. The above notwithstanding, the Board may amend
this Plan to take into account changes in applicable securities, federal income
tax and other applicable laws.
11. MODIFICATION OF OPTIONS. The Board may authorize the Committee to
direct the execution of an instrument providing for the modification of any
outstanding Stock Option which the Board believes to be in the best interests
of the Company; provided, however, that no such modification, extension or
renewal shall confer on the holder of such Stock Option any right or benefit
which could not be conferred on him by the grant of a new Stock Option at
such time and shall not materially decrease the Participant's benefits under
the Stock Option without the consent of the holder of the Stock Option,
except as otherwise permitted under this Plan.
12. MISCELLANEOUS.
(a) TAX WITHHOLDING. The Company shall have the right to deduct from
any settlement, including the delivery or vesting of Common Shares, made
under this Plan any federal, state or local taxes of any kind required by
law to be withheld with respect to such payments or to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligation for the payment of such taxes. If Common Shares are used to
satisfy tax withholding, such shares shall be valued based on the Fair
Market Value when the tax withholding is required to be made.
(b) NO RIGHT TO EMPLOYMENT. Neither the adoption of this Plan nor
the granting of any Stock Option shall confer upon any employee of the
Company or a Subsidiary any right to continued Employment with the Company
or a Subsidiary, as the case may be, nor shall it interfere in any way with
the right of the Company or a Subsidiary to terminate the Employment of any
of its employees at any time, with or without cause.
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(c) ANNULMENT OF STOCK OPTIONS. The grant of any Stock Option under
this Plan payable in cash is provisional until cash is paid in settlement
thereof. The grant of any Stock Option payable in Common Shares is
provisional until the Participant becomes entitled to the certificate in
settlement thereof. In the event the Employment or the directorship of a
Participant is Terminated for Cause, any Stock Option which is provisional
shall be annulled as of the date of such termination.
(d) OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Payments and
other benefits received by a Participant under a Stock Option made pursuant
to this Plan shall not be deemed a part of a Participant's regular,
recurring compensation for purposes of the termination indemnity or
severance pay law of any country and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit
plan or similar arrangement provided by the Company or a Subsidiary unless
expressly so provided by such other plan or arrangement, or except where
the Committee expressly determines that a Stock Option or portion of a
Stock Option should be included to accurately reflect competitive
compensation practices or to recognize that a Stock Option has been made in
lieu of a portion of competitive annual cash compensation. Stock Options
under this Plan may be made in combination with or in tandem with, or as
alternatives to, grants, stock options or payments under any other plans of
the Company or a Subsidiary. This Plan notwithstanding, the Company or any
Subsidiary may adopt such other compensation programs and additional
compensation arrangements as it deems necessary to attract, retain and
reward directors and employees for their service with the Company and its
Subsidiaries.
(e) SECURITIES LAW RESTRICTIONS. No Common Shares shall be issued
under this Plan unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal and state securities
laws. Certificates for Common Shares delivered under this Plan may be
subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Shares are then listed, and any applicable federal or
state securities law. The Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions.
(f) STOCK OPTION AGREEMENT. Each Participant receiving a Stock
Option under this Plan shall enter into an agreement with the Company in a
form specified by the Committee agreeing to the terms and conditions of the
Stock Option and such related matters as the Committee shall, in its sole
discretion, determine.
(g) COST OF PLAN. The costs and expenses of administering this Plan
shall be borne by the Company.
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(h) GOVERNING LAW. This Plan and all actions taken hereunder shall
be governed by and construed in accordance with the laws of the State of
Ohio, except to the extent that federal law shall be deemed applicable.
(i) EFFECTIVE DATE. This Plan shall be effective upon the later of
adoption by the Board and approval by the Company's shareholders. This
Plan shall be submitted to the shareholders of the Company for approval at
an annual or special meeting of shareholders to be held no sooner than six
months after the effective date of the Conversion.
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MARKET FINANCIAL CORPORATION
RECOGNITION AND RETENTION PLAN
AND TRUST AGREEMENT
ARTICLE I
DEFINITIONS
The following words and phrases when used in this Agreement with an
initial capital letter shall have the meanings set forth below, unless the
context clearly indicates otherwise. Wherever appropriate, the masculine
pronoun shall include the feminine pronoun and the singular shall include the
plural:
1.01 "Agreement" means the Market Financial Corporation Recognition
and Retention Plan and Trust Agreement.
1.02 "Association" means The Market Building and Saving Company, a
savings and loan association incorporated under the laws of the State of Ohio.
1.03 "Award" means a right granted to a Director or an Employee under
this Plan to receive Plan Shares.
1.04 "Beneficiary" means the person or persons designated by a
Recipient to receive any benefits payable under this Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time
to time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's estate.
1.05 "Board" means the Board of Directors of the Corporation.
1.06 "Committee" means the Recognition and Retention Plan Committee
appointed by the Board pursuant to Article IV hereof.
1.07 "Common Shares" means common shares of the Corporation.
1.08 "Conversion" means the conversion of the Association from mutual
to stock form.
1.09 "Corporation" means Market Financial Corporation, a savings and
loan holding company incorporated under the laws of the State of Ohio for the
purpose of holding all of the common shares of the Association issued in
connection with the Conversion, or any successor thereto.
1.10 "Director" means any person who is a member of the Board of
Directors of the Corporation, the Association or a Subsidiary.
<PAGE>
1.11 "Employee" means any person who is employed by the Corporation,
the Association or a Subsidiary.
1.12 "Person" means an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
1.13 "Plan" means the Recognition and Retention Plan established by
this Agreement.
1.14 "Plan Shares" means the Common Shares held pursuant to the Trust
and which are awarded or issuable to a Recipient pursuant to the Plan.
1.15 "Plan Share Reserve" means the Common Shares held by the Trustee
pursuant to Sections 5.02 and 5.03 of this Agreement.
1.16 "Recipient" means any Director or Employee who receives an Award
under the Plan.
1.17 "Subsidiaries" means subsidiaries of the Corporation or the
Association which, with the consent of the Board, agree to participate in the
Plan.
1.18 "Trust" means the trust established by this Agreement.
1.19 "Trustee(s)" means the person(s) or entity approved by the Board
pursuant to Sections 4.01 and 4.02 to hold legal title to the Plan assets for
the purposes set forth herein.
ARTICLE II
ESTABLISHMENT OF THE PLAN AND TRUST
2.01 The Corporation hereby establishes a Recognition and Retention
Plan and Trust upon the terms and subject to the conditions set forth in this
Agreement.
2.02 The Trustee hereby accepts the Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions of this Agreement.
ARTICLE III
PURPOSE OF THE PLAN
3.01 The purpose of the Plan is to reward and retain the Directors and
Employees of the Corporation, the Association and the Subsidiaries who are in
key positions of responsibility by providing such Directors and Employees with
an equity interest in the Corporation as reasonable compensation for their
contributions to the Corporation, the Association and the Subsidiaries.
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ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee, which shall consist of not less than three
members of the Board who are not employees of the Corporation or the
Association. The Committee shall have all of the powers set forth in this Plan.
The interpretation and construction by the Committee of any provisions of this
Agreement or of any Award granted hereunder shall be final, conclusive and
binding. The Committee shall act by the vote, or the written consent, of a
majority of its members. The Committee shall report actions and decisions with
respect to the Plan to the Board upon request by the Board.
4.02 ROLE OF THE BOARD. The members of the Committee and the Trustee
(s) shall be appointed or approved by and will serve at the pleasure of the
Board. The Board may in its discretion from time to time remove members from or
add members to the Committee and may remove, replace or add Trustee(s).
4.03 LIMITATION ON LIABILITY. No member of the Board or the
Committee, nor any Trustee, shall be liable for any determination made in good
faith with respect to the Plan or any Plan Shares or Awards granted under the
Plan. If a member of the Board or of the Committee or any Trustee is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by such member in such
capacity under or with respect to this Plan, the Corporation shall indemnify
such member against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such member in
connection with such action, suit or proceeding if such member acted in good
faith and in a manner such member reasonably believed to be in or not opposed
to the best interests of the Corporation, the Association and the Subsidiaries
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe such member's conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine
the amounts (or the method of computing the amounts) to be contributed by the
Corporation to the Trust. Such amounts shall be paid to the Trustee at the time
of contribution. No contributions to the Trust by Directors or Employees shall
be permitted.
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5.02 INVESTMENT OF TRUST ASSETS. Except as otherwise permitted by
Section 8.02 of this Agreement, the Trustee shall invest all of the Trust's
assets, after providing for any required withholding as needed for tax purposes,
exclusively in Common Shares; provided, however, that the Trust shall not
purchase a number of Common Shares equal to more than 3% of the number of Common
Shares issued in connection with the Conversion, except that if the
Association's tangible capital exceeds 10%, the Trust may purchase a number of
Common Shares equal to up to 4% of the Common Shares issued in connection with
the Conversion. After such investment, the Common Shares shall be held by the
Trustee in the Plan Share Reserve until such Common Shares are subject to one or
more Awards. Any funds held by the Trust before purchasing Common Shares shall
be invested by the Trustee in such interest-bearing account or accounts at the
Association as the Trustee shall determine to be appropriate.
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE
RESERVES. Upon the allocation of Awards under Section 6.02 of this Agreement,
or the decision of the Committee to return Plan Shares to the Corporation, the
Plan Share Reserve shall be reduced by the number of Plan Shares so allocated or
returned. Any Plan Shares subject to an Award which is subject to forfeiture by
the Recipient pursuant to Section 7.01 of this Agreement shall be retained in
the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Directors and Employees are eligible to receive
Awards within the sole discretion of the Committee.
6.02 ALLOCATIONS. The Committee will determine which of the
Directors and Employees will be granted Awards and the number of Plan Shares
covered by each Award; provided, however, that (a) the aggregate number of Plan
Shares covered by Awards to any one Employee shall not exceed 25% of the total
number of Plan Shares, (b) no more than 5% of the Plan Shares shall be awarded
to any Director who is not an Employee, and (c) no more than 30% of the Plan
Shares shall be awarded in the aggregate to Directors who are not Employees.
No Award shall be granted if such grant would result in a violation or
possible violation of federal or state securities laws. In the event Plan
Shares are forfeited for any reason or additional Plan Shares are purchased by
the Trustee, the Committee may, from time to time, determine which of the
Officers and Employees will be granted additional Awards to be awarded from
forfeited or additional Plan Shares.
In selecting the Directors and the Employees to whom Awards will be
granted and the number of shares covered by such Awards, the Committee shall
consider the position, duties and responsibilities of the eligible Directors
and Employees, the value of their services to the Corporation, the Association
and the Subsidiaries and any other factors the Committee may deem relevant.
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6.03 FORM OF ALLOCATION. As promptly as practicable after a
determination is made pursuant to Section 6.02 of this Agreement that an Award
is to be made, the Committee shall notify the Recipient in writing of the grant
of the Award, the number of Plan Shares covered by the Award and the terms upon
which the Plan Shares subject to the Award may be earned. The date on which the
Committee determines that an Award is to be made or a later date designated by
the Committee shall be considered the date of grant of the Awards. The
Committee shall maintain records as to all grants of Awards under the Plan.
6.04 ALLOCATIONS NOT REQUIRED. None of the Directors or Employees,
either individually or as a group, shall have any right or entitlement to
receive an Award under the Plan. The Committee may, with the approval of the
Board, and shall, if so directed by the Board, return all Common Shares and
other assets in the Plan Share Reserve to the Corporation at any time and
thereafter cease issuing Awards.
6.05 SHAREHOLDER APPROVAL. This Agreement shall be submitted to the
shareholders of the Corporation at an annual or special meeting to be held no
sooner than six months after the effective date of the Conversion.
Notwithstanding anything to the contrary in this Agreement, no Awards shall be
granted hereunder until the shareholders of the Corporation approve this
Agreement.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Unless the Committee shall specifically
state a longer period of time over which Awards shall be earned and non-
forfeitable at the time an Award is granted, Plan Shares shall be earned and
non-forfeitable by a Recipient over a period of five years at the rate of one-
fifth per year commencing on the date which is one year after the date of the
grant of such Award. As Plan Shares become earned and non-forfeitable, any cash
dividends, returned capital and earnings thereon shall also be earned and non-
forfeitable.
(b) REVOCATION. Unless otherwise permitted by applicable laws
and regulations, any Plan Shares and any cash dividends, returned capital and
earnings thereon that have not been earned and are not non-forfeitable in
accordance with Section 7.01(a) of this Agreement shall be forfeited in the
event that (i) a Recipient who is a Director ceases to serve on the Board of
Directors of both the Corporation and the Association or (ii) a Recipient who is
not a Director of the Corporation or the Association ceases to be an Employee of
the Corporation or the Association, except as otherwise provided in subsection
(c) of this Section 7.01.
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(c) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY. All
Plan Shares and cash dividends, returned capital and earnings thereon subject to
an Award held by a Recipient whose service as a Director or Employee of the
Corporation, the Association or a Subsidiary terminates due to (i) death or (ii)
disability (as determined by the Committee) shall be deemed fully earned and
non-forfeitable as of the later of the Recipient's last day of service as a
Director or as an Employee and shall be distributed as soon as practicable
thereafter.
7.02 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as otherwise
provided in this Agreement, Plan Shares shall be distributed to the Recipient or
his Beneficiary, as the case may be, as soon as practicable after they have been
earned, together with any cash dividends, returned capital and earnings thereon
with respect to Plan Shares that have been earned.
(b) FORM OF DISTRIBUTION. All distributions of Plan Shares,
together with any shares representing stock dividends, shall be distributed in
the form of Common Shares. No fractional shares shall be distributed. Payments
representing cash dividends, returned capital and earnings thereon shall be made
in cash.
(c) WITHHOLDING. The Trustee may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes and, if the amount of such cash payment is not sufficient, the
Trustee may require the Recipient or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares.
The Trustee shall pay over to the Corporation, the Association or the Subsidiary
which employs or employed such Recipient or which the Recipient serves or served
as a Director, any such amount withheld from or paid by the Recipient or
Beneficiary.
(d) REGULATORY EXCEPTIONS. Notwithstanding anything to the
contrary in this Agreement, no Plan Shares, upon becoming fully earned and non-
forfeitable, shall be distributed unless and until all of the requirements of
all applicable laws and regulations shall have been met.
7.03 VOTING OF PLAN SHARES. All Common Shares held by the Trustee in
the Plan Share Reserve which have not yet been earned by a Recipient pursuant to
Section 7.01 of this Agreement shall be voted by the Trustee. A Recipient shall
be entitled to direct the voting of Plan Shares which have been earned pursuant
to Section 7.01 of this Agreement but have not yet been distributed to him.
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ARTICLE VIII
TRUST
8.01 TRUST. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and the Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
this Agreement.
8.02 MANAGEMENT OF TRUST. The Trustee shall have complete authority
and discretion with respect to the management, control and investment of the
Trust, and the Trustee shall invest all assets of the Trust, except those
attributable to cash dividends paid with respect to Plan Shares not held in the
Plan Share Reserve, in Common Shares to the fullest extent practicable, and
except to the extent that the Trustee determines that the holding of monies in
cash or cash equivalents is necessary to meet the obligations of the Trust. The
Trustee shall have the power to do all things and execute such instruments as
may be deemed necessary or proper, including the following powers:
(a) To invest up to 100% of all Trust assets in Common Shares
without regard to any law now or hereafter in force limiting
investments for Trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust,
and, in making such investment, the Trustee is authorized to purchase
Common Shares from the Corporation or from any other source. Such
Common Shares so purchased may be outstanding, newly issued or
treasury shares;
(b) To invest any Trust assets not otherwise invested in
accordance with Section 8.02(a) of this Agreement in such deposit
accounts and certificates of deposit (including those issued by the
Association), obligations of the United States government or its
agencies or such other investments as shall be considered the
equivalent of cash;
(c) To sell, exchange or otherwise dispose of any property at
any time held or acquired by the Trust;
(d) To cause stocks, bonds or other securities to be registered
in the name of a nominee, without the addition of words indicating
that such security is an asset of the Trust (but accurate records
shall be maintained showing that such security is an asset of the
Trust);
(e) To hold cash without interest in such amounts as may be
reasonable, in the opinion of the Trustee, for the proper operation of
the Plan and the Trust;
(f) To employ brokers, agents, custodians, consultants and
accountants;
(g) To hire counsel to render advice with respect to the
Trustee's rights, duties and obligations hereunder, and such other
legal services or representation as the Trustee may deem desirable;
and
-7-
<PAGE>
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account
or held in common with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustee shall not
be required to make any inventory, appraisal or settlement or report to any
court, or to secure any order of court for the exercise of any power herein
contained, or to give bond.
8.03 RECORDS AND ACCOUNTS. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 EARNINGS. All earnings, gains and losses with respect to Trust
assets shall be allocated, in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Recipients or to the general account
of the Trust, depending on the nature and allocation of the assets generating
such earnings, gains and losses. Without limiting the generality of the
foregoing, any earnings on cash dividends or returned capital received with
respect to Common Shares shall be allocated (a) to accounts for Recipients, if
such shares are the subject of outstanding Awards, and shall become earned and
be distributed as specified in Article VII of this Agreement, or (b) otherwise
to the Plan Share Reserve if such Plan Shares are not the subject of outstanding
awards.
8.05 EXPENSES. All costs and expenses incurred in the operation and
administration of the Plan shall be paid by the Association.
ARTICLE IX
MISCELLANEOUS
9.01 ADJUSTMENTS FOR CAPITAL CHANGES. The aggregate number of Plan
Shares available for issuance pursuant to the Awards and the number of Plan
Shares to which any Award relates shall be proportionately adjusted for any
increase or decrease in the total number of outstanding Common Shares issued
subsequent to the effective date of the Plan if such increase or decrease
resulted from any split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Corporation.
9.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution,
at any time amend or terminate the Plan. The power to amend or terminate the
Plan shall include the power to direct the Trustee to return to the Corporation
all or any part of the assets of the Trust, including Common Shares held in the
Plan Share Reserve, as well as Common Shares and other assets subject to Awards
which have not yet been earned by the Directors or Employees to whom they are
allocated; provided, however, that the termination of the Trust shall not affect
a
-8-
<PAGE>
Recipient's right to earn Awards and to the distribution of Common Shares
relating thereto, including earnings thereon, in accordance with the terms of
this Agreement and the grant by the Committee or the Board.
9.03 NONTRANSFERABLE. Awards shall not be transferable by a
Recipient. During the lifetime of the Recipient, an Award may only be earned by
and paid to the Recipient who was notified in writing of the Award by the
Committee pursuant to Section 6.03 of this Agreement. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or the
Trust, nor shall the Corporation, the Association or any Subsidiary be subject
to any claim for benefits hereunder.
9.04 DIRECTORSHIP RIGHTS. Neither this Agreement nor any grant of an
Award hereunder nor any action taken by the Trustee, the Committee or the Board
in connection with the Plan shall create any right, either express or implied,
on the part of any Director to continue to serve as a Director of the
Association or a Subsidiary.
9.05 EMPLOYMENT RIGHTS. Neither this Agreement nor any grant of an
Award hereunder nor any action taken by the Trustee, the Committee or the Board
in connection with the Plan shall create any right, either express or implied,
on the part of any Employee to continue in the employ of the Corporation, the
Association or a Subsidiary.
9.06 VOTING AND DIVIDEND RIGHTS. No Recipient shall have any voting
or dividend rights or other rights of a shareholder in respect of any Plan
Shares covered by an Award, except as expressly provided in Sections 7.01, 7.02
and 7.03 of this Agreement, prior to the time such Plan Shares are actually
distributed to such Recipient.
9.07 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Ohio, except to the extent that federal law shall
be deemed applicable.
9.08 EFFECTIVE DATE. Subject to Section 6.05 of this Agreement, this
Agreement shall be effective as of the ___ day of ____________, 1997.
9.09 TERM OF PLAN. The Plan shall remain in effect until the earlier
of (a) the termination of the Plan by the Board or (b) the distribution of all
assets from the Trust. The termination of the Plan shall not affect any Awards
previously granted and such Awards shall remain valid and in effect until they
have been earned and paid or by their terms expire or are forfeited.
9.10 TAX STATUS OF TRUST. It is intended that the trust established
hereby be treated as a grantor trust of the Association under the provisions of
Section 671, ET SEQ., of the Internal Revenue Code of 1986, as amended (26
U.S.C. Section 671 ET SEQ.).
-8-
<PAGE>
IN WITNESS WHEREOF, the following Trustees execute this Agreement,
accepting and binding themselves to undertake and perform the obligations and
duties of the Trustee hereunder and consenting to the foregoing Agreement
effective the ___ day of ____________, 1997.
By: ___________________________ (Trustee)
By: ___________________________ (Trustee)
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer and duly attested, all as of the ___ day
of ____________, 1997.
MARKET FINANCIAL CORPORATION
By: ___________________________
John T. Larimer
its President
ATTEST:
_______________________
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereinafter referred to as this "AGREEMENT"), is
entered into this __th of ________, 1996, by and among The Market Building and
Saving Company, a savings and loan association incorporated under Ohio law
(hereinafter referred to as the "Association"), Market Financial Corporation, a
savings and loan holding company incorporated under Ohio law (hereinafter
referred to as "MFC") and John T. Larimer, an individual (hereinafter referred
to as the "EMPLOYEE");
WITNESSETH:
WHEREAS, the EMPLOYEE is currently employed as the President of the
Association and MFC (hereinafter collectively referred to as "EMPLOYERS");
WHEREAS, as a result of the skill, knowledge and experience of the
EMPLOYEE, the Boards of Directors of the EMPLOYERS desire to retain the services
of the EMPLOYEE as the President of each of the EMPLOYERS;
WHEREAS, the EMPLOYEE desires to continue to serve as the President of each
of the EMPLOYERS; and
WHEREAS, the EMPLOYEE and the EMPLOYERS desire to enter into this AGREEMENT
to set forth the terms and conditions of the employment relationship between the
EMPLOYERS and the EMPLOYEE.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the EMPLOYERS and the EMPLOYEE hereby agree as follows:
1. EMPLOYMENT AND TERM. Upon the terms and subject to the conditions of this
AGREEMENT, the EMPLOYERS hereby employ the EMPLOYEE, and the EMPLOYEE hereby
accepts employment, as the President of each of the EMPLOYERS. The term of this
AGREEMENT shall commence on _____________, 1996, and shall end on ____________,
1999 (hereinafter referred to as the "TERM"). In January of each year, the
Boards of Directors of the EMPLOYERS shall review the EMPLOYEE's performance and
record the results of such review in the minutes of the Boards of Directors.
2. DUTIES OF EMPLOYEE.
(a) GENERAL DUTIES AND RESPONSIBILITIES. As President of each of the
EMPLOYERS, the EMPLOYEE shall perform the duties and responsibilities customary
for such offices to the best of his ability and in accordance with the policies
established by the Boards of Directors of the EMPLOYERS and all applicable laws
and regulations. The EMPLOYEE shall perform such other duties not inconsistent
with his positions as may be assigned to him from time to time by the Boards of
Directors of the EMPLOYERS, provided, however, that the EMPLOYERS shall
<PAGE>
employ the EMPLOYEE during the TERM in a senior executive capacity without
material diminishment of the importance or prestige of his position.
(b) DEVOTION OF ENTIRE TIME TO THE BUSINESS OF THE EMPLOYER. The EMPLOYEE
shall devote his entire productive time, ability and attention during normal
business hours throughout the TERM to the faithful performance of his duties
under this AGREEMENT. The EMPLOYEE shall not directly or indirectly render any
services of a business, commercial or professional nature to any person or
organization other than the EMPLOYERS without the prior written consent of the
Boards of Directors of the EMPLOYERS.
3. COMPENSATION, BENEFITS AND REIMBURSEMENTS.
(a) SALARY. The EMPLOYEE shall receive during the TERM an annual salary
payable in equal installments not less often than monthly. The amount of such
annual salary shall be $________ until changed by the Boards of Directors of the
EMPLOYERS in accordance with Section 3(b) of this AGREEMENT.
(b) ANNUAL SALARY REVIEW. In January of each year throughout the TERM,
the annual salary of the EMPLOYEE shall be reviewed by the Boards of Directors
of the EMPLOYERS and shall be set at an amount not less than $_____________,
based upon the EMPLOYEE's individual performance and the overall profitability
and financial condition of the EMPLOYERS (hereinafter referred to as the "ANNUAL
REVIEW"). The results of the ANNUAL REVIEW shall be reflected in the minutes of
the Boards of Directors of the EMPLOYERS.
(c) EMPLOYEE BENEFIT PROGRAM. During the TERM, the EMPLOYEE shall be
entitled to participate in all formally established employee benefit, bonus,
pension and profit-sharing plans and similar programs that are maintained by the
EMPLOYER from time to time, and all employee benefit plans or programs hereafter
adopted in writing by the Boards of Directors of the EMPLOYERS, for which senior
management personnel are eligible (hereinafter collectively referred to as the
"BENEFIT PLANS"). Notwithstanding the foregoing sentence, the EMPLOYERS may
discontinue or terminate at any time any such BENEFIT PLANS, now existing or
hereafter adopted, to the extent permitted by the terms of such plans and shall
not be required to compensate the EMPLOYEE for such discontinuance or
termination.
(d) VACATION AND SICK LEAVE. The EMPLOYEE shall be entitled, without loss
of pay, to be absent voluntarily from the performance of his duties under this
AGREEMENT, in accordance with the policies periodically established by the
Boards of Directors of the EMPLOYERS for senior management officials of the
EMPLOYERS. The EMPLOYEE shall not be entitled to receive any additional
compensation from the EMPLOYERS in the event of his failure to take the full
allotment of vacation time in any calendar year. In the event that any sick
leave time shall not have been used during any calendar year, such leave shall
accrue to subsequent calendar years, only to the extent authorized by the Boards
of Directors of the EMPLOYERS. Upon termination of employment, the EMPLOYEE
shall not be entitled to receive any additional compensation from the EMPLOYERS
for unused sick leave.
2
<PAGE>
4. TERMINATION OF EMPLOYMENT.
(a) DEATH OF THE EMPLOYEE. The TERM automatically terminates upon the
death of the EMPLOYEE. In the event of such death, the EMPLOYEE's estate shall
be entitled to receive the compensation due the EMPLOYEE through the last day of
the calendar month in which the death occurred, except as otherwise specified
herein.
(b) TERMINATION BY THE EMPLOYER FOR JUST CAUSE. The EMPLOYERS may
terminate the employment of the EMPLOYEE during the TERM due to the EMPLOYEE's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure or refusal to perform the duties
and responsibilities assigned in this AGREEMENT, willful violation of any law,
rule, regulation or final cease-and-desist order (other than traffic violations
or similar offenses), conviction of a felony or for fraud or embezzlement, or
material breach of any provision of this AGREEMENT (hereinafter collectively
referred to as "JUST CAUSE"). If the EMPLOYER terminates the employment of the
EMPLOYEE due to JUST CAUSE, the EMPLOYEE shall not receive, and shall have no
right to receive, any compensation or other benefits for any period after such
termination.
(c) TERMINATION BY THE EMPLOYER OTHER THAN FOR JUST CAUSE. In addition to
the termination of the employment of the EMPLOYEE upon the expiration of the
TERM or for JUST CAUSE, the employment of the EMPLOYEE shall terminate at any
other time during the TERM upon the delivery by the EMPLOYERS of written notice
of termination to the EMPLOYEE, in accordance with the following provisions of
this Section 4(c):
(i) TERMINATION AFTER CHANGE OF CONTROL. In the event that, before
the expiration of the TERM and in connection with or within one year after
a CHANGE OF CONTROL (as hereinafter defined) of either one of the
EMPLOYERS, the employment of the EMPLOYEE is terminated by either of the
EMPLOYER for any reason other than JUST CAUSE before the expiration of the
TERM, the EMPLOYEE shall be entitled to receive the compensation specified
in Section 4(e).
(ii) TERMINATION WITHOUT A CHANGE OF CONTROL. In the event that the
employment of the EMPLOYEE is terminated before the expiration of the TERM
other than for JUST CAUSE or in connection with or within one year after a
CHANGE OF CONTROL, the EMPLOYERS shall be obligated to continue (A) to pay
on a monthly basis to the EMPLOYEE, his designated beneficiaries or his
estate, his annual salary provided pursuant to Section 3(a) or (b) of this
AGREEMENT until the expiration of the TERM and (B) to provide to the
EMPLOYEE, at the EMPLOYERS' expense, health, life, disability, and other
benefits substantially equal to those being provided to the EMPLOYEE at the
date of termination of his employment until the earliest to occur of the
expiration of the TERM or the date the EMPLOYEE becomes employed full-time
by another employer.
3
<PAGE>
(d) TERMINATION BY THE EMPLOYEE IN CONNECTION WITH CONSTRUCTIVE
TERMINATION. In the event that, in connection with or within one year after a
CHANGE OF CONTROL of either of the EMPLOYERS, the present capacity or
circumstances in which the EMPLOYEE is employed are materially changed before
the expiration of the TERM or the EMPLOYEE's responsibilities, authority,
compensation or other benefits provided under this AGREEMENT are materially
reduced, the EMPLOYEE may terminate his employment upon the delivery by the
EMPLOYEE of written notice of termination to the EMPLOYERS. If the EMPLOYEE
elects to terminate his employment pursuant to this Section 4(d), he shall be
entitled to receive the compensation specified in Section 4(e).
(e) COMPENSATION IN CONNECTION WITH TERMINATION PURSUANT TO SECTION 4(c)
OR 4(d). If the employment of the EMPLOYEE is terminated pursuant to Section
4(c)(i) or 4(d) of this AGREEMENT, the following shall occur:
(i) The EMPLOYERS shall promptly pay to the EMPLOYEE an amount equal
to the product of three, multiplied by the greater of the annual salary set
forth in Section 3(a) of this AGREEMENT or the annual salary payable to the
EMPLOYEE as a result of any ANNUAL REVIEW; and
(ii) The EMPLOYEE and his spouse and dependents shall continue to be
covered under all BENEFIT PLANS of the EMPLOYERS at the EMPLOYERS' expense
as if the EMPLOYEE were still employed under this AGREEMENT until the
earliest of the expiration of the TERM or the date on which the EMPLOYEE is
included in another employer's benefit plans as a full-time employee.
The EMPLOYEE shall not be required to mitigate the amount of any payment
provided for in this AGREEMENT by seeking other employment or otherwise, nor
shall any amounts received from other employment or otherwise by the EMPLOYEE
offset in any manner the obligations of the EMPLOYERS hereunder, except as
specifically stated in subparagraph (ii).
(f) "GOLDEN PARACHUTE" PROVISION. In the event that any payments pursuant
to this Section 4 would result in the imposition of a penalty tax pursuant to
Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder (hereinafter collectively referred to as
"SECTION 280G"), such payments shall be reduced to the maximum amount which may
be paid under SECTION 280G without exceeding such limits. Any payments made to
the EMPLOYEE pursuant to this AGREEMENT or otherwise are also subject to and
conditioned upon their compliance with 12 U.S.C. Section 1828(k) and any
regulations promulgated thereunder.
4
<PAGE>
(g) DEFINITION OF "CHANGE OF CONTROL". A "CHANGE OF CONTROL" shall be
deemed to have occurred in the event that, at any time during the TERM, either
any person or entity obtains "conclusive control" of the EMPLOYERS within the
meaning of 12 C.F.R. Section 574.4(a), or any person or entity obtains
"rebuttable control" within the meaning of 12 C.F.R. Section 574.4(b) and has
not rebuttable control in accordance with 12 C.F.R. Section 574.4(c).
5. SPECIAL REGULATORY EVENTS. Notwithstanding Section 4 of this AGREEMENT,
the obligations of the EMPLOYERS to the EMPLOYEE shall be as follows in the
event of the following circumstances:
(a) If the EMPLOYEE is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act
(hereinafter referred to as the "FDIA"), the EMPLOYERS' obligations under this
AGREEMENT shall be suspended as of the date of service of such notice, unless
stayed by appropriate proceedings. If the charges in the notice are dismissed,
the EMPLOYERS may, in their discretion, pay the EMPLOYEE all or part of the
compensation withheld while the obligations in this AGREEMENT were suspended and
reinstate, in whole or in part, any of the obligations that were suspended;
(b) If the EMPLOYEE is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA, all obligations of the EMPLOYERS
under this AGREEMENT shall terminate as of the effective date of such order;
provided, however, that vested rights of the EMPLOYEE shall not be affected by
such termination;
(c) If the Association is in default, as defined in section 3(x)(1) of the
FDIA, all obligations under this AGREEMENT shall terminate as of the date of
default; provided, however, that vested rights of the EMPLOYEE shall not be
affected; and
(d) All obligations under this AGREEMENT shall be terminated, except to
the extent of a determination that the continuation of this AGREEMENT is
necessary for the continued operation of the Association, (i) by the Regional
Director of the FDIC, or his or her designee at the time that the FDIC enters
into an agreement to provide assistance to or on behalf of the Association under
the authority contained in Section 13(c) of the FDIA or (ii) by the Regional
Director of the FDIC, or his or her designee, at any time that person approves a
supervisory merger to resolve problems related to the operation of the EMPLOYER
or when the EMPLOYER is determined by the FDIC to be in an unsafe or unsound
condition; provided, however, that vested rights of the EMPLOYEE shall not be
affected by any such action.
6. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this AGREEMENT shall
preclude the EMPLOYERS from consolidating with, merging into, or transferring
all, or substantially all, of their assets to another corporation that assumes
all of the EMPLOYERS' obligations and undertakings hereunder. Upon such a
consolidation, merger or transfer of assets, the term
5
<PAGE>
"EMPLOYERS" as used herein, shall mean such other corporation or entity, and
this AGREEMENT shall continue in full force and effect.
7. CONFIDENTIAL INFORMATION. The EMPLOYEE acknowledges that during his
employment he will learn and have access to confidential information regarding
the EMPLOYERS and their customers and businesses. The EMPLOYEE agrees and
covenants not to disclose or use for his own benefit, or the benefit of any
other person or entity, any confidential information, unless or until the
EMPLOYERS consent to such disclosure or use or such information is otherwise
legally in the public domain. The EMPLOYEE shall not knowingly disclose or
reveal to any unauthorized person any confidential information relating to the
EMPLOYERS, their subsidiaries, or affiliates, or to any of the businesses
operated by them, and the EMPLOYEE confirms that such information constitutes
the exclusive property of the EMPLOYERS. The EMPLOYEE shall not otherwise
knowingly act or conduct himself (a) to the material detriment of the EMPLOYERS,
their subsidiaries, or affiliates, or (b) in a manner which is inimical or
contrary to the interests of the EMPLOYERS.
8. NON-ASSIGNABILITY. Neither this AGREEMENT nor any right or interest
hereunder shall be assignable by the EMPLOYEE, his beneficiaries or legal
representatives without the EMPLOYERS' prior written consent; provided, however,
that nothing in this Section 8 shall preclude (a) the EMPLOYEE from designating
a beneficiary to receive any benefits payable hereunder upon his death, or (b)
the executors, administrators, or other legal representatives of the EMPLOYEE or
his estate from assigning any rights hereunder to the person or persons entitled
thereto.
9. NO ATTACHMENT. Except as required by law, no right to receive payment
under this AGREEMENT shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge or hypothecation or to execution,
attachment, levy, or similar process of assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
10. BINDING AGREEMENT. This AGREEMENT shall be binding upon, and inure to the
benefit of, the EMPLOYEE and the EMPLOYERS and their respective permitted
successors and assigns.
11. AMENDMENT OF AGREEMENT. This AGREEMENT may not be modified or amended,
except by an instrument in writing signed by the parties hereto.
12. WAIVER. No term or condition of this AGREEMENT shall be deemed to have
been waived, nor shall there be an estoppel against the enforcement of any
provision of this AGREEMENT, except by written instrument of the party charged
with such waiver or estoppel. No such written waiver shall be deemed a
continuing waiver, unless specifically stated therein, and each waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than the act specifically waived.
6
<PAGE>
13. SEVERABILITY. If, for any reason, any provision of this AGREEMENT is held
invalid, such invalidity shall not affect the other provisions of this AGREEMENT
not held so invalid, and each such other provision shall, to the full extent
consistent with applicable law, continue in full force and effect. If this
AGREEMENT is held invalid or cannot be enforced, then any prior AGREEMENT
between the EMPLOYERS (or any predecessor thereof) and the EMPLOYEE shall be
deemed reinstated to the full extent permitted by law, as if this AGREEMENT had
not been executed.
14. HEADINGS. The headings of the paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this AGREEMENT.
15. GOVERNING LAW. This AGREEMENT has been executed and delivered in the State
of Ohio and its validity, interpretation, performance, and enforcement shall be
governed by the laws of this State of Ohio, except to the extent that federal
law is governing.
16. EFFECT OF PRIOR AGREEMENTS. This AGREEMENT contains the entire
understanding between the parties hereto and supercedes any prior employment
agreement between the EMPLOYERS or any predecessor of the EMPLOYERS and the
EMPLOYEE.
17. NOTICES. Any notice or other communication required or permitted pursuant
to this AGREEMENT shall be deemed delivered if such notice or communication is
in writing and is delivered personally or by facsimile transmission or is
deposited in the United States mail, postage prepaid, addressed as follows:
If to the EMPLOYERS:
The Market Building and Saving Company
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
Attn:
-------------------
Market Financial Corporation
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
Attn:
-------------------
If to the EMPLOYEE:
Mr. John T. Larimer
4315 Redstar Court
Cincinnati, Ohio 45238
7
<PAGE>
IN WITNESS WHEREOF, the EMPLOYERS have caused this AGREEMENT to be executed
by their duly authorized officers, and the EMPLOYEE has signed this AGREEMENT,
each as of the day and year first above written.
Attest: The Market Building and Saving Company
- ----------------------- -----------------------------------
By:
--------------------------------
its
-----------------------------
Attest: Market Financial Corporation
- ----------------------- -----------------------------------
By:
--------------------------------
its
-----------------------------
Attest:
- ----------------------- -----------------------------------
John T. Larimer
<PAGE>
ACCOUNTANTS' CONSENT
We have issued our report dated November 29, 1995 accompanying the
financial statements of The Market Building and Saving Company contained in
Forms S-1, AC and OC of Market Financial Corporation to be filed with the
Securities and Exchange Commission and the Office of Thrift Supervision on or
about August 14, 1996. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "experts".
Grant Thornton LLP
Cincinnati, Ohio
August 12, 1996
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
August 14, 1996
Re: Valuation Appraisal of Market Financial Corporation
The Market Building and Saving Company
Mt. Healthy, Ohio
We hereby consent to the use of our firm's name, Keller & Company,
Inc., and the reference to our firm as experts in the Application for Approval
of Conversion on Form AC to be filed with the Office of Thrift Supervision on
or about August 15, 1996, and to the statements with respect to us and the
reference to our Valuation Appraisal Report in the Prospectus and in the Form
AC and the Form S-1 to be filed with the Securities and Exchange Commission.
Sincerely,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
----------------------------
Michael R. Keller
President
<PAGE>
(513) 723-4000
CONSENT
Board of Directors
Market Financial Corporation
7522 Hamilton Avenue
Mt. Healthy, Ohio 45321
Gentlemen:
We hereby consent to the use of our firm's name in the Registration
Statement on Form S-1 (the "Form S-1") filed by Market Financial Corporation
("MFC") to register 1,335,725 common shares, without par value, of MFC; to the
statements with respect to our firm appearing under the heading "Legal Matters"
in the Prospectus which is included in the Form S-1; to the reference to our
firm name under the heading "Principal Effects of the Conversion" in the
Prospectus which is included in the Form S-1; and to the filing of our opinion
regarding the legality of the common shares, included as Exhibit 5 to the Form
S-1, and our opinion regarding federal and state tax matters, included as
Exhibit 8 to the Form S-1.
Very truly yours,
VORYS, SATER, SEYMOUR AND PEASE
Cincinnati, Ohio
August 14, 1996
0134416.01
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> SEP-30-1996 SEP-30-1995
<PERIOD-END> JUN-30-1996 SEP-30-1995
<CASH> 1,120,000 669,000
<INT-BEARING-DEPOSITS> 424,000 617,000
<FED-FUNDS-SOLD> 3,207,000 2,727,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 17,479,000<F1> 17,334,000<F1>
<INVESTMENTS-MARKET> 622,000 504,000
<LOANS> 22,334,000 23,018,000
<ALLOWANCE> 52,000 39,000
<TOTAL-ASSETS> 46,260,000 45,734,000
<DEPOSITS> 38,190,000 38,056,000
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 537,000 525,000
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 7,533,000<F2> 7,153,000<F2>
<TOTAL-LIABILITIES-AND-EQUITY> 46,260,000 45,734,000
<INTEREST-LOAN> 1,414,000 1,960,000
<INTEREST-INVEST> 569,000<F3> 505,000<F3>
<INTEREST-OTHER> 486,000 717,000
<INTEREST-TOTAL> 2,469,000 3,182,000
<INTEREST-DEPOSIT> 1,336,000 1,622,000
<INTEREST-EXPENSE> 1,336,000 1,622,000
<INTEREST-INCOME-NET> 1,133,000 1,560,000
<LOAN-LOSSES> 13,000 0
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 664,000 861,000
<INCOME-PRETAX> 462,000 707,000
<INCOME-PRE-EXTRAORDINARY> 462,000 707,000
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 302,000 467,000
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 7.155 7.257
<LOANS-NON> 0 0
<LOANS-PAST> 15,000 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 39 39
<CHARGE-OFFS> 0 0
<RECOVERIES> 0 0
<ALLOWANCE-CLOSE> 52 39
<ALLOWANCE-DOMESTIC> 2 2
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 50 37
<FN>
<F1>Includes certificates of deposit.
<F2>Includes net unrealized gains on securities.
<F3>Includes interest from mortgage-backed securities.
</FN>
</TABLE>
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
7522 HAMILTON AVENUE
MT. HEALTHY, OHIO 45231
(513) 521-9772
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members of The Market
Building and Saving Company (the "Association") will be held at
____________________________, Mt. Healthy, Ohio 45231, on ________, 1996, at
_:00 _.m., Eastern Time (the "Special Meeting"), for the following purposes, all
of which are more completely set forth in the accompanying Summary Proxy
Statement:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached hereto as Exhibit A,
pursuant to which the Association would convert from a mutual savings and
loan association incorporated under Ohio law to a permanent capital stock
savings and loan association incorporated under Ohio law (the "Conversion")
and become a wholly-owned subsidiary of Market Financial Corporation, an
Ohio corporation organized for the purpose of purchasing all of the capital
stock to be issued by the Association in connection with the Conversion;
2. To consider and act upon a resolution to adopt the Amended
Articles of Incorporation of the Association, a copy of which is attached
to the Plan as Exhibit I;
3. To consider and act upon a resolution to adopt the Amended
Constitution of the Association, a copy of which is attached to the Plan as
Exhibit II; and
4. To transact such other business as may properly come before the
Special Meeting and any adjournments thereof.
Only those members of the Association who have a deposit account with the
Association at the close of business on __________, 1996 (the "Voting Record
Date"), are members of the Association entitled to notice of and to vote at the
Special Meeting and any adjournments thereof. WHETHER OR NOT YOU EXPECT TO
ATTEND THE SPECIAL MEETING, WE URGE YOU TO CONSIDER THE ACCOMPANYING SUMMARY
PROXY STATEMENT CAREFULLY, TO COMPLETE THE ENCLOSED PROXY CARD(S) AND TO RETURN
THE COMPLETED PROXY CARD(S) TO THE ASSOCIATION IN THE ENCLOSED POSTAGE-PAID
RETURN ENVELOPE AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTE(S) WILL BE COUNTED.
Mt. Healthy, Ohio By Order of the Board of Directors
__________, 1996
John T. Larimer, President
<PAGE>
THE MARKET BUILDING AND SAVING COMPANY
7522 HAMILTON AVENUE
MT. HEALTHY, OHIO 45231
(513) 521-9772
SUMMARY PROXY STATEMENT
INTRODUCTION
The enclosed proxy (the "Proxy") is being solicited by the Board of
Directors of The Market Building and Saving Company (the "Association") for use
at the special meeting of members of the Association to be held at
________________________, Mt. Healthy, Ohio 45231, on _________ 1996, at _:00
_.m., Eastern Time, and at any adjournments thereof (the "Special Meeting").
The Special Meeting is being held for the following purposes:
1. To consider and act upon a resolution to approve the Plan of
Conversion (the "Plan"), a copy of which is attached hereto as Exhibit A,
pursuant to which the Association would convert from a mutual savings and
loan association incorporated under Ohio law to a permanent capital stock
savings and loan association incorporated under Ohio law (the "Conversion")
and become a wholly-owned subsidiary of Market Financial Corporation
("MFC"), an Ohio corporation organized for the purpose of purchasing all of
the capital stock to be issued by the Association in connection with the
Conversion;
2. To consider and act upon a resolution to adopt the Amended
Articles of Incorporation of the Association (the "Amended Articles"), a
copy of which is attached to the Plan as Exhibit I;
3. To consider and act upon a resolution to adopt the Amended
Constitution of the Association (the "Amended Constitution"), a copy of
which is attached to the Plan as Exhibit II; and
4. To transact such other business as may properly come before the
Special Meeting.
The Board of Directors of the Association has unanimously adopted the Plan.
The Plan has also been approved by the United States Department of the Treasury,
Office of Thrift Supervision (the "OTS") and the Ohio Department of Commerce,
Division of Financial Institutions (the "Division"), subject to the approval of
the Plan by the members of the Association at the Special Meeting and the
satisfaction of certain other conditions.
Pursuant to the Plan, the Association will become a wholly-owned subsidiary
of MFC, a corporation which was incorporated under Ohio law for the purpose of
acquiring all of the capital stock to be issued by the Association in connection
with the Conversion. See "THE BUSINESS OF MFC." MFC will conduct a
subscription offering (the "Subscription Offering") in which up to 1,335,725
common shares, no par value, of MFC (the "Common Shares") will be offered to
subscribers in the following priority categories.
(i) Eligible depositors of the Association as of December 31, 1994
("Eligible Account Holders");
(ii) The Market Financial Corporation Employee Stock Ownership Plan
(the "ESOP");
(iii) Eligible depositors of the Association as of _______, 1996
("Supplemental Eligible Account Holders"); and
(iv) Certain other depositors and borrowers of the Association.
See "THE CONVERSION - Subscription Offering." Common shares not subscribed for
the Subscription Offering may be offered to the general public in a direct
community offering (the "Community Offering") in the manner established pursuant
to the Plan and described in this Summary Proxy Statement. See "THE CONVERSION
- - Community Offering." The offering of the Common Shares is made only through
the Prospectus of MFC dated __________, 1996, a copy of which is included with
this Summary Proxy Statement (the "Prospectus"). See "ADDITIONAL INFORMATION."
<PAGE>
The aggregate purchase price of the Common Shares to be offered by MFC
under the Plan is currently estimated to be between $8,585,000 and $11,615,000
(the "Valuation Range"). The total number of Common Shares sold in connection
with the Conversion will be determined in the sole discretion of the Board of
Directors of MFC if the aggregate value of the Common Shares sold is within the
Valuation Range or does not exceed the maximum of the Valuation Range by more
than 15%. The Valuation Range was determined by reference to an independent
appraisal of the Association's estimated pro forma market value, as converted,
prepared by Keller & Company, Inc. ("Keller"). See "THE CONVERSION - Pricing
and Number of Common Shares to be Sold."
Upon the consummation of the Conversion, the Amended Articles of
Incorporation of the Association, a copy of which is attached to the Plan as
Exhibit I, and the Amended Constitution, a copy of which is attached to the Plan
as Exhibit II, will be the Articles of Incorporation and Constitution of the
Association as a stock savings and loan association.
The approval of the Plan will have the effect of (i) terminating the voting
rights of the present members of the Association and (ii) modifying, and
eventually eliminating, their right to receive any surplus in the event of a
complete liquidation of the Association. Except for certain rights in the
special liquidation account established by the Plan (the "Liquidation Account"),
such voting and liquidation rights after the Conversion will vest exclusively in
the holders of the common shares of MFC. See "THE CONVERSION - Principal
Effects of the Conversion."
During and upon the completion of the Conversion, the Association will
continue to provide services to depositors and borrowers pursuant to its current
policies at its existing office. In addition, the Association will continue to
be a member of the Federal Home Loan Bank (the "FHLB") system, and savings
accounts at the Association will continue to be insured up to applicable limits
by the Savings Association Insurance Fund (the "SAIF") administered by the
Federal Deposit Insurance Corporation (the "FDIC").
This Summary Proxy Statement is dated __________, 1996, and is first being
mailed to members of the Association on or about ___________, 1996.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
All depositors having a deposit account of record with the Association on
__________, 1996 (the "Voting Record Date"), are members of the Association
eligible to vote at the Special Meeting ("Voting Members"). Voting Members will
be entitled to cast one vote for each $500, and a proportional vote for any
fraction thereof, of the withdrawable value of their deposit accounts on the
Voting Record Date.
A deposit account in which one or more persons has an interest shall be
deemed to be held by only one Voting Member for the purpose of voting at the
Special Meeting. Any questions as to the eligibility of a member to vote, the
number of votes allocated to each Voting Member or any other matter relating to
voting will be resolved at the time of the Special Meeting by reference to the
records of the Association.
The Association's records disclose that, as of the Voting Record Date,
there were _______ votes entitled to be cast at the Special Meeting, a majority
of which are required to approve the Plan. A vote of three-fifths of the votes
cast in person or by proxy at the Special Meeting are necessary to adopt the
Amended Articles and Amended Constitution of the Association.
PROXIES
Voting Members may vote in person or by proxy at the Special Meeting. For
Voting Members wishing to vote in person, ballots will be distributed at the
Special Meeting. For Voting Members wishing to vote by proxy at the Special
Meeting, the enclosed Proxy may be completed and given in accordance with this
Summary Proxy Statement. Any other proxy held by the Association will not be
used by the Association for the Special Meeting.
A Proxy will be voted in the manner indicated thereon or, in the absence of
specific instructions, will be voted FOR the approval of the Plan, FOR the
adoption of the Amended Articles and FOR the adoption of the Amended
Constitution. Without affecting any vote previously taken, a Voting Member may
revoke a Proxy at any time before such proxy is
-2-
<PAGE>
exercised by executing a later dated proxy or by giving the Association notice
of revocation in writing or in open meeting at the Special Meeting. Attendance
at the Special Meeting will not, of itself, revoke a Proxy.
Proxies may be solicited by the directors, officers and employees of the
Association in person or by telephone, telegraph or mail, for use only at the
Special Meeting and any adjournments thereof and will not be used for any other
meeting. The cost of soliciting Proxies will be borne by The Association.
MANAGEMENT'S RECOMMENDATIONS AND REASONS FOR CONVERSION
THE BOARD OF DIRECTORS RECOMMENDS THAT MEMBERS VOTE FOR THE APPROVAL OF THE
PLAN AND FOR THE ADOPTION OF THE AMENDED ARTICLES AND THE AMENDED CONSTITUTION.
In unanimously adopting the Plan, the Board of Directors determined that
the Association will derive substantial benefits from the Conversion and that
the Conversion is in the best interests of the Association, its members and the
public. The principal factors considered by the Association's Board of
Directors in reaching the decision to pursue a mutual-to-stock conversion are
the numerous competitive disadvantages which the Association faces if it
continues in mutual form. These disadvantages relate to a variety of factors,
including growth opportunities, employee retention and regulatory uncertainty.
If the Association is to continue to grow and prosper, the mutual form of
organization is the least desirable form from a competitive standpoint.
Although the Association does not have any specific acquisitions planned at this
time, the Conversion will position the Association to take advantage of any
acquisition opportunities which may present themselves. Because a conversion to
stock form is a time-consuming and complex process, the Association cannot wait
until an acquisition is imminent to embark on the conversion process.
As an increasing number of the Association's competitors convert to stock
form and can use stock-based compensation programs, the Association, as a
mutual, is at a disadvantage when it comes to attracting and retaining qualified
management. The Association believes that the ESOP for all employees and the
Market Financial Corporation 1997 Stock Option and Incentive Plan (the "Stock
Option Plan") and the Market Financial Corporation Recognition and Retention
Plan (the "RRP") for directors and management are important tools, even though
the Association will be required to wait until after the Conversion to implement
the Stock Option Plan and the RRP.
In view of the competitive disadvantages and ongoing debate about the
future of mutual institutions on the wake of regulatory consolidation and other
forces, the Association in choosing to reject the uncertainty inherent in the
mutual structure in favor of the more widely use, recognized and understood form
of ownership.
The Conversion will also give members of the Association, at their option,
the opportunity to become shareholders of MFC. No member of the Association
will be obligated to subscribe or not to subscribe to common shares of PFC (the
"Common Shares") by voting on the Plan, nor will any member's deposit account be
converted into Common Shares by such vote. After completion of the Conversion,
the Association will continue to provide the services presently offered to
depositors and borrowers, will maintain its existing offices and will retain its
existing management and employees.
Upon the consummation of the Conversion the Amended Articles, a copy of
which is attached to the Plan as Exhibit I, and the Amended Constitution, a copy
of which is attached to the Plan as Exhibit II, will be the Articles of
Incorporation and Constitution of the Association as a stock savings and loan
association.
THE BUSINESS OF MFC
MFC was incorporated under Ohio law in April 1996 at the direction of the
Association for the purpose of purchasing all of the capital stock of the
Association to be issued in connection with the Conversion. MFC has not
conducted and will not conduct any business before the completion of the
Conversion, other than business related to the Conversion. Upon the
consummation of the Conversion, MFC will be a unitary savings and loan holding
company, the principal assets of which initially will consist of the capital
stock of the Association, a promissory note from the ESOP and the investments
made with the net proceeds retained from the sale of Common Shares in connection
with the Conversion. See "USE OF PROCEEDS."
-3-
<PAGE>
The office of MFC is located at 7522 Hamilton Avenue, Mt. Healthy, Ohio
45231, and its telephone number is (513) 521-9772.
THE BUSINESS OF THE ASSOCIATION
The Association is a mutual savings and loan association which was
organized under Ohio law in 1883. Subject to supervision and regulation by the
OTS, the Division and the FDIC, the Association is a member of the FHLB of
Cincinnati, and the deposits of the Association are insured up to applicable
limits by the FDIC in the SAIF. See "REGULATION" in the Prospectus.
The Association is principally engaged in the business of originating
mortgage loans secured by first mortgages on one- to four-family residential
real estate located in its primary market area of Hamilton County, Ohio, and
portions of the contiguous counties. The Association also originates a limited
number of loans for the construction of one- to four-family residential real
estate, permanent mortgage loans secured by multifamily real estate (over four
units) and nonresidential real estate in its primary market area, and secured
consumer loans. For liquidity and interest rate risk management purposes, the
Association invests in interest-bearing deposits in other financial
institutions, U.S. Government and agency obligations and mortgage-backed
securities. Funds for lending and other investment activities are obtained
primarily from savings deposits, which are insured up to applicable limits by
the FDIC, and loan principal repayments.
Interest on loans and investments is the Association's primary source of
income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the net
interest income of the Association, which is the difference between interest
income earned on loans, mortgage-backed securities and other investments and
interest paid on deposits. Like most thrift institutions, the Association's
interest income and interest expense are significantly affected by general
economic conditions and by the policies of various regulatory authorities.
For a more detailed discussion of The Association's business and its
operating strategy, see "THE BUSINESS OF THE ASSOCIATION," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE
ASSOCIATION," and "RISK FACTORS" in the Prospectus.
THE CONVERSION
THE OTS AND THE DIVISION HAVE APPROVED THE PLAN, SUBJECT TO THE APPROVAL OF
THE PLAN BY THE MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE ON THE PLAN AND
SUBJECT TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS AND
THE DIVISION. OTS AND DIVISION APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN.
GENERAL
On April 16, 1996, the Board of Directors of the Association unanimously
adopted the Plan and recommends that the voting members of the Association
approve the Plan at the Special Meeting. During and upon completion of the
Conversion, the Association will continue to provide the services presently
offered to depositors and borrowers, will maintain its existing office and will
retain its existing management and employees.
Based on the current Valuation Range, between 858,500 and 1,161,500 Common
Shares are expected to be offered in the Subscription Offering and the
concurrent Community Offering at a price of $10 per share. Federal regulations
require, with certain exceptions, that shares offered in connection with the
Conversion must be sold up to at least the minimum point of the Valuation Range
in order for the Conversion to become effective. The actual number of Common
Shares sold in connection with the Conversion will be determined upon completion
of the Offering in the sole discretion of the Board of Directors based on the
final valuation of the Association, as converted. See "Pricing and Number of
Common Shares to be Sold."
The Common Shares will be offered in the Subscription Offering to the ESOP
and certain present and former depositors of the Association. Any Common Shares
not subscribed for in the Subscription Offering will be concurrently
-4-
<PAGE>
offered to the general public in the Community Offering in a manner which will
seek to achieve the widest distribution of the Common Shares, but which will
give preference to natural persons residing in Hamilton County, Ohio. Under OTS
regulations, the Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless such period is extended by the
Association with the approval of the OTS and the Division. If the Community
Offering is determined not to be feasible, an occurrence that is not currently
anticipated, the Boards of Directors of MFC and the Association will consult
with the OTS and the Division to determine an appropriate alternative method of
selling, up to the minimum of the Valuation Range, the Common Shares for which
subscriptions were not received. No alternative sales methods are currently
planned.
OTS and Division regulations require the completion of the Conversion
within 24 months after the date of the approval of the Plan by the voting
members of the Association. The commencement and completion of the Conversion
will be subject to market conditions and other factors beyond the Association's
control. Due to changing economic and market conditions, no assurance can be
given as to the length of time that will be required to complete the sale of the
Common Shares. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Association. In such circumstances, the
Association may also incur substantial additional printing, legal and accounting
expenses in completing the Conversion. In the event the Conversion is not
successfully completed, the Association will be required to charge all
Conversion expenses against current earnings.
PRINCIPAL EFFECTS OF THE CONVERSION
VOTING RIGHTS. Deposit holders who are members of the Association in its
mutual form will have no voting rights in the Association as converted and will
not participate, therefore, in the election of directors or otherwise control
the Association's affairs. Voting rights in MFC will be held exclusively by its
shareholders, and voting rights in the Association will be held exclusively by
MFC as the sole shareholder of the Association. Each holder of MFC's common
shares will be entitled to one vote for each share owned on any matter to be
considered by MFC's shareholders. See "DESCRIPTION OF AUTHORIZED SHARES."
DEPOSIT ACCOUNTS AND LOANS. Deposit accounts in the Association, as
converted, will be equivalent in amount, interest rate and other terms to the
present deposit accounts in the Association, and the existing FDIC insurance on
such deposits will not be affected by the Conversion. The Conversion will not
affect the terms of loan accounts or the rights and obligations of borrowers
under their individual contractual arrangements with the Association.
TAX CONSEQUENCES. The consummation of the Conversion is expressly
conditioned on receipt by the Association of a private letter ruling from the
IRS or an opinion of counsel to the effect that the Conversion will constitute a
tax-free reorganization as defined in Section 368(a) of the Code. The
Association intends to proceed with the Conversion based upon an opinion
rendered by its special counsel, Vorys, Sater, Seymour and Pease, to the
following effect:
(1) The Conversion constitutes a reorganization within the meaning of
Section 368(a)(1)(F) of the Code, and no gain or loss will be recognized by
the Association in its mutual form or in its stock form as a result of the
Conversion. The Association in its mutual form and the Association in its
stock form will each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Association upon the
receipt of money from MFC in exchange for the capital stock of the
Association, as converted;
(3) The assets of the Association will have the same basis in its
hands immediately after the Conversion as they had in its hands immediately
prior to the Conversion, and the holding period of the assets of the
Association after the Conversion will include the period during which the
assets were held by the Association before the Conversion;
(4) No gain or loss will be recognized by the deposit account holders
of the Association upon the issuance to them, in exchange for their
respective withdrawable deposit accounts in the Association immediately
prior to the Conversion, of withdrawable deposit accounts in the
Association immediately after the Conversion, in the same dollar amount as
their withdrawable deposit accounts in the Association immediately prior to
the Conversion, plus, in the case of Eligible Account Holders and
Supplemental Eligible Account Holders, the interests in the Liquidation
Account of the Association, as described below;
-5-
<PAGE>
(5) The basis of the withdrawable deposit accounts in the Association
held by its deposit account holders immediately after the Conversion will
be the same as the basis of their deposit accounts in the Association
immediately prior to the Conversion. The basis of the interests in the
Liquidation Account received by the Eligible Account Holders and
Supplemental Eligible Account Holders will be zero. The basis of the
nontransferable subscription rights received by Eligible Account Holders,
Supplemental Eligible Account Holders and Other Eligible Members will be
zero (assuming that at distribution such rights have no ascertainable fair
market value);
(6) No gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members upon the
distribution to them of nontransferable subscription rights to purchase
Common Shares (assuming that at distribution such rights have no
ascertainable fair market value), and no taxable income will be realized by
such Eligible Account Holders, Supplemental Eligible Account Holders or
Other Eligible Members as a result of their exercise of such
nontransferable subscription rights;
(7) The basis of the Common Shares purchased by members of the
Association pursuant to the exercise of subscription rights will be the
purchase price thereof (assuming that such rights have no ascertainable
fair market value and that the purchase price is not less than the fair
market value of the shares on the date of such exercise), and the holding
period of such shares will commence on the date of such exercise. The
basis of the Common Shares purchased other than by the exercise of
subscription rights will be the purchase price thereof (assuming in the
case of the other subscribers that the opportunity to buy in the
Subscription Offering has no ascertainable fair market value), and the
holding period of such shares will commence on the day after the date of
the purchase;
(8) For purposes of Section 381 of the Code, the Association will be
treated as if there had been no reorganization. The taxable year of the
Association will not end on the effective date of the Conversion.
Immediately after the Conversion, the Association in its stock form will
succeed to and take into account the tax attributes of the Association in
its mutual form immediately prior to the Conversion, including the
Association's earnings and profits or deficit in earnings and profits;
(9) The bad debt reserves of the Association in its mutual form
immediately prior to the Conversion will not be required to be restored to
the gross income of the Association in its stock form as a result of the
Conversion and immediately after the Conversion such bad debt reserves will
have the same character in the hands of the Association in its stock form
as they would have had if there had been no Conversion. The Association in
its stock form will succeed to and take into account the dollar amounts of
those accounts of the Association in its mutual form which represent bad
debt reserves in respect of which the Association in its mutual form has
taken a bad debt deduction for taxable years ending on or before the
Conversion; and
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated
earnings and profits of the Association available for the subsequent
distribution of dividends within the meaning of Section 316 of the Code.
The creation of the Liquidation Account on the records of the Association
will have no effect on its taxable income, deductions for additions to
reserves for bad debts under Section 593 of the Code or distributions to
stockholders under Section 593(e) of the Code.
For Ohio tax purposes, the tax consequences of the Conversion will be as
follows:
(1) The Association is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status;
(2) The Association is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.5% of
the Association's equity capital determined in accordance with GAAP, and
the Conversion will not change such status;
(3) As a "financial institution," the Association is not subject to
any tax based upon net income or net profit imposed by the State of Ohio,
and the Conversion will not change such status;
-6-
<PAGE>
(4) The Conversion will not be a taxable transaction to the
Association in its mutual or stock form for purposes of the Ohio corporate
franchise tax. As a consequence of the Conversion, however, the annual
Ohio corporate franchise tax liability of the Association will increase if
the taxable net worth of the Association (i.e., book net worth computed in
accordance with GAAP at the close of the Association's taxable year for
federal income tax purposes) increases thereby; and
(5) The Conversion will not be a taxable transaction to any deposit
account holder or borrower member of the Association in its mutual or stock
form for purposes of the Ohio corporate franchise tax and the Ohio personal
income tax.
The Association has received an opinion from Keller to the effect that the
subscription rights have no ascertainable fair market value because the rights
are received by specified persons at no cost, may not be transferred and are of
short duration. The IRS could challenge the assumption that the subscription
rights have no ascertainable fair market value.
EACH ELIGIBLE ACCOUNT HOLDER, SUPPLEMENTAL ACCOUNT HOLDER AND OTHER
ELIGIBLE MEMBER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO
THE EFFECT OF SUCH TAX CONSEQUENCES ON HIS OR HER OWN PARTICULAR FACTS AND
CIRCUMSTANCES.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of the claims of all creditors, including the claims of all depositors
to the withdrawable value of their deposit accounts. A depositor's pro rata
share of such remaining assets would be the same proportion of such assets as
the value of such depositor's deposit accounts bears to the total aggregate
value of all deposit accounts in the Association at the time of liquidation.
In the event of a complete liquidation of the Association in its stock form
after the Conversion, each depositor would have a claim of the same general
priority as the claims of all other general creditors of the Association.
Except as described below, each depositor's claim would be solely in the amount
of the balance in such depositor's deposit account plus accrued interest. The
depositor would have no interest in the assets of the Association above that
amount. Such assets would be distributed to MFC as the sole shareholder of the
Association.
For the purpose of granting a limited priority claim to the assets of the
Association in the event of a complete liquidation thereof to Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain
deposit accounts at the Association after the Conversion, the Association will,
at the time of Conversion, establish a liquidation account in an amount equal to
the regulatory capital of the Association as of the latest practicable date
prior to the Conversion at which such regulatory capital can be determined (the
"Liquidation Account"). For this purpose, the Association will use the
regulatory capital figure set forth in its latest statement of regulatory
capital contained in the Prospectus. The Liquidation Account will not operate
to restrict the use or application of any of the regulatory capital of the
Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on the Eligibility Record Date
or the Supplemental Eligibility Record Date.
The balance of each initial Subaccount shall be an amount determined by
multiplying the amount in the Liquidation Account by a fraction, the numerator
of which is the closing balance in the account holder's account as of the close
of business on the Eligibility Record Date or the Supplemental Eligibility
Record Date, as the case may be, and the denominator of which is the total
amount of all Qualifying Deposits of Eligible Account Holders and Supplemental
Eligible Account Holders on the corresponding record date. The balance of each
Subaccount may be decreased but will never be increased. If, at the close of
business on the last day of each fiscal year of MFC subsequent to the respective
record dates, the balance in the deposit account to which a Subaccount relates
is less than the lesser of (i) the deposit balance in such deposit account at
the close of business on the last day of any other fiscal year of MFC subsequent
to the Eligibility Record Date or the Supplemental Eligibility Record Date or
(ii) the amount of the Qualifying Deposit as of the Eligibility Record Date or
the Supplemental Eligibility Record Date, the balance of the Subaccount for such
deposit account shall be adjusted proportionately to the reduction in such
deposit account balance. In the event of any such downward adjustment, such
-7-
<PAGE>
Subaccount balance shall not be subsequently increased notwithstanding any
increase in the deposit balance of the related deposit account. If any deposit
account is closed, its related Subaccount shall be reduced to zero upon such
closing.
In the event of a complete liquidation of the converted Association (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to MFC as the sole shareholder of the
Association. Any assets remaining after satisfaction of such liquidation rights
and the claims of the Association's creditors would be distributed to MFC as the
sole shareholder of the Association. No merger, consolidation, purchase of bulk
assets or similar combination or transaction with another financial institution,
the deposits of which are insured by the FDIC, will be deemed to be a complete
liquidation for this purpose and, in any such transaction, the Liquidation
Account shall be assumed by the surviving institution.
COMMON SHARES. SHARES ISSUED UNDER THE PLAN CANNOT AND WILL NOT BE INSURED
BY THE FDIC. For a description of the characteristics of the Common Shares, see
"DESCRIPTION OF AUTHORIZED SHARES."
INTERPRETATION AND AMENDMENT OF THE PLAN
The Boards of Directors of the Association and MFC will interpret the Plan
and to the extent permitted by law, all interpretations of the Plan by the
Boards of Directors of MFC and the Association will be final. The Plan may be
amended by the Boards of Directors of MFC and the Association at any time with
the concurrence of the OTS and the Division. If the Association and MFC
determine, upon advice of counsel and after consultation with the OTS and the
Division, that any such amendment is material, subscribers will be notified of
the amendment and will be provided the opportunity to affirm, increase, decrease
or cancel their subscriptions. Any person who does not affirmatively elect to
continue his subscription or elects to rescind his subscription before the date
specified in the notice will have all of his funds promptly refunded with
interest. Any person who elects to decrease his subscription will have the
appropriate portion of his funds promptly refunded with interest.
CONDITIONS AND TERMINATION
The completion of the Conversion requires the approval of the Plan, the
Amended Articles and the Amended Constitution by the voting members of the
Association at the Special Meeting and the sale of the requisite amount of
Common Shares within 24 months following the date of such approval. If these
conditions are not satisfied, the Plan will automatically terminate and the
Association will continue its business in the mutual form of organization. The
Plan may be voluntarily terminated by the Board of Directors at any time before
the Special Meeting and at any time thereafter with the approval of the OTS and
the Division.
SUBSCRIPTION OFFERING
THE SUBSCRIPTION OFFERING WILL EXPIRE AT 4:30 P.M., EASTERN TIME, ON
_________, 1996 (THE "SUBSCRIPTION EXPIRATION DATE"). SUBSCRIPTION RIGHTS NOT
EXERCISED BEFORE THE SUBSCRIPTION EXPIRATION DATE WILL BE VOID, WHETHER OR NOT
THE ASSOCIATION HAS BEEN ABLE TO LOCATE EACH PERSON ENTITLED TO SUCH
SUBSCRIPTION RIGHTS.
Nontransferable subscription rights to purchase Common Shares are being
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. EACH PERSON SUBSCRIBING FOR COMMON SHARES MUST
REPRESENT TO THE ASSOCIATION THAT HE OR SHE IS PURCHASING THE COMMON SHARES FOR
HIS OR HER OWN ACCOUNT AND THAT HE OR SHE HAS NO AGREEMENT OR UNDERSTANDING WITH
ANY OTHER PERSON FOR THE SALE OR TRANSFER OF THE COMMON SHARES. ANY PERSON WHO
ATTEMPTS TO TRANSFER HIS OR HER SUBSCRIPTION RIGHTS MAY BE SUBJECT TO PENALTIES
AND SANCTIONS, INCLUDING LOSS OF THE SUBSCRIPTION RIGHTS.
The number of Common Shares which a person who has subscription rights may
purchase will be determined, in part, by the total number of Common Shares to be
issued and the availability of Common Shares for purchase under the preference
categories set forth in the Plan and certain other limitations. See
"Limitations on Purchases of Common Shares." The sale of any Common Shares
pursuant to subscriptions received is contingent upon approval of the Plan by
the voting members of the Association at the Special Meeting.
-8-
<PAGE>
The preference categories and preliminary purchase limitations which have
been established by the Plan, in accordance with applicable regulations, for the
allocation of Common Shares are as follows:
(a) Each Eligible Account Holder shall receive, without payment
therefor, a nontransferable subscription right to purchase up to the
greater of (i) 2% of the total number of Common Shares to be sold in the
Conversion (26,715 shares at the maximum of the Valuation Range, as
adjusted) or (ii) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of Common Shares to be
sold in connection with the Conversion by a fraction, the numerator of
which is the amount of the Eligible Account Holder's Qualifying Deposit and
the denominator of which is the total amount of Qualifying Deposits of all
Eligible Account Holders, subject to the overall purchase limitations set
forth in Section 10 of the Plan. See ("Limitations on Purchases of Common
Shares."
If the exercise of subscription rights by Eligible Account
Holders results in an over-subscription, Common Shares will be allocated
among subscribing Eligible Account Holders in a manner which will, to the
extent possible, make the total allocation of each subscriber equal 100
shares or the amount subscribed for, whichever is less. Any Common Shares
remaining after such allocation has been made will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain unfilled in
the proportion which the amount of their respective Qualifying Deposits on
the Eligibility Record Date bears to the total Qualifying Deposits of all
Eligible Account Holders on such date. Notwithstanding the foregoing,
Common Shares in excess of 1,161,500, the maximum of the Valuation Range,
may be sold to the ESOP before fully satisfying the subscriptions of
Eligible Account Holders. No fractional shares will be issued. For
purposes of this paragraph (a), increases in the Qualifying Deposits of
directors and executive officers of the Association during the twelve
months preceding the Eligibility Record Date shall not be considered.
(b) The ESOP shall receive, without payment therefor, a
nontransferable subscription right to purchase Common Shares in an
aggregate amount of up to 10% of the Common Shares sold in the Conversion,
provided that shares remain available after satisfying the subscription
rights of Eligible Account Holders up to the maximum of the Valuation Range
pursuant to paragraph (a) above. Although the Plan and OTS regulations
permit the ESOP to purchase up to 10% of the Common Shares, MFC anticipates
that the ESOP will purchase 8% of the Common Shares. If the ESOP is unable
to purchase all or part of the Common Shares for which it subscribes, the
ESOP may purchase Common Shares on the open market or may purchase
authorized but unissued Common Shares. If the ESOP purchases authorized
but unissued Common Shares, such purchases could have a dilutive effect on
the interests of MFC's shareholders.
(c) Each Supplemental Eligible Account Holder will receive, without
payment therefor, a nontransferable subscription right to purchase up to
the greater of (i) 2% of the total number of Common Shares to be sold in
the Conversion (26,715 shares at the maximum of the Valuation Range, as
adjusted) or (ii) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of Common Shares to be
sold in connection with the Conversion by a fraction, the numerator of
which is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, subject
to the overall purchase limitations set forth in Section 10 of the Plan.
See "Limitations on Purchases of Common Shares."
If the exercise of subscription rights by Supplemental Eligible
Account Holders results in an oversubscription, Common Shares will be
allocated among subscribing Supplemental Eligible Account Holders in a
manner which will, to the extent possible, make the total allocation of
each subscriber equal 100 shares or the amount subscribed for, whichever is
less. Any Common Shares remaining after such allocation has been made will
be allocated among the subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled in the proportion which the amount of
their respective Qualifying Deposits on the Supplemental Eligibility Record
Date bears to the total Qualifying Deposits of all Supplemental Eligible
Account Holders on such date. No fractional shares will be issued.
Subscription rights received by Supplemental Eligible Account
Holders will be subordinate to the subscription rights of Eligible Account
Holders and the ESOP.
-9-
<PAGE>
(d) Each Other Eligible Member, other than an Eligible Account Holder
or Supplemental Eligible Account Holder, shall receive, without payment
therefor, a nontransferable right to purchase a number of Common shares
equal to up to 2% of the total number of Common Shares to be sold in the
Conversion (26,715 shares at the maximum of the Valuation Range, as
adjusted), subject to the overall purchase limitations set forth in Section
10 of the Plan.
In the event of an oversubscription by Other Eligible Members,
the available Common Shares will be allocated among subscribing Other
Eligible Members in the same proportion that their subscriptions bear to
the total amount of subscriptions by all Other Eligible Members; provided,
however, that, to the extent sufficient Common Shares are available, each
subscribing Other Eligible Member shall receive 25 Common Shares before the
remaining available Common Shares are allocated.
The subscription rights granted under this Plan are nontransferable. Each
subscription right may be exercised only by the person to whom it is issued and
only for such person's own account. Each person exercising subscription rights
will be required to certify that such person is purchasing for such person's own
account and that such person has no agreement or understanding for the sale or
transfer of the Common Shares to which such person subscribes. The Association
will use the information provided on the order form to ensure that those persons
subscribing in the Subscription Offering have subscription rights and that the
orders submitted do not exceed applicable purchase limitations. In order to
ensure proper identification of subscription rights and proper allocations in
the event of an oversubscription, it is the responsibility of each subscriber to
provide correct account verification information and the correct address of the
subscriber's primary residence.
The Association will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons having subscription
rights reside. However, no such person will be offered or receive any Common
Shares under the Plan who resides in a foreign country or in a state of the
United States with respect to which each of the following apply: (i) a small
number of persons otherwise eligible to subscribe for shares under the Plan
resides in such country or state; (ii) under the securities laws of such country
or state, the granting of subscription rights or the offer or sale of Common
Shares to such persons would require MFC or its officers or directors to
register as a broker or dealer or to register or otherwise qualify its
securities for sale in such country or state; and (iii) such registration or
qualification would be impracticable for reasons of cost or otherwise.
The term "resident" as used herein with respect to the Subscription
Offering means any person who, on the date of submission of an Order Form,
maintained a bona fide residence within a jurisdiction in which the Common
Shares are being offered for sale. If a person is a business entity, the
person's residence shall be the location of the principal place of business. If
the person is a personal benefit plan, the residence of the beneficiary shall be
the residence of the plan. In the case of all other benefit plans, the
residence of the trustee shall be the residence of the plan. In all cases, the
determination of a subscriber's residency shall be in the sole discretion of the
Association and MFC.
COMMUNITY OFFERING
Concurrently with the Subscription Offering, the Association is hereby
offering Common Shares in the Community Offering to the extent such shares
remain available after the satisfaction of all subscriptions received in the
Subscription Offering.
THE COMMUNITY OFFERING IS EXPECTED TO END ON __________, 1996, AND MAY BE
TERMINATED AT ANY TIME AFTER ORDERS FOR AT LEAST 1,335,725 COMMON SHARES HAVE
BEEN RECEIVED. IN NO EVENT, HOWEVER, WILL THE COMMUNITY OFFERING EXTEND BEYOND
___________, 1996 (THE "COMMUNITY EXPIRATION DATE"), WITHOUT THE CONSENT OF THE
OTS.
If subscriptions are received in the Subscription Offering for up to
1,335,725 Common Shares, Common Shares may not be available in the Community
Offering. In the event shares are available for the Community Offering, each
person, together with any Associate or groups Acting in Concert, may purchase in
the Community Offering up to 2% of the Common Shares sold in connection with the
Conversion (26,715 shares at the maximum of the Valuation Range, as adjusted).
If an insufficient number of Common Shares is available to fill all of the
orders received in the Community Offering, the available Common Shares will be
allocated in a manner to be determined by the Boards of Directors of MFC and the
Association, subject to the following:
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<PAGE>
(i) Preference will be given to natural persons who are residents of
Hamilton County, Ohio, the county in which the offices of the Association
are located;
(ii) Orders received in the Community Offering will first be filled up
to 2% of the total number of Common Shares offered, with any remaining
shares allocated on an equal number of shares per order basis until all
orders have been filled; and
(iii) The right of any person to purchase Common Shares in the
Community Offering is subject to the right of MFC and the Association to
accept or reject such purchases in whole or in part.
The term "resident," as used herein with respect to the Community Offering,
means any natural person who, on the date of submission of an Order Form,
maintains a bona fide residence within, as appropriate, Hamilton County, Ohio,
or a jurisdiction in which the Common Shares are being offered for sale.
LIMITATIONS ON PURCHASES OF COMMON SHARES
The Plan provides for certain additional limitations to be placed upon the
purchase of Common Shares. To the extent Common Shares are available, the
minimum number of Common Shares that may be purchased by any party is 25. No
fractional shares will be issued.
Currently, each Eligible Account Holder, Supplemental Eligible Account
Holder and Other Eligible Member in the Subscription Offering and each person,
together with his Associate (hereinafter defined) and persons Acting in Concert
(hereinafter defined) in the Community Offering, may purchase up to 2% of the
Common Shares, subject to the limitation that no person, together with such
person's Associates and persons Acting in Concert, may purchase more than 4% of
the Common Shares sold in connection with the Conversion. Such limitation does
not apply to the ESOP. Subject to applicable regulations but without further
approval of the members of the Association, the purchase limitation may be
increased or decreased after the commencement of the Offering in the sole
discretion of the Boards of Directors of MFC and the Association. If such
amount is increased, persons who subscribed for the maximum amount will be given
the opportunity to increase their subscriptions up to the then applicable
limits, subject to the rights and preferences of any person who has priority
subscription rights. The Board of Directors of MFC and the Association may, in
their sole discretion, increase the maximum purchase limitation referred to
above up to 10%, provided that orders for shares exceeding 5% of the shares to
be issued in the Conversion shall not exceed, in the aggregate, 10% of the
shares to be issued in the Conversion. In the event that the purchase
limitation is decreased after commencement of the Subscription Offering, the
order of any person who subscribed for the maximum number of Common Shares shall
be decreased by the minimum amount necessary so that such person shall be in
compliance with the then maximum number of Common Shares permitted to be
subscribed for by such person.
"Acting in Concert" is defined as "knowing participation in a joint
activity or independent conscious parallel action towards a common goal" or "a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose." Persons shall be presumed to be acting in concert
with each other if: (i) both are purchasing Common Shares in the Conversion and
are (a) executive officers, directors, trustees, or any one who performs, or
whose nominee or representative performs, a similar policy making function at a
company (other than the Association or MFC) or principal business units or
subsidiaries of a company, or (b) any person who directly or indirectly owns or
controls 10% or more of the stock of a company (other than the Association or
MFC); or (ii) one person provides credit to the other for the purchase of Common
Shares or is instrumental in obtaining that credit. In addition, if a person is
presumed to be acting in concert with another person, then the person is
presumed to act in concert with anyone else who is, or is presumed to be, acting
in concert with that other person.
A person's Associates consist of all of the following (collectively,
"Associates"): (a) any corporation or organization (other than the Association)
of which such person is an officer, partner or, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities; (b) any trust
or other estate in which such person has a substantial beneficial interest or as
to which such person serves as trustee or in a similar fiduciary capacity; and
(c) any relative or spouse of such person, or relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Association. Executive officers and directors of the Association, together with
their Associates, may not purchase, in the aggregate, more than thirty-five
percent of the total number of Common Shares sold in the Conversion. Shares
acquired by the ESOP will not, pursuant to regulations governing the Conversion,
be aggregated with the shares purchased by the directors, officers and employees
of the Association.
-11-
<PAGE>
Purchases of Common Shares in the Offering are also subject to the change
in control regulations which restrict direct and indirect purchases of 10% or
more of the stock of any savings association by any person or group of persons
acting in concert, under certain circumstances. See "RESTRICTIONS ON
ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS -
Federal Law and Regulation" in the Prospectus.
After the Conversion, Common Shares, except for Common Shares purchased by
officers and directors of MFC and the Association, will be freely transferable,
subject to OTS and Division regulations. See "Restrictions on Transferability
of Common Shares by Officers and Directors."
MARKETING PLAN
The offering of the Common Shares is made only pursuant to this Prospectus
which is available to all eligible subscribers by mail. Additional copies are
available at the offices of the Association. See "ADDITIONAL INFORMATION."
Officers and directors of the Association will be available to answer questions
about the Conversion and may also hold informational meetings for interested
persons. Such officers and directors will not be permitted to make statements
about MFC or the Association unless such information is also set forth in this
Prospectus, nor will they render investment advice. MFC will rely on Rule 3a4-1
under the Securities Exchange Act of 1934 (the "Exchange Act"), and sales of
Common Shares will be conducted within the requirements of Rule 3a4-1, which
will permit officers, directors and employees of MFC and the Association to
participate in the sale of Common Shares. No officer, director or employee of
MFC or the Association will be compensated in connection with his participation
by the payment of commissions or other remuneration based either directly or
indirectly on the transactions in the Common Shares.
To assist MFC and the Association in marketing the Common Shares, the
Association has retained the services of Webb, a broker-dealer registered with
the SEC and member of the National Association of Securities Dealers, Inc.
("NASD"). Webb will assist the Association in (i) training and educating the
Association's employees regarding the mechanics and regulatory requirements of
the conversion process; (ii) conducting information meetings for subscribers and
other potential purchasers; and (iii) keeping records of all stock
subscriptions. For providing these services, the Association has agreed to pay
Webb (a) a management fee of $25,000, all of which has been paid, and (b) a
marketing fee of 1.5% of the aggregate dollar amount of Common Shares sold in
the Subscription Offering and the Community Offering, excluding shares sold by
Selected Brokers (as defined below), if any, and shares purchased by the ESOP
and directors, officers, and employees of the Association and members of their
immediate families. The management fee will be deducted from the marketing fee.
Webb will also receive a fee of $6,500 for the performance of conversion agent
and other data processing duties, which Webb shall subcontract. Webb is not
obligated to purchase any Common Shares.
The Association has also agreed to reimburse Webb for its legal fees and
disbursements in an amount not to exceed $25,000. The Association and MFC have
also agreed to indemnify Webb, under certain circumstances, against liabilities
and expenses (including legal fees) arising out of or based upon untrue
statements or omissions contained in the materials used in the Offering or in
various documents submitted to regulatory authorities in respect of the
Conversion, including liabilities under the Securities Act of 1933, as amended
(the "Act").
SELECTED BROKERS
If Common Shares remain available after the satisfaction of all
subscriptions received in the Subscription Offering, Webb may enter into an
agreement with certain brokers (the "Selected Brokers") to assist in the sale of
Common Shares in the Community Offering. If Selected Brokers are used, Webb
will receive commissions of no more than 5.5% of the aggregate purchase price of
the Common Shares sold in the Community Offering by the Selected Brokers, and
Webb will pay to the Selected Brokers a portion of the 5.5% commission pursuant
to selected dealer agreements. During the Community Offering, Selected Brokers
may only solicit indications of interest from their customers to place orders
with the Association as of a certain date (the "Order Date") for the purchase of
Common Shares. When and if the Association believes that enough indications of
interest and orders have been received in the Community Offering to consummate
the Conversion, Webb will request, as of the Order Date, Selected Brokers to
submit orders to purchase shares for which they have previously received
indications of interest from the customers. Selected Brokers will send
confirmations of the orders to such customers on the next business day after the
Order Date. Selected Brokers will debit the accounts of their customers on the
date which will be three business days from the Order Date (the "Settlement
Date"). On the Settlement Date, funds received by Selected Brokers will be
remitted to the Association. It is anticipated that the Conversion will be
consummated on the Settlement Date. However, if consummation is delayed after
payment has been received by the Association from
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<PAGE>
Selected Brokers, funds will earn interest at the passbook rate, currently an
annual percentage yield of ____%, until the completion of the offering. Funds
will be returned promptly in the event the Conversion is not consummated.
EFFECT OF EXTENSION OF COMMUNITY OFFERING
If the Community Offering extends beyond 45 days after the Subscription
Expiration Date, persons who have subscribed for Common Shares in the
Subscription Offering or in the Community Offering will receive a written notice
that they have the right to increase, decrease or rescind their subscriptions
for Common Shares at any time prior to 20 days before the end of the extension
period. Any person who does not affirmatively elect to continue his
subscription or elects to rescind his subscription during any such extension
will have all of his funds promptly refunded with interest. Any person who
elects to decrease his subscription during any such extension shall have the
appropriate portion of his funds promptly refunded with interest.
USE OF ORDER FORMS
Subscriptions for Common Shares in the Subscription Offering and orders for
Common Shares in the Community Offering may be made only by completing and
submitting an Order Form. Any person who desires to subscribe for Common Shares
in the Subscription Offering or order Common Shares in the Community Offering
must do so by delivering to the Association, by mail or in person, prior to 4:30
p.m., Eastern Time, on _______, 1996, a properly executed and completed Order
Form, together with full payment of the subscription price of $10 for each
Common Share for which subscription is made. ANY ORDER FORM WHICH IS NOT
RECEIVED BY THE ASSOCIATION PRIOR TO 4:30 P.M., EASTERN TIME, ON ________, 1996,
OR FOR WHICH FULL PAYMENT HAS NOT BEEN RECEIVED BY THE ASSOCIATION PRIOR TO SUCH
TIME, WILL NOT BE ACCEPTED. PHOTOCOPIES, TELECOPIES OR OTHER REPRODUCTIONS OF
ORDER FORMS WILL NOT BE ACCEPTED. See "ADDITIONAL INFORMATION."
AN EXECUTED ORDER FORM, ONCE RECEIVED BY MFC, MAY NOT BE MODIFIED, AMENDED
OR RESCINDED WITHOUT THE CONSENT OF MFC, UNLESS (i) THE COMMUNITY OFFERING IS
NOT COMPLETED WITHIN 45 DAYS AFTER THE SUBSCRIPTION EXPIRATION DATE OR (ii) THE
FINAL VALUATION OF THE ASSOCIATION, AS CONVERTED, IS LESS THAN $8,585,000 OR
MORE THAN $13,357,250. IF EITHER OF THOSE EVENTS OCCUR, PERSONS WHO HAVE
SUBSCRIBED FOR COMMON SHARES IN THE SUBSCRIPTION OFFERING OR ORDERED COMMON
SHARES IN THE COMMUNITY OFFERING WILL RECEIVE WRITTEN NOTICE THAT, UNTIL A DATE
SPECIFIED IN THE NOTICE, THEY HAVE A RIGHT TO AFFIRM, INCREASE, DECREASE OR
RESCIND THEIR SUBSCRIPTIONS OR ORDERS. ANY PERSON WHO DOES NOT AFFIRMATIVELY
ELECT TO CONTINUE HIS SUBSCRIPTION OR ORDER OR ELECTS TO RESCIND HIS
SUBSCRIPTION OR ORDER DURING ANY SUCH EXTENSION WILL HAVE ALL OF HIS FUNDS
PROMPTLY REFUNDED WITH INTEREST. ANY PERSON WHO ELECTS TO DECREASE HIS
SUBSCRIPTION OR ORDER DURING ANY SUCH EXTENSION WILL HAVE THE APPROPRIATE
PORTION OF HIS FUNDS PROMPTLY REFUNDED WITH INTEREST. IN ADDITION, IF THE
MAXIMUM PURCHASE LIMITATION IS INCREASED TO MORE THAN 26,715 COMMON SHARES,
PERSONS WHO HAVE SUBSCRIBED FOR 26,715 COMMON SHARES WILL BE GIVEN THE
OPPORTUNITY TO INCREASE THEIR SUBSCRIPTIONS.
PAYMENT FOR COMMON SHARES
Payment of the subscription or order price for all Common Shares for which
subscription or order is made must accompany all completed Order Forms in order
for subscriptions or orders to be valid. Payment for Common Shares may be made
(i) in cash, if delivered in person; (ii) by check, bank draft or money order
made payable to the Association; or (iii) by authorization of withdrawal from
deposit accounts in the Association (other than IRAs). The Association cannot
lend money or otherwise extend credit to any person to purchase Common Shares,
other than the ESOP.
Payments made in cash or by check, bank draft or money order will be placed
in a segregated savings account insured by the FDIC up to applicable limits
until the Conversion is completed or terminated. Interest will be paid by the
Association on such account at the Association's passbook savings account rate,
currently annual percentage yield of ___%, from the date payment is received
until the Conversion is completed or terminated. Payments made by check will
not be deemed to have been received until such check has cleared for payment.
Instructions for authorizing withdrawals from deposit accounts, including
certificates of deposit, are provided in the Order Form. Once a withdrawal has
been authorized, none of the designated withdrawal amount may be used by a
subscriber for any purpose other than to purchase Common Shares, unless the
Conversion is terminated. All sums authorized for withdrawal will continue to
earn interest at the contract rate for such account or certificate until the
completion or termination of the Conversion. Interest penalties for early
withdrawal applicable to certificate accounts will
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be waived in the case of withdrawals authorized for the purchase of Common
Shares. If a partial withdrawal from a certificate account results in a balance
less than the applicable minimum balance requirement, the certificate will be
canceled and the remaining balance will earn interest at the Association's
passbook rate subsequent to the withdrawal.
Persons who are beneficial owners of IRAs maintained at the Association do
not personally have subscription rights related to such account. The account
itself, however, may have subscription rights. In order to utilize funds in an
IRA maintained at the Association, the funds must be transferred to a
self-directed IRA that permits the funds to be invested in stock. The
beneficial owner of the IRA must direct the trustee of the account to use funds
from such account to purchase Common Shares in connection with the Conversion.
THIS CANNOT BE DONE THROUGH THE MAIL. Persons who are interested in utilizing
IRAs at the Association to subscribe for Common Shares should contact the
Conversion Information Center at (513)___-____ for instructions and assistance.
Subscriptions and orders will not be filled by the Association until
subscriptions and orders have been received in the Offering for up to 858,000
Common Shares, the minimum point of the Valuation Range. If the Conversion is
terminated, all funds delivered to the Association for the purchase of Common
Shares will be returned with interest, and all charges to deposit accounts will
be rescinded. If subscriptions and orders are received for at least 833,000
Common Shares, subscribers and other purchasers will be notified by mail,
promptly on completion of the sale of the Common Shares, of the number of shares
for which their subscriptions or orders have been accepted. The funds on
deposit with the Association for the purchase of Common Shares will be withdrawn
and paid to MFC in exchange for the Common Shares. Certificates representing
Common Shares will be delivered promptly thereafter. The Common Shares will not
be insured by the FDIC.
If the ESOP subscribes for Common Shares in the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes but may pay for such Common Shares upon consummation of the
Conversion.
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information regarding the
subscription rights intended to be exercised by the directors and executive
officers of the Association and MFC and their Associates and persons with whom
they may be deemed to be Acting in Concert:
<TABLE>
<CAPTION>
Name Total shares(2) Percent of total offering(1) Aggregate purchase price(2)
- ---- --------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
Robert Gandenberger 2,000 0.20% $ 20,000
David H. Korn 40,400 4.00 404,000
John T. Larimer (3) 16,200 1.60 162,000
Rae Skirvin Larimer (3) 14,200 1.41 142,000
R. C. Meyerenke 2,500 0.25 25,000
Edgar H. May 2,500 0.25 25,000
Una Schaeperklaus (3) 10,000 0.99 100,000
Wilbur H. Tisch 5,000 0.50 50,000
Kathleen A. White 500 0.05 5,000
Julie M. Bertsch 7,500 0.74 75,000
Charles D. Dell 17,500 1.73 175,000
------- ----- ----------
All directors and executive
officers as a group (12 persons) 118,300 11.71% $1,183,000
------- ----- ----------
------- ----- ----------
</TABLE>
- ------------------------------------
(1) Assumes that 1,010,000 Common Shares, the mid-point of the Valuation Range,
will be sold in connection with the Conversion at $10 per share and that a
sufficient number of Common Shares will be available to satisfy the
intended purchases by directors and executive officers. See "Pricing and
Number of Common Shares to be Sold."
(2) Amounts under "Total shares" and "Aggregate purchase price" may increase in
the event that more than 1,010,000 Common Shares are sold in connection
with the Conversion.
(Footnotes continued on next page)
-14-
<PAGE>
(3) John T. Larimer is Rae Skirvin Larimer's spouse and Una Schaeperklaus'
sister-in-law. Rae Skirvin Larimer and Una Schaeperklaus are sisters.
All purchases by executive officers and directors of the Association are
being made for investment purposes only and with no present intent to resell.
PRICING AND NUMBER OF COMMON SHARES TO BE SOLD
The aggregate offering price of the Common Shares will be based on the pro
forma market value of the shares as determined by an independent appraisal of
the Association. Keller, a firm which evaluates and appraises financial
institutions, was retained by the Association to prepare an appraisal of the
estimated pro forma market value of the Association as converted. Keller will
receive a fee of $17,000 for its appraisal and one update. Such amount includes
out-of-pocket expenses.
Keller was selected by the Board of Directors of the Association because
Keller has extensive experience in the valuation of thrift institutions,
particularly in the mutual-to-stock conversion context. The Board of Directors
interviewed Keller's principal, reviewed the credentials of Keller's appraisal
personnel and obtained references and recommendations from other companies which
have engaged Keller. Keller is certified by the OTS as a mutual-to-stock
conversion appraiser. The Association and Keller have no relationships which
would affect Keller's independence.
The appraisal was prepared by Keller in reliance upon the information
contained herein. Keller also considered the following factors, among others:
the present and projected operating results and financial condition of the
Association and the economic and demographic conditions in the Association's
existing market area; the quality and depth of the Association's management and
personnel; certain historical financial and other information relating to the
Association; a comparative evaluation of the operating and financial statistics
of the Association with those of other thrift institutions; the aggregate size
of the Offering; the impact of the Conversion on the Association's regulatory
capital and earnings potential; the trading market for stock of comparable
thrift institutions and thrift holding companies; and general conditions in the
markets for such stocks.
Three valuation methods were used by Keller: price to book value; price to
earnings; and price to assets. The most emphasis was placed on the price to
book value method. The price to book value method compares the pro forma book
value of the Association, which takes into consideration the going concern value
of a thrift institution, to the book value of the comparable group. Upward and
downward adjustments are made, as appropriate, to account for variations between
the Association and the comparable group on specific factors. The net
Conversion proceeds are included for purposes of determining the pro forma book
value of the Association. The book value method focuses on the Association's
financial condition and does not give as much consideration to earnings. The
price to earnings method is used to ascertain the multiple of earnings at which
the Association is likely to trade, based on the multiple of earnings at which a
comparable group of thrift institutions trades. The comparable group consisted
of 10 thrift institutions located in the Midwest which had similar operating and
financial characteristics to the Association. In calculating the price to
earnings ratio, Keller used the Association's core earnings for the year ended
March 31, 1996. The use of core earnings eliminates items which are not
generated by the principal business activities of the Association. The price to
assets method does not consider the Association's financial condition or
earnings. Consequently, it is not heavily relied on in valuing financial
institutions. In determining the reasonableness and adequacy of the appraisal,
the Board of Directors reviewed and considered the foregoing methodology and the
appropriateness of the assumptions used by Keller in the preparation of the
appraisal.
The Pro Forma Value of the Association, as converted, determined by Keller,
is $10,100,000 as of August 2, 1996. The Valuation Range established in
accordance with the Plan is $8,585,000 to $11,615,000, which, based upon a per
share offering price of $10, will result in the sale of between 858,000 and
1,161,500 Common Shares. The total number of Common Shares sold in the
Conversion will be determined in the discretion of the Board of Directors, based
on the Valuation Range. Pro forma shareholders' equity per share and pro forma
earnings per share decrease moving from the low end to the high end of the
Valuation Range. See "PRO FORMA DATA."
In the event that Keller determines at the close of the Conversion that the
aggregate pro forma value of the Association is higher or lower than the Pro
Forma Value, but is nevertheless within the Valuation Range, MFC will make an
appropriate adjustment by raising or lowering the total number of Common Shares
sold in the Conversion consistent with the final Valuation Range. If, due to
changing market conditions, the final valuation is less than $8,585,000 or more
-15-
<PAGE>
than $11,615,000, subscribers will be given a notice of such final valuation and
the right to affirm, increase, decrease or rescind their subscriptions. Any
person who does not affirmatively elect to continue his subscription or elects
to rescind his subscription before the date specified in the notice will have
all of his funds promptly refunded with interest. Any person who elects to
decrease his subscription will have the appropriate portion of his funds
promptly refunded with interest.
THE APPRAISAL BY KELLER IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON SHARES OR
VOTING TO APPROVE THE CONVERSION. IN PREPARING THE VALUATION, KELLER HAS RELIED
UPON AND ASSUMED THE ACCURACY AND COMPLETENESS OF THE AUDITED FINANCIAL
STATEMENTS AND STATISTICAL INFORMATION PROVIDED BY THE ASSOCIATION. KELLER DID
NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED
BY THE ASSOCIATION, NOR DID KELLER VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES
OF THE ASSOCIATION OR MFC. THE VALUATION CONSIDERS THE ASSOCIATION ONLY AS A
GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION
VALUE OF THE ASSOCIATION. MOREOVER, BECAUSE SUCH VALUATION IS NECESSARILY BASED
UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT
TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING
COMMON SHARES WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT THE CONVERSION
PURCHASE PRICE.
A copy of the complete appraisal is on file and open for inspection at the
offices of the OTS, 1700 G Street, N.W., Washington, D.C. 20552; at the Central
Regional Office of the OTS, 200 West. Madison Street, Suite 1300, Chicago,
Illinois 60606; at the offices of the Division, 77 S. High Street, Columbus,
Ohio 43215; and at the offices of the Association.
RESTRICTIONS ON REPURCHASE OF COMMON SHARES
OTS regulations generally prohibit MFC from repurchasing any of its capital
stock for three years following the date of completion of the Conversion, except
as part of an open-market stock repurchase program during the second and third
years following the Conversion involving no more than 5% of the outstanding
capital stock during a twelve-month period. The OTS has recently indicated,
however, that it would permit repurchases beginning after six months following
the completion of the Conversion and will under certain circumstances, permit
repurchases of more than 5% during a twelve-month period. In addition, after
such a repurchase, the Association's regulatory capital must equal or exceed all
regulatory capital requirements. Before the commencement of a repurchase
program, MFC must provide notice to the OTS, and the OTS may disapprove the
program if the OTS determines that it would adversely affect the financial
condition of the Association or if it determines that there is no valid business
purpose for such repurchase. Such repurchase restrictions would not prohibit
the ESOP or the RRP from purchasing Common Shares during the first year
following the Conversion.
Ohio regulations prohibit MFC from repurchasing shares during the first
year after the Conversion if the effect thereof would cause the Association not
to meet its capital requirements.
RESTRICTIONS ON TRANSFER OF COMMON SHARES BY DIRECTORS AND OFFICERS
Common Shares purchased by directors and executive officers of MFC will be
subject to the restriction that such shares may not be sold for a period of one
year following completion of the Conversion, except in the event of the death of
the shareholder. The certificates evidencing Common Shares issued by MFC to
directors and executive officers will bear a legend giving appropriate notice of
the restriction imposed upon them. In addition, MFC will give appropriate
instructions to the transfer agent (if any) for MFC's common shares in respect
of the applicable restriction on transfer of any restricted shares. Any shares
issued as a stock dividend, stock split or otherwise in respect of restricted
shares will be subject to the same restrictions.
Subject to certain exceptions, for a period of three years following the
Conversion, no director or officer of MFC or the Association, or any of their
Associates, may purchase any common shares of MFC without the prior written
approval of the OTS, except through a broker-dealer registered with the SEC.
This restriction will not apply, however, to negotiated transactions involving
more than 1% of a class of outstanding common shares of MFC or shares acquired
by any stock benefit plan of MFC or the Association.
The Common Shares, like the stock of most public companies, are subject to
the registration requirements of the Act. Accordingly, the Common Shares may be
offered and sold only in compliance with such registration requirements or
pursuant to an applicable exemption from registration. Common Shares received
in the Conversion by persons who are not "affiliates" of MFC may be resold
without registration. Common Shares received by affiliates of MFC will be
subject to
-16-
<PAGE>
resale restrictions. An "affiliate" of MFC, for purposes of Rule 144, is a
person who directly, or indirectly through one or more intermediaries, controls,
or is controlled by or is under common control with, MFC. Rule 144 generally
requires that there be publicly available certain information concerning MFC and
that sales subject to Rule 144 be made in routine brokerage transactions or
through a market maker. If the conditions of Rule 144 are satisfied, each
affiliate (or group of persons acting in concert with one or more affiliates) is
generally entitled to sell in the public market, without registration, in any
three-month period, a number of shares which does not exceed the greater of (i)
1% of the number of outstanding shares of MFC or (ii) if the shares are admitted
to trading on a national securities exchange or reported through the automated
quotation system of a registered securities association, such as Nasdaq Small
Cap, the average weekly reported volume of trading during the four weeks
preceding the sale.
RIGHTS OF REVIEW
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves the Plan may obtain review of such action by
filing in the Court of Appeals of the United States for the circuit in which the
principal office or residence of such person is located or in the United States
Court of Appeals for the District of Columbia, a written petition praying that
the final action of the OTS be modified, terminated or set aside. Such petition
must be filed within 30 days after the date of mailing of proxy materials to the
voting members of the Association or within 30 days after the date of
publication in the Federal Register of notice of approval of the Plan by the
OTS, whichever is later.
USE OF PROCEEDS
The following table presents the estimated gross and net proceeds from the
sale of the Common Shares, based on the Valuation Range:
<TABLE>
<CAPTION>
Minimum Mid-point Maximum Maximum, as adjusted
------- --------- ------- --------------------
<S> <C> <C> <C> <C>
Gross proceeds $8,585,000 $10,100,000 $11,615,000 $13,357,250
Less estimated expenses 417,000 435,000 453,000 473,000
---------- ----------- ----------- -----------
Total net proceeds $8,168,000 $ 9,665,000 $11,162,000 $12,884,250
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
The net proceeds from the sale of the Common Shares may vary depending upon
financial and market conditions at the time of the completion of the Offering.
See "THE CONVERSION - Pricing and Number of Common Shares to be Sold." The
expenses detailed above are estimated. Estimated expenses include estimated
sales commissions payable to Webb. Sales commissions have been computed on the
basis of the following assumptions: (i) approximately 19% of the Common Shares
sold in the Offering will be purchased by directors, officers and employees of
the Association and the members of their immediate families; (ii) 8% of the
Common Shares sold in the Offering will be purchased by the ESOP; and (iii) 73%
of the Common Shares sold in the Offering will be sold in the Subscription
Offering with sales commissions of 1.5% of the aggregate dollar amount of such
Common Shares. Actual expenses may be more or less than estimated. See "THE
CONVERSION - Marketing Plan."
MFC will retain 50% of the net proceeds from the sale of the Common Shares,
or approximately $4.8 million at the mid-point of the Valuation Range, including
the value of a promissory note from the ESOP which MFC intends to accept in
exchange for the issuance of MFC Common Shares to the ESOP. The cash proceeds
received from the sale of Common Shares will be used by MFC to fund the RRP,
which intends to purchase up to 4% of all Common Shares sold in the Conversion,
and for general corporate purposes, which may include the payment of dividends,
repurchases of Common Shares and acquisitions of other financial institutions.
MFC presently has no specific plans to use the proceeds for any such purposes,
except the funding of the RRP. See "THE CONVERSION - Restrictions on Repurchase
of Common Shares."
The remainder of the net proceeds received from the sale of the Common
Shares, approximately $4.8 million at the mid-point of the Valuation Range, will
be invested by MFC in the capital stock to be issued by the Association to MFC
as a result of the Conversion and will increase the regulatory capital of the
Association. Initially, for liquidity purposes, the Association will invest the
remainder of the funds in U.S. Treasury and government agency securities with
maturities of three years or less and short-term interest-bearing deposits. The
Association hopes that such proceeds will eventually be used to the
Association's lending and investment activities. The Association expects to
increase its loan origination staff and commence the origination of
adjustable-rate mortgage loans. No assurance can be provided, however, with
respect to
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<PAGE>
when such hiring or originations will occur or the effect such efforts will have
on the Association's financial condition or earnings.
MARKET FOR COMMON SHARES
There is currently no market for the Common Shares. No assurance can be
given that an active or liquid market for the Common Shares will develop after
the completion of the Conversion or, if such a market does develop, that it will
continue. Investors should consider, therefore, the potentially illiquid and
long-term nature of an investment in the Common Shares.
A public trading market for the stock of any issuer, including MFC, depends
upon the presence of both willing buyers and willing sellers at any given time.
MFC has applied to have the Common Shares included on Nasdaq Small Cap under the
symbol "____" upon completion of the Conversion, subject to certain conditions
which the Association and MFC believe will be satisfied, although no assurance
can be provided that the conditions will be met. One of the conditions to the
Nasdaq Small Cap listing is the commitment of at least two brokerage firms to
make a market in the Common Shares. KBW intends to make a market in the Common
Shares but has no obligation to do so. Webb does not intend to make a market in
the Common Shares.
The aggregate offering price for the Common Shares is based upon an
independent appraisal of the Association. The appraisal of the pro forma market
value of the Association, as converted, does not represent Keller's opinion as
to the price at which the Common Shares may trade, and such appraisal is not a
recommendation as to the advisability of purchasing Common Shares. No assurance
can be given that the Common Shares may later be resold at the price at which
they are purchased in connection with the Conversion. See "RISK FACTORS -
Absence of Market for Common Shares" in the Prospectus.
DIVIDEND POLICY
The declaration and payment of dividends by MFC will be subject to the
discretion of the Board of Directors of MFC, to the earnings and financial
condition of MFC and to general economic conditions. If the Board of Directors
of MFC determines in the exercise of its discretion that the net income, capital
and consolidated financial condition of MFC and the general economy justify the
declaration and payment of dividends by MFC, the Board of Directors of MFC may
authorize the payment of dividends on the Common Shares, subject to the
limitation under Ohio law that a corporation may pay dividends only out of
surplus. There can be no assurance that dividends will be paid on the Common
Shares or, if paid, will continue to be paid in the future.
Other than earnings on the investment of the proceeds retained by MFC and
interest earned on the loan to the ESOP, the only source of income of MFC will
be dividends periodically declared and paid by the Board of Directors of the
Association on the common shares of the Association held by MFC. The
declaration and payment of dividends by the Association to MFC will be subject
to the discretion of the Board of Directors of the Association, to the earnings
and financial condition of the Association, to general economic conditions and
to federal and state restrictions on the payment of dividends by thrift
institutions. Under regulations of the OTS applicable to converted
associations, the Association will not be permitted to pay a cash dividend on
its capital stock after the Conversion if its regulatory capital would, as a
result of the payment of such dividend, be reduced below the amount required for
the Liquidation Account or the applicable regulatory capital requirement
prescribed by the OTS. See "THE CONVERSION - Principal Effects of the
Conversion -- Liquidation Account" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Liquidity and Capital Resources"
in the Prospectus. The Association may not pay a dividend unless such dividend
also complies with an OTS regulation limiting capital distributions by savings
and loan associations. Capital distributions, for purposes of such regulation,
include, without limitation, payments of cash dividends, repurchases and certain
other acquisitions by an association of its shares and payments to stockholders
of another association in an acquisition of such other association. See
"REGULATION - Office of Thrift Supervision -- Limitations on Capital
Distributions" in the Prospectus.
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<PAGE>
CAPITALIZATION
Set forth below is the historical capitalization of the Association at June
30, 1996, and the pro forma consolidated capitalization of MFC as adjusted to
give effect to the sale of Common Shares based on the Valuation Range and
estimated expenses. See "USE OF PROCEEDS" and "THE CONVERSION - Pricing and
Number of Common Shares to be Sold."
<TABLE>
<CAPTION>
Pro forma capitalization of MFC
at June 30, 1996, assuming the sale of:
--------------------------------------------------------
858,500 1,010,000 1,161,500
Historical Common Common Common
capitalization Shares Shares Shares
of the Association at (Offering (Offering (Offering
June 30, price of price of price of
1996 $10.00 per share) $10.00 per share) $10.00 per share)
------------------- ------------------ ------------------ -----------------
(In thousands)
<S> <C> <C> <C> <C>
Deposits(1) $38,190 $38,190 $38,190 $38,190
------- ------- ------- -------
------- ------- ------- -------
Borrowings $ - $ - $ - $ -
------- ------- ------- -------
------- ------- ------- -------
Capital and retained earnings:
Prepared Shares, no par value per share:
authorized - 1,000,000 shares, assumed
outstanding - none
Common Shares, no par value per share:
authorized - 4,000,000 shares; assumed
outstanding - as shown (2) $ - $ - $ - $ -
Additional paid-in capital - 8,168 9,665 11,162
Less Common Shares acquired by the
ESOP (3) - (687) (808) (929)
Less Common Shares acquired by the RRP
(4) - (343) (404) (465)
Retained earnings, substantially restricted
(5) 7,533 7,533 7,533 7,533
------- ------- ------- -------
Total capital and retained earnings $ 7,533 $14,671 $15,986 $17,301
------- ------- ------- -------
------- ------- ------- -------
<CAPTION>
1,335,725
Common
Shares
(Offering
price of
$10.00 per share)
-----------------
<S> <C>
Deposits(1) $38,190
-------
-------
Borrowings $ -
-------
-------
Capital and retained earnings:
Prepared Shares, no par value per share:
authorized - 1,000,000 shares, assumed
outstanding - none
Common Shares, no par value per share:
authorized - 4,000,000 shares; assumed
outstanding - as shown (2) $ -
Additional paid-in capital 12,884
Less Common Shares acquired by the
ESOP (3) (1,069)
Less Common Shares acquired by the RRP
(4) (534)
Retained earnings, substantially restricted
(5) 7,533
-------
Total capital and retained earnings $18,814
-------
-------
</TABLE>
(1) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Shares in the Conversion. Any such
withdrawals will reduce pro forma deposits by the amount of such
withdrawals.
(2) The number of Common Shares to be issued will be determined on the basis of
the final valuation of the Association. See "THE CONVERSION - Pricing and
Number of Common Shares to be Sold." Common Shares assumed outstanding
does not reflect the issuance of any common shares which may be reserved
for issuance under the Stock Option Plan. See "MANAGEMENT - Stock Benefit
Plans -- Stock Option Plan." Reflects receipt of the proceeds from the
sale of the Common Shares, net of estimated expenses. Estimated expenses
include estimated sales commissions payable to Webb. Such sales
commissions have been computed based on the following assumptions: (i)
approximately 19% of the Common Shares sold in the Offering will be
purchased by directors, officers and employees of the Association and the
members of their immediate families; (ii) 8% of the Common Shares sold in
the Offering will be purchased by the ESOP; and (iii) 73% of the Common
Shares sold in the Offering will be purchased in the Subscription Offering
with sales commissions of 1.5% of the aggregate dollar amount of such
Common Shares.
(3) Assumes that 8% of the Common Shares sold in connection with the Conversion
will be acquired by the ESOP with funds borrowed by the ESOP from MFC for a
term of 8 years at a rate of 8%. The ESOP loan will be secured solely by
the Common Shares purchased by the ESOP. The Association has agreed,
however, to use its best efforts to fund the ESOP based on future earnings,
which best efforts funding will reduce the Association's total capital and
retained earnings, as reflected in the table. If the ESOP is unable to
purchase all or part of the Common Shares for which it subscribes, the ESOP
may purchase common shares on the open market or may purchase authorized
but unissued shares of MFC. If the ESOP purchases authorized but unissued
shares from MFC, such purchases would have a dilutive effect of
approximately 7.41% on the voting interests of MFC's shareholders. See
"MANAGEMENT - Stock Benefit Plans -- Employee Stock Ownership Plan" and
"RISK FACTORS - Possible Dilutive Effect of RRP and Stock Option Plan on
Net Income and Shareholders' Equity."
(4) Assumes that 4% of the Common Shares will be acquired in the open market by
the RRP after the Conversion at a price of $10 per share. There can be no
assurance that the RRP will be implemented, that a sufficient number of
shares will be available for purchase by the RRP, that shares could be
purchased at a price of $10 per share or that the shareholders will approve
the RRP if it is implemented during the first year after the Conversion. A
higher price per share, assuming the purchase of the entire 4% of the
shares, would reduce pro forma shareholders' equity. The RRP may purchase
shares in the open market or may purchase authorized but unissued shares
from MFC. If authorized but unissued shares are purchased, the voting
interests of existing shareholders would be diluted approximately
3.8%. See "MANAGEMENT - Stock Benefit Plans -- Recognition and Retention
Plan and Trust."
(5) Retained earnings include restricted and unrestricted retained earnings and
unrealized gain on securities designated as available for sale. See "THE
CONVERSION - Principal Effects of the Conversion -- Liquidation Account"
for information concerning the liquidation account to be established in
connection with the Conversion and "TAXATION - Federal Taxation" for
information concerning restricted retained earnings for federal tax
purposes.
PRO FORMA DATA
Set forth below are the pro forma consolidated net income of MFC for the
nine months ended June 30, 1996, and the year ended September 30, 1995, and the
pro forma consolidated shareholders' equity of MFC as of and for the respective
dates and periods ending on such dates, along with the related pro forma
earnings per share amounts, giving effect to the sale of the Common Shares. The
computations are based on the assumed issuance of 858,500 Common Shares (minimum
of the Valuation Range), 1,010,000 Common Shares (mid-point of the Valuation
Range), 1,161,500 Common Shares (maximum of the Valuation Range) and 1,335,725
Common Shares (15% above the maximum of the Valuation Range). See "THE
CONVERSION - Pricing and Number of Common Shares to be Sold." The pro forma
data is based on the
-19-
<PAGE>
following assumptions: (i) the sale of the Common Shares occurred at the
beginning of the period and yielded the net proceeds indicated; (ii) such net
proceeds were invested at the beginning of the period to yield annualized
after-tax net returns of 3.82% for the nine months ended June 30, 1996, and the
year ended September 30, 1995; and (iii) no withdrawals from existing deposit
accounts were made to purchase the Common Shares. The assumed returns are based
on the one-year U.S. Treasury bill yield of 5.79% in effect at June 30, 1996.
This rate was used as an alternative to the arithmetic average of the
Association's interest-earning assets and interest-bearing deposits. In
calculating pro forma net earnings, a statutory federal income tax rate of 34%
has been assumed for the period. In the opinion of management, the assumed
after-tax yield does not differ materially from the estimated after-tax yield
which will be obtained on the initial investment of the cash proceeds in
short-term, interest-bearing deposits and is viewed as being more relevant in
the current low interest rate environment than the use of an arithmetic average
of the fiscal year 1995 weighed average yield on interest-earning assets and
weighed average rates paid on deposits during such period. Management believes
that the U.S. Treasury bill yield is more indicative of the rate of return that
can be achieved on the investment of the Conversion proceeds. Actual yields may
differ, however, from the assumed returns. The pro forma consolidated net
income amounts derived from the assumptions set forth herein should not be
considered indicative of the actual results of operations of MFC that would have
been attained for any period if the Conversion had been actually consummated at
the beginning of such period.
As the table demonstrates, pro forma consolidated earnings per share and
pro forma consolidated shareholders' equity per share decrease as the amount of
Common Shares sold moves from the minimum of the Valuation Range to the adjusted
maximum of the Valuation Range. Conversely, the offering price as a multiple of
pro forma earnings per share and as a percent of pro forma shareholders' equity
per share increases as the amount of Common Shares sold moves from the minimum
of the Valuation Range to the adjusted maximum of the Valuation Range.
THE PRO FORMA DATA AND ACCOMPANYING NOTES SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. NO
ASSURANCE CAN BE PROVIDED THAT THE YIELDS WILL BE ACHIEVED ON THE INVESTMENT OF
THE CONVERSION PROCEEDS. THE PRO FORMA DATA DOES NOT PURPORT TO REPRESENT WHAT
MFC'S FINANCIAL POSITION OR RESULTS OF OPERATIONS ACTUALLY WOULD HAVE BEEN HAD
THE AFOREMENTIONED TRANSACTIONS BEEN COMPLETED AS OF THE DATE OR AT THE
BEGINNING OF THE PERIODS INDICATED, OR TO PROJECT MFC'S FINANCIAL POSITION OR
RESULTS OF OPERATIONS AT ANY FUTURE DATE OR FOR ANY FUTURE PERIOD.
-20-
<PAGE>
<TABLE>
<CAPTION>
At and for the nine months ending June 30, 1996, assuming the sale of:
----------------------------------------------------------------------
858,500 1,010,000
Common Shares Common Shares
(Offering price of (Offering price of
$10.00 per share) $10.00 per share)
------------------- -------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Gross proceeds $ 8,585 $10,100
Estimated expenses 417 435
------- -------
Estimated net proceeds 8,168 9,665
Less Common Shares acquired by the RRP (1) (343) (404)
Less Common Shares acquired by the ESOP (2) (687) (808)
------- -------
Net cash proceeds $ 7,138 $ 8,453
------- -------
------- -------
Net earnings:
Historical $ 302 $ 302
Pro forma income on net proceeds (3) 205 242
Pro forma adjustment for the RRP (1) (34) (40)
Pro forma adjustment for the ESOP (2) (43) (50)
------- -------
Pro forma net earnings $ 430 $ 454
------- -------
------- -------
Earnings per share:
Historical $ .35 $ .30
Pro forma income on net proceeds .24 .24
Pro forma adjustment for the RRP (1) (.04) (.04)
Pro forma adjustment for the ESOP (2) (.05) (.05)
------- -------
Pro forma earnings per share (3)(4) $ .50 $ .45
------- -------
------- -------
Offering price as a multiple of pro forma
earnings per share 20.00x 22.22x
------- -------
------- -------
Shareholders' equity: (5)
Historical $ 7,533 $ 7,533
Estimated net proceeds from the sale of
Common Shares 8,168 9,665
Less unearned RRP shares (1) (343) (404)
Less unearned ESOP shares (2) (687) (808)
------- -------
Pro forma shareholders' equity $14,671 $15,986
------- -------
------- -------
Per share shareholders' equity:
Historical $ 8.77 $7.46
Estimated net proceeds 9.51 9.57
Less unearned RRP shares (1) (.40) (.40)
Less unearned ESOP shares (2) (.80) (.80)
------- -------
Pro forma shareholders' equity per share (3) $ 17.08 $ 15.83
------- -------
------- -------
Ratio of offering price to pro forma shareholders'
equity per share 58.55% 63.17%
------- -------
------- -------
<CAPTION>
At and for the nine months ending June 30, 1996, assuming the sale of:
----------------------------------------------------------------------
1,161,500 1,335,725
Common Shares Common Shares
(Offering price of (Offering price of
$10.00 per share) $10.00 per share)
------------------- -------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Gross proceeds $11,615 $13,357
Estimated expenses 453 473
------- -------
Estimated net proceeds 11,162 12,884
Less Common Shares acquired by the RRP (1) (465) (534)
Less Common Shares acquired by the ESOP (2) (929) (1,069)
------- -------
Net cash proceeds $ 9,768 $11,281
------- -------
------- -------
Net income:
Historical $ 302 $ 302
Pro forma income on net proceeds (3) 280 323
Pro forma adjustment for the RRP (1) (46) (53)
Pro forma adjustment for the ESOP (2) (57) (66)
------- -------
Pro forma net earnings $ 479 $ 506
------- -------
------- -------
Per share net income:
Historical $ .26 $ .23
Pro forma income on net proceeds .24 .24
Pro forma adjustment for the RRP (1) (.04) (.04)
Pro forma adjustment for the ESOP (2) (.05) (.05)
------- -------
Pro forma earnings per share (3)(4) $ .41 $ .38
------- -------
------- -------
Offering price as a multiple of pro forma
earnings per share 24.39x 26.32x
------- -------
------- -------
Shareholders' equity: (5)
Historical $ 7,533 $ 7,533
Estimated net proceeds from the sale of
Common Shares 11,162 12,884
Less unearned RRP shares (1) (465) (534)
Less unearned ESOP shares (2) (929) (1,069)
------- -------
Pro forma shareholders' equity $17,301 $18,814
------- -------
------- -------
Per share shareholders' equity:
Historical (6) $6.49 $5.64
Estimated net proceeds 9.61 9.65
Less unearned RRP shares (1)) (.40) (.40)
Less unearned ESOP shares (2)) (.80) (.80)
------- -------
Pro forma shareholders' equity per share (3) $14.90 $14.09
------- -------
------- -------
Ratio of offering price to pro forma shareholders'
equity per share 67.11% 70.97%
------- -------
------- -------
</TABLE>
--------------------------------------------------
(Footnotes on page 20)
-21-
<PAGE>
<TABLE>
<CAPTION>
At and for the year ended September 30, 1995, assuming the sale of:
-------------------------------------------------------------------
858,500 1,010,000
Common Shares Common Shares
(Offering price of (Offering price of
$10.00 per share) $10.00 per share)
------------------- -------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Gross proceeds $ 8,585 $10,100
Estimated expenses 417 435
------- -------
Estimated net proceeds 8,168 9,665
Less Common Shares acquired by the RRP (1) (343) (404)
Less Common Shares acquired by the ESOP (2) (687) (808)
------- -------
Net cash proceeds $7,138 $ 8,453
------- -------
------- -------
Net earnings:
Historical $ 467 $ 467
Pro forma income on net proceeds 273 323
Pro forma adjustment for the RRP (1) (45) (53)
Pro forma adjustment for the ESOP (2) (57) (67)
------- -------
Pro forma net earnings $ 638 $ 670
------- -------
------- -------
Earnings per share:
Historical $ .54 $ .46
Pro forma income on net proceeds .32 .32
Pro forma adjustment for the RRP (1) (.05) (.05)
Pro forma adjustment for the ESOP (2) (.07) (.07)
------- -------
Pro forma earnings per share (3)(6) $ .74 $ .66
------- -------
------- -------
Offering price as a multiple of pro forma
earnings per share 13.51x 15.15x
------- -------
------- -------
Shareholders' equity: (5)
Historical $ 7,153 $ 7,153
Estimated net proceeds from the sale of
Common Shares 8,168 9,665
Less unearned RRP shares (1) (343) (404)
Less unearned ESOP shares (2) (687) (808)
------- -------
Pro forma shareholders' equity $14,291 $15,606
------- -------
------- -------
Per share shareholders' equity:
Historical $ 8.33 $7.08
Estimated net proceeds 9.51 9.57
Less unearned RRP shares (1) (.40) (.40)
Less unearned ESOP shares (2) (.80) (.80)
------- -------
Pro forma shareholders' equity per share (3) $ 16.64 $ 15.45
------- -------
------- -------
Ratio of offering price to pro forma shareholders'
equity per share 60.10% 64.72%
------- -------
------- -------
- --------------------------------------------------
<CAPTION>
At and for the year ended September 30, 1995, assuming the sale of:
-------------------------------------------------------------------
1,161,500 1,335,725
Common Shares Common Shares
(Offering price of (Offering price of
$10.00 per share) $10.00 per share)
------------------- -------------------
(Dollars in thousands, except per share amounts)
<S> <C> <C>
Gross proceeds $11,615 $13,357
Estimated expenses 453 473
------- -------
Estimated net proceeds 11,162 12,884
Less Common Shares acquired by the RRP (1) (465) (534)
Less Common Shares acquired by the ESOP (2) (929) (1,069)
------- -------
Net cash proceeds $ 9,768 $11,281
------- -------
------- -------
Net income:
Historical $ 467 $ 467
Pro forma income on net proceeds 373 431
Pro forma adjustment for the RRP (1) (61) (70)
Pro forma adjustment for the ESOP (2) (77) (88)
------- -------
Pro forma net earnings $ 702 $ 740
------- -------
------- -------
Per share net income:
Historical $ .40 $ .35
Pro forma income on net proceeds .32 .32
Pro forma adjustment for the RRP (1) (.05) (.05)
Pro forma adjustment for the ESOP (2) (.07) (.07)
------- -------
Pro forma earnings per share (3)(6) $ .60 $ .55
------- -------
------- -------
Offering price as a multiple of pro forma
earnings per share 16.67x 18.18x
------- -------
------- -------
Shareholders' equity: (5)
Historical $ 7,153 $ 7,153
Estimated net proceeds from the sale of
Common Shares 11,162 12,884
Less unearned RRP shares (1) (465) (534)
Less unearned ESOP shares (2) (929) (1,069)
------- -------
Pro forma shareholders' equity $16,921 $18,434
------- -------
------- -------
Per share shareholders' equity:
Historical $ 6.16 $ 5.36
Estimated net proceeds 9.61 9.65
Less unearned RRP shares (1) (.40) (.40)
Less unearned ESOP shares (2) (.80) (.80)
------- -------
Pro forma shareholders' equity per share (3) $ 14.57 $ 13.81
------- -------
------- -------
Ratio of offering price to pro forma shareholders'
equity per share 68.63% 72.41%
------- -------
------- -------
</TABLE>
- --------------------------------------------------
(Footnotes on next page)
-22-
<PAGE>
(1) Assumes that 4% of the Common Shares sold in connection with the Conversion
will be purchased by the RRP after the Conversion at a price of $10 per
share and that one-fifth of the purchase price of the RRP shares will be
expensed in each of the first five years after the Conversion. If the RRP
is implemented in the first year after the completion of the Conversion, it
will be subject to various OTS requirements, including the requirement that
the RRP be approved by the shareholders of MFC. There can be no assurance
that the RRP will be approved by the shareholders, that a sufficient number
of shares will be available for purchase by the RRP or that the shares
could be purchased at $10 per share. A higher per share price, assuming
the purchase of the entire 4% of the shares, would reduce pro forma net
earnings and pro forma shareholders' equity. If an insufficient number of
shares is available in the open market to fund the RRP at the desired
level, MFC may issue additional authorized shares. The issuance of
authorized but unissued shares in an amount equal to 4% of the Common
Shares issued in the Conversion would result in a 3.85% dilution in
existing shareholders' voting interests. See "MANAGEMENT - Stock Benefit
Plans -- Recognition and Retention Plan and Trust."
(2) Assumes that 8% of the Common Shares sold in connection with the Conversion
will be purchased by the ESOP and that the funds used to acquire such
shares will be borrowed by the ESOP from MFC with repayment thereof secured
solely by the Common Shares purchased by the ESOP. The Association has
agreed, however, to use its best efforts to fund the ESOP based on future
earnings, which best efforts funding will reduce the income on the equity
raised in connection with the Conversion, as reflected in the table.
Assumes the level amortization of the ESOP loan over an eight-year period
with assumed tax benefits of 34%. See "MANAGEMENT - Stock Benefit Plans --
Employee Stock Ownership Plan." The Board of Directors may elect to issue
the ESOP shares from authorized but unissued shares. The issuance of
authorized but unissued shares to the ESOP would have the effect of
diluting the voting interest of existing shareholders by 7.41%.
(3) No effect has been given to shares reserved for issuance upon the exercise
of options pursuant to the Stock Option Plan. See "MANAGEMENT - Stock
Benefit Plans -- Stock Option Plan."
(4) Assumes that the ESOP holds 68,680 shares, 80,800 shares, 92,920 shares and
106,858 shares for purposes of computing earnings per share. Pursuant to
SOP 93-6, only ESOP shares which will be allocated over the period are
included in the earnings per share calculation. Application of SOP 93-6 to
the nine months ended June 30, 1996, would result in an earnings per share
presentation of $.54, $.48, $.44 and $.41, reflecting weighted average
shares outstanding of 796,259 shares, 936,775 shares, 1,077,291 shares and
1,238,885 shares at the minimum, mid-point, maximum and adjusted maximum of
the Valuation Range. SOP 93-6 also requires ESOP expense to be measured
based on the fair value of the shares to be allocated. The table reflects
the ESOP cost at the $10 offering price of the Common Shares in the
Conversion, which may be more or less than the fair value at which the
shares are ultimately allocated.
(5) The effect of the Liquidation Account is not included in these
computations. For additional information concerning the Liquidation
Account, see "THE CONVERSION - Principal Effects of the Conversion --
Liquidation Account." The amounts shown do not reflect the federal income
tax consequences of the potential restoration of the bad debt reserves to
income for tax purposes, which would be required in the event of
liquidation. See "TAXATION - Federal Taxation."
(6) Assumes that ESOP shares of 68,680 shares, 80,800 shares, 92,920 shares and
106,858 shares are outstanding for purposes of computing earnings per
share. Pursuant to SOP 93-6, only ESOP shares which will be allocated over
the period are included in the earnings per share calculation. Application
of SOP 93-6 to the year ended September 30, 1995, would result in an
earnings per share presentation of $.80, $.71, $.65 and $.60 reflecting
weighted average shares outstanding of 798,405 shares, 939,300 shares
1,080,195 shares and 1,242,224 shares at the minimum, mid-point, maximum
and adjusted maximum of the Valuation Range, respectively. SOP 93-6 also
requires ESOP expense to be measured based on the fair value of the shares
to be allocated. The table reflects the ESOP cost at the $10 offering
price of the Common Shares in the Conversion, which may be more or less
than the fair value at which the shares are ultimately allocated.
LEGAL PROCEEDINGS
The Association is not presently involved in any material legal
proceedings. From time to time, the Association is a party to legal proceedings
incidental to its business to enforce its security interest in collateral
pledged to secure loans made by the Association.
-23-
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
MFC. The Board of Directors of MFC consists of seven members divided into
two classes. All of the directors of MFC were initially elected to the Board of
Directors in 1996. The following table presents certain information in respect
of the members of the Board of Directors and the executive officers of MFC:
Name Age Position Term Expires
- ---- --- -------- ------------
Robert Gandenberger 68 Director 1998
John T. Larimer 62 Director and President 1998
Rae Skirvin Larimer 60 Director and Secretary 1997
Edgar H. May 71 Director 1998
R. C. Meyerenke 73 Director and Treasurer 1997
Wilbur H. Tisch 79 Director 1997
Kathleen A. White 39 Director 1997
Julie M. Bertsch 34 Chief Financial Officer -
ROBERT GANDENBERGER. Mr. Gandenberger retired as Supervisor of the
Hamilton County Ohio Recorder's Office in 1994. From 1991 to 1994, Mr.
Gandenberger served as a director of Cleves-North Bend.
JOHN T. LARIMER. Mr. Larimer, an attorney, has served as President of the
Association since 1993 and as Managing Officer of the Association since November
1995. He has been a director of the Association since 1976. Mr. Larimer is Rae
Skirvin Larimer's spouse and is a brother-in-law of Una Schaeperklaus, a
director of the Association.
RAE SKIRVIN LARIMER. Ms. Larimer has been legal counsel for the
Association since 1975. Ms. Larimer is John Larimer's spouse and Una
Schaeperklaus' sister.
EDGAR H. MAY. Mr. May has served as a director of the Association since
1992. From 1960 until his retirement in 1994, Mr. May was a broker and partner
in Ed May Realty Co., located in Deer Park, Ohio.
R. C. MEYERENKE. Mr. Meyerenke has served the Association as a director
since 1974 and as the Treasurer since _______. From 1974 until his retirement
in 1991, Mr. Meyerenke was the Managing Officer of the Association.
WILBUR H. TISCH. Mr. Tisch retired as owner and President of General Metal
Works in 1983. Mr. Tisch served as director of Cleves-North Bend from 1975 to
1994 and as President from 1986 to 1994.
KATHLEEN A. WHITE. Ms. White has been employed as a real estate title
examiner since 1980.
JULIE M. BERTSCH. Ms. Bertsch, a Certified Public Accountant, was hired as
Chief Financial Officer of MFC and the Association in June 1996. Prior to
joining MFC, Ms. Bertsch was associated from August 1987 until June 1996 with
Grant Thornton LLP, independent certified public accountants.
THE ASSOCIATION. The Amended Constitution of the Association provides for
a Board of Directors consisting of not less than five nor more than seven
directors. The Board of Directors of the Association currently consists of five
directors. Each director serves for a three-year term. The Board of Directors
met 46 times during the fiscal year ended September 30, 1995, for regular and
special meetings. No director attended fewer than 75% of the aggregate of such
meetings and all meetings of the committees of which such director was a member.
-24-
<PAGE>
The following table presents certain information with respect to the
present directors and executive officers of the Association:
Year of
Position(s) with commencement Term
Name the Association of directorship expires
- ---- ---------------- --------------- -------
John T. Larimer Director, President and
Managing Officer 1975 1997
David H. Korn Director 1961 1997
R. C. Meyerenke Director and Treasurer 1974 1999
Edgar H. May Director 1992 1998
Una Schaeperklaus Director and Secretary 1992 1998
Julie M. Bertsch Chief Financial Officer - -
Charles D. Dell Vice President/Lending - -
DAVID H. KORN. Mr. Korn has served as a director of the Association since
1961. During the past five years, Mr. Korn has served as a consultant to the
President of a heating and air conditioner contractor, located in Mt. Healthy,
Ohio.
UNA SCHAEPERKLAUS. Ms. Schaeperklaus has served as a director of the
Association since 1992. From 1986 to 1992, Ms. Schaeperklaus served as a
director of Cleves-North Bend, which merged into the Association in 1994. Ms.
Schaeperklaus is Mr. Larimer's sister-in-law and Ms. Larimer's sister.
CHARLES D. DELL. Mr. Dell was named Vice President/Lending of the
Association in June 1996. From 1986 until June 1996, Mr. Dell served as Vice
President/Lending at Centennial Savings Bank, fsb, located in Cincinnati, Ohio.
After the Conversion, each director of the Association will continue to
serve the Association, and each director and of MFC will continue to serve MFC.
DESCRIPTION OF AUTHORIZED SHARES
GENERAL
The Articles of Incorporation of MFC authorize the issuance of 4,000,000
common shares, without par value, and 1,000,000 preferred shares, without par
value. Upon receipt by MFC of the purchase price therefor and subsequent
issuance thereof, each Common Share issued in the Conversion will be fully paid
and nonassessable. The Common Shares will represent nonwithdrawable capital and
will not and cannot be insured by the FDIC. Each Common Share will have the
same relative rights and will be identical in all respects to every other Common
Share.
None of the preferred shares of MFC will be issued in connection with the
Conversion. The Board of Directors of MFC is authorized, without shareholder
approval, to issue preferred shares and to fix and state the designations,
preferences or other special rights of such shares and the qualifications,
limitations and restrictions thereof. The preferred shares may rank prior to
the common shares as to dividend rights, liquidation preferences or both. Each
holder of preferred shares will be entitled to one vote for each preferred share
held of record on all matters submitted to a vote of shareholders. The issuance
of preferred shares and any conversion rights which may be specified by the
Board of Directors for the preferred shares could adversely affect the voting
power of holders of the common shares. The Board of Directors has no present
intention to issue any of the preferred shares.
The following is a summary description of the rights of the common shares
of MFC, including the material express terms of such shares as set forth in
MFC's Articles of Incorporation.
-25-
<PAGE>
LIQUIDATION RIGHTS
In the event of the complete liquidation or dissolution of MFC, the holders
of the Common Shares will be entitled to receive all assets of MFC available for
distribution, in cash or in kind, after payment or provision for payment of (i)
all debts and liabilities of MFC, (ii) any accrued dividend claims, and (iii)
any interests in the Liquidation Account payable as a result of a liquidation of
the Association. See "THE CONVERSION - Liquidation Account."
VOTING RIGHTS
GENERAL. The holders of the Common Shares will possess exclusive voting
rights in MFC. Each holder of Common Shares will be entitled to one vote for
each share held of record on all matters submitted to a vote of holders of
common shares.
MATTERS REQUIRING ENLARGED SHAREHOLDER VOTE. Article Sixth of the Articles
of Incorporation of MFC provides that, in the event the Board of Directors
recommends against the approval of any of the following matters, the holders of
at least 75% of the voting shares of MFC are required to approve any such
matters:
1) A proposed amendment to the Articles of Incorporation of MFC;
(2) A proposed Amendment to the Code of Regulations of MFC;
(3) A proposal to change the number of directors by action of the shareholders;
(4) An agreement of merger or consolidation providing for the proposed merger
or consolidation of MFC with or into one or more other corporations;
(5) A proposed combination or majority share acquisition involving the issuance
of shares of MFC and requiring shareholder approval;
(6) A proposal to sell, exchange, transfer or otherwise dispose of all, or
substantially all, of the assets, with or without the goodwill, of MFC; or
(7) A proposed dissolution of MFC.
ELIMINATION OF CUMULATIVE VOTING. Section 1701.55 of the Ohio Revised Code
provides in substance and effect that shareholders of a for profit corporation
which is not a savings and loan association and which is incorporated under Ohio
law must initially be granted the right to cumulate votes in the election of
directors. The right to cumulate votes in the election of directors will exist
at a meeting of shareholders if notice in writing is given by any shareholder to
the President, a Vice President or the Secretary of an Ohio corporation, not
less than 48 hours before a meeting at which directors are to be elected, that
the shareholder desires that the voting for the election of directors shall be
cumulative and if an announcement of the giving of such notice is made upon the
convening of such meeting by the Chairman or Secretary or by or on behalf of the
shareholder giving such notice. If cumulative voting is invoked, each
shareholder would have a number of votes equal to the number of directors to be
elected, multiplied by the number of shares owned by him, and would be entitled
to distribute his votes among the candidates as he sees fit.
Section 1701.69 of the Ohio Revised Code provides that an Ohio corporation
may eliminate cumulative voting in the election of directors after the
expiration of 90 days after the date of initial incorporation by filing with the
Ohio Secretary of State an amendment to the articles of incorporation
eliminating cumulative voting. The Articles of Incorporation of MFC will be
amended prior to the consummation of the Conversion to eliminate cumulative
voting. The elimination of cumulative voting may make it more difficult for
shareholders to elect as directors persons whose election is not supported by
the Board of Directors of MFC.
DIVIDENDS
The holders of the Common Shares will be entitled to the payment of
dividends when, as and if declared by the Board of Directors and paid out of
funds, if any, available under applicable laws and regulations for the payment
of
-26-
<PAGE>
dividends. The payment of dividends is subject to federal and state statutory
and regulatory restrictions. See "DIVIDEND POLICY," and "TAXATION - Federal
Taxation" and "REGULATION - Office of Thrift Supervision -- Limitations on
Capital Distributions" in the Prospectus for a description of restrictions on
the payment of cash dividends.
PREEMPTIVE RIGHTS
After the consummation of the Conversion, no shareholder of MFC will have,
as a matter of right, the preemptive right to purchase or subscribe for shares
of any class, now or hereafter authorized, or to purchase or subscribe for
securities or other obligations convertible into or exchangeable for such shares
or which by warrants or otherwise entitle the holders thereof to subscribe for
or purchase any such share.
RESTRICTIONS ON ALIENABILITY
See "THE CONVERSION - Restrictions on Repurchase of Common Shares" for a
description of the limitations on the repurchase of stock by MFC; "THE
CONVERSION - Restrictions on Transfer of Common Shares by Directors and
Officers" for a description of certain restrictions on the transferability of
Common Shares purchased by officers and directors; and "RESTRICTIONS ON
ACQUISITION OF MFC AND THE ASSOCIATION AND RELATED ANTI-TAKEOVER PROVISIONS" in
the Prospectus for information regarding regulatory restrictions on acquiring
Common Shares.
REGISTRATION REQUIREMENTS
MFC will register its common shares with the SEC pursuant to Section 12(g)
of the Exchange Act prior to or promptly upon completion of the Conversion and
will not deregister such shares for a period of three years following the
completion of the Conversion. Upon such registration, the proxy and tender
offer rules, insider trading restrictions, annual and periodic reporting and
other requirements of the Exchange Act will apply.
LEGAL MATTERS
Certain legal matters pertaining to the Common Shares and the federal and
Ohio tax consequences of the Conversion will be passed upon for MFC and the
Association by Vorys, Sater, Seymour and Pease, Cincinnati, Ohio. Certain legal
matters are being passed upon for Webb by Luse Lehman Gorman Pomerenk & Schick,
A Professional Corporation, Washington, D.C..
EXPERTS
Keller has consented to the publication herein of the summary of its letter
to the Association setting forth its opinion as to the estimated pro forma
market value of the Association as converted and to the use of its name and
statements with respect to it appearing herein.
The financial statements of the Association as of September 30, 1995, 1994
and 1993 and for each of the years in the three-year period ended September 30,
1995, have been included herein in reliance upon the report of Grant Thornton
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of such firm as experts in auditing and accounting.
-27-
<PAGE>
ADDITIONAL INFORMATION
The Prospectus contains the following: audited financial statements of the
Association, including statements of income and retained earnings for the three
fiscal years ended September 30, 1995, 1994 and 1993; Management's Discussion
and Analysis of Financial Condition and Results of Operations; selected
financial information of the Association for the five fiscal years ended
September 30, 1995, 1994, 1993, 1992 and 1991; information concerning the
capitalization of the Association; a description of the Association's lending,
savings and investment activities; information concerning compensation of
directors and officers, information concerning legal proceedings; a description
of the capital stock of the Holding Company; information concerning experts who
have contributed to the Prospectus; and the additional information about the
business and financial condition of the Association. A copy of the Prospectus
accompanies this Summary Proxy Statement. To obtain an additional copy of the
Prospectus, contact the Association's Conversion Information Center at (513)
____________.
-28-
<PAGE>
STOCK ORDER FORM
MARKET FINANCIAL CORPORATION
(Proposed Holding Company for The Market Building and Saving Company)
Note: Please read the Stock Order Form Item Instructions & Ownership Guide on
the back of this form before completion
- -------------------------------------------------------------------------------
DEADLINE
The Subscription Offering and the Community Offering, if any, will end at
4:30 p.m., Mt. Healthy, Ohio, time, xxxx xx, 1996. Your Stock Order Form,
properly executed and with the correct payment, must be received at the
address on the bottom of this form or at an office of The Market Building and
Saving Company (the "Association") by this deadline, or it will be considered
void.
- -------------------------------------------------------------------------------
NUMBER OF SHARES
(1) Number of Shares Price Per Share
________________ X $10.00 =
(minimum 25)
(2) Total Amount Due
$ ______________
The minimum number of shares that may be subscribed for is 25 and the maximum
purchase is 26,715, expect for purchases by the Market Financial Corporation
Employee Stock Ownership Plan (the "ESOP"). No person, together with
associates of and persons acting in concert with such person, may purchase
more than 53,429 common shares in the Subscription Offering. The price per
share is based on a valuation that is subject to review prior to fulfilling
individual stock orders.
METHOD OF PAYMENT
(3) / / Enclosed is a check, bank draft or money order payable to The Market
Building and Saving Company for $_________.
(4) / / The undersigned authorizes the withdrawal from the following savings
or certificate amount(s) at the Association, and understands that the
amounts will not otherwise be available for withdrawal:
Account Number(s) Amount(s)
$
----------------------------------------------------------
$
----------------------------------------------------------
$
----------------------------------------------------------
$
----------------------------------------------------------
Total Withdrawal $
--------------
There is no penalty for early withdrawals for this payment.
(5) PURCHASER INFORMATION
/ / (a) Check here if you are a director, officer or employer of the
Association or a member of such person's immediate family.
/ / (b) Check here if you are a depositor and enter information below
for all accounts you had at the Eligibility Record DAte (December 31,
1994), the Supplemental Eligibility Record Date (_______, 1996) and/or
the Voting Record Date (xxx xx, 1996).
Account Title (Names on Accounts) Account Number
-----------------------------------------------------------------------
------------------------------------------------
-----------------------------------------------------------------------
------------------------------------------------
-----------------------------------------------------------------------
------------------------------------------------
-----------------------------------------------------------------------
IMPORTANT COMMUNITY OFFERING INFORMATION
(6) / / Check here if you are a resident of Hamilton County, Ohio.
- -------------------------------------------------------------------------------
(7) STOCK REGISTRATION (SEE STOCK OWNERSHIP GUIDE ON THE BACK)
/ / Individual
/ / Joint Tenants
/ / Tenants in Common
/ / Uniform Transfer to Minors
/ / Uniform Gift to Minors
/ / Corporation
/ / Partnership
/ / Individual Retirement Account
/ / Fiduciary/Trust (Under Agreement Dated ______)
(8) Name Social Security or Tax I.D.
--------------------------------------------------------------------------
Name Daytime Telephone
--------------------------------------------------------------------------
Street Address Evening Telephone
--------------------------------------------------------------------------
City State Zip Code County of Residence
--------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(9) NASD AFFILIATION
(This section only applies to those individuals who meet the delineated
criteria.)
/ / Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of
the immediate family of any such persons to whose support such person
contributes, directly or indirectly, or the holder of an account in which a
NASD member or person associated with a NASD member has a beneficial
interest. To comply with conditions under which an exemption from the NASD's
Interpretation With Respect to Free-Riding and Withholding is available, you
agree, if you have checked the NASD affiliation box: (i) not to sell,
transfer or hypothecate the stock for a period of three months following the
issuance, and (ii) to report this subscription in writing to the applicable
NASD member within one day of the payment therefor.
ACKNOWLEDGMENT
By signing below, I acknowledge receipt of the Prospectus dated xxx xx,
1996, and the provisions therein and understanding that I may not change or
revoke any order once it is received by Market Financial Corporation ("MFC").
I also certify that this stock order is for my account only and there is no
agreement or understanding regarding any further sale or transfer of these
shares. Federal regulations prohibit any persons from transferring, or
entering into any agreement directly or indirectly to transfer, the legal
or beneficial ownership of conversion subscription rights or these underlying
securities to the account of another person. The Association will pursue any
and all legal and equitable remedies in the event it becomes aware of the
transfer of subscription rights and will not honor orders known by it to
involve such transfer.
Under penalties of prejury, I further certify that: (1) the social security
number or taxpayer identification number given above is correct; and (2) I am
not subject to backup withholding. You must cross out this item, (2) above, if
you have been notified by the Internal Revenue Service that you are subject
to backup withholding because of underreporting interest or dividends on your
tax return.
- -------------------------------------------------------------------------------
SIGNATURE(S)
Sign and date the form. When purchasing as a custodian, corporate officer,
etc., include your full title. An additional signature is required only when
payment is by withdrawal from an account that requires more than one
signature to withdraw funds. YOUR ORDER WILL BE FILLED IN ACCORDANCE WITH THE
PROVISIONS OF THE PROSPECTUS. THIS ORDER IS NOT VALID IF THE STOCK ORDER FORM
AND THE CERTIFICATION ARE NOT BOTH SIGNED. If you need help completing this
Form, you may call the Conversion Information Center at (513)xxx-xxxx.
- ------------------------------------------------------
Signature Title(if applicable) Date
- ------------------------------------------------------
Signature Title(if applicable) Date
(Note: If common shares are to be jointly held, both parties must sign)
THE COMMON SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER CORPORATION, FUND OR GOVERNMENTAL AGENCY.
OFFICE USE Date Recv'd __/__/__ Order # ______ Batch # ______
Check # ____________ Category _____________________
Amount $____________ Initials _____________________
CONVERSION INFORMATION CENTER
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
(513)xxx-xxxx
<PAGE>
MARKET FINANCIAL CORPORATION
STOCK ORDER FORM
ITEM INSTRUCTIONS & OWNERSHIP GUIDE
ITEM INSTRUCTION
- ------------------------------------------------------------------------------
ITEMS 1 AND 2 -- Fill in the number of shares that you wish to
purchase and the total payment due. The amount due is determined by
multiplying the number of shares by the subscription price of $10.00
per share. The minimum purchase is 25 shares. The maximum purchase
amount in the Conversion by any person is $267,150 in the Subscription
and Community Offering. No person, together with associates and persons
acting in concert with such person, may purchase more than $534,290 of
common shares in the Subscription Offering.
The Association has reserved the right to reject of any order received
in the Community Offering in whole or in part.
ITEM 3 -- Payment for shares may be made in cash (only if delivered by
you in person) or by check, bank, draft, or money order made payable
to the Association. DO NOT MAIL CASH. If you choose to make a cash
payment, take your stock order form, and payment in person to either
office of the Association. Your funds will earn interest at the
Association's passbook rate, currently _____% per annum.
ITEM 4 -- To pay by withdrawal from a savings account or certificate
at the Association, insert the account number(s) and the amount(s) you
wish to withdraw from each account. If more than one signature is
required to withdraw from each account, each must sign in the
"Signature" box on the front of this Form. To withdraw from an account
with checking privileges, please write a check. No early withdrawal
penalty will be charged on funds used to purchase our stock. A hold
will be placed on the account(s) for the amount(s) you authorize.
Payments will remain in certificate account(s) until the stock
offering closes and will continue to earn interest at the account rate
until then. However, if a partial withdrawal reduces the balance of a
certificate account to less than the applicable minimum, the remaining
balance will thereafter earn interest at the passbook rate.
ITEM 5 -- (a) Please check this box if you are a director, officer or
employee of the Association or a member of such person's immediate
family, (b) If you were a depositor on the Eligibility Record Date
(December 31, 1994) and/or a depositor on the Supplemental Eligibility
Record Date (xxx xx, 1996), and/or a depositor on the Voting Record
Date, you must list all names on the account(s), the account opening
date and all account number(s) of accounts you had at those dates in
order to insure proper identification of your purchase rights.
ITEM 6 -- Please check this box if you are a resident of Hamilton
County, Ohio.
ITEM 7 AND 8 -- The stock transfer industry has developed a uniform
system of shareholder registration that we will use in the issuance of
your common shares. Print the name(s) in which you want the stock
registered and the mailing address of the registration. Include the
first name, middle initial, and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect
ownership rights, such as "Mrs.", "Mr.", "Dr.", "special account",
etc. If you have any questions or concerns regarding the registration
of your shares, please consult your legal adviser. Ownership may be
registered in one of the ways described under "Stock Ownership Guide."
ITEM 9 -- Please check this box if you are a member of the NASD or if
this item otherwise applies to you.
Subscription rights are not transferable. If you are a qualified
member, to protect your priority over other purchasers as described in
the Prospectus, you must take ownership in at least one accountholder
name.
Enter the Social Security or Tax I.D. number of one registered owner.
This registered owner must be listed on the first "NAME" line. Be sure
to include your telephone number because we may need to contact you if
we cannot execute your order as given. Review the Stock Ownership
Guide on this page and refer to the instructions for Uniform Gift to
Minors/Uniform Transfer to Minors and Fiduciaries.
STOCK OWNERSHIP GUIDE
- ------------------------------------------------------------------------------
INDIVIDUAL The stock is to be registered in an individual's name
only. You may not list beneficiaries for this ownership.
JOINT TENANTS Joint tenants with right of survivorship identifies two
or more owners. When stock is held by joint tenants with rights of
survivorship, ownership automatically passes to the surviving joint
tenant(s) upon the death of any joint tenant. You may not list
beneficiaries for this ownership. All parties must agree to the
transfer or sale of shares held by joint tenants.
TENANTS IN COMMON Tenants in common may also identify two or more
owners. When stock is held by tenants in common, upon the death of one
co-tenant, ownership of the sotck will be held by the surviving
co-tenant(s) and by the heirs of the deceased co-tenant. All parties
must agree to the transfer or sale of shares held by tenants in
common. You may not list beneficiaries for this ownership.
INDIVIDUAL RETIREMENT ACCOUNT Individual Retirement Account ("IRA")
holders may make stock purchase from their deposits through a
pre-arranged "trustee-to-trustee" transfer. Stock may only be held in
a self-directed IRA. The Association does not offer a self-directed
IRA. Please contact the Conversion Information Center if you have any
questions about your IRA account or to obtain a list of local brokers
who will open a self-directed IRA, or check with your broker. There
will be no early withdrawal or IRS penalties incurred as a result of
these transfers.
UNIFORM GIFTS TO MINORS/UNIFORM TRANSFER TO MINORS For residents of
many states, stock may be held in the name of a custodian for the
benefit of a minor under the Uniform Transfer to Minors Act. For
residents in other states, stock may be held in a similar type of
ownership under the Uniform Gift to Minors Act of the individual
states. For either form of ownership, the minor is the actual owner of
the stock with the adult custodian being responsible for the
investment until the minor reaches legal age.
INSTRUCTIONS: See your legal advisor if you are unsure about the
correct registration of your stock.
On the first "NAME" line, print the first name, middle initial, and
last name of the custodian, with the abbreviation "CUST" after the
name. Print the first name, middle initial, and last name of the minor
on the second "NAME" line. Only one custodian and one minor may be
designated.
CORPORATION/PARTNERSHIP Corporation/Partnerships may purchase stock.
Please provide the Corporation/Partnership's legal name and Tax I.D.
number. To have depositor rights, the Corporation/Partnership must
have an account in the legal name of the Corporation/Partnership.
Please contact the Conversion Information Center to verify depositor
rights and purchase limitations.
FIDUCIARY/TRUST Generally, fiduciary relationships (such as Trusts,
Estates, Guardianships, etc.) are established under a form of trust
agreement or are pursuant to a court order. Without a legal document
establishing a fiduciary relationship, your stock may not be
registered in a fiduciary capacity.
INSTRUCTIONS: On the first "NAME" line, print the first name, middle
initial, and last name of the fiduciary if the fiduciary is an
individual. If the fiduciary is a corporation, list the corporation
title on the first "NAME" line. Following the name, print the
fiduciary "title" such as trustee, executor, personal representative,
etc.
On the second "NAME" line, print either the name of the maker, donor,
or testator OR the name of the beneficiary. Following the name,
indicate the type of legal document establishing the fiduciary
relationship (agreement, court order, etc). In the blank after "Under
Agreement Dated", fill in the date of the document governing the
relationship. The date of the document need not be provided for a
trust created by a will.
An example of fiduciary ownership of stock in the case of a trust is:
John D. Smith, Trustee for Thomas A. Smith Under Agreement Dated
06/09/87.
- ------------------------------------------------------------------------------
YOU MUST SIGN THE FOLLOWING CERTIFICATION IN
ORDER TO PURCHASE COMMON SHARES
I ACKNOWLEDGE THAT THE COMMON SHARES OF MFC ARE NOT GUARANTEED BY
THE ASSOCIATION, MFC OR THE FEDERAL GOVERNMENT.
IF ANYONE ASSERTS THAT THE COMMON SHARES ARE FEDERALLY INSURED OR
GUARANTEED, OR ARE AS SAFE AS AN INSURED DEPOSIT, I SHOULD CALL THE
OFFICE OF THRIFT SUPERVISION, CENTRAL REGIONAL DIRECTOR, RONALD N.
KARR, AT (312)917-5000.
I further certify that, before purchasing the common shares of
MFC. I received a Prospectus DATED xxx xx,1996, which discloses the
nature of the common shares being offered thereby and describes the
following risks involved in an investment in the common shares under
the heading "Risk Factors" on pages ___ through ___ in the Prospectus.
1. Low Return on Equity
2. Interest Rate Risk and Historic Earnings.
3. Legislation and Regulation Which May Adversely Affect the
Association's Earnings
4. Possible Dilutive Effect of Stock Option Plan and RRP on Net Income
and Shareholders' Equity
5. Absence of Market for Common Shares
6. Controlling Influence of Management and Anti-Takeover Provisions
Which May Discourage Sales of Common Shares For Premium Prices
7. Possible Tax Liability Related to Subscription Rights.
8. Risk of Delayed Offering.
For a more detailed description of the risks involved in the offering,
see "RISK FACTORS" in the Prospectus dated xxx xx, 1996.
- ----------------------------------------
Signature Title (if applicable) Date
- ----------------------------------------
Signature Title (if applicable) Date
<PAGE>
REVOCABLE PROXY
THE MARKET BUILDING AND SAVING COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE BUILDING AND SAVING COMPANY
The undersigned member of The Market Building and Saving Company, a savings
and loan association incorporated under Ohio law (the "Association"), hereby
nominates, constitutes and appoints and , or either
one of them, as proxy or proxies for the undersigned member, each with full
power of substitution and resubstitution, to vote all of the votes which the
undersigned member is entitled to cast at the Special Meeting of the Members of
the Association to be held at .m., local time, on , 1996, at
, Mt. Healthy, Ohio, and at any adjournments thereof (the "Special
Meeting"), on the following matters and in the manner specified below:
1. The approval of the Plan of Conversion, a copy of which is attached as
Exhibit A to the Summary Proxy Statement mailed to the undersigned member in
connection with the Special Meeting, pursuant to which the Association would
convert from a mutual savings and loan association incorporated under Ohio
law to a permanent capital stock savings and loan association incorporated
under Ohio law and become a wholly-owned subsidiary of Market Financial
Corporation, an Ohio corporation organized for the purpose of purchasing all
of the capital stock to be issued by the Association in connection with the
Conversion.
FOR / / AGAINST / / ABSTAIN / /
2. The adoption of the Amended Articles of Incorporation of the Association, a
copy of which is attached to the Plan of Conversion as Exhibit I.
FOR / / AGAINST / / ABSTAIN / /
3. The adoption of the Amended Constitution of the Association, a copy of which
is attached to the Plan of Conversion as Exhibit II.
FOR / / AGAINST / / ABSTAIN / /
4. In their discretion, upon such other matters as may properly come before the
Special Meeting.
IMPORTANT: PLEASE SIGN AND DATE THIS REVOCABLE PROXY ON THE REVERSE SIDE.
<PAGE>
PROXY
This Revocable Proxy will be voted as directed by the undersigned member. IF
NO DIRECTION IS GIVEN, THIS REVOCABLE PROXY WILL BE VOTED FOR THE APPROVAL OF
THE PLAN OF CONVERSION AND FOR THE ADOPTION OF THE AMENDED ARTICLES OF
INCORPORATION AND THE AMENDED CONSTITUTION.
Without affecting any vote previously taken, this Revocable Proxy may be
revoked by the undersigned at any time before it is exercised by (i) executing
and delivering to the Association a later dated proxy, or (ii) giving notice of
revocation in writing to the Secretary of the Association or in open meeting to
the inspectors of election.
Receipt of the Summary Proxy Statement of the Association and the Prospectus
of Market Financial Corporation. dated , 1996, is hereby
acknowledged by the undersigned.
Signature _________________________
Dated _______________________, 1996
NOTE: Please sign your name exactly
as it appears on this Proxy. Joint
accounts require only one
signature. If you are signing this
Proxy as an attorney,
administrator, agent, corporation,
officer, executor, trustee or
guardian, etc., please add your
full title to your signature.
IMPORTANT: IF YOU RECEIVE MORE THAN
ONE CARD, PLEASE SIGN AND RETURN
ALL CARDS IN THE ACCOMPANYING
ENVELOPE.
<PAGE>
[Blue Sky Letter - Charles Webb & Company Letterhead]
To Members and Friends of The Market Building and Saving Company:
Charles Webb & Company, a member of the National Association of Securities
Dealers ("NASD"), is assisting The Market Building and Saving Company (the
"Association") in its conversion from a mutual savings and loan association to a
permanent capital stock savings and loan association and the concurrent offering
of shares of common stock by its holding company, Market Financial Corporation
("MFC").
At the request of MFC, we are enclosing materials explaining this process and
your options, including an opportunity to invest in shares of MFC's common stock
being offered to customers and the community through ____________ 1996. Please
read the enclosed offering materials carefully. MFC has asked us to forward
these documents to you in view of certain requirements of the securities laws of
your state.
If you have any questions, please stop by the Conversion Information Center at
7522 Hamilton Avenue in Mt. Healthy between x:00 a.m. and x:00 p.m., Monday
through Friday, or call the Conversion Information Center at (513) xxx-xxxx.
Very truly yours,
Charles Webb & Company
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. THE
OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
(RECEIPT OF ORDER LETTER - MARKET FINANCIAL CORPORATION LETTERHEAD)
DATE
NAME
ADDRESS TAX I.D. NUMBER XXX-XX-XXX
CITY, STATE, ZIP
RECEIPT OF ORDER
This letter is to acknowledge receipt of your order to purchase stock offered by
Market Financial Corporation ("MFC"). Please check the following information
carefully to ensure that we have entered your order correctly. Each order is
assigned a prioritized category described below. Acceptance of your order will
be subject to the allocation provisions of the Plan of Conversion, as well as
other conditions and limitations described in the Prospectus.
Our records indicate the following:
Number of Shares Ordered: _________
Purchase Price Per Share: $10.00
Total Order Amount: $_______
Date Order Received: / / /
Category Assigned:
CATEGORY DESCRIPTION
1. ELIGIBLE ACCOUNT HOLDERS AS OF DECEMBER 31, 1994
2. MARKET FINANCIAL CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
3. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS AS OF _____________, 1996
4. OTHER MEMBERS AS OF _________, 1996 ("VOTING RECORD DATE")
5. MEMBER RESIDENTS OF HAMILTON COUNTY, OHIO
6. GENERAL PUBLIC
If this information does not agree with your records or if you have any
questions, please call our Conversion Information Center at (513) _________.
Thank you for your order.
Sincerely,
John T. Larimer
President
<PAGE>
[Dear Friend Letter -Market Building Letterhead]
Dear Friend:
We are pleased to announce that The Market Building and Saving Company (the
"Association") is converting from a mutual savings and loan association to a
stock savings and loan association (the "Conversion"). In connection with the
Conversion, Market Financial Corporation ("MFC"), the newly-formed holding
company for the Association, is offering common shares in a subscription
offering and community offering. The sale of common shares in connection with
the Conversion will enable the Association to raise additional capital to
support and enhance its current operations.
Because we believe you may be interested in learning more about the merits
of MFC's common shares as an investment, we are sending you the following
materials which describe the offering.
PROSPECTUS: This document provides detailed information about the
Association's operations and the proposed offering of MFC common shares.
QUESTIONS AND ANSWERS: Key questions and answers about the stock offering
are found in this pamphlet.
STOCK ORDER FORM: This form is used to purchase stock by returning it with
your payment in the enclosed business reply envelope. The deadline for
ordering stock is 4:30 p.m., XXXX xx, 1996.
CERTIFICATION FORM: This form must be completed and returned with the stock
order form in the enclosed business reply envelope if you wish to purchase
stock.
As a friend of the Association, you will have a right to buy common shares
directly from MFC without paying a commission or fee. If you have additional
questions regarding the Conversion and offering, please call us at (513) xxx
xxxx, or stop by the Conversion Information Center at 7522 Hamilton Avenue in
Mount Healthy, Ohio, Monday through Friday from x:00 a.m. to x:00 p.m.
We are pleased to offer you this opportunity to become a charter
shareholder of MFC.
Sincerely,
John T. Larimer
President
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS
LETTER IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
[Dear Member Letter, Market Building Letterhead]
_____________, 1996
Dear Member:
We are pleased to announce that The Market Building and Saving Company (the
"Association") is converting from a mutual savings and loan association to a
stock savings and loan association (the "Conversion"). In connection with the
Conversion, Market Financial Corporation ("MFC"), the newly-formed holding
company for the Association, is offering common shares in a subscription
offering and community offering to our Employee Stock Ownership Plan, certain
depositors, and members of the general public pursuant to a Plan of Conversion.
The Board of Directors of the Association feels that the Conversion will
offer a number of advantages, such as an opportunity for the Association's
depositors and customers to become shareholders of MFC. In connection with the
Conversion, please remember:
- Your accounts at the Association will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
- There will be no change in the balance, interest rate, or maturity of
any deposit accounts at the Association because of the Conversion.
- Members have a right, but not an obligation, to buy MFC common shares
before they are offered to the public.
- Like all stock, the common shares issued in this offering will not be
insured by the FDIC.
Enclosed are materials describing the offering of MFC common shares. We
urge you to read these materials carefully. If you are interested in purchasing
common shares of MFC, you must submit your Stock Order Form, Certification Form,
and payment prior to 4:30 p.m. on XXXX xx, 1996.
If you have additional questions regarding the stock offering, please call
us at (513) xxx-xxxx, or stop by the Conversion Information Center located at
7522 Hamilton Avenue, Mt. Healthy, Ohio 45231, Monday through Friday from x:00
a.m. to x:00 p.m.
Sincerely,
John T. Larimer
President
THE COMMON SHARES BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE AGENCY, THE BANK
INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT
AGENCY. THIS LETTER IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
[Dear Member "Dark Blue Sky" & Foreign Accounts - On (Bank Name) Letterhead]
_______________, 1996
Dear Member:
We are pleased to announce that The Market Building and Saving Company (the
"Association") is converting from a mutual savings and loan association to a
stock savings and loan association (the "Conversion"). In connection with the
Conversion, Market Financial Corporation ("MFC"), the newly-formed holding
company for the Association, is offering common shares in a subscription
offering and community offering.
Unfortunately, MFC is unable to either offer or sell its common shares to
you because the small number of eligible subscribers in your jurisdiction makes
registration or qualification of the common shares under the securities laws of
your jurisdiction impractical, for reasons of cost or otherwise. Accordingly,
this letter should not be considered an offer to sell or a solicitation of an
offer to buy the common shares of MFC.
However, as a member of the Association, you have the right to vote on the
Plan of Conversion at the Special Meeting of Members to be held on XXXXX xx,
1996. Therefore, enclosed is a proxy card, a Proxy Statement (which includes
the Notice of the Special Meeting), a Subscription and Community Offering
Prospectus (which contains information incorporated into the Proxy Statement)
and a return envelope for your proxy card.
I invite you to attend the Special Meeting on XXXXX xx, 1996 However, if
you are unable to attend, please complete the enclosed proxy card and return it
in the enclosed envelope.
Sincerely,
John T. Larimer
President
<PAGE>
(Prospective Investor Letter - Market Building letterhead)
________________, 1996
Dear Prospective Investor:
We are pleased to announce that The Market Building and Saving Company (the
"Association") is converting from a mutual savings and loan association to a
stock savings and loan association (the "Conversion"). In connection with the
Conversion, Market Financial Corporation ("MFC"), the newly-formed holding
company for the Association, is offering common shares in a subscription
offering and community offering. The sale of common shares in connection with
the Conversion will enable the Association to raise additional capital to
support and enhance its current operations.
We have enclosed the following materials which will help you learn more
about the merits of MFC's common shares as an investment. Please read and
review the materials carefully.
PROSPECTUS: This document provides detailed information about the
Association's operations and the proposed stock offering.
QUESTIONS AND ANSWERS: Key questions and answers about the stock offering
are found in this pamphlet.
STOCK ORDER FORM: This form is used to purchase stock by returning it with
your payment in the enclosed business reply envelope. The deadline for
ordering stock is 4:30 p.m., ____, 1996.
CERTIFICATION FORM: This form must be completed and returned with the stock
order form in the enclosed business reply envelope if you wish to purchase
MFC common shares.
We invite our depositors and local community members to become shareholders
of MFC. Through this offering you have the opportunity to buy common shares
directly from MFC, without paying a commission or fee. The board of directors
and senior management of the Association fully support the offering.
If you have additional questions regarding the Conversion and stock
offering, please call us at (513) xxx-xxxx or stop-by the Conversion Information
Center located at 7522 Hamilton Avenue, Mt. Healthy, Ohio 45231, Monday through
Friday from x:00 a.m. to x:00 p.m.
Sincerely,
John T. Larimer
President
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY. THIS
LETTER IS NOT AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
<PAGE>
[Oversubscription Letter- check, Market Financial Corporation Letterhead]
________________, 1996
Dear Subscriber:
I want to thank you for your interest in the common shares of Market Financial
Corporation ("MFC"). We are extremely proud of the overwhelming support we
received from our members and the community as we successfully completed the
sale of common shares of MFC.
Due to the oversubscription of MFC's common shares during the Subscription
Offering, however, we regret we were unable to fill a portion of your order.
Enclosed is a refund check for the unfilled portion of your order. The stock
certificates representing the balance of your order will be sent to you directly
from our transfer agent, (Name of Transfer Agent).
If you continue to be interested in acquiring common shares of MFC, the
following brokerage firms have indicated their intent to make a market in our
stock. You may contact any of them for assistance.
[List of Market Makers]
Again, thank you for your interest. If you have any questions, please do not
hesitate to contact me.
Sincerely,
John T. Larimer
President
<PAGE>
[Closing Letter Market Financial Corporation Letterhead]
_________________, 1996
Dear Subscriber,
I want to thank you for your interest in the common shares of Market Financial
Corporation ("MFC"). We are extremely proud of the overwhelming support we
received from our members and the community as we successfully completed the
sale of XXXXXX common shares of MFC.
Enclosed please find a check for payment of the interest on the funds you used
to purchase the MFC common shares. The stock certificate(s) representation your
shares of MFC common stock are being mailed directly to you from our Transfer
Agent, (Name of Transfer Agent).
Again, thank you for your interest. If you have any questions, please do not
hesitate to contact me.
Sincerely,
John T. Larimer
President
<PAGE>
[Closing Letter, Market Financial Corporation Letterhead]
XXXX xx, 1996
Dear Shareholder:
It is my pleasure to welcome you as a shareholder of Market Financial
Corporation ("MFC"), the newly-formed holding company for The Market Building
and Saving Company (the "Association"). We are extremely proud of the
overwhelming support we received from our members and the community as we
successfully completed the sale of ______ common shares of MFC.
Your new stock certificate is enclosed and should be kept in a safe place.
Please take a moment to be sure that the name(s), number of shares, and mailing
address are correct.
We have selected (Name of Transfer Agent) to serve as our Transfer Agent and
Registrar. If there is an error on your stock certificate, if your address
changes, or if at any time you want to change the registration of your
certificate, you should contact (Name of Transfer Agent) at the address listed
below:
[Transfer Agent]
If the original stock certificate must be forwarded to the Transfer Agent to be
reissued, the certificate should be sent registered mail. Lost or destroyed
certificates can be replaced, but an indemnity bond will be required to replace
the certificate.
Please be advised that MFC will trade on the NASDAQ Small Cap Market under the
symbol "XXXX". Should you be interested in purchasing additional shares or
selling your shares of MFC, the following brokerage firms have indicated their
intent to make a market in our stock. You may contact any of them for
assistance.
[List of Market Makers]
If you purchased your shares with a check or cash, you will receive a check for
payment of the interest earned on those funds in a separate mailing.
On behalf of MFC and the Board of Directors and employees of the Association, we
look forward to the opportunities now ahead of us and pledge our best efforts to
make your investment a profitable one.
Sincerely,
John T. Larimer
President
<PAGE>
PROXY GRAM
We recently forwarded to you a proxy statement and letter informing you that
the Board of Directors of The Market Building and Saving Company, had
received conditional regulatory approval to convert to a stock association.
YOUR VOTE on our plan to convert to a stock savings association HAS NOT BEEN
RECEIVED. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING AGAINST THE
CONVERSION.
Your vote is important to us and therefore, we are requesting that you sign
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Voting for the Conversion does not obligate you to purchase stock or affect
the terms or insurance on your accounts.
The board of Directors unanimously recommends that you vote "FOR" the
Conversion.
THE MARKET BUILDING AND SAVING COMPANY
John T. Larimer
President
- ----------------------------------------------------------------------------
If you mailed the proxy, please accept our thanks and disregard this request.
For further information, call (513) XXX-XXXX.
This notice is neither an offer to sell nor a solicitation of an offer to
buy the common shares of Market Financial Corporation. The offer is made only
by the Prospectus, dated ___________, 1996. The securities offered in the
Conversion are not deposits or accounts and are not federally insured or
guaranteed.
<PAGE>
STOCK GRAM
We are pleased to announce that Market Financial Corporation ("Market"), the
holding company of The Market Building and Savings Company (the
"Association") is offering common shares in a subscription and community
offering. The sale of common shares in connection with the conversion of the
Association from mutual to stock form will enable the Association to raise
additional capital to support and enhance its current operations.
We previously mailed you a SUBSCRIPTION AND COMMUNITY OFFERING PROSPECTUS
providing you detailed information about the Association's operations and the
proposed offering of MFC common shares. We urge you to read these materials
carefully.
We invite our loyal depositors and community members to become shareholders
of MFC. If you are interested in purchasing MFC common shares, you must submit
your completed Stock Order Form, Certification Form, and payment prior to
X:30 P.M., XXXX XX, 1996.
If you have additional questions regarding the stock offering or need
additional materials, please call the Conversion Information Center (513)
xxx-xxxx or stop by our office at 7522 Hamilton Avenue, Mt. Healthy from 9:00
a.m. to 4:30 p.m., Monday through Friday.
The common shares of MFC are not deposits or accounts and
are not federally insured or guaranteed. This stockgram is neither an
offer to sell nor a solicitation of an offer to buy the common shares of MFC.
The offer is made only by the Prospectus, dated ___________, 1996.
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STOCK
OFFERING
AND
ANSWERS
MARKET
FINANCIAL
CORPORATION
<PAGE>
STOCK OFFERING
QUESTIONS & ANSWERS
FACTS ABOUT THE PLAN OF CONVERSION
The Board of Directors of The Market Building and Saving Company (the
"Association") unanimously adopted a Plan of Conversion to convert from an
Ohio mutual savings and loan association to an Ohio capital stock savings and
loan association (the "Conversion") and simultaneously become a wholly-owned
subsidiary of Market Financial Corporation, an Ohio corporation formed by the
Association to own all of the outstanding stock of MFC.
This brochure is provided to answer some of the most frequently asked
questions regarding the Conversion. Following the Conversion, the Association
will continue to provide financial services to its depositors, borrowers and
other customers and operate with its existing management and employees. The
Conversion will not affect the terms, balances, interest rates or existing
federal deposit insurance coverage or the terms or conditions of any loans to
existing borrowers under their individual contract arrangements with the
Association.
For complete information regarding the Conversion, see the Prospectus of
Market Financial Corporation, dated _________, 1996. Copies of the Prospectus
may be obtained by calling the Conversion Information Center at (513)
___-____.
WHY IS THE ASSOCIATION CONVERTING TO STOCK FORM?
The stock form of ownership is used by most business corporations and an
increasing number of savings institutions. Through the sale of the stock, the
Association will raise additional capital enabling it to:
- support and expand its current financial and other services.
- allow customers and friends to purchase stock and share in MFC's and the
Association's future.
WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
No. The Conversion will have no effect on the balance or terms of any savings
account or loan, and your deposits will continue to be federally insured by
the Federal Deposit Insurance Corporation ("FDIC") to the maximum legal
limit. The Conversion also will not affect the terms or conditions of any
loans to existing borrowers or the rights and obligations of these borrowers
under their individual contractual arrangements with the Association.
WHO IS ELIGIBLE TO SUBSCRIBE FOR COMMON SHARES IN THE SUBSCRIPTION AND
COMMUNITY OFFERINGS?
The shares of MFC to be issued in the Conversion are being offered in the
Subscription Offering in the following order of priority to: (1) Eligible
Account Holders (account holders with a balance of $50 or more in an account
as of December 31, 1994); (2) MFC's Employee Stock Ownership Plan; (3)
Supplemental Eligible
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Account Holders (account holders with a balance of $50 or more in an account
as of __________, 1996); and (4) Other Eligible Members (depositors as of
__________. Shares not subscribed for in the Subscription Offering may be
offered to certain members of the general public with preference given to
natural persons who are residents of Hamilton County, Ohio.
HOW MANY COMMON SHARES ARE BEING OFFERED AND AT WHAT PRICE?
It is currently expected that between 858,500 and 1,161,500 common shares
will be sold at a price of $10.00 per share. The appraised midpoint of the
offering is 1,010,000 shares at $10.00 per share, or $10.1 million. All
subscribers will subscribe for shares at the subscription price of $10.00 per
share.
HOW MANY COMMON SHARES MAY I SUBSCRIBE FOR IN THE CONVERSION?
The minimum number of shares is 25. No person may purchase more than 2% of
the common shares (currently 26,715 common shares), and no person, together
with associates or persons acting in concert, may purchase more than 4% of
the common shares (currently 53,429) common shares.
HOW DO I SUBSCRIBE FOR SHARES?
To subscribe for shares in the Subscription Offering, you must complete and
mail or hand deliver the enclosed Stock Order Form along with your payment
for the common shares. Your order must be received by the Association by 4:30
p.m., Mt. Healthy, Ohio time, on __________, 1996.
HOW MAY I PAY FOR MY SHARES OF STOCK?
You may pay for shares by check, cash or money order. Interest will be paid
by the Association on these funds at the passbook rate, which is currently
X.X% per annum, from the day the funds are received until the completion or
termination of the Conversion. You may also authorize us to withdraw funds
from your savings account or certificate of deposit at the Association for
the amount of funds you specify for stock payment. You will not have access
to these funds from the day we receive your order until the completion or
termination of the Conversion.
CAN I PURCHASE SHARES USING FUNDS IN MY ASSOCIATION IRA ACCOUNT?
No. Federal regulations do not permit the purchase of conversion stock from
your IRA account existing with the Association. To accommodate our
depositors, however, we have made arrangements with an outside trustee to
allow such purchases through a trustee to trustee transfer. Please call our
Conversion Information Center for additional information.
WILL THE FDIC INSURE THE SHARES OF MFC?
No. The shares of MFC being offered are not savings accounts or savings
deposits and are not insured by the FDIC or any other governmental agency.
Like any other common stock, MFC's common shares will not be insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
The declaration and payment of dividends will be subject to the discretion of
the Board of Directors of MFC.
<PAGE>
HOW WILL THE STOCK BE TRADED?
MFC has applied to have the common shares trade on the Nasdaq Small Cap Market
under the symbol "XXXX." However, no assurances can be given that an active
and liquid market will develop following the Conversion.
ARE OFFICERS AND DIRECTORS OF THE ASSOCIATION PLANNING TO SUBSCRIBE FOR
COMMON SHARES OF MFC?
Yes! The Association's executive officers and directors currently intend to
subscribe for approximately 118,300 common shares, or approximately 11.7% of
the common shares offered at the midpoint of the offering range.
MUST I PAY A COMMISSION?
No. You will not be charged a commission or fee on the purchase of common
shares in the Conversion.
SHOULD I VOTE?
Yes. Your "Yes" vote is very important!
WHY DID I GET SEVERAL PROXY CARDS?
If you have more than one account with the Association, you may receive more
than one proxy card, depending on the ownership structure of your accounts.
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
HOW MANY VOTES DO I HAVE?
Your proxy card(s) show the number of votes you have. Every depositor
entitled to vote may cast one vote for each $500, and a proportionate
fractional vote of the withdrawal value of the account thereof, on deposit as
of the record date.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
Yes, but we would still like you to sign and mail your proxy today. If you
then attend the Special Meeting in person and vote, your proxy will be
revoked by your vote at the meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER (513)
XXX-XXXX, between X:00 a.m. and X:30 p.m. Monday through Friday.
THE SHARES OF COMMON STOCK OFFERED IN THE CONVERSION ARE NOT SAVINGS
ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE
OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
March 11, 1996
The Board of Directors
The Market Building and Saving Company
7522 Hamilton Avenue
Cincinnati, Ohio 45231
Re: Conversion Valuation Agreement
Attn: John T. Larimer, President
Keller & Company, Inc. (hereinafter referred to as KELLER) hereby proposes
to prepare an independent conversion appraisal of The Market Building and Saving
Company, Cincinnati, Ohio (hereinafter referred to as MARKET), relating to the
conversion of MARKET from a mutual to a stock institution. KELLER will provide
a pro forma valuation of the market value of the shares to be sold in the
proposed conversion of MARKET.
KELLER is a financial consulting firm that primarily serves the financial
institution industry. KELLER is experienced in evaluating and appraising thrift
institutions and thrift institution holding companies. KELLER is an experienced
conversion appraiser for filings with the Federal Deposit Insurance Corporation
("FDIC") and the Office of Thrift Supervision ("OTS"), and is also approved by
the Internal Revenue Service as an expert in thrift stock valuations.
KELLER agrees to prepare the conversion appraisal in the format required by
the OTS in a timely manner for prompt filing with the OTS and the Securities and
Exchange Commission, if applicable. KELLER will provide any additional
information as requested and will complete appraisal updates in accordance with
regulatory requirements.
<PAGE>
The appraisal report will provide a detailed description of MARKET,
including its financial condition, operating performance, asset quality, rate
sensitivity position, liquidity level and management qualifications. The
appraisal will include a description of MARKET's market area, including both
economic and demographic characteristics and trends. An analysis of other
publicly-traded thrift institutions will be performed to determine a comparable
group and adjustments to the appraisal value will be made based on a comparison
of MARKET with the comparable group.
In making its appraisal, KELLER will rely upon the information in the
Subscription and Community Offering Circular (Prospectus), including the
financial statements. Among other facts, KELLER will also consider the
following: the present and projected operating results and financial condition
of MARKET; the economic and demographic conditions in MARKET's existing
marketing area; pertinent historical financial and other information relating to
MARKET; a comparative evaluation of the operating and financial statistics of
MARKET with those of other thrift institutions; the proposed price per share;
the aggregate size of the offering of Common Stock; the impact of the Conversion
on MARKET's capital position and earnings potential; MARKET's proposed dividend
policy; and the trading market for securities of comparable institutions and
general conditions in the market for such securities. In preparing the
appraisal, KELLER will rely solely upon, and assume the accuracy and
completeness of, financial and statistical information provided by MARKET, and
will not independently value the assets or liabilities of MARKET in order to
prepare the appraisal.
Upon completion of the conversion appraisal, KELLER will make a
presentation to the Board of Directors of MARKET to review the content of the
appraisal, the format and the assumptions. A written presentation will be
provided to each board member.
For its services in making this appraisal, KELLER's fee will be a flat fee
of $17,000, including out-of-pocket expenses. The appraisal fee will include
the preparation of one valuation update. All additional valuation updates will
be subject to an additional fee of $1,000 each. Upon
<PAGE>
the acceptance of this proposal, KELLER shall be paid a retainer of $3,000 to be
applied to the total appraisal fee of $17,000, the balance of which will be
payable at the time of the completion of the appraisal.
MARKET agrees, by the acceptance of this proposal, to indemnify KELLER and
its employees and affiliates for certain costs and expenses, including
reasonable legal fees, in connection with claims or litigation relating to the
appraisal and arising out of any misstatement or untrue statement of a material
fact in information supplied to KELLER by MARKET or by an intentional omission
by MARKET to state a material fact in the information so provided, except where
KELLER has been negligent or at fault.
This proposal will be considered accepted upon the execution of the two
enclosed copies of this agreement and the return of one executed copy to KELLER,
accompanied by the specified retainer.
KELLER & COMPANY, INC.
By: /S/ MICHAEL R. KELLER
Michael R. Keller
President
THE MARKET BUILDING AND SAVING COMPANY
By: /S/ JOHN T. LARIMER
John T. Larimer
President
Date: MARCH 25, 1996
8/11/96 - 0132095.01