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As filed with the Securities and Exchange Commission on December 29, 1997
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
WESTERN RESERVE BANCORP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
OHIO 6710 31-1566623
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(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Organization) Classification Code Number) Identification
No.)
23 PUBLIC SQUARE, SUITE 220
MEDINA, OHIO 44256
(330) 764-3131
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
small business issuer's Principal Executive Offices)
EDWARD J. MCKEON COPIES OF COMMUNICATIONS TO:
PRESIDENT AND CEO THOMAS C. BLANK, ESQ.
WESTERN RESERVE BANCORP, INC. WERNER & BLANK CO., L.P.A.
23 PUBLIC SQUARE, SUITE 220 7205 W. CENTRAL AVENUE
MEDINA, OHIO 44691 TOLEDO, OH 43617
(330) 764-3131 (419) 841-8051
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Approximate date of commencement of proposed sale of the securities to the
public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. | |
If this form is a post-effective amendment filed pursuant to rule 462(C) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. | |
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: | |
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Class of Securities Amount to Offering Price Aggregate Offering Amount of
to be Registered be Registered Per Share(1) Price(1) Registration Fee(1)
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<S> <C> <C> <C> <C>
Common Stock,
no par value 500,000 $20.00 $10,000,000 $3,448.28
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The small business issuer hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
small business issuer 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> 3
Prospectus
WESTERN RESERVE BANCORP, INC.
500,000 Shares of Common Stock
(Without Par Value)
(Minimum Purchase: 250 Shares)
This Prospectus relates to the offering by Western Reserve Bancorp, Inc. (the
"Company"), an Ohio corporation, of a minimum of 250,000 shares and a maximum of
500,000 shares of its Common Stock, without par value per share (the "Common
Stock" or "Shares"), at $20.00 per share. The Company has been organized
primarily to hold, upon receipt of necessary regulatory approvals, all of the
capital stock of The Western Reserve Bank, a bank to be formed under the laws of
the State of Ohio (the "Bank"). The organizers of the Company and the Bank have
purchased or intend to subscribe for an aggregate of at least 51,500 shares of
Common Stock at $20.00 per share. The Company and the Bank have not conducted
active business operations. The commencement of such operations is contingent
upon receipt of various regulatory approvals by federal and state agencies and
the sale of a minimum of 250,000 shares of the Common Stock offered hereunder.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS AT PAGE 7."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OFFERED HEREBY ARE NOT BANK DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY OR COMPANY. THE
FEDERAL DEPOSIT INSURANCE CORPORATION HAS NOT PASSED, AND DOES NOT PASS, UPON
THE MERITS OF THESE OR ANY OTHER SECURITIES NOR DO THEY PASS UPON THE ACCURACY
OR COMPLETENESS OF ANY PROSPECTUS OR OTHER SELLING LITERATURE.
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PRICE TO PUBLIC (1) UNDERWRITING FEES (2) NET PROCEEDS TO COMPANY (3)
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<S> <C> <C> <C>
Per Share $20.00 -0- $20.00
Total Minimum (4) $5,000,000 -0- $5,000,000
Total Maximum $10,000,000 -0- $10,000,000
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</TABLE>
(1) The offering price has been arbitrarily established by the Company (see
"RISK FACTORS-Offering Price").
(2) Offers and sales of the Common Stock will be made on behalf of the
Company on a "best-efforts" basis by its officers and directors, who
will receive no commissions or other remuneration in connection with
such activities, but who will be reimbursed for reasonable expenses
incurred in the offering. These officers and directors and their
proposed activities qualify for the exemption from registration as
broker/dealers described in Rule 3a4-1 under the Securities and
Exchange Act of 1934 and under appropriate state securities law. In the
event that the Company is unsuccessful in selling the shares offered
hereunder through its officers and directors, the Company may engage
the services of a licensed broker-dealer to assist in the sale of the
shares. Such broker-dealer, if retained, would be paid fees and
reimbursed for expenses typical for such selling effort.
(3) Before deducting estimated offering expenses of approximately $75,000
for the minimum offering and $100,000 for the maximum offering which
does not include certain organizational and other operating expenses
which were $85,383 as of November 30, 1997 and will continue to be
incurred until the Bank commences operations. Such expenses will be
higher in the event a broker-dealer is retained to assist in the sale
of the shares of the Company. A portion of such funds advanced by the
Organizers, estimated to be $361,000 in total through July 1, 1998,
already has been advanced by the Organizers and will cover the
operating expenses of the Company until the minimum offering of $5
million has been subscribed.
(Cover Page Continued)
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(4) Subscription proceeds will be deposited by noon of the fifth business
day following acceptance in an escrow account with Mid American
National Bank & Trust Co., Toledo, Ohio, pending receipt of
subscriptions for not less than 250,000 Shares and completion of
certain other matters on or before July 1, 1998, the expiration date of
the Offering, unless the Offering is terminated sooner or extended (see
"THE OFFERING-Terms of the Offering"). The latest date of such
extension will be September 30, 1998. The Company promptly will return
to each subscriber, with interest, the amount of any proceeds received
in full with respect to subscriptions that are not accepted. In the
event that the Offering is successful, the Escrow Agent will release to
the Company the proceeds from the Offering and all interest earned
thereon. In the event that the Offering is not successful, interest
will be paid to investors on funds held by the Escrow Agent. The
Company and the Escrow Agent intend that the proceeds will be held in
the Escrow Agent's U.S. Government Money Market Fund and that interest
will be paid on such proceeds at the rate from time to time in effect
in such account (currently 5.65%) from the date of deposit with the
Escrow Agent until the Expiration Date (as herein defined). While not
anticipated, the Company may direct the Escrow Agent to hold the
proceeds in an alternate interest-bearing investment. Proceeds from the
anticipated sale of 51,500 Shares to the "Organizers" (as herein
defined) in the amount of $1,030,000 (at $20.00 per Share) will be
included in determining whether the minimum $5 million offering has
been met.
Western Reserve Bancorp, Inc.
23 Public Square, Suite 220
Medina, Ohio 44256
(330)764-3131
The date of this Prospectus is January 15, 1998.
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THESE SHARES ARE OFFERED SUBJECT TO ACCEPTANCE, REJECTION OF ANY
OFFER TO PURCHASE, WITHDRAWAL, AND CANCELLATION OF THE OFFERING WITHOUT NOTICE.
NOTICE TO OHIO INVESTORS: A REGISTRATION STATEMENT CONCERNING THE
SHARES HAS BEEN FILED WITH THE OHIO DIVISION OF SECURITIES PURSUANT TO SECTION
1707.06(A)(1) OF THE OHIO REVISED CODE. THESE SHARES HAVE NOT BEEN APPROVED OR
DISAPPROVED AS AN INVESTMENT FOR ANY OHIO RESIDENT BY THE OHIO DIVISION OF
SECURITIES, NOR HAS THE DIVISION PASSED UPON THE ACCURACY OF THIS PROSPECTUS.
NOTICE TO FLORIDA INVESTORS: THE SHARES REFERRED TO IN THIS
PROSPECTUS WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT
UNDER SECTION 517.061 OF THE FLORIDA SECURITIES ACT. THE SHARES HAVE NOT BEEN
REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA.
UNDER THE PROVISIONS OF THE FLORIDA SECURITIES ACT, THE PURCHASE OF
SHARES BY A FLORIDA RESIDENT IS VOIDABLE BY SUCH RESIDENT WITHIN THREE (3) DAYS
AFTER MAKING PAYMENT FOR SUCH SHARES.
TO ACCOMPLISH THE FOREGOING, THE SUBSCRIBER NEED ONLY SEND A LETTER
OR TELEGRAM TO THE COMPANY INDICATING HIS INTENTION TO WITHDRAW. THE LETTER OR
TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED
THIRD DAY. IF THE SUBSCRIBER SENDS A LETTER, IT IS PRUDENT TO SEND IT BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO
TO EVIDENCE THE TIME WHEN IT WAS MAILED.
This Offering is being made by authorized representatives of Western
Reserve Bancorp, Inc. Subscription payments received from purchasers of the
Shares will be held in an escrow account with Mid American National Bank & Trust
Company, Toledo, Ohio, until the sale of the minimum Shares offered is sold or
the Offering is terminated. Such funds will not be released to Western Reserve
Bancorp, Inc. until the sale of at least 250,000 Shares. If subscriptions for at
least 250,000 Shares have not been received by July 1, 1998, subject to an
extension by Western Reserve Bancorp, Inc. to a date not later than September
30, 1998, the Offering will terminate and the Escrow Agent promptly will return
to the Investors such funds as were paid by them, together with interest earned
on such subscriptions. The Company and the Escrow Agent intend that the proceeds
from subscriptions will be held in the Escrow Agent's U.S. Government Money
Market Fund and that interest will be paid on such proceeds at the rate from
time to time in effect in such account (currently 5.65%) from the date of
deposit with the Escrow Agent until the Expiration Date (as herein defined).
While not anticipated, the Company may direct the Escrow Agent to hold the
proceeds in an alternate interest-bearing investment. (see "PLAN OF
DISTRIBUTION"). In the event that the Offering is successful, the Escrow Agent
will release to the Company the proceeds from the Offering and all interest
earned thereon.
Western Reserve Bancorp, Inc. is not currently a reporting company
pursuant to the provisions of the Securities Exchange Act of 1934 (the "Exchange
Act"). However, if the number of shareholders of the Company subsequent to the
Offering exceeds 300, the Company will become subject to the financial reporting
requirements of the Exchange Act and the Company will file all reports required
thereunder for any periods for which the Exchange Act's requirements apply to
the Company. The Company intends to furnish its shareholders with annual reports
containing audited financial information, whether or not subject to the
provisions of the Exchange Act.
No person has been authorized to give any information or to make any
representation in connection with this Offering other than those contained in
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized. This Prospectus shall not
constitute an offer to sell or a solicitation of an offer to buy any securities
in any jurisdiction in which it would be unlawful to make such offer or
solicitation.
3
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TABLE OF CONTENTS
Prospectus Summary.........................................................5
Risk Factors...............................................................7
Use of Proceeds...........................................................11
Pro Forma Capitalization..................................................12
The Offering..............................................................13
Information About Western Reserve Bancorp, Inc.and Western Reserve Bank...16
Management................................................................21
Certain Transactions and Relationships....................................26
Indemnification...........................................................27
Description of the Common Shares..........................................28
Antitakeover Measures.....................................................29
Supervision and Regulation................................................32
Legal Opinions............................................................36
Experts...................................................................36
Additional Information....................................................36
Audited Financial Statements of the Company as of November 30, 1997......F-1
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PROSPECTUS SUMMARY
The following is a very brief summary of certain information contained
in this Prospectus and is intended only as a guide and reference. It is not
complete nor should it be relied upon to disclose accurately all aspects of the
transaction described in this Prospectus. This summary is qualified in its
entirety by reference to the complete text of this Prospectus and its Exhibits
which should be read thoroughly by prospective investors.
THE COMPANY
Western Reserve Bancorp, Inc. (the "Company"), is a newly formed Ohio
corporation, which proposes to operate a banking institution in the Medina
County area through the formation of a de novo bank under the banking laws of
the State of Ohio or the laws of the United States. The Company will be
regulated under the Bank Holding Company Act of 1956. It is the desire of the
Company that the Bank service the financial needs of small to mid-sized
businesses and consumers in its market area. In the past few years, many of the
area's financial institutions have been acquired by large regional organizations
headquartered outside of the Medina area. As a result of such consolidation, the
Company's organizers believe that the competitive and economic environment is
right for a new, independent, locally owned and managed bank to serve the
financial needs of Medina's residents. The Company intends to implement a
strategy which focuses on providing a superior level of customer service, close
attention to personal needs and quick response times.
MANAGEMENT
Paul Merritt ("P.M.") Jones, a lifelong resident of Medina, has been
elected Chairman of the Company. Edward J. McKeon has been elected as President
of the Company. Mr. McKeon has 29 years of experience in banking, most recently
as President of Enterprise Bank, Solon, Ohio. In addition to Mr. Jones and Mr.
McKeon, the following persons are directors of the Company and expect to be the
initial directors of the Bank: Dr. Bijay Jayaswal, George R. Klein, Ray E.
Laribee, C. Richard Lynham, R. Hal Nichols, Rory H. O'Neil, Michael R. Rose,
Glenn M. Smith, and Thomas A. Tubbs. The directors are at times referred to
herein as the "Organizers." All of these persons are successful businessmen and
have strong ties to the local Medina community. The directors have indicated
that they intend to purchase, in the aggregate, at least 51,500 Shares of the
Company at $20.00 per share ($1,030,000) in connection with the Offering. Eight
Thousand (8,000) Shares already have been purchased by the Organizers. The
Organizers intend to purchase additional Shares, as required, to provide
operating funds for the Company until the minimum offering of $5 million has
been subscribed. The purchase of such Shares will not be subject to the
provisions of the Escrow Agreement. Such expenses are estimated to be $361,000
through July 1, 1998. Proceeds from the sale of all Shares to the Organizers
will be included in determining whether the minimum $5 million offering has been
met.
The Organizers believe that their long-standing ties to the community,
coupled with their combined business experience, provide them with a unique
perspective of the area's needs and the desire for a new independent bank under
local control. They further believe that the community will react favorably to
this new enterprise.
ANALYSIS OF MARKET
Based on information available to the Company, including a market study
conducted by Austin Associates, Inc., a nationally recognized community bank
consulting firm, the Company believes that the banking market in Medina County
offers the potential for the success of a new locally owned and operated bank.
The Company intends that the Bank will be service driven and will concentrate
its efforts on small to mid-sized businesses and consumers. The primary service
area ("PSA") will be Medina County. The PSA is characterized by rapid population
growth with an estimated population of approximately 141,000 persons in 1997.
This is an increase of over 15% since 1990. The principal cities in both
Cuyahoga (population 1.4 million) and Summit (population 515,000) Counties,
Cleveland and Akron, are within a 30-minute drive of Medina. Business activity
in the area is geared to small business and retailing, segments to be targeted
by the Bank. Additional factors including household growth, income wealth and
housing values point to the potential for the success of the Bank in this
growing market.
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COMPETITION
The banking industry in the Bank's proposed market area has experienced
substantial consolidation in recent years. Many of the area's locally owned or
managed financial institutions have either been acquired by large regional bank
holding companies or have been consolidated into branches. This consolidation
has been accompanied by numerous pricing changes, the dissolution of local
boards of directors, management and branch personnel changes and, in the
perception of the Organizers, a decline in the level of customer service. With
recent changes in interstate banking regulation, this type of consolidation is
expected to continue.
Management believes that this competitive situation, when coupled with
the area's growing and diversified economy, creates a favorable opportunity for
a new commercial bank managed by experienced local business people. Management's
experience indicates that a locally managed community bank can attract customers
by providing highly professional personalized attention, responding in a timely
manner to product and service requests and exhibiting an active interest in
customers' business and personal financial needs. Management believes that these
factors are often lacking at a branch of a large regional bank. Currently, there
are no locally managed independent commercial banks located in the City of
Medina.
Initial reaction from the local community to the proposed formation of
the Bank has been very positive. Many local businesses and consumers have
indicated to the Organizers their intent to transfer some or all of their
banking relationships to the Bank after it commences operations. This interest
appears to result primarily from the Bank's intent to focus on the local
interests of the Medina area and from the reputations of the Organizers within
this community.
SECURITIES OFFERED
Subscriptions for 250,000 (minimum) to 500,000 (maximum) Shares,
without par value, in the Company at a subscription price of $20.00 per Share
are offered hereunder. The minimum subscription per subscriber is 250 Shares
with a maximum per subscriber of 12,500 Shares if the minimum number of Shares
is subscribed or 25,000 Shares if the maximum number of Shares is subscribed.
DIVIDEND POLICY
It is the intention of the Company to pay dividends to its shareholders
in the future when allowable by applicable regulatory guidelines and when the
capital of the Company is sufficient to both pay dividends and support the
growth of the Company and the Bank. While the timing for such dividends will be
dependent upon many factors, including the total amount of this Offering and the
profitability of the Company and the Bank, it is not anticipated that cash
dividends will be declared and paid in the foreseeable future on the Shares.
REQUIRED APPROVALS
The acquisition and organization of the de novo bank must be approved
by the Ohio Division of Financial Institutions (or the Office of the Comptroller
of the Currency if a national bank is to be formed), Board of Governors of the
Federal Reserve and the Federal Deposit Insurance Corporation. The Company has
not received any of such approvals to date but the organizers believe that such
approvals can be obtained upon the successful consummation of this Offering.
MANNER OF SUBSCRIBING
An Investor interested in purchasing Shares of the Company should
complete and execute the subscription Agreement and Substitute Form W-9
delivered with this Prospectus and return these items to the Company. The
Subscription Agreement obligates the Investor to deliver a check in the full
amount of the purchase price of the subscribed-for Shares at the time of
execution of the Subscription Agreement. All checks should be made payable to
"Mid American National Bank & Trust Co., Escrow Agent." In the event that the
Offering is successful, the Escrow Agent will release to the Company the
proceeds from the Offering and all interest earned thereon. In the event that
the Offering is not successful, interest will be paid to investors on funds held
by the Escrow Agent. The Company and the Escrow Agent intend that the proceeds
from subscriptions will be held in the Escrow Agent's U.S.
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Government Money Market Fund and that interest will be paid on such proceeds at
the rate from time to time in effect in such account (currently 5.65%) from the
date of deposit with the Escrow Agent until the Expiration Date (as herein
defined). While not anticipated, the Company may direct the Escrow Agent to hold
the proceeds in an alternate interest-bearing investment. Questions concerning
this Offering should be addressed to the Company at 23 Public Square, Medina,
Ohio 44256, or by phone at (330) 764-3131.
SUMMARY FINANCIAL DATA
NOVEMBER 30, 1997
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BALANCE SHEET DATA: ACTUAL ADJUSTED (1)
MINIMUM OFFERING MAXIMUM OFFERING
<S> <C> <C> <C>
Cash and securities .................... $57,000 $4,822,000 $9,797,000
Total assets............................ 121,000 4,886,000 9,861,000
Total liabilities....................... 1,000 1,000 1,000
Stockholders' equity.................... 120,000 4,885,000 9,860,000
</TABLE>
(1) Adjusted to reflect the application of the estimated net proceeds, minimum
or maximum as noted, from the shares offered hereby (see "USE OF
PROCEEDS").
RISK FACTORS
An investment in the Shares of the Company involves certain significant
risks, many of which are beyond the control of the Company and represent
contingencies that cannot be reliably estimated. Investment in the Shares is
suitable only for Persons who have no need for liquidity in their investments.
Among other aspects of this Offering, potential investors should consider
carefully the following factors, which discussion is meant to be a summary of
the material but not all of the risk factors involved in a purchase of the
Shares.
CAPITALIZATION
The Company has determined that a minimum of 250,000 Shares must be
sold before the Company will be sufficiently capitalized to commence operation
of a subsidiary bank. There can be no assurance that this number of Shares will
be sold or that the appropriate state and federal regulatory agencies will
authorize the Company's subsidiary to commence operations. If less than 250,000
Shares are sold, the Company is obligated to return the subscription monies to
the investors with interest as described herein. In the event the Company's
subsidiary does not commence business subsequent to the Closing Date for some
other reason, the Company would anticipate return of a portion of the funds to
investors as the holders of the Shares. No assurance can be given as to the
amount, if any, or the timing of any such liquidating distribution (see "PRO
FORMA CAPITALIZATION" and "USE OF PROCEEDS").
LACK OF MARKETABILITY
As of the date hereof, there is no public market for the Shares and
there can be no assurance that a public market subsequently will develop,
notwithstanding the desire of the Company that the same exist. The Company does
not intend to engage an underwriter to assist in the sale of Shares pursuant to
this Offering, although it has reserved the right to do so if, in the discretion
of the Company, such engagement becomes necessary. To the Company's knowledge,
no person or entity currently intends to make a market in the Shares. While
legally the Company will be in a position to purchase Shares from time to time,
the ability to do so will be limited by the available capital of the Company and
regulatory requirements. This will restrict the ability of an investor to shift
his investment in the Shares to an alternative investment in the future. The
initial offering price of $20.00 per Share has been established arbitrarily and
has no direct relationship to earnings, fair market value or other subjective
standards of worth (see "THE OFFERING").
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NO PREEMPTIVE RIGHTS AND NO CUMULATIVE VOTING
The Shares offered hereby will not have preemptive rights to acquire
other or additional shares which might, from time to time, be issued by the
Company. The lack of such rights could cause dilution in the ownership
percentage of any of the Investors in the event of a subsequent issuance of
Shares. Further, the shareholders of the Company will not have the right to
cumulate their shares in the election of Directors. The denial of such a right
means that the holders of a majority of the shares will be able to elect all of
the Directors (see "DESCRIPTION OF THE COMMON SHARES").
NEW COMPANY
The Company is a new business venture and has no operating history. An
investment in the Company will be subject to the risks and uncertainties
attendant to a new business venture, including its ability to attract customers
and to compete with other financial institutions as well as risks unique to
banking including determining appropriate interest rates to be paid and charged
on deposits and loans, and the risks involved in investments and lending (see
"INFORMATION ABOUT WESTERN RESERVE BANCORP, INC." and "SUPERVISION AND
REGULATION").
ASSESSMENT OF BANK SHARES
Under banking laws of the State of Ohio, shares of banks are subject to
assessment if the bank's capital becomes impaired from losses or other causes
and the Ohio Division of Financial Institutions orders such assessment. In the
event of failure to pay such assessment, the shares of the Bank may be subject
to auction by the Ohio Division of Financial Institutions to satisfy the
assessment. While the Company's Shares would not be directly assessable, in the
event that the Company is required to invest more funds in its subsidiary, the
Company may not have the funds available to do so and may need to acquire
additional funds for that purpose from its shareholders, equity markets or
through loans, which funds may not be available at that point in time (see
"DESCRIPTION OF THE COMMON SHARES").
REGULATORY APPROVAL
The Company has not yet obtained approval for the formation of a de
novo bank. Approvals will be required from the Ohio Division of Financial
Institutions (or the Office of the Comptroller of the Currency should the
Company subsequently determine to seek a national bank charter) for the
chartering of the Bank, the Federal Deposit Insurance Corporation for deposit
insurance for the accounts of the Bank, and the Federal Reserve Board for the
"acquisition" of the Bank by the Company and Federal Reserve membership. While
it is anticipated that the formation of the Bank will be approved, there is no
assurance such approval will be obtained or that the operation of a subsidiary
bank of the Company will be successful in the designated market area (see
"SUPERVISION AND REGULATION").
COMPETITION
The Bank will be in competition with other banks and financial
institutions, many of which will have greater financial resources than the Bank
and may be able to offer other financial services at varying costs with greater
loan capacities than the Bank (see "INFORMATION ABOUT WESTERN RESERVE BANCORP,
INC.-Competition").
FINANCIAL CONDITION
The financial health of the Company will be directly related to the
financial health of its subsidiary bank. The financial health of the Bank may be
adversely affected by detrimental changes in federal or state laws, the national
monetary and fiscal policies and international, national and/or local economic
conditions. Such laws, policies or conditions could have material and adverse
effects upon the Bank (see "INFORMATION ABOUT WESTERN RESERVE BANCORP, INC." and
"SUPERVISION AND REGULATION").
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DIVIDENDS
It is not anticipated that the Company can or will declare or pay cash
dividends in the foreseeable future on the Shares. The earnings of the Bank will
instead be utilized to support its expected growth. Investors should not
purchase the Shares with a view towards receiving, at least for the immediate
future, a current return on their investment in the form of dividends (see
"DESCRIPTION OF THE COMMON SHARES").
DEPENDENCE ON MANAGEMENT
The Company and the Bank are, and for the foreseeable future will be,
dependent primarily upon the services of Edward McKeon, the President of the
Company and the Bank. If the services of Mr. McKeon or other key officers to be
hired by the Bank were to become unavailable to the Company or the Bank for any
reason, or if the Company or the Bank were unable to hire highly qualified and
experienced personnel either to replace Mr. McKeon or any other proposed
employee, or to adequately staff the anticipated growth of the Bank, the
operating results of the Company and the Bank could be aversely affected.
LENDING RISKS AND LENDING LIMITS
The risk of nonpayment of loans is inherent in commercial banking, and
such nonpayment, if it occurs, would likely have a material adverse effect on
the Company's earnings and overall financial condition as well as the value of
the Common Stock. Because the Bank does not have an operating history, none of
the Bank's customers will have an established credit history with the Bank.
Management will attempt to minimize the Bank's credit exposure by carefully
monitoring the concentration of its loans within specific industries and through
loan application and approval procedures, but there can be no assurance that
such monitoring and procedures will reduce such lending risks. Credit losses can
cause insolvency and failure of a financial institution, and in such event, its
shareholders could lose their entire investment.
The Bank's legal lending limit initially will be approximately
$1,000,000 per customer relationship, depending upon the capitalization of the
Bank. Accordingly, the size of the loans which the Bank can offer to potential
customers is less than the size of loans which most of the Bank's competitors
are able to offer. This limit initially will affect the ability of the Bank to
seek relationships with the area's larger businesses. The Bank expects to
accommodate loan volumes in excess of its lending limit through the sale of
participations in such loans to other banks. However, there can be no assurance
that the Bank will be successful in attracting or maintaining customers seeking
larger loans or that the Bank will be able to engage in participations of such
loans on terms favorable to the Bank.
IMPACT OF INTEREST RATES
The results of operations for financial institutions, including the
Bank, may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate market values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government
(see "SUPERVISION AND REGULATION"). The Bank's profitability is in part a
function of the spread between the interest rates earned on investments and
loans and the interest rates paid on deposits and other interest-bearing
liabilities. In the early 1990s, many banking organizations experienced
historically high interest rate spreads. More recently, interest rate spreads
have generally narrowed due to changing market conditions and competitive
pricing pressure, and there can be no assurance that such factors will not
continue to narrow interest rate spreads or that the higher interest rate
spreads will return. Like most banking institutions, the Bank's net interest
spread and margin will be affected by general economic conditions and other
factors that influence market interest rates and the Bank's ability to respond
to changes to such rates. At any given time, the Bank's assets and liabilities
will be such that they are affected differently by a given change in interest
rates. As a result, an increase or decrease in rates could have a material
adverse effect on the Bank's net income, capital and liquidity. While management
intends to take measures to mitigate interest rate risk, there can be no
assurance that such measures will be effective in minimizing the exposure to
interest rate risk (see "SUPERVISION AND REGULATION").
9
<PAGE> 12
NEED FOR TECHNOLOGICAL CHANGE
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. The Company's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will satisfy
customer demands for convenience as well as to create additional efficiencies in
the Bank's operations. Many of the Bank's competitors have substantially greater
resources to invest in technological improvements. Such technology may permit
competitors to perform certain functions at a lower cost than the Bank. There
can be no assurance that the Bank will be able to effectively implement new
technology-driven products and services or be successful in marketing such
products and services to its customers (see "INFORMATION ABOUT WESTERN RESERVE
BANCORP, INC. AND WESTERN RESERVE BANK").
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and provisions of the Ohio
Revised Code, provide for the indemnification of its officers and directors, and
thereby insulate its officers and directors from liability for certain breaches
of the duty of care. It is possible that the indemnification obligations imposed
under these provisions could result in a charge against the Company's earnings
and thereby affect the market value of the Company's stock and the availability
of funds for payment of dividends to the Company's shareholders (see
"INDEMNIFICATION").
FORWARD-LOOKING STATEMENTS
Certain statements throughout this Prospectus regarding the Company's
financial position, business strategy and plans and objectives of Company
management for future operations, are forward-looking statements rather than
historical or current facts. When used in this Prospectus, words such as
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they relate to the Company or its management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. Such statements are inherently uncertain,
and there can be no assurance that the underlying assumptions will prove to be
valid. Actual results could differ materially from those contemplated by the
forward-looking statements as a result of certain factors, such as those
disclosed under "RISK FACTORS," including but not limited to the Company's lack
of operating history, competitive factors and pricing pressures, changes in
legal and regulatory requirements, technological change, product development
risks and general economic conditions. Such statements reflect the current views
of the Company with respect to future events and are subject to these and other
risks, uncertainties and assumptions relating to the operations, results of
operations, growth strategy and liquidity of the Company. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by this
paragraph.
FAILURE TO CONSTRUCT MAIN OFFICE
The Company has only recently reached tentative agreement to lease
space for its main office facility in a 28,000 square foot office
building to be constructed at the intersection of Foote Road and State Route 18
just outside the Medina city limits. Michael Rose, one of the Organizers of the
Company, will own the proposed building either directly or through an
affiliate. Because the office building is in the early stages of development,
there can be no assurance that it will be completed by the time the Bank
intends to open for business late in the summer of 1998. A delay in the
occupancy of the main office facility would delay the opening of the Bank and
could have a negative financial impact on the Bank and the Company.
10
<PAGE> 13
ANTITAKEOVER PROVISIONS
The Articles of Incorporation and Code of Regulations of the Company
contain provisions which could discourage the acquisition of control of the
Company without the consent of the Board of Directors. The number of Shares
purchased now or in the future by the Company's management, including the
Organizers, may have a similar effect. Such provisions also are designed to
protect management and the Board of Directors and may restrict shareholders from
selling their shares to third parties. These factors may have an adverse effect
upon the value of the Shares acquired hereunder (see "ANTITAKEOVER MEASURES").
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of common stock
offered hereby are estimated to be $4,765,000 at the minimum and $9,740,000 at
the maximum after deduction of the estimated offering expenses ($75,000 and
$100,000, respectively) and common stock already purchased by the organizers
($160,000). Such net proceeds have not been reduced by the amount of the
Company's organization and other operating expenses which were $85,383 as of
November 30, 1997.
The Company intends to use the net proceeds of the Offering to charter
and open a de novo bank in the Medina County market area. The proceeds will be
used to provide capital in connection with the operation of the Bank and in the
business of lending and other appropriate investments.
The Company will incur substantial expenses incident to the
commencement of business. These organizational and offering expenses will
include costs of this Offering, salaries for Mr. McKeon and the officers and
support staff of the Company and/or the Bank, rent and utilities for office
space, travel expenses, promotional expenses, supplies, printing, consulting,
legal and accounting fees. Some or all of the organization and offering expenses
will be incurred whether or not the Company is successful in the opening of a de
novo bank.
Until the satisfaction of the conditions for "breaking the escrow" and
releasing funds to the Company (which includes the sale of a minimum of $5
million in Shares of the Company), all such expenses will be borne by the
Organizers through their purchase of Shares of the Company. Such expenses are
projected to be $361,000 through July 1, 1998. Any investment income earned on
subscription proceeds, assuming the breaking of escrow, may be used to offset
such offering and organizational expenses.
In the event that the Company is not capable of completing the
formation of a de novo bank after the "breaking of escrow," all or a portion of
the funds invested by Investors could be lost (see "RISK FACTORS").
While not currently anticipated, the Company may decide to borrow funds
prior to the sale of the minimum Shares in this Offering. Such funds would be
borrowed in anticipation of opening the Bank and would be used for expenses such
as acquisition of space for Bank offices, leasehold improvements, data
processing and other equipment, salaries and other personnel expenses, and other
filing fees and costs attendant to the formation and operation of the Bank. In
the event sums are borrowed prior to the sale of the minimum number of Shares
offered hereunder, part of the net proceeds of this Offering would be used in
repayment of such borrowings. No funds of any subscriber would be used to repay
such borrowings prior to the sale of the minimum Shares offered hereunder and
the release of funds from escrow by the Escrow Agent. It is likely any such
borrowings would be guaranteed by the Organizers and thus the repayment of any
such sums would be a direct benefit to the guarantor Organizers of any such
obligation.
In the opinion of the Company, the minimum proceeds of $5,000,000 from
the Offering will satisfy the capital requirements of the Company and the Bank
for their respective first years of operation after considering offering and
preopening expenses. However, the Company would prefer to capitalize the Bank
with not less than $7 million. It is not anticipated that the Company will find
it necessary to raise additional funds to meet expenditures required to operate
the business of the Company and the Bank over the next five years. However, the
Company intends to continue the Offering until the sale of the maximum shares
hereunder (500,000) or until terminated by the Company, not later than September
30, 1998, in order to provide a strong capital base and for possible future
acquisition and/or working capital of the Company.
11
<PAGE> 14
The following table illustrates the intended use by the Company and the
Bank of the proceeds of this Offering and existing capital. Although the amounts
set forth below provide an indication of the proposed use of funds based upon
the plans and estimates of the organizers of the Company and the Bank, actual
expenditures may vary from the estimates.
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
Proceeds from this Offering(1) $5,000,000 $10,000,000
Offering Expenses 75,000 100,000
---------- -----------
Net Proceeds from this Offering/Total Capitalization $4,925,000 $ 9,900,000
Anticipated Use of Proceeds by the Company
Organizational and Preopening Expenses, Net(2) $ 506,000 $ 436,000
---------- -----------
Capitalization of Bank(3) 4,405,000 9,449,000
---------- -----------
Working Capital of Company 15,000 15,000
---------- -----------
Total $4,925,000 $ 9,900,000
========== ===========
Anticipated Use of Capital by the Bank
Organizational and Preopening Expenses, Net(4) $ 506,000 $ 436,000
---------- -----------
Leasehold Improvements(5) 150,000 150,000
---------- -----------
Furniture, Fixtures & Equipment 180,000 180,000
---------- -----------
Cash and Investments 4,074,000 9,119,000
---------- -----------
Total $4,910,000 $ 9,885,000
---------- -----------
</TABLE>
(1) Assuming that 250,000 Shares or 500,000 Shares, respectively, are sold at
$20.00 per share (see "OFFERING"). The Organizers collectively have purchased or
have expressed an intent to purchase at least 51,500 Shares at $20.00 per share
resulting in $1,030,000 in value of the Shares being sold as a part of the total
Offering.
(2) Assuming $576,000 in preopening expenses and organizational costs incurred
by the Company, net of estimated preopening investment income of $70,000 and
$140,000, assuming the sale of 250,000 and 500,000 Shares, respectively, prior
to opening. At the minimum Offering, the estimated preopening investment income
is based on the assumption that an average balance of $2,463,000 will be
invested for six months at a 5.65 percent interest rate. The additional
investment income, assuming the maximum offering, is based on an additional
average balance of $4.95 million invested for six months at a 5.65 percent
interest rate.
(3) Capital provided to Bank in the form of stock purchase or contribution of
assets.
(4) Estimated preopening expenses and organizational costs attributed to the
Bank.
(5) Leasehold improvements for the Bank's main office are projected at
$150,000. Furniture, fixtures and equipment for the Bank's main office are
projected at $180,000. For a general description of leasehold improvements and
equipment (see "INFORMATION ABOUT WESTERN RESERVE BANCORP, INC.-The
Bank-Properties").
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma consolidated
capitalization as of completion of the Offering of the Company (parent only),
assuming that 250,000 Shares and 500,000 Shares of the Common Stock,
respectively, are sold and the proceeds therefrom are invested as described
under "USE OF PROCEEDS."
<TABLE>
<CAPTION>
Pro Forma as of
Actual as of Completion of the Offering(1, 2)
Stockholders' Equity November 30, 1997 Minimum Maximum
----------------- ------- -------
<S> <C> <C> <C>
Common Stock, no par value, 750,000 Shares
authorized (250,000 and 500,000, respectively,
pro forma at stated value of $1.00 per share) $ 8,000 $ 250,000 $ 500,000
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Additional Paid-in Capital(2) 152,000 4,675,000 9,400,000
Deficit Accumulated During the
Preopening Development Stage (40,105) (506,000) (436,000)
--------- ----------- -----------
Total Stockholders' Equity $ 119,895 $ 4,419,000 $ 9,464,000
========= =========== ===========
</TABLE>
(1) Represents the Company's sale of 250,000 Shares at the minimum, and 500,000
Shares, at the maximum, respectively, at $20.00 per Share.
(2) The expenses of the Offering, estimated at $75,000 (minimum offering) or
$100,000 (maximum offering), will be charged against this account. Such amounts
were used in the calculation of the amounts shown.
(3) Pro forma capitalization reflects the Company as of the date of opening,
thereby incorporating all pre-opening expenses. Estimated preopening expenses
are assumed to be $576,000, of which $110,000 is assumed to be capitalized as
organizational costs. Preopening expenses are offset by investment income of
$70,000 and $140,000, assuming the sale of 250,000 shares and 500,000 shares,
respectively.
THE OFFERING
TERMS OF THE OFFERING
The Company is offering a minimum of 250,000 Shares and a maximum of
500,000 Shares of its Common Stock for a price of $20.00 per share, for an
aggregate minimum price of $5,000,000 and an aggregate maximum price of
$10,000,000. The minimum purchase for any investor (together with the investor's
affiliates) is 250 shares ($5,000) unless the Company, in its sole discretion,
accepts a subscription for a lesser number of Shares. It is the policy of the
Company that no one shareholder (together with affiliates) purchase in excess of
five percent (5%) of the outstanding Shares of the Company, consistent with the
philosophy of the Company that the Shares be widely held throughout the intended
primary service area. Accordingly, the Company may, in its discretion, decline
to permit any one subscriber to purchase Shares in the Offering, if, as a result
of such a purchase, such subscriber (together with affiliates) would own,
directly or indirectly, in the aggregate in excess of five percent (5%) of the
outstanding Shares of the Company (12,500 Shares if the minimum is sold and
25,000 Shares if the maximum is sold).
The Organizers of the Company already have purchased or have expressed
an intent to purchase an aggregate of at least 51,500 Shares at $20.00 in
connection with the organization of the Company. Fifty One Thousand Five Hundred
(51,500) Shares represents 20.6% of the Offering assuming the minimum Offering
and 10.3% assuming the maximum Offering. No Organizer will be permitted by the
Company to purchase more than 5% of the total outstanding (as of the conclusion
of the Offering) Shares of the Company. All Shares purchased by the Organizers
have been purchased for investment purposes and not with the intent of
redistribution.
The offering period for the Shares will terminate at the earlier of the
date all Shares offered hereby are sold or 5:00 p.m. Eastern Standard Time, July
1, 1998. This date may be extended at the discretion of the Company until not
later than September 30, 1998. Written notice of any such extension will be
given to all persons who are already subscribers at the time of the extension,
but will not alter the binding nature of subscriptions already executed and
delivered or mailed to the Company. The date on which this Offering terminates,
plus any extension thereof, is referred to in this Prospectus as the "Expiration
Date."
The Company reserves the right to terminate the Offering at any time
after 250,000 shares have been subscribed if the Company determines that the
total amount of subscriptions will provide adequate capitalization for the
Company after payment of expenses.
As indicated below under "How to Subscribe," upon execution and
delivery of a subscription agreement for Shares, Investors will be required to
deliver to the Company a check in the amount of $20.00 times the number of
Shares subscribed. Subscription proceeds will be deposited promptly in an escrow
account with Mid American National Bank & Trust Company, Toledo, Ohio, Escrow
Agent for Western Reserve Bancorp, Inc. (the "Escrow Agent") pending completion
of this Offering. In the event that the Offering is successful, the Escrow Agent
will
13
<PAGE> 16
release to the Company the proceeds from the Offering and all interest earned
thereon. In the event that the Offering is not successful, interest will be paid
to investors on funds held by the Escrow Agent. The Company and the Escrow Agent
intend that the proceeds from subscriptions will be held in the Escrow Agent's
U.S. Government Money Market Fund and that interest will be paid on such
proceeds at the rate from time to time in effect in such account (currently
5.65%) from the date of deposit with the Escrow Agent until the Expiration Date.
Subscription proceeds held in the escrow account may be held in bank accounts
including savings accounts and bank money market accounts pending disbursement
of the subscription proceeds. The Company may authorize the Escrow Agent to
invest them in short-term United States government treasuries or certificates of
deposit that are fully secured by securities that represent obligations of the
United States government. In no instance will the subscription proceeds be
invested in securities that would mature after the final Expiration Date of the
Offering. All subscriptions are irrevocable for the period of time that the
Company has to accept or reject subscriptions under the terms of this Offering.
The Escrow Agent has not investigated the desirability or advisability
of an investment in the Company by prospective investors and has not approved,
endorsed or passed upon the merits of the Common Stock.
The Company reserves the right, in its sole discretion, to accept or
reject any subscription in whole or in part on or before the Expiration Date.
The Company will notify all Investors promptly whether their subscriptions have
been accepted. With respect to any subscriptions which are not accepted by the
Company, the notification will be accompanied by the unaccepted portion of the
subscription funds, without interest.
This Offering will be terminated, no Shares will be issued and no
subscription proceeds will be released from escrow to the Company unless on or
before the Expiration Date the Company has accepted subscriptions and has
received subscription proceeds for an aggregate of at least 250,000 Shares
offered hereby. The Shares purchased or to be purchased by the Organizers,
anticipated to be 51,500 Shares, will be included in determining whether the
minimum number of Shares (250,000) have been sold in the Offering.
If the above conditions are met, the Company may instruct the Escrow
Agent to release to the Company the amount of subscription proceeds relating to
subscriptions or portions thereof accepted by the Company. Upon disbursement of
the subscription proceeds, interest earned on the subscription will be disbursed
to the Company. If the minimum number of Shares offered hereunder is not
subscribed, the Escrow Agent will return the subscription payments together with
any interest earned thereon to the respective Investor, provided, however, that
the Organizers shall not be entitled to receive such interest in connection with
their purchases of Shares the proceeds of which already have been expended by
the Company in paying operating or offering expenses. Any subscription proceeds
received after the above conditions are met, but before termination of this
Offering will not be deposited in the escrow account, but will be available for
immediate use by the Company, to the extent accepted by the Company.
The execution of the Subscription Agreement is a binding obligation on
the part of a potential Investor. In the event that the Investor fails to
deposit the requisite amount of funds set forth in the Subscription Agreement,
the Company shall have the ability and the option of taking such enforcement
actions as it deems appropriate.
In the event that 250,000 Shares, including the 51,500 Shares which the
Organizers intend to purchase, have not been subscribed for and other conditions
satisfied by the Expiration Date, then the subscription agreements will be of no
further force or effect, and the full amount of all subscription funds, together
with interest to be paid as herein described, will be promptly returned to the
Investors.
METHOD OF OFFERING
The Shares offered hereby are to be offered and sold through the
efforts of the directors and officers of the Company on a "best-efforts" basis.
Their activities in connection with the Offering will be in addition to their
other duties, and they will not receive any commission or other additional
remuneration for such activities. In the event that the Company is unsuccessful
in selling the shares offered hereunder through its officers and directors, the
Company may engage the services of a licensed broker-dealer to assist in the
sale of the shares. Such broker-dealer, if retained, would be paid fees and
reimbursed for expenses typical for such selling effort.
14
<PAGE> 17
HOW TO SUBSCRIBE
Each prospective investor who desires to purchase 250 Shares (the
minimum) or more should:
1. Complete, date and execute the Subscription Agreement and substitute
Form W-9, execution copies of which have been delivered with this
Prospectus.
2. Make a check payable to "Mid American National Bank & Trust Company,
Escrow Agent" in the amount of $20.00 times the number of shares for
which he/she has subscribed.
3. Return the completed Subscription Agreement and check directly to a
representative of the Company or by mail to:
Western Reserve Bancorp, Inc.
23 Public Square, Suite 220
Medina, Ohio 44256
4. Any questions concerning the Offering should be referred to the Company
at the above address or by phone at (330) 764-3131.
SHARES HELD BY AFFILIATES AND RESTRICTED SECURITIES
Upon completion of this Offering, the Company will have a minimum of
250,000 Shares and a maximum of 500,000 Shares outstanding. All of these Shares
will be freely tradable without restriction or registration under the Securities
Act of 1933, as amended (the "1933 Act"), except for Shares purchased in this
Offering by "affiliates" of the Company (as that term is defined in Rule 144
adopted under the 1933 Act). Such definition includes officers, directors and
greater than 10% shareholders and in this case includes the Organizers of the
Company. Shares purchased by affiliates will be subject to certain restrictions
on public resale. All Shares purchased by the Organizers are, and any additional
Shares they purchase will be, purchased for investment purposes and not with a
present intention of redistribution.
In addition, all of the Shares previously issued to the Organizers are
"restricted securities" under the 1933 Act (i.e., securities which have not been
registered under the 1933 Act). These "restricted securities" and securities
held by affiliates may be eligible for public sale in the open market in
accordance with the provisions of Rule 144 promulgated under the 1933 Act. Rule
144 generally provides that a person (including an affiliate of the Company) who
has beneficially owned restricted shares for at least one year would be entitled
to sell within any three-month period a number of restricted shares that does
not exceed the greater of (a) one percent of the then outstanding shares of the
Common Stock or (b) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding such sale. Nonaffiliates who have held
restricted shares for at least two years would be entitled to sell such Shares
under Rule 144 without regard to the volume limitation. While affiliates may
generally sell nonrestricted shares under Rule 144 without regard to the length
of their holding period, all Shares purchased by the Organizers have been
purchased for investment purposes and not with a present intention of
redistribution.
TRANSFER OF SHARES
Before this Offering, there was no market for the Shares, and there can
be no assurance that a public market for the Shares will exist after this
Offering, or that Rule 144 will be available for resale by affiliates and other
holders of restricted securities. As a result, Investors who may wish or who
need to dispose of all or a part of their investment in the Shares may not be
able to do so except for private direct negotiations with third parties,
assuming that third parties are willing to purchase the Shares.
TRANSFER AGENT AND REGISTRAR
The Company will serve as the initial transfer agent and registrar for
the Shares.
15
<PAGE> 18
INFORMATION ABOUT WESTERN RESERVE BANCORP, INC. AND WESTERN RESERVE BANK
THE COMPANY
The Company was incorporated as an Ohio business corporation on
February 25, 1997, to become a bank holding company by acquiring all of the
common stock of the Bank upon its formation. The Bank initially will be the sole
operating subsidiary of the Company. Upon its acquisition of the common stock of
the Bank, the Company will become a bank holding company within the meaning of
the Bank Holding Company Act of 1956, as amended (see "SUPERVISION AND
REGULATION").
The Company has been organized to facilitate the Bank's ability to
serve its future customers' requirements for financial services. The holding
company structure will provide flexibility for expansion of the Company's
banking business through the providing of additional banking-related services
which the traditional commercial bank may not provide under present laws, as
well as the possible acquisition of other financial institutions. For example,
banking regulations require that the Bank maintain a minimum ratio of capital to
assets. In the event that the Bank's growth is such that this minimum ratio is
not maintained, the Company may borrow funds, subject to capital adequacy
guidelines of the Federal Reserve, and contribute them to the capital of the
Bank or otherwise raise capital in a manner which is unavailable to the Bank
under existing banking regulations.
In the opinion of the Company, the minimum proceeds of $5,000,000 from
the Offering will satisfy the capital requirements of the Company and the Bank
for their respective first years of operation. However, the Company intends to
continue the Offering until the sale of the maximum number of Shares hereunder
(500,000 Shares/$10,000,000) or until terminated by the Company not later than
September 30, 1998, in order to provide a strong capital base and for working
capital and/or possible future acquisition by the Company. It is not anticipated
that the Company will find it necessary to raise additional funds to meet
expenditures required to operate the business of the Company or the Bank over
the next five years.
During its first years of operation, it is not anticipated that the
Company will have any paid employees or significant overhead expenses. All
persons working on behalf of the Company will be employed by the Bank. The net
proceeds of this Offering are anticipated to be sufficient to capitalize the
Bank, pay organizational and offering expenses and provide working capital to
the Company (see "USE OF PROCEEDS").
The Company has no present plans to acquire or commence business
through any operating subsidiaries other than the Bank. It is expected, however,
that the Company may make additional acquisitions in the future in the event
that the Bank becomes profitable and such acquisitions are deemed to be in the
best interests of the Company and its shareholders. Such acquisitions, if any,
will be subject to certain regulatory approvals and requirements (see
"SUPERVISION AND REGULATION").
16
<PAGE> 19
WESTERN RESERVE BANK
GENERAL
The Bank desires to open its office in the Medina area to serve Medina
and other communities in Medina County which the Company believes are not
adequately served by existing financial service providers.
It is currently anticipated that the Bank will be organized as a state
banking organization under the laws of the State of Ohio. However, the Company
may decide to cause the Bank to be chartered as a national bank with the Office
of the Comptroller of the Currency if it determines that such action is
advisable. On ________, 199_, the Organizers filed applications with the Ohio
Division of Financial Institutions and the Federal Deposit Insurance Corporation
to charter the Bank and to receive necessary deposit insurance. The Organizers
intend to file an application with the Federal Reserve Bank of Cleveland
concerning the acquisition of the Bank by the Company and for membership in the
Federal Reserve System. The Organizers have received no information from the
Ohio Division of Financial Institutions, the FDIC or the Federal Reserve which
makes them question the advisability of attempting to organize the Bank. The
Organizers believe that necessary regulatory approvals will be received.
The sale of Shares under this Offering will be focused in the Bank's
service area which it is believed will provide the Bank with an immediate
customer base. The President has, and it is anticipated additional officers of
the Bank will have, substantial banking experience, which will be an asset in
providing both products and services designed to meet the needs of the Bank's
customer base. The Organizers are each active members of the community in the
Medina County area, and their continued active community involvement will
provide an opportunity to promote the Bank and its products and services. The
Organizers intend to utilize superior selling efforts and personalized service
as well as competitive rates to obtain a strong customer base.
MARKET AREA
While the Company's market area will include a portion of the Cleveland
and Akron metropolitan areas, most of the markets to be serviced by the Bank
will be comprised of smaller towns and communities in Medina County which the
Company has targeted for its PSA. The Organizers believe that the larger
regional banks are not adequately servicing the smaller communities and are
withdrawing to larger metropolitan areas. This causes a reduction of primary
banking services to the smaller communities such as Medina and creates an
inconvenience for these local customers. Such customers are required either to
travel significant distances to obtain banking services and/or required to wait
for decision-making authority from representatives of a noncommunity-based
institution. The Bank's market area is economically diverse with a base of
manufacturing, retail, service industry, transportation and agricultural
businesses. The area is not dependent upon any single industry or employer. The
region benefits from a well-developed transportation system, including
interstate highways, airports and the Great Lakes.
The Organizers of the Company and Bank believe that the Bank's service
area has experienced a change in employment composition during the past number
of years. Larger employers have begun to be replaced in importance to the area
by an increased number of smaller companies. In addition, the competition among
financial institutions has changed significantly in recent years as a result of
the acquisition of the independent financial institutions by regional and
national bank holding companies headquartered outside the local area. The
Company believes that these changes have created increased opportunities among
small- and medium-sized companies and retail customers who value long-term,
community-based banking relationships. The Company expects a strong market for
growth in both the areas of loans and deposits.
The population base within the PSA has grown significantly in the past
decade. The population of Medina County, as a whole, increased from
approximately 122,000 in 1990 to 141,000 in 1997, a 15.2% increase. This
compares to a 3.3 % increase in the State of Ohio as a whole. The population in
Medina County is expected to increase by 9.2% between 1997 and 2002 ( source,
U.S. Census Data and Claritas, Inc.).
17
<PAGE> 20
COMPETITION
Within the PSA, the Bank will compete for both deposit and loan
customers with other financial institutions with greater resources than will be
available to either the Bank or the Company. Currently there are 49 established
offices of 19 different commercial banks, savings and loan associations and
credit unions located in the PSA. Total deposits reported by commercial banks
and savings and loan associations in the PSA approximated $1.3 billion as of
June 30, 1996, the most recent date for which data is available (Source, S&L
Securities). Since 1990, deposits in the PSA have grown 22.6%. The PSA has only
one locally owned bank and two credit unions but a significant number of
regional bank and thrift holding companies.
In addition to the financial institutions discussed above, the Bank
will compete with other institutions for deposits, loans and financial services.
Insurance companies, consumer finance companies, mortgage companies, commercial
finance and leasing companies, money market mutual funds, brokerage houses and
similar organizations may compete for a segment of the Bank's business.
The Bank will be dedicated to addressing the varied concerns and
interests of the area's consumers and improving the quality of commercial
business in the PSA. The Organizers will be committed to the customers through
prompt, varied and personalized services at competitive rates, and a
comprehensive understanding of the area's banking needs through participation in
civic, business and community services.
DEPOSITS
Deposits will be the Bank's primary source of funds. All deposit
accounts will be insured by the FDIC up to the maximum amount permitted by law.
As the Bank intends to be a member of the Federal Reserve, it will be in a
position to obtain additional funds if ever needed through the overnight
purchase of federal funds from other financial institutions or borrowings
through the Federal Reserve discount window to meet any declines in deposits, to
satisfy cash reserve requirements or for other short-term liquidity needs. The
Bank also may become a member of the Federal Home Loan Bank for similar
purposes. It is not anticipated that such funding will be frequently necessary.
At times, when the Bank has more funds than it needs for its reserve
requirements or short-term liquidity needs, it would likely increase the
securities investments, sell federal funds to other financial institutions, or
place funds in short-term certificates of deposits with other financial
institutions.
The distribution of the Bank's deposits in terms of maturity and
applicable interest rates is a primary determinant of the Bank's cost of funds
and the relative stability of its supply of funds. The Bank does not anticipate
any significant foreign deposits nor does it anticipate having any material
concentrations of deposits. The Bank's relative growth in deposits and loans
will be affected by economic changes, which in turn impact liquidity. The Bank
will carefully monitor liquidity and will take steps to provide for periods of
reduced liquidity by maintaining credit lines from various correspondent banks
and its relationship with the Federal Reserve and the Federal Home Loan Bank.
The Bank plans to offer a wide range of commercial and consumer deposit
accounts including both interest-bearing and noninterest-bearing checking
accounts (commercial and consumer), negotiable orders of withdrawal (NOW)
accounts, money market investment accounts, individual retirement accounts, time
certificates of deposit and regular savings accounts. While the Bank does not
have a predetermined deposit mix, it is expected that the Bank will maintain a
deposit mix comparable to those in the PSA.
LENDING
The Bank intends to engage in a full line of lending activities,
including commercial loans, agricultural loans, consumer loans to individuals
for household, family and other personal expenditures, real estate loans,
including first mortgage loans and home equity loans and construction loans. The
Bank's loans generally will be made to businesses or persons with whom the Bank
or the Organizers have a preexisting relationship or anticipate developing a
relationship including a deposit relationship. The Bank's policy regarding
diversity in the loan portfolio will be based on local economic conditions and
indicators in order to optimize income. To prudently manage its liquidity, the
Bank's loan policy will call for a total loan to deposit ratio of not more than
90 percent. With certain limited exceptions, the Bank will be permitted under
applicable law to make loans to individual borrowers in aggregate amounts of up
to 15 percent of the sum of the Bank's total capital and allowance for loan
losses. The Bank
18
<PAGE> 21
will cooperate with other correspondent banks to sell all or a portion of some
loans where necessary to stay within its legal lending limits.
The Bank's commercial and agricultural loans will be made to customers
for the purpose of providing working capital, financing the purchase of
equipment or inventory and for other business purposes with security taken
whenever practicable. It is anticipated that such loans will include loans with
maturities ranging from 90 days to one year and term loans, which are loans with
maturities normally ranging from one to seven years. Secured short-term business
loans are generally used to finance current transactions and typically provide
for periodic interest payments, with principal being payable monthly, quarterly,
or at maturity. Secured term loans normally provide for floating interest rates,
with monthly payments of both principal and interest.
Consumer loans will be made to customers for the purpose of financing
the purchase of various types of consumer goods, home improvements and other
personal items. Consumer installment loans generally provide for monthly
payments of principal and interest. Most of the Bank's consumer installment
loans are anticipated to be secured by the personal property being purchased.
The Bank's real estate loans will consist primarily of loans secured by
first mortgage liens on single-family residential and one to four family
properties, and loans secured by commercial or agricultural real property. Real
estate construction loans will be made by the Bank on a limited basis for
construction of single-family residential and commercial property. The Bank will
require construction loan borrowers to obtain commitments for permanent
financing as a condition to the construction loan, unless the Bank intends to
retain the loan as the permanent lender.
Real estate loans will be made according to the Bank's loan policy,
using 80 percent of appraised value of the collateral as a general guideline.
Other ratios may exist if accompanied by proper underwriting. Liens on real
estate (including junior liens) will also be taken by the Bank to provide
additional security on loans not classified as real estate loans (including home
improvement loans, swing loans to assist buyers of single-family residences to
make down payments on the impending sale of their existing residences, and
homeowners' equity loans).
There will be a risk of loss associated with loans made by the Bank.
The Bank intends to follow proven underwriting practices including assigning
responsibility for loans to an appropriate loan officer, adhering to the Bank's
lending and credit policies, paying attention to geographic limitations,
properly documenting transactions, performing necessary credit analysis and
conforming to all applicable laws and regulations. The Bank will pay particular
attention to cash flow analysis and loan-to-value ratios when determining the
creditworthiness of the customer. The Bank will also encourage its customers to
purchase private mortgage insurance, credit life insurance and other insurances
that may be available to limit the Bank's exposure to loss. The Bank's loan
procedure should cause all appropriate lien positions to be properly recorded.
The Bank will develop an overall loan policy with specific goals and objectives,
policies and procedures, and practices used to reduce the risk of loss to the
Bank.
The Bank will establish a loan loss reserve which will be intended to
cover losses which result from the loan portfolio. Management will review the
loan portfolio on a monthly basis in an attempt to assure that adequate reserves
exist for possible loan losses. Provisions to the loan loss reserve will be
expensed on the Bank's income statement resulting in reduced earnings to the
Bank. While the Bank will attempt to reduce the risk of loss through prudent
lending practices and loan review, no assurance can be made that there will be
no loan losses, or that such losses will not be severe in the future.
OTHER SERVICES
The Bank currently plans to offer other services, including credit
cards, money orders, traveler's checks, automated teller machines with access to
one or more regional or national automated teller networks, and safe deposit
services. The Bank intends to establish relationships with correspondent banks
and other financial institutions to provide other services for its clients,
including requesting correspondent banks to participate in loans where the loan
amount exceeds the Bank's policies or legal lending limit.
Many of the data processing services, including on-line teller service,
may be purchased on a contract basis, reducing the number of persons otherwise
required to handle the operational functions of the Bank. The Bank is in the
process of discussing arrangements with potential data processing companies.
19
<PAGE> 22
INVESTMENTS
In order to maintain a reserve of readily salable assets to meet the
Bank's liquidity and loan requirements, from time to time the Bank will purchase
investment securities including United States treasury securities and
obligations of federal agencies. Purchases of such securities, as well as sales
of federal funds (short-term to other banks) and placement of funds and
certificates of deposits with other financial institutions, are made as
investments pending utilization of funds for loans and other purposes. The
Bank's policy will be to stagger the maturities of its securities to meet
overall liquidity requirements of the Bank. United States government securities
may be pledged to meet security requirements imposed as a condition to receive
deposits of public funds.
Subsequent to the initial stages of operation, it is anticipated that
the Bank will purchase additional securities, subject to appropriate law and
regulation, to further the return to shareholders of the Company. Management of
the Bank and Company will carefully monitor any investments in any long-term
instruments in an attempt to assure the continued liquidity of the Bank.
ASSET/LIABILITY MANAGEMENT
It is the objective of the Bank to manage its assets and liabilities to
provide a satisfactory, consistent level of profitability within the framework
of established cash, loan, investment, borrowing and capital policies. Certain
officers of the Bank will be charged with the responsibility for developing and
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix. It is the overall philosophy of
management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of the Bank will seek to invest the largest portion of
the Bank's assets in consumer, installment, real estate, commercial and
agricultural loans.
The Bank's asset/liability mix is expected to be monitored on a timely
basis with a report reflecting the interest-sensitive assets and
interest-sensitive liabilities being prepared and presented to the Bank's Board
of Directors on a monthly basis. The objective of the policy will be to control
interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on the Bank's earnings. To assist in
that regard, federal funds lines of credit will be established at various
financial institutions, in addition to a line of credit with the Federal
Reserve Bank of Cleveland and potentially the Federal Home Loan Bank, to
provide the Bank with additional sources of short-term liquidity in case such
borrowing becomes necessary.
EMPLOYEES
Upon commencement of operations, the Bank is expected to have
approximately 12 full-time equivalent employees. It is not anticipated that the
Company will have any employees who are not also employees of the Bank for the
first few years of operations of the Bank.
PROPERTIES
The Organizers have determined that the Bank will begin operations with
one main office which will serve its market area. The Company intends to enter
into an agreement to lease 5,000 square feet in a 28,000 square foot brick
office building to be constructed at the intersection of Foote Road and State
Route 18, just outside the Medina City limits. The property is owned by Michael
Rose, one of the Organizers and a real estate developer in Medina. The initial
term of the lease will be for 10 years with one 10-year renewal option. The
lease will contain a provision excusing the Company and the Bank from
performing under the lease in the event that the Bank is not chartered or does
not commence operations. The initial cost under the lease is anticipated to be
$15.75 per square foot per year ($78,500 per year in total) payable in monthly
installments of $6,562.50. The Organizers believe that the terms and conditions
of the lease described above are fair and reasonable to the Company and are
comparable to the terms that could be obtained from a person not affiliated
with the Company. In the future, management of the Bank will explore various
opportunities in different markets within its primary service area to determine
the appropriate timing and location, if any, for future branch facilities.
20
<PAGE> 23
LEGAL PROCEEDINGS
The Company and the Bank from time to time may become involved in such
legal proceedings as are incurred in and incidental to the ordinary course of
business. Currently, there is no such litigation outstanding against the
Company.
MANAGEMENT
PROPOSED OFFICERS AND DIRECTORS
The Chairman of the Company and the Bank will be Paul Merritt ("P.M.")
Jones. The President of the Company and the Bank will be Edward J. McKeon.
At the present time, Messrs. Jones and McKeon and the other directors
of the Company, own all of the 8,000 issued and outstanding shares of Common
Stock, having paid $20.00 per share for such Shares in order to supply the
initial capitalization of the Company. The Organizers, as a group, intend to
purchase at least 51,500 Shares, in the aggregate, for a total purchase price
of $1,030,000 ($20.00 per Shares).
The following table sets forth for the Organizers and proposed members
of the Board of Directors of the Company and the Bank, (a) their names,
addresses and ages (at November 30, 1997); (b) the positions they are expected
to hold in the Company and the Bank, including the class of directors to which
they have been elected; (c) the number of Shares owned by them, including those
that they intend to subscribe to in the Offering; and (d) the percentage of
outstanding Shares such number will represent if the minimum number of Shares is
sold in this Offering and if the maximum number of Shares is sold in this
Offering. As of this date, each of the Organizers has purchased 750 Shares at a
price of $20.00 per Share (a total investment of $15,000) except for Mr. McKeon
who has purchased 500 Shares at $20.00 per Share (a total investment of
$10,000). Mr. McKeon will be granted options pursuant to the terms of his
employment contract and the Company's Nonqualified Stock Option Plan which will
be adopted (see "Stock Option Plan"). The table does not take into account
options to be granted to Mr. McKeon or other future officers. All of the persons
listed below as directors have served as directors of the Company since the date
of the Company's incorporation (February 25, 1997), except for Mr. McKeon who
was elected to the Board on October 16, 1997.
<TABLE>
<CAPTION>
Position Number % of % of
Name and Address (Age) To Be Held Of Shares Minimum Maximum
---------------------- ---------- --------- ------- -------
(Class of Directors(1))
----------------------
<S> <C> <C> <C> <C>
P.M. Jones (68) Chairman of the 4,000 1.6% 0.8%
440 W. Liberty Board of
Medina, OH 44256 Directors
(Class I)
Edward J. McKeon (52) President and 2,500 1.0% 0.5%
8257 Creekside Trace CEO and
Broadview Heights, Ohio 44147 Director
(Class II)
Bijay K. Jayaswal (58) Director 2,500 1.0% 0.5%
845 Andrews Road
Medina, OH 44256 (Class I)
</TABLE>
21
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C>
George R. Klein (55) Director 7,500 3.0% 1.5%
2039 N. Medina Line Road
Akron, OH 44333 (Class I)
Ray E. Laribee (55) Director 2,500 1.0% 0.5%
325 N. Broadway
Medina, OH 44258 (Class I)
C. Richard Lynham (55) Director 2,500 1.0% 0.5%
970 Hickory Grove
Medina, OH 44256-1616 (Class II)
R. Hal Nichols (55) Director 5,000 2.0% 1.0%
7564 Peach Tree Lane
Sylvania, OH 43560 (Class II)
Rory H. O'Neil (54) Director 5,000 2.0% 1.0%
7171 Greenwich Road
Seville, OH 44273 (Class II)
Michael R. Rose (49) Director 5,000 2.0% 1.0%
23 Public Square, Suite 200
Medina, OH 44256 Class III)
Glenn M. Smith (56) Director 5,000 2.0% 1.0%
2688 Abbeyville Road
Valley City, OH 44280 (Class III)
Thomas A. Tubbs (56) Director 10,000 4.0% 2.0%
P.O. Box 210
Bath, OH 44210 (Class III)
Directors and Executive Officers 51,500 20.6% 10.3%
As a Group (11 Persons)
</TABLE>
- ---------------------------------------------------------------------
(1) The terms of the Directors expire at the annual meeting of shareholders in
the following years: (i) Class I-1998; (ii) Class II-1999; and Class III-2000.
Subsequent to the initial appointment, all directors will be elected for
three-year terms.
Each of the Organizers, except Mr. McKeon, executed an agreement which
provides that none of such persons will sell, transfer, pledge or hypothecate
any of the Shares in the Company owned by them prior to (i) the successful
completion of a public offering raising at least $5,000,000 in gross proceeds;
or (ii) the unanimous written consent of all persons that signed the agreement.
Under Federal law and regulations and subject to certain exceptions,
the addition or replacement of any director, or the employment, dismissal or
reassignment of a senior executive officer of the Bank occurring within two
years of the chartering of the Bank, its acquisition by the Company, or a change
in control of the Bank or the Company (or at any time that the Bank is not in
compliance with applicable minimum capital requirements or is otherwise in a
troubled condition) is subject to prior notice to and disapproval of the FDIC.
It is anticipated that the entire Board of Directors of the Bank will
be elected annually by its shareholder, the Company. Officers of the Company and
the Bank will be appointed by their respective Boards of Directors and perform
such duties as are prescribed in the Code of Regulations or by the Board of
Directors.
A brief description of the background and experience of the organizers and
proposed directors is set forth below.
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<PAGE> 25
BIJAY K. JAYASWAL, M.D. has been practicing Internal Medicine and Cardiology in
Medina since 1979. He has been very active in the community serving as past
Chief of Medicine at Medina General Hospital and past President of the Medina
County Medical Association. He has been a member of the Chamber of Commerce of
Medina since 1979; member of the Board of Trustees of the YMCA, 1982-1983;
member of the United Way Allocation Committee, 1984-1991; president-elect of the
Medina Rotary Club; member of the Board of Trustees of Hospice of Medina County,
1990-1995; and a member of The Medina Hospital Foundation, 1995-1997.
He is a graduate of Prince of Wales Medical College, India and is a fellow of
the Indian Medical Academy of Medical Specialists, as well as a member of the
Royal College of Physicians of London. He is a member of the American College of
Physicians, The American College of Cardiology, Ohio State Medical Association
and Medina County Medical Association.
P. M. JONES, a native of Medina, is President and owner of Transport
Corporation, Inc.; TCI Leasing and Leasing Times, Inc.
Mr. Jones has been active in many Medina area activities and is a founding
member of the Community Design Committee. He is currently a member of the boards
of Hospice of Medina County and the Ohio Vehicle Leasing Association as well as
a Trustee of the Letha House Foundation.
Mr. Jones is an Army veteran of the Korean War and is a graduate of Western
Reserve Academy and Colgate University.
GEORGE R. KLEIN has owned and operated a number of private enterprises since
1977. He is a graduate of Colorado College (B.A.) in 1964, Denver University
(M.B.A.) in 1965 and Harvard University's SCMP program in 1983.
His primary business experience has been in the wholesale distribution area,
where he was President of Central News Company in Akron, Ohio from 1965 to 1977.
He formed and was President of East Texas Distributing Co. in Houston, Texas in
1977 and 1978, and was President of the Geo. R. Klein News Company in Cleveland,
Ohio from 1978 through 1989, and currently serves as Vice Chairman of that
company.
He has served as President of the Independent Distributors of Great Lakes, Mid
America Periodical Distributors Association, Young Presidents Organization - the
Cleveland Chapter, Council for Periodical Distributors of America, the Cuyahoga
Valley Association, and is currently a member of the Board of Directors of the
Cleveland Museum of Natural History.
RAY E. LARIBEE has been a Medina attorney since 1968. He is a partner in the
firm of Laribee and Hertrick, which provides a broad range of legal services
throughout the region. Born and raised in Medina, Mr. Laribee is a graduate of
Ohio Wesleyan University and received his law degree from Western Reserve
University Law School in 1967.
Mr. Laribee served as a board member of the Medina Metropolitan Housing
Authority. In addition, he was a member of the Medina City School Board and
served as President of the Medina County Bar Association.
C. RICHARD LYNHAM has since 1992 been President and owner of Harbor Castings,
Inc., an investment casting foundry in North Canton. From 1974 to 1982, he was
employed by Foseco, Inc., Cleveland, serving as President and CEO of two of its
subsidiaries, Exomet, Inc. and Fosbel, Inc. In 1982, he joined Ferro
Corporation, Cleveland, as General Manager of its Industrial Ceramics Group,
serving from 1984 to 1992 as Group Vice President. Mr. Lynham holds the degrees
of Bachelor of Mechanical Engineering from Cornell University and Master of
Business Administration from Harvard University.
Mr. Lynham, a veteran of the Vietnam war, has been active in alumni affairs for
Cornell University for more than 30 years, including service as President of its
Alumni Federation and as a member of University Council. He is Vice President of
the Board of Trustees of Hospice of Medina County and President of the Board of
its joint venture with Medina General Hospital, BridgesHome Health Care. He is a
director of Corrpro Companies, Inc., serving as chairman of its audit committee,
and of Chick Master Incubator Company, both of Medina.
23
<PAGE> 26
EDWARD J. MCKEON has 29 years of varied experience in the field of commercial
banking. His responsibilities have included retail branch banking, bank
marketing, product management, sales management, credit card management, cash
management, large corporate lending, middle-market business lending,
middle-market loan management, and small business lending. He has served as a
bank senior lender, regional bank president and bank president.
His experience includes 18 years with Huntington Bank and Star Bank. Most
recently he served as President and CEO of Enterprise Bank in Solon, a start-up
bank which he assisted with turning around from a money losing to a
profit-generating financial institution within three years.
Mr. McKeon has served on the United Way Allocations Committee and is past
chairman of the board of the Hannah Neil Foundation. He presently serves on the
board of directors of Recovery Resources.
Mr. McKeon served in the U.S. Marine Corps in Vietnam. He is a graduate of
Hofstra University with a degree in business administration and has an MBA from
Capital University.
R. HAL NICHOLS is President and Chief Executive Officer and part owner of Austin
Associates, Inc. in Toledo, Ohio. Austin Associates, Inc. is a financial
institution consulting firm founded in 1967 which provides assistance to
community financial institutions throughout the United States. Mr. Nichols has
been associated with Austin Associates since 1984.
Prior to joining Austin Associates, Mr. Nichols served as President and Chief
Executive Officer of two Ohio affiliate banks of Banc One Corporation, including
Bank One of Medina County. He also served as Superintendent of Banks for the
State of Ohio and as a National Bank Examiner for the Office of the Comptroller
of the Currency, a division of the U.S. Treasury Department. Mr. Nichols also
served as Vice President in charge of commercial lending for the Old Phoenix
National Bank of Medina.
He is a former President of the Medina County YMCA, former Chairman of Medina
United Way and was the Medina Jaycee Young Man of the Year in 1976. Mr. Nichols
was born and raised in Medina, attended Medina public schools and the Ohio State
University. He currently resides in Sylvania, Ohio.
RORY H. O'NEIL is cofounder and operating partner of Liberty St. Brewing
Company, a 200 seat restaurant and micro-brewery in Akron. He has served in this
capacity since 1994. He founded Phoenix-O'Neil Associates (currently Quetzal
Corp) as a small general contracting firm in Akron in 1970, and has overseen its
transition from home building through commercial and industrial contracting to
its current operations in residential land development in southern Medina
County. Mr. O'Neil also serves as Vice President of The Herbert Hotel, Inc., a
resort property in Kingfield, Maine and as a partner in Weir Handmade, an
import-export firm with offices in Rittman, Ohio and Manila, the Philippines.
Prior to that, he served as Assistant Director of the Inpost of Akron, Inc., a
not-for-profit housing developer in Akron, and as a Research Assistant with
Walston and Co., Inc., a New York-based brokerage firm. Mr. O'Neil received his
Bachelor of Arts Degree in philosophy from Yale University.
MICHAEL R. ROSE has over 25 years of active experience in the Medina County
business community.
Mr. Rose, for many years, was President and Chief Executive Officer of Medina
Packing Company, a large retailer of meat products. Mr. Rose acquired the
company when it was in financial difficulty and turned it into a successful
venture.
Mr. Rose has been a successful real estate developer in Medina for many years.
He has developed several large tracts of land for residential purposes, has
developed and constructed a number of office buildings, including several
developments on Route 18, and recently developed the former Ziegler Department
Store into a shopping arcade and office building on the square in downtown
Medina.
Mr. Rose, as President of Washington Properties, Inc., continues to acquire
buildings and tracts of land in Medina for renovation and/or future development.
Mr. Rose is also active in civic and cultural endeavors in Medina.
GLENN M. SMITH is President of Smith Bros. Inc. of Medina. Since founding the
company in 1961 as a sawdust and woodshavings supplier of horse and livestock
bedding, the company has expanded into landscape mulches and is a
24
<PAGE> 27
major landscape supplier and a provider of a complete line of animal feeds.
From his agricultural and farming background, Mr. Smith has expanded his
business interests to include a mobile home park, mini-storage complex, and
office, commercial and residential development in the Medina area. In addition
to his commercial interests in the U.S. and Canada, as well as an extensive
cattle operation in Australia's Northern Territory, he is a lifelong resident of
Medina and is a graduate of Medina High School.
THOMAS A. TUBBS has 34 years of experience in the insurance and financial
services industry. He has served as CEO of the Tubbs Group in Akron for the past
15 years and is associated with the Tubbs Agency in Medina which his
grandfather, Harold A. Tubbs, founded in 1921. Mr. Tubbs has been a partner in
Susan-Kaye Enterprises for 25 years, with principal offices in Brunswick and
Medina.
Mr. Tubbs attended Ohio State University. He is certified as a Registered Health
Underwriter and is a 1997 qualifying and life member of the Million-Dollar Round
Table, an international insurance sales organization. He also served as a state
vice president of the Ohio Association of Life Underwriters in 1973 and 1974,
was elected to the Board of Directors of the Medina Farmers' Exchange from 1969
to 1988, and served on the Board of the Weymouth Land Company from 1969 to 1986.
EXECUTIVE AND DIRECTOR COMPENSATION
The following table sets forth the compensation paid by the Company
to Edward J. McKeon, its only executive officer who received compensation for
services rendered during the period from September 22, 1997, the date he
commenced work for the Company, and December 31, 1997.
<TABLE>
<CAPTION>
=================================================================================================================
SUMMARY COMPENSATION TABLE(L)
- -----------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(2)
=================================================================================================================
(A) (B) (C) (D) (E) (F)
PERIOD SECURITIES
NAME AND ENDED UNDERLYING ALL OTHER
PRINCIPAL POSITION NOVEMBER 30 SALARY($)(3) BONUS($) OPTIONS/SARS (#) COMPENSATION ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Edward J. McKeon, -0- -0- -0-
President and Chief
Executive Officer 1997 $34,266
</TABLE>
(1) Mr. McKeon received certain perquisites, but the incremental cost of
providing such perquisites did not exceed the lesser of $50,000 or 10% of
his salary and bonus.
(2) Mr. McKeon has not yet received any long-term compensation awards.
However, his employment contract discussed below obligates the Company to
issue certain stock options to him upon the occurrence of certain events.
(3) Mr. McKeon's annual salary is $125,000.
Initially, no cash compensation is expected to be paid to the directors
of the Company for their services as directors. Depending on the profitability
and operation of the Company and the Bank and other factors, the Boards of
Directors of the Company and the Bank may determine that director compensation
is appropriate. In the event that the directors of the Company and the Bank were
to be paid compensation, it is anticipated that such compensation, such as
meeting and committee fees, would be consistent with compensation paid to
directors of other comparable financial institutions. The directors also may
consider granting options to purchase Shares of the Company to members of the
Board of Directors of the Company and the Bank pursuant to the nonqualified
stock option plan described below.
EMPLOYMENT AGREEMENT
The Company entered into an employment contract with Edward J. McKeon
dated as of August 25, 1997. The contract provides that Mr. McKeon will serve as
President of the Company and has a term that expires December 31, 2001, subject
to earlier termination as set forth in the contract. In addition to an annual
stated base
25
<PAGE> 28
salary of $125,000 per year, the contract also provides for adjustment to
increase such amounts at the discretion of the Board of Directors of the Company
comparable to that for other executives of the Bank. Upon the commencement of
operation of the Bank, Mr. McKeon will be paid a bonus of $25,000. In addition,
the employment agreement provides for fringe benefits to Mr. McKeon including
life and disability insurance, a company automobile, reimbursement of moving
expenses and vacation, and the reimbursement of appropriate business expenses,
all of which the Board feels are appropriate for the President of the Bank and
the Company. In addition, the employment agreement provides that in the event of
termination of Mr. McKeon by the Company without "cause" (defined in the
agreement as "his willful and repeated failure to perform his duties under the
agreement unless cured within 30 days' notice"), the Company will be responsible
for payment of the salary of Mr. McKeon through the date of termination, plus
eighteen (18) months salary as severance. The agreement provides that the
Company may terminate Mr. McKeon for "cause" With no further obligation to him.
The employment agreement contains a covenant not to compete prohibiting Mr.
McKeon from competing with the Company throughout the term of the employment
agreement and for a period of two years after the termination of the agreement.
The agreement also provides for the granting of options to Mr. McKeon
to purchase Shares representing up to ten percent (10%) of the Company's total
outstanding shares at the conclusion of the Offering and the commencement of the
operation of the Bank.
The Agreement, which was negotiated at arm's length between Mr. McKeon
and his attorney and the Board of Directors and the Company's attorney, is
available for review by prospective investors upon request.
STOCK OPTION PLAN
The Organizers of the Company intend to adopt a nonqualified stock
option plan for the Company. The purpose and intent of the plan will be to
advance the interests of the Company by providing officers, directors and other
key employees, having substantial responsibility for the direction and
management of the Company and its subsidiaries, with an opportunity to acquire
proprietary interest in the Company as an additional incentive to promote its
success and encourage them to remain in the employ of the Company or its
subsidiaries. The Board of Directors intends to authorize between 50,000 and
75,000 Shares of the Company's Shares to be set aside for the purposes of the
plan. The exact number of Shares to be set aside will be dependent upon the
number of Shares sold in the Offering. The price to be paid under the plan will
be the fair market value per share of the Company's common stock on the date the
option is granted. The option period under the Stock Option Plan will be 10
years from the date the option is granted. In addition, no option shall be
exercisable until the third anniversary of its grant. The plan, by its terms,
will expire ten years from the date on which the plan is approved by the Board
of Directors. The Stock Option Plan will not require any action by the
shareholders of the Company.
As of the date of this Prospectus, no options for Shares of the Company
have yet been issued. However, upon the commencement for business of the Bank
and the adoption of the Stock Option Plan, Mr. McKeon, pursuant to the terms of
his employment contract with the Company, will be granted options representing
ten percent (10%) of the shares of the Company issued and outstanding at the
conclusion of the Offering. The price for the exercise of such options will be
$20.00 per share (the offering price of the Shares hereunder) for the first
seven percent (7%) of the total outstanding shares of the Company to be
purchased under the grant of options. The remaining three percent (3%) of the
total outstanding shares of the Company to be purchased pursuant to the options
granted to Mr. McKeon will be purchased at: (i) $32.00 per share for the next
one percent (1%); (ii) $36.00 for the next one percent (1%); and (iii) $40.00
for the final one percent (1%). All of such options become "vested" upon the
commencement of the operations of the Bank but are not exercisable before
December 31, 2001. The options granted to Mr. McKeon also will provide for a
"cashless exercise" so that Mr. McKeon can exercise his options and pay for such
exercise with the increased value in the shares of stock represented by the
options he holds.
The terms and conditions under which options are to be granted to Mr. McKeon
have not been approved by either the Ohio Division of Financial Institutions of
the FDIC. Under Mr. McKeon's employment agreement, the granting of the options
is subject to approval of such regulatory authorities
CERTAIN TRANSACTIONS AND RELATIONSHIPS
The Company and the Bank expect to have banking and other business
transactions in the ordinary course of business with directors and officers of
the Company and the Bank and their affiliates, including members of their
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families or corporations, partnerships or other organizations in which such
directors and officers have a controlling interest, on substantially the same
terms (including price, or interest rate and collateral) as those prevailing at
the time for comparable transactions with unrelated parties. Such banking
transactions are not expected to involve more than the normal risk of
collectibility or present other unfavorable features to the Bank.
None of the directors or executive officers of the Company were
selected pursuant to any arrangement or understanding, other than with the
directors and executive officers of the Company, acting within their capacities
as such. There are no family relationships between the directors and the
executive officers of the Company.
None of the directors and executive officers of the Company serves as a
director of any company which has a class of securities registered under, or
which is subject to the periodic reporting requirements of, the Securities
Exchange Act of 1934 or any investment company registered under the Investment
Company Act of 1940 except for Mr. Lynham who serves as a director of Corrpro
Companies, Inc., a public company registered under the 1934 Act. None of the
directors or executive officers of the Company has been involved in any legal
proceedings concerning bankruptcy, either individually or in respect of any
businesses with which they have been involved, nor have any of such persons been
convicted of any crime, excluding traffic violations and minor offenses.
As described above, Michael Rose, one of the Organizers of the Company,
intends to enter into an agreement with the Company providing for the
construction of a 2 story brick office building, 5,000 square feet of which will
be leased for the main office of the Bank. The site for the building is at the
intersection of Foote Road and State Route 18. The Board of Directors of the
Company believes that the terms and conditions of the lease with Mr. Rose are
comparable to those which are available from other unrelated third parties. As a
requirement of the application for the chartering of the Bank filed with the
Ohio Division of Financial Institutions, the Company will obtain at least one
independent appraisal of the lease rates to confirm this belief.
Mr. R. Hal Nichols, one of the Directors of the Company, is the
President of Austin Associates, Inc., the consulting firm retained by the
Company to assist in the chartering process for the Bank. The Board of Directors
believes that the fees paid to Austin Associates, Inc. are comparable to fees
which would have been paid to unaffiliated third parties for the type of
services to be performed by Austin Associates, Inc. on behalf of the Company.
INDEMNIFICATION
The Articles of Incorporation of the Company, in conjunction with
provisions of the Ohio Revised Code, contain certain indemnification provisions
which provide that directors, officers, employees or agents of the Company will
be indemnified against expenses actually and reasonably incurred by them if they
are successful on the merits of a claim or proceeding.
Even when a case or dispute is not ultimately determined on its merits
(i.e., settled), the indemnification provisions of the Articles of Incorporation
and Ohio law provide that the Company will indemnify directors when they meet
the applicable standard of conduct. The applicable standard of conduct is met if
the director acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the Company or, with respect to
any criminal action or proceeding, if the director had no reasonable cause to
believe his or her conduct was unlawful. Whether the applicable standard of
conduct has been met is determined by the Board of Directors, a disinterested
committee of the Board, the shareholders or independent legal counsel in each
specific case.
The Articles of Incorporation of the Company, in conjunction with
provisions of the Ohio Revised Code, also provide that the indemnification
rights set forth therein are not exclusive of any other indemnification rights
to which a director may be entitled under any resolution or agreement, either
specifically or in general terms approved by the affirmative vote of the holders
of a majority of the shares entitled to vote thereon. The Company can also
provide for greater indemnification than that set forth in the Articles of
Incorporation if it chooses to do so. Additionally, and subject to the
limitations set forth below, the Articles of Incorporation require that the
Corporation indemnify its present and past directors for personal liability for
monetary damages resulting from breach of their fiduciary duty as directors.
Notwithstanding the above, no indemnification for personal liability shall be
provided for: (i) any breach of the directors' duty of loyalty to the
corporation or its stockholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii)
illegal distribution of dividends; and (iv) any transaction from which the
director derived an improper personal benefit.
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The indemnification provisions of the Articles of Incorporation, in
conjunction with provisions of the Ohio Revised Code, provide that the Company
may purchase and maintain insurance on behalf of any director against any
liability asserted against such person and incurred by him or her in any such
capacity, whether or not the Company would have had the power to indemnify
against such liability. The Company is not aware of any pending or threatened
action, suit or proceeding involving any of its directors or officers for which
indemnification from the Company may be sought.
Insofar as indemnification for liabilities (primarily relating to
public distribution of securities) arising under the Securities Act of 1933, as
amended (the "1933 Act"), may be permitted to directors, officers and
controlling persons of the Company, or to an affiliate of the Company pursuant
to the Company's Articles of Incorporation or Code of Regulations or otherwise,
the Board of Directors has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. Accordingly, it is
possible that the indemnification provisions may not apply to liabilities
arising under the 1933 Act unless the person to be indemnified is successful on
the merits of the claim or proceeding.
DESCRIPTION OF THE COMMON SHARES
The Shares of the Company offered hereby are common shares without par
value. The Company had 8,000 of such Shares issued and outstanding as of the
date hereof. The Company's Articles of Incorporation currently provide for
750,000 authorized Shares. Up to 500,000 of such Shares will be sold pursuant to
this Offering, including those Shares already outstanding which have been sold
to the Organizers.
The holders of the Shares have no preemptive right to acquire other or
additional Shares which may, from time to time, be authorized and issued by the
Company. Such issuance would cause a dilution in the ownership percentage of the
Shares held by any shareholder. It is not currently contemplated that the
Company will issue any class of shares other than the Shares offered hereunder.
The Organizers, as the initial shareholders of the Company, and in
accordance with Ohio law, amended the Articles of Incorporation of the Company
to eliminate the right to cumulatively vote shares in connection with the
election of Directors. Cumulative voting allows a shareholder to vote the number
of Shares owned by him times the number of directors to be elected and to cast
such votes for one director or to allocate such votes among directors as he
deems appropriate. As a result of such action, each Share shall be entitled to
one (1) vote per share on all issues including voting for directors.
All Shares offered hereby will be, upon issuance, fully paid and
nonassessable. However, the Company may be required to fund the Bank after its
initial capitalization in the event that the Ohio Division of Financial
Institutions determines such capital infusion is necessary. In such event, if
the Company does not have significant unencumbered assets to provide such
infusion of capital, the Company would be forced to look to the existing
shareholders for such funds, to borrow such funds or to have an additional
equity offering of shares in the Company.
Since the Company and the Bank are both start-up operations, it will be
the policy of the Board of Directors of the Company to retain any earnings for
the period of time necessary to ensure the success of their operations. The
payment of dividends will depend substantially on the Bank's earnings and will
be subject to legal and regulatory restrictions applicable to the Company and
the Bank. As a result, the Company has no current plans to initiate payment of
cash dividends, and its future dividend policy will depend on the Bank's
earnings, capital requirements, financial condition and other factors considered
relevant by the Board of Directors of the Company (see "SUPERVISION AND
REGULATIONS-Bank").
The Articles of Incorporation and Code of Regulations of the Company
contain certain provisions limiting the liability of Directors and providing for
indemnification of the Company's Directors and Officers (see "INDEMNIFICATION").
A vote of seventy-five percent (75%) of the Company's outstanding
shares may be required to approve certain business combination transactions (see
"ANTITAKEOVER MEASURES").
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ANTITAKEOVER MEASURES
DISCUSSION OF FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS
The Company's Articles of Incorporation contain a "Fair Price" and
"Supermajority Vote" provision. Such provisions were included in the Company's
Articles of Incorporation based on the fact that certain tactics have become
relatively common in corporate takeover practice, including the accumulation of
a substantial block of stock as a prelude to an attempted takeover or proxy
fight or the use of a partial tender offer followed by a second-step merger or
business combination involving less favorable considerations than were offered
in the partial tender offer. The Board of Directors of the Company considers
that such tactics can be highly disruptive and can result in dissimilar and
unfair treatment of shareholders.
The fair price and supermajority vote provisions are designed to
encourage potential takeover bidders to negotiate at arm's length with the Board
of Directors. In the absence of such negotiations, the provisions are intended
to achieve a measure of assurance that any multistep attempt to take over the
Company is made on terms that offer similar treatment to all shareholders.
Neither the proposed fair price provision nor the supermajority vote provision
will impede a takeover that is approved by two-thirds of the directors of the
Company who are unaffiliated with a ten percent (10%) or more shareholder (an
"interested shareholder").
The Board of Directors is not aware of any current efforts to obtain
control of the Company or to effect substantial accumulations of its Common
Shares. However, Article Sixth of the Company's Articles of Incorporation was
included in order to have in place appropriate safeguards to protect the
shareholders in light of two-step takeover attempts for public corporations and
in light of developments regarding interstate banking.
An effect of these provisions in the Company's Articles of
Incorporation is to make more difficult the consummation of a business
combination with a ten percent (10%) or more shareholder in the absence of the
approval of the Board of Directors of the Company. Accordingly, the provisions
may discourage takeover attempts which are not supported by the Board of
Directors.
REASONS FOR FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS
The so-called "fair price" and "supermajority vote" provisions would be
applicable in the case of certain business combinations with a shareholder
owning ten percent (10%) or more of the voting stock of the Company. The Board
of Directors determined that the provisions are desirable to assure all
shareholders fair and equitable treatment in the event of certain types of
"two-step" transactions.
There have been a number of takeovers of publicly-owned corporations
accomplished by the purchase of a control block of stock by means of open market
purchases or by means of a tender offer made directly to a target corporation's
shareholders at a price above the prevailing market price, followed by a
second-step merger or other business combination. The value of the consideration
given for the acquired corporation's shares in the second step of such an
acquisition may be, and frequently is, less than the value paid in the first
step and/or the form of the consideration in the first step. The Board of
Directors was concerned that the interests of all shareholders may not be
adequately protected in such a two-step acquisition.
The Company intends to have a large number of shareholders who
individually hold small numbers of Common Shares. The Board believes that
sophisticated arbitrageurs and other market professionals are generally in a
better position to take advantage of the more lucrative first-step transaction,
while other shareholders will often, as a practical matter, be compelled to
accept the less favorable consideration payable in the second-step merger or
other business combination. Although the remaining shareholders subject to the
second step may have available certain legal remedies in such a situation,
including the right to dissent under applicable law in a merger and certain
other business combinations, the enforcement of such rights or remedies by a
minority shareholder may involve significant expense, delay and uncertainty.
The Reigle-Neal Interstate Banking and Branching Efficiency Act adopted
in 1994 provided for the interstate merger and operation of banks, subject to
actions taken by the various states. In 1997, Ohio adopted legislation which
allows out of state banks and bank holding companies to acquire banks and bank
holding
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companies in the State of Ohio. This provision increases the number of potential
acquirers of Ohio banks and bank holding companies.
Use of the two-step acquisition and further expansion of interstate
banking are two principal reasons that the Board of Directors of the Company
determined that these provisions are desirable.
SUMMARY OF FAIR PRICE AND SUPERMAJORITY VOTE PROVISIONS
The following summary is qualified by reference to the full text of the
Articles of Incorporation. Article Sixth contains both "fair price" and
"supermajority vote" provisions. The following definitions are applicable to the
"fair price" and "supermajority" vote provisions.
Under the "fair price" provision, no business combination may be
effected without the approval of two-thirds of the "Continuing Directors,"
unless either:
(i) Approved by holders of not less than 66 2/3% of the voting stock
held by all independent shareholders voting together as a class; or
(ii) All of the fair price and certain other requirements and
conditions are complied with.
As the fair price is an aggregate of the cash and fair market value of
property paid plus interest paid on such property from the date the interested
shareholder became such to the date of consummation, a determination of whether
the price paid satisfies the fair price provision may conceivably not be made
until the date of consummation. Due to this uncertainty of whether the fair
price provision has been satisfied, the actual vote required at the meeting of
shareholders may not be determinable until consummation. This uncertainty may
preclude an interested shareholder from actually determining the price required
to satisfy the fair price provision, even if the interested shareholder had
every intention of doing so.
The uncertainty associated with the fair price provision may have the
effect of encouraging an interested shareholder who is not assured of the
seventy-five percent (75%) supermajority vote to negotiate any proposed business
combination with the Board of Directors, and more specifically, negotiate with
the Continuing Directors.
The purpose of the foregoing condition is to require, in the absence of
the approval of two-thirds of the Continuing Directors or holders of at least 66
2/3% of all voting stock held by the "independent shareholders," that the
independent shareholders receive in a business combination the minimum price
specified above, which is the highest price per share paid by the interested
shareholder in acquiring shares of such class. The form of the consideration
would be the same as previously paid by the interested shareholder to acquire
the largest number of shares of such class or series.
Article Sixth also contains a "supermajority vote" provision. The vote
required by the supermajority vote provision is in addition to any vote required
by the fair price provision. Under the supermajority vote provision, no business
combination with an "interested shareholder" may be effected without the
approval of two-thirds of the Continuing Directors, unless approved by holders
of not less than seventy-five percent (75%) of the outstanding voting stock
voting together as a single class. (This 75% supermajority vote requirement
includes the vote of the interested shareholder.)
Any vote of shareholders of the Company under Article Sixth is in
addition to any required vote of the holders of any class of shares of capital
stock of the Company and is required notwithstanding that no shareholder vote or
a lesser percentage shareholder vote may be required by law or other provisions
of the Articles of Incorporation.
All actions required to be taken by the Continuing Directors under
Article Sixth shall be taken by the vote or written consent of two-thirds (2/3)
of the Continuing Directors. In the event that the number of Continuing
Directors is at any time less than five (5), all power and authority of the
Continuing Directors under Article Sixth shall cease. The Continuing Directors
are given authority under Article Sixth to determine, consistent with their
fiduciary obligations, such matters as whether any person is an interested
shareholder; fair market value of property, securities and other noncash
considerations; and other matters.
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Provisions of Article Sixth may not be repealed, amended, supplemented
or otherwise modified unless;
(i) the Continuing Directors (or, if there is no interested
shareholder, a majority of directors of the Company), recommend such repeal,
amendment, supplement or modification and such repeal, amendment, supplement or
modification is approved by the affirmative vote of the holders of shares
entitling them to exercise 66 2/3% of the voting power of the Company, or
(ii) such repeal, amendment, supplement or modification is approved by
the affirmative vote of holders of:
a. not less than 75% of the outstanding voting stock voting
together as a single class, and
b. not less than 66 2/3 percent of the outstanding voting
stock held by all shareholders other than interested
shareholders voting together as a single class.
The Board of Directors believes that encouraging a prospective
purchaser to negotiate directly with the Board and Management will be beneficial
to all shareholders. The Board believes that it and Management, in consultation
with their professional advisors, are in the best position to assess the
business and prospects of the Company. Accordingly, the Board is of the opinion
that negotiations between the Company and a potential acquirer will increase the
likelihood that shareholders will receive a higher price for their shares.
CLASSIFIED BOARD OF DIRECTORS/SUPERMAJORITY VOTE FOR DIRECTOR REMOVAL
The Company's Code of Regulations provides that the Board of Directors
shall be divided into three classes. After the initial election of directors to
three classes serving for one, two and three years, respectively, each class
will be elected for a three-year term. The classified election system for
directors provides continuity of directors and also serves as a defense against
unwanted takeovers. Shareholders desiring to change a majority of the Board
would have to wait two years as only one-third of the directors are elected
annually. This may discourage potential acquirers of the Company's shares from
making acquisition of the Company's shares. Further, the Code of Regulations of
the Company contains a provision requiring the vote of 75% of the shareholders
to remove all or one of the members of the Board of Directors. This requires a
higher vote than the simple majority provided by Ohio law and will make it more
difficult to remove all or some of the members of the Board of Directors.
ADDITIONAL CONSIDERATIONS
Federal and state law requires prior approval by the Board of Governors
of the Federal Reserve System and the Ohio Division of Financial Institutions
before any company acquires control of a bank or bank holding company.
Independent of any provision of the Company's Articles of Incorporation or Code
of Regulations, the requirement for such regulatory approval may delay efforts
to obtain control over the Company. The Ohio General Corporation Law requires
shareholder approval of the acquisition of control of certain Ohio corporations,
including the Company. A "Control Share Acquisition" is defined as acquisition
by any person of voting power over twenty percent (20%) or more of the total
voting power of certain "issuing public corporations" as defined by Ohio law,
which it is assumed will include the Company. A person has voting power over a
voting share if the person has or shares, directly or indirectly, through any
option, contract, arrangement, understanding, conversion right or relationship,
or by acting jointly or in concert or otherwise, the power to vote or to direct
the voting of the voting share.
The availability of the authorized and unissued shares of the Company
to be issued into friendly hands with the purpose of diluting a potential
acquirer's ownership of the Company may also be determined to have an
antitakeover effect. The Company's Articles of Incorporation and Code of
Regulations currently contain no other provisions that were intended to be or
could fairly be considered as antitakeover in nature or effect. The Board of
Directors has no present intention to amend further the Articles of
Incorporation to add any antitakeover provisions, nor are the above described
provisions the result of management's knowledge of any effort to obtain control
of the Company by any means.
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SUPERVISION AND REGULATION
GENERAL
The growth and earnings performance of the Company can be affected not
only by management decisions and general economic conditions, but also by the
policies of various governmental regulatory authorities including, but not
limited to, the Ohio Division of Financial Institutions (the "Division"), the
Federal Reserve Board, the FDIC, the Internal Revenue Service and state taxing
authorities. Financial institutions and their holding companies are extensively
regulated under federal and state law. The effect of such statutes, regulations
and policies can be significant, and cannot be predicted with a high degree of
certainty.
Federal and state laws and regulations generally applicable to
financial institutions such as the Company and the Bank, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and the Bank establishes
a comprehensive framework for their respective operations and is intended
primarily for the protection of the FDIC's deposit insurance funds and the
depositors, rather than the stockholders, of financial institutions.
The following references to material statutes and regulations affecting
the Company and the Bank are brief summaries thereof and do not purport to be
complete, and are qualified in their entirety by reference to such statutes and
regulations. Any change in applicable law or regulations may have a material
effect on the business of the Company and the Bank.
THE COMPANY
Upon acquisition of the stock of the Bank, after its formation, the
Company will become a registered bank holding company under the Bank Holding
Company Act of 1956 (the "Banking Act") as amended, and as such is subject to
regulation by the Federal Reserve Board. A bank holding company is required to
file with the Federal Reserve Board annual reports and other information
regarding its business operations and those of its subsidiaries. A bank holding
company and its subsidiary banks are also subject to examination by the Federal
Reserve Board.
The Banking Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of any bank or bank holding company or ownership or control of any voting
shares of any bank or bank holding company, if, after such acquisition, it would
own or control, directly or indirectly, more than five percent (5%) of the
voting shares of such bank or bank holding company.
A bank holding company is, with limited exceptions, prohibited from
acquiring direct or indirect ownership or control of the voting stock of any
company which is not a bank or a bank holding company, and must engage only in
the business of banking or managing or controlling banks or furnishing services
to or performing services for its subsidiary banks. The Federal Reserve Board,
by order or regulation, may authorize a holding company to engage in or acquire
stock in a company which engages in activities so closely related to banking or
managing or controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve Board has determined by regulation to be
incidental to the business of banking are: making or servicing loans or certain
types of leases; engaging in certain insurance and discount brokerage
activities; performing certain data processing services; acting in certain
circumstances as a fiduciary or investment or financial advisor; and making
investments in certain corporations or projects designed primarily to promote
community welfare. The Company has no present plans to engage in such
activities. In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the Federal Reserve Board considers
whether the performance of any such activity by a subsidiary of the holding
company reasonably can be expected to produce benefits to the public, such as
greater convenience, increased competition, or gains in efficiency, which
outweigh possible adverse effects, such as underconcentration of resources,
decrease of competition, conflicts of interest, or unsound banking practices.
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates. In addition, bank
holding companies and their subsidiaries are prohibited from engaging in certain
"tie-in" arrangements in connection with any extensions of credit, leases, sales
of property, or furnishing of services.
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The activities of the Company will also be restricted by the provisions
of the Glass-Steagall Act of 1933. This Act will prohibit the Company from
owning subsidiaries which are engaged principally in the issue, flotation,
underwriting, public sale, or distribution of securities. The interpretation,
scope and application of the provisions of the Glass-Steagall Act are being
reviewed by regulators and legislators and the interpretation and application of
the provisions have been challenged in the federal courts. The outcome of the
current examination and appraisal of the provisions in the Glass-Steagall Act
and the effect of such outcome on the ability of bank holding companies to
engage in securities-related activities cannot be predicted.
Subject to certain restrictions, the Company will be able to borrow
money to make a capital contribution to the Bank and for other proper corporate
purposes, and such loans can be repaid from dividends paid by the Bank to the
Company. There are no plans at the present time for the Company to borrow money
under such circumstances. The Company may also raise capital for the Bank and
otherwise by selling securities, as it is doing through this Offering.
THE BANK
It is intended that the Bank, when organized, will be regulated by the
Division as a state banking company. However, the Bank could be regulated by the
Office of the Comptroller of the Currency ("OCC") in the event the Company
decides to form a national as opposed to a state bank. Additionally, it is
anticipated that the Bank will be regulated by the Board of Governors of the
Federal Reserve System ("Federal Reserve") as a member of the Federal Reserve
System. The regulatory agencies have the authority to regularly examine the Bank
and the Bank will be subject to the regulations promulgated by its supervisory
agencies. In addition, the deposits of the Bank will be insured by the Federal
Deposit Insurance Corporation ("FDIC") to the fullest extent permitted by law
and, therefore, the Bank will be subject to FDIC regulations.
DEPOSIT INSURANCE.
As an FDlC-insured institution, the Bank will be required to pay deposit
insurance premium assessments to the FDIC. The amount each institution pays for
FDIC deposit insurance coverage is determined in accordance with a risk-based
assessment system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums based upon their
level of capital and supervisory evaluation. Institutions classified as
well-capitalized (as defined by the FDIC) and considered healthy pay the lowest
premium while institutions that are less than adequately capitalized (as defined
by the FDIC) and considered of substantial supervisory concern pay the highest
premium. For the semiannual assessment period which began January 1, 1997, Bank
Insurance Fund ("BIF") assessments ranged from zero for institutions that are
well-capitalized to 0.27% of deposits for other institutions. Because the Bank
will initially be a "well capitalized" institution for purposes of its deposit
insurance premiums, it expects its initial annual FDIC premium to be the
statutory minimum of $2,000.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital.
CAPITAL
The Federal Reserve, Division, and FDIC require banks and holding
companies to maintain minimum capital ratios.
The "risk-adjusted" capital guidelines for bank holding companies
involve a mathematical process of assigning various risk weights to different
classes of assets, then evaluating the sum of the risk-weighted balance sheet
structure against the Company's capital base. The rules set the minimum
guidelines for the ratio of capital to risk-weighted assets (including certain
off-balance sheet activities, such as standby letters of credit) at 8%. At least
half of the total capital is to be composed of common equity, retained earnings,
and a limited amount of perpetual
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preferred stock less certain goodwill items ("Tier 1 Capital"). The remainder
may consist of a limited amount of subordinated debt, other preferred stock, or
a limited amount of loan loss reserves. The Bank anticipates maintaining capital
at a level sufficient to be classified as "well capitalized" pursuant to the
Federal Reserve guidelines.
In addition, the federal banking regulatory agencies have adopted
leverage capital guidelines for banks and bank holding companies. Under these
guidelines, banks and bank holding companies must maintain a minimum ratio of
three percent (3%) Tier 1 Capital to total assets. However, most banking
organizations are expected to maintain capital ratios well in excess of the
minimum levels and generally must keep their Tier 1 ratio at or above 5%. The
Bank intends to maintain capital well above the regulatory minimum.
The risk-based and leverage standards presently used by the Federal
Reserve are minimum requirements and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier I capital less all intangible assets),
well above the minimum levels.
The Federal Reserve's regulations provide that the foregoing capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than $150
million in total consolidated assets.
Regulatory authorities may increase such minimum requirements for all
banks and bank holding companies or for specified banks or bank holding
companies. Increases in the minimum required ratios could adversely affect the
Bank and the Company, including their ability to pay dividends.
ADDITIONAL REGULATION
The Bank will also be subject to federal regulation as to such matters
as required reserves, limitation as to the nature and amount of its loans and
investments, regulatory approval of any merger or consolidation, issuance or
retirement by the Bank of its own securities, limitations upon the payment of
dividends and other aspects of banking operations. In addition, the activities
and operations of the Bank will be subject to a number of additional detailed,
complex and sometimes overlapping laws and regulations. These include state
usury and consumer credit laws, state laws relating to fiduciaries, the Federal
Truth-in-Lending Act and Regulation Z, the Federal Equal Credit Opportunity Act
and Regulation B, the Fair Credit Reporting Act, the Truth in Savings Act, the
Community Reinvestment Act, antiredlining legislation and antitrust laws.
DIVIDEND REGULATION
The ability of the Company to obtain funds for the payment of dividends
and for other cash requirements will be largely dependent on the amount of
dividends which may be declared by its subsidiary, the Bank. Generally, an Ohio
state-chartered bank may not declare a dividend without the approval of the
Division, if the total of dividends declared by such bank in a calendar year
exceeds the total of its net profits for that year, combined with its retained
profits of the preceding two years. In addition, state-chartered Banks are
subject to dividend regulation by their primary federal bank regulatory agency
in connection with general supervisory authority as it relates to a bank's
requirement to maintain adequate capital (see SUPERVISION AND
REGULATION-"Capital" above).
GOVERNMENT POLICIES AND LEGISLATION
The policies of regulatory authorities, including the Division, Federal
Reserve, FDIC and the Depository Institutions Deregulation Committee, have had a
significant effect on the operating results of commercial banks in the past and
are expected to do so in the future. An important function of the Federal
Reserve System is to regulate aggregate national credit and money supply through
such means as open market dealings in securities, establishment of the discount
rate on member bank borrowings, and changes in reserve requirements against
member bank deposits. Policies of these agencies may be influenced by many
factors, including inflation, unemployment, short-term and long-term changes in
the international trade balance and fiscal policies of the United States
government.
34
<PAGE> 37
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any additional
legislation will be adopted or as to the effect such legislation would have on
the business of the Bank or the Company.
In addition to the relaxation or elimination of geographic restrictions
on banks and bank holding companies, a number of regulatory and legislative
initiatives have the potential for eliminating many of the product line barriers
presently separating the services offered by commercial banks from those offered
by nonbanking institutions. For example, Congress recently has considered
legislation which would expand the scope of permissible business activities for
bank holding companies (and in some cases banks) in regard to securities
underwriting, insurance services and various real estate-related activities, as
well as allowing interstate branching.
RECENT LEGISLATION
On September 29, 1994, the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. This
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquiror on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where the
acquiring institution is located. The deposit concentration state limit does not
apply for initial acquisitions in a state and may be waived by the state
regulatory authority. Interstate acquisitions are subject to compliance with the
Community Reinvestment Act ("CRA"). States are permitted to impose age
requirements not to exceed five years on target banks for interstate
acquisitions. States are not allowed to opt-out of interstate banking. Ohio
adopted legislation to opt-into the Interstate Act in May of 1997. Recently
adopted legislation applies state law equally to all banks, state or national
and in- or out-of-state, regarding acquisitions, as required by the Interstate
Act.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks was not permitted until
June 1, 1997 provided that the state had not passed legislation "opting-out" of
interstate branching. The laws of the host state regarding community
reinvestment, fair lending, consumer protection (including usury limits) and
establishment of branches shall apply to the interstate branches.
Legislation modifying the Ohio Banking laws was adopted in June of 1996
and became effective on January 1, 1997. This legislation is the first
significant modification to the Ohio Banking Laws since 1968. The intent of the
legislation was to modernize the Ohio law to allow banks to remain competitive
in the ever changing financial services industry and a reduction in the
regulatory burden of operating the Bank, consistent with safety and soundness
principles.
PROPOSED LEGISLATION
There have been a number of legislative and regulatory proposals
designed to strengthen the federal deposit insurance system and to improve the
overall financial stability of the U.S. banking system. It is impossible to
predict whether or in what form these proposals may be adopted in the future
and, if adopted, what their effect would be on the Company.
35
<PAGE> 38
LEGAL OPINIONS
The validity of the Common Shares offered hereby will be passed upon
for the Company by Werner & Blank Co., L.P.A., Toledo, Ohio.
EXPERTS
The financial statements of Western Reserve Bancorp, Inc. as of November 30,
1997 and for the period from February 25, 1997 (date of inception) to November
30, 1997, included in this Prospectus and in the Registration Statement have
been included herein and in the Registration Statement in reliance upon the
report of Crowe, Chizek and Company LLP, as set forth in its report thereon,
appearing elsewhere herein. The financial statements audited by Crowe, Chizek
and Company LLP have been included in reliance upon such report given upon their
authority as an expert in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement under the Securities Act of 1933 with
respect to the Shares offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement. For further information
pertaining to the Shares offered hereby and to the Company, reference is made to
the Registration Statement, including the exhibits, financial statements and
schedules filed therewith. The statements contained in this Prospectus
concerning the contents of any contract or other document referred to are not
necessarily complete; where such contract or other document is an exhibit to the
Registration Statement, each statement is qualified in all respects by the
provisions of such exhibit, to which reference is hereby made for a full
statement of the provisions thereof.
Such Registration Statement may be inspected, without charge, and
copied at the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Room 1400, 75 Park Place, New York, New York 10007. Copies
of such materials can also be obtained at prescribed rates by writing to the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the Company.
36
<PAGE> 39
WESTERN RESERVE BANCORP, INC.
(A Development Stage Company)
Index to Financial Statements
Report of Independent Auditors ......................................... F-2
Balance Sheet as of November 30, 1997 .................................. F-3
Statement of Operations for the period from
February 25, 1997 (date of inception) to November 30, 1997.............. F-4
Statement of Changes in Stockholders' Equity for
the period from February 25, 1997 (date of inception)
to November 30, 1997 ................................................... F-5
Statement of Cash Flows for the period from
February 25, 1997 (date of inception) to November 30, 1997 ............. F-6
Notes to Financial Statements........................................... F-7
F-1
<PAGE> 40
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Western Reserve Bancorp, Inc.
Medina, Ohio
We have audited the accompanying balance sheet of Western Reserve Bancorp, Inc.
(the "Company") as of November 30, 1997, and the related statements of
operations, changes in stockholders' equity and cash flows for the period from
February 25, 1997 (date of inception) to November 30, 1997. 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 audit.
We conducted our audit 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 audit provides 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 Western Reserve Bancorp, Inc.
as of November 30, 1997, and the results of its operations and its cash flows
for the period from February 25, 1997 (date of inception) to November 30, 1997
in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Cleveland, Ohio
December 3, 1997
F-2
<PAGE> 41
WESTERN RESERVE BANCORP, INC.
(A Development Stage Company)
BALANCE SHEET
November 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash and due from banks $ 254
Interest bearing deposits in banks 56,293
---------
Total cash and cash equivalents 56,547
Premises and equipment - net 17,632
Deferred costs 45,278
Other assets 1,702
---------
Total assets $ 121,159
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 1,264
Stockholders' equity
Common stock, without par value, $1 stated value:
750,000 shares authorized; 8,000 shares issued
and outstanding 8,000
Additional paid-in capital 152,000
Deficit accumulated during the development stage (40,105)
---------
Total stockholders' equity 119,895
---------
Total liabilities and stockholders' equity $ 121,159
=========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 42
WESTERN RESERVE BANCORP, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the Period from February 25, 1997 (date of inception) to November 30, 1997
<TABLE>
<S> <C>
INCOME
Interest income $ 928
EXPENSES
Salary and benefits 28,915
Premises and equipment expense 5,896
Other expenses 6,222
--------
41,033
--------
NET LOSS $(40,105)
========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 43
WESTERN RESERVE BANCORP, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period from February 25,1997 (date of inception) to
November 30, 1997
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Deficit Equity
----- ------- ------- ------
<S> <C> <C> <C> <C>
Proceeds from issuance of
common stock $ 8,000 $ 152,000 $ 160,000
Net loss $ (40,105) (40,105)
-------- ------------ ---------- ------------
Balance November 30, 1997 $ 8,000 $ 152,000 $ (40,105) $ 119,895
======== ============ ========== ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 44
WESTERN RESERVE BANCORP, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Period from February 25, 1997 (date of inception) to November 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (40,105)
Adjustments to reconcile net loss
to net cash from operating activities
Depreciation 273
Increase in deferred costs (45,278)
Increase in other assets (1,702)
Increase in accounts payable 1,264
---------
Net cash from operating activities (85,548)
CASH FLOWS FROM INVESTING ACTIVITIES
Premises and equipment expenditures (17,905)
---------
Net cash from investing activities (17,905)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 160,000
---------
Net cash from financing activities 160,000
---------
Net change in cash and cash equivalents 56,547
Cash and cash equivalents at beginning of period --
---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 56,547
=========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 45
WESTERN RESERVE BANCORP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: Western Reserve Bancorp, Inc. (the Company) was incorporated
February 25, 1997 and was a development stage company as of November 30, 1997.
The Company will be devoting its efforts to the offering of its common shares to
the general public and to obtaining regulatory approvals, recruiting personnel,
and financial planning relating to the organization of The Western Reserve Bank
(the Bank). The Company is expected, upon completion of a public stock offering,
to purchase 100 percent of the common stock of the Bank, a bank to be formed
under the laws of the State of Ohio. The Company will file an application to
become a bank holding company with the Board of Governors of the Federal Reserve
System pursuant to the Bank Holding Company Act of 1956, as amended.
Nature of Business: The Bank intends to offer a full range of commercial and
consumer banking services primarily in and around Medina, Ohio.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. Areas involving the use of management's estimates and
assumption include the realization of deferred tax assets and the depreciation
of premises and equipment.
Deferred Organization and Stock Offering Costs: Costs directly associated with
the organization of the Company and the Bank, as well as costs directly
associated with preparing the stock offering have been deferred. Upon initiation
of business as a bank and bank holding company, the organization costs will be
amortized to expense over sixty months. Stock offering costs will be deducted
from the proceeds received in the offering. If the formation of the Bank and the
stock offering are not completed, these deferred costs will be charged to
operations immediately.
Income Taxes: The Company follows the liability method in accounting for income
taxes. The benefit for the net operating loss has been set off by a valuation
allowance equal to the deferred tax asset.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company leases a vehicle and office space from related parties at November
30, 1997. The office space is rented on a month to month basis and is not
intended to become the Company's ultimate corporate headquarters.
The vehicle is leased based on a 36 month closed end lease.
NOTE 3 - STOCK OPTIONS
The Company's Board of Directors intends to adopt a stock option plan to satisfy
certain obligations to its President, Edward J. McKeon, pursuant to his
employment agreement. Under the terms of Mr. McKeon's employment agreement, non
qualified stock options for up to 10% of the Company's common stock may be
granted to Mr. McKeon. The exercise price will be the base price in which the
initial public shares are offered for 70% of the options, and 160%, 170% and
180% of the base price for each remaining 10% increment, respectively. The
options become vested upon commencement of operations of the Bank and are
exercisable on or after December 31, 2001.
Continued
F-7
<PAGE> 46
WESTERN RESERVE BANCORP, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an employment agreement with the Chief Executive
Officer. The agreement, which expires December 31, 2001, provides a base annual
salary of $125,000. The agreement provides for compensation in the event the
officer is terminated without cause or in the event the Company has not
commenced operations of the Bank.
The Company has entered into a 36 month closed end lease for a vehicle to be
used by the Chief Executive Officer. The aggregate annual lease payment is
$5,488. Future minimum commitments are:
1998 $ 5,488
1999 5,488
2000 4,116
--------
$ 15,092
========
NOTE 5 - INCOME TAXES
The tax benefit associated with the net operating loss carryforward of $40,105
has been offset with a valuation allowance as of November 30, 1997 since the
Company is in the development stage and has no history of generating taxable
income.
F-8
<PAGE> 47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ohio General Corporation Law ("OGCL") provides that Ohio corporations
may indemnify an individual made a party to any threatened, pending, or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative, because the individual is or was a director, officer, employee or
agent of the corporation, against liability incurred in the proceeding if the
person: (i) acted in good faith and (ii) the individual believes his conduct was
in the corporation's best interest or was not opposed to the corporation's best
interest.
The OGCL further provides that a corporation shall indemnify an
individual who was fully successful on the merits or otherwise in any proceeding
to which the director, officer, employee or agent was a party because the
individual was or is a director, officer, employee or agent of the corporation,
for reasonable expenses incurred by the director in connection with the
proceeding. The OGCL also provides that a corporation may purchase and maintain
insurance on behalf of the individual who is or was a director, officer,
employee or agent of the corporation or who, while a director, officer, employee
or agent of the corporation is or was serving at the request of the corporation
as a director, officer, partner, trustee, employer or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or other enterprises, against liability asserted against or incurred by the
individual in that capacity or arising from the individual status as a director,
officer, employee, or agent.
The Articles of Incorporation confirm the general provisions of the
OGCL and also provide for indemnification of the directors of the Small
business issuer for personal liability for monetary damages resulting from
breach of their fiduciary duty as directors except for: (i) any breach of the
directors' duty of loyalty to the Small business issuer or its stockholder;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) illegal distribution of
dividends; and (iv) any transaction from which the director derived an improper
personal benefit.
Small business issuer will maintain a directors' and officers'
liability insurance policy, including bank reimbursement, for the purpose of
providing indemnification to its directors and officers in the event of such a
threatened, pending or completed action.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the sale
and distribution of the Common Stock being registered. All amounts shown are
estimates except the SEC registration fee, and assume the sale of 500,000
Shares, the maximum number of Shares offered.
<TABLE>
<S> <C>
SEC registration fee $ 3,448.28
EDGAR, printing and mailing costs 25,000.00
Fees and expenses of counsel 35,000.00
Accounting and related expenses 5,000.00
Blue Sky fees and expenses 5,000.00
Escrow Agent fees and expenses 2,500.00
Selling expenses 10,000.00
Miscellaneous 9,051.72
Total $ 100,000.00
</TABLE>
<PAGE> 48
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
As of November 30, 1997, the Organizers of the small business issuer had
purchased 8,000 Shares, in the aggregate, for a total consideration of $160,000
(i.e. $20.00 per Share), the amount at which the Shares will be offered to the
public. All of such sales were exempt under either Section 4(2) or Section
3(a)(11) and Rule 147 of the Securities Act of 1933, and exemptions from
registration available under the Ohio securities laws.
ITEM 27. EXHIBITS
The exhibits filed pursuant to this Item 27 immediately follow the
Exhibit Index. The following is a description of the applicable exhibits
required for Form SB-2 provided by Item 601 of Regulation S-B.
Exhibit Number Description
(1) Not Applicable.
(2) Not Applicable.
(3) Articles of Incorporation and Code of Regulations.
A. A copy of the Amended and Restated Articles
of Incorporation of the Small business
issuer included herein as an Exhibit.
B. A copy of the Code of Regulations of the
Small business issuer as currently in effect
is included herein as an Exhibit.
(4) Instruments defining the rights of shareholders, including
indentures.
A. Instruments defining the rights of small
business issuer's shareholders are included
in the Articles of Incorporation and Code of
Regulations.
(5) Opinion of Werner & Blank Co., L.P.A., regarding Western Reserve
Bancorp, Inc. Common Stock, and Consent
(6) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) Material Contracts
A. Employment Contract of Edward J. McKeon
B. Agreement among Organizers
C. Escrow Agreement between small business issuer
and Mid American National Bank & Trust Company
(11) Not Applicable.
(13) Not Applicable
(15) Not Applicable
(16) Not Applicable.
<PAGE> 49
Exhibit Number Description
(21) Currently, small business issuer has no subsidiaries. It is in the
process of organizing Western Reserve Bank, a commercial bank to be
chartered under the laws of the State of Ohio.
(22) Not Applicable.
(23) Consents of Experts and Counsel.
A. Consent of Crowe, Chizek and Company LLP
B. Consent of Werner & Blank Co., L.P.A. (the consent is
contained in that firm's opinions filed as Exhibit (5)).
(24) Power of Attorney.
(25) Not Applicable.
(26) Not Applicable.
(27) Financial Data Schedule
(99) Form of Subscription Agreement
<PAGE> 50
ITEM 22. UNDERTAKINGS.
(a) The undersigned small business issuer 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 Securities Act of
1933;
(ii) To reflect in the Prospectus any facts or
events which, individually or together,
represent a fundamental change in the
information set forth in the Registration
Statement; and
(iii) To include any additional or changed
material information on the plan of
distribution.
(2) For determining any liability under the Securities
Act of 1933, each post-effective amendment shall be
deemed to be a new registration statement of the
securities offered, and the offering of the
securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold
at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to officers,
directors, and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer 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 the small business
issuer of expenses incurred or paid by a director, officer, or
controlling person of the small business issuer in the
successful defense of any action, suit, or proceeding) is
asserted by such director, officer, or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel
that matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question of 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.
<PAGE> 51
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the small
business issuer certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Medina, State of Ohio, this 29th day of
December, 1997.
Western Reserve Bancorp, Inc.
By: /s/ Edward J. McKeon
-------------------------------------
Edward J. McKeon
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Further, each signature shall designate
authorization of and pursuant to the power of attorney herein described.
/s/ Edward J. McKeon December 29, 1997
- --------------------------------------
Edward J. McKeon, President,
Chief Executive Officer and Director
/s/ P. M. Jones December 29, 1997
- --------------------------------------
P. M. Jones, Treasurer, Chief
Financial and Chief Accounting Officer
Bijay Jayaswal, Director*
George R. Klein, Director*
Ray E. Laribee, Director*
C. Richard Lynham, Director*
R. Hal Nichols, Director*
Rory H. O'Neil, Director*
Michael R. Rose, Director*
Glenn M. Smith, Director*
Thomas A. Tubbs, Director*
*By: /s/ Edward J. McKeon December 29, 1997
----------------------------------
Edward J. McKeon, Attorney-in-Fact
<PAGE> 52
Exhibit Index
Exhibit 3.a Articles of Incorporation of Western Reserve Bancorp, Inc.
Exhibit 3.b Code of Regulations of Western Reserve Bancorp, Inc.
Exhibit 5 Legal Opinion-Werner & Blank Co., LPA
Exhibit 10 Material Contracts
A. Employment Contract of Edward J. McKeon
B. Agreement among Organizers
C. Escrow Agreement between Company and Mid American
National Bank & Trust Company
Exhibit 23 Consent of Crowe, Chizek & Company LLP
Exhibit 24 Power of Attorney
Exhibit 27 Financial Data Schedule
Exhibit 99 Form of Subscription Agreement
<PAGE> 1
EXHIBIT 3.a ARTICLES OF INCORPORATION OF WESTERN RESERVE BANCORP, INC.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
WESTERN RESERVE BANCORP, INC.
*****
THE UNDERSIGNED, under Sections 1701.01 et seq. of the Revised Code of
Ohio, do hereby certify:
FIRST: The name of said Corporation shall be:
Western Reserve Bancorp, Inc.
SECOND: The place in the State of Ohio where its principal office is to be
located is Medina, in Medina County.
THIRD: The purposes for which it is formed are:
To engage in any lawful act or activity for which corporations may be
formed under Sections 1701.01 to 1701.98 inclusive of the Ohio Revised Code.
FOURTH: The authorized number of shares of the Corporation is Seven Hundred
Fifty Thousand (750,000), all of which shall be common shares without par value.
FIFTH: The following provisions are hereby agreed to for the purpose of
defining, limiting and regulating the exercise of the authority of the
Corporation, or of the Directors, or of all of the shareholders:
The Board of Directors is expressly authorized to set apart, out of any of
the funds of the Corporation available for dividends, a reserve or reserves for
any proper purpose or to abolish any such reserve in the manner in which it was
created, and to purchase on behalf of the Corporation any shares issued by it to
the extent permitted under Sections 1701.01 et seq. of the Revised Code of Ohio.
The Corporation may in its regulations confer powers upon its Board of
Directors in addition to the powers and authorities conferred upon it expressly
by Sections 1701.01 et seq. of the Revised Code of Ohio.
Any meeting of the shareholders or the Board of Directors may be held at
any place within or without the State of Ohio in the manner provided for in the
regulations of the Corporation.
Subject to Article SIXTH, any amendments to the Articles of Incorporation
may be made from time to time, and any proposal or proposition requiring the
action of shareholders may be authorized from time to time by the affirmative
vote of the holders of shares entitling them to exercise a majority of the
voting power of the Corporation.
SIXTH: FAIR PRICE AND SUPER VOTE REQUIREMENT
A. Definitions as used in this Article Sixth
B.
(1) "Affiliate" or "Associate" shall have the respective
meanings given to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(2) A person shall be a "beneficial owner" of any Voting Stock:
<PAGE> 2
(i) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has by itself or with others (a) the right to acquire (whether such
right is exercisable immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise, or (b) the right to
vote pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or
indirectly, by any other person with which such person or any of its Affiliates
or Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Voting Stock.
(3) "Business Combination" shall include:
(i) any merger or consolidation of the Corporation or
any of its subsidiaries with or into an Interested Shareholder, regardless of
which person is the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, or
other disposition (in one transaction or a series of transactions) from the
Corporation or any of its subsidiaries to an Interested Shareholder, or from an
Interested Shareholder to the Corporation or any of its subsidiaries, of assets
having an aggregate Fair Market Value of twenty percent (20%) or more of the
Corporation's total stockholders' equity;
(iii) the issuance, sale or other transfer by the
Corporation or any subsidiary thereof of any securities of the Corporation or
any subsidiary thereof to an Interested Shareholder (other than an issuance or
transfer of securities which is effected on a pro rata basis to all shareholders
of the Corporation);
(iv) the acquisition by the Corporation or any of its
subsidiaries of any securities of an Interested Shareholder;
(v) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder;
(vi) any reclassification or recapitalization of
securities of the Corporation if the effect, directly or indirectly, of such
transaction is to increase the relative voting power of an Interested
Shareholder; or
(vii) any agreement, contract or other arrangement
providing for or resulting in any of the transactions described in this
definition of Business Combination.
(4) "Continuing Director" shall mean any member of the Board
of Directors of the Corporation who is unaffiliated with the Interested
Shareholder and was a member of the Board of Directors prior to the time that
the Interested Shareholder became an Interested Shareholder; any successor of a
Continuing Director who is unaffiliated with the Interested Shareholder and is
approved to succeed a Continuing Director by the Continuing Directors; any
member of the Board of Directors who is appointed to fill a vacancy on the Board
of Directors who is unaffiliated with the Interested Shareholder and is approved
by the Continuing Directors.
<PAGE> 3
(5) "Fair Market Value" shall mean:
(i) in the case of securities listed on a national
securities exchange or quoted in the National Association of Securities Dealers
Automated Quotations System (or any successor thereof), the highest sales price
or bid quotation, as the case may be, reported for securities of the same class
or series traded on a national securities exchange or in the over-the-counter
market during the 30-day period immediately prior to the date in question, or if
no such report or quotation is available, the fair market value as determined by
the Continuing Directors; and
(ii) in the case of other securities and of other
property or consideration (other than cash), the Fair Market Value as determined
by the Continuing Directors; provided, however, in the event the power and
authority of the Continuing Directors ceases and terminates pursuant to
Subdivision F of this Article SIXTH as a result of there being less than five
Continuing Directors at any time, then (a) for purposes of clause (ii) of the
definition of "Business Combination," any sale, lease, exchange, mortgage,
pledge, or other disposition of assets from the Corporation or any of its
subsidiaries to an Interested Shareholder or from an Interested Shareholder to
the Corporation or any of its subsidiaries, regardless of the Fair Market Value
thereof, shall constitute a Business Combination, and (b) for purposes of
paragraph 1 of Subdivision D of this Article SIXTH, in determining the amount of
consideration received or to be received per share by the Independent
Shareholders in a Business Combination, there shall be excluded all
consideration other than cash and the Fair Market Value of securities listed on
a national securities exchange or quoted in the National Association of
Securities Dealers Automated Quotations System (or any successor thereof) for
which there is a reported sales price or bid quotation, as the case may be,
during the 30-day period immediately prior to the date in question.
(6) "Independent Shareholder" shall mean shareholders of the
Corporation other than the Interested Shareholder engaged in or proposing the
Business Combination.
(7) "Interested Shareholder" shall mean: (a) any person (other
than the Corporation or any of its subsidiaries), and (b) the Affiliates and
Associates of such person, who, or which together, are:
(i) the beneficial owner, directly or indirectly, of
10% or more of the outstanding Voting Stock or were within the two-year period
immediately prior to the date in question the beneficial owner, directly or
indirectly, of 10% or more of the then outstanding Voting Stock; or
(ii) an assignee of or other person who has succeeded
to any shares of the Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by an
Interested Shareholder, if such assignment or succession shall have occurred in
the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
Notwithstanding the foregoing, no Trust Department, or designated
fiduciary or other trustee of such Trust Department of the Corporation or a
subsidiary of the Corporation, or other similar fiduciary capacity of the
Corporation with direct voting control of the outstanding Voting Stock shall be
included or considered as an Interested Shareholder. Further, no profit-sharing,
employee stock ownership, employee stock purchase and savings, employee pension,
or other employee benefit plan of the Corporation or any of it subsidiaries, and
no trustee of any such plan in its capacity as such trustee, shall be included
or considered as an Interested Shareholder.
(8) A "Person" shall mean an individual, partnership, trust,
corporation, or other entity and includes any two or more of the foregoing
acting in concert.
(9) "Voting Stock" shall mean all outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors of the Corporation.
<PAGE> 4
B. Supermajority Vote to Effect Business Combination. No Business
Combination shall be effected or consummated unless:
(1) Authorized and approved by the Continuing Directors and,
if otherwise required by law to authorize or approve the transaction, the
approval or authorization of shareholders of the Corporation, by the affirmative
vote of the holders of such number of shares as is mandated by the Ohio Revised
Code; or
(2) Authorized and approved by the affirmative vote of holders
of not less than 75% of the outstanding Voting Stock voting together as a single
class.
The authorization and approval required by this Subdivision B is in
addition to any authorization and approval required by Subdivision C of this
Article SIXTH.
C. Fair Price Required to Effect Business Combination. No Business
Combination shall be effected or consummated unless:
(1) All the conditions and requirements set forth in
Subdivision D of this Article SIXTH have been satisfied; or
(2) Authorized and approved by the Continuing Directors; or
(3) Authorized and approved by the affirmative vote of holders
of not less than 66 2/3% of the outstanding Voting Stock held by all Independent
Shareholders voting together as a single class.
Any authorization and approval required by this Subdivision C
is in addition to any authorization and approval required by Subdivision B of
this Article SIXTH.
D. Conditions and Requirements to Fair Price. All the following
conditions and requirements must be satisfied in order for clause (1) of
Subdivision C of this Article SIXTH to be applicable.
(1) The cash and Fair Market Value of the property, securities
or other consideration to be received by the Independent Shareholders in the
Business Combination per share for each class or series of capital stock of the
Corporation must not be less than the sum of:
(i) the highest per share price (including brokerage
commissions, transfer taxes, soliciting dealer's fees and similar payments) paid
by the Interested Shareholder in acquiring any shares of such class or series,
respectively, and, in the case of Preferred Stock, if greater, the amount of the
per share redemption price; and
(ii) the amount, if any, by which interest on the per
share price, calculated at the Treasury Bill Rate from time to time in effect,
from the date the Interested Shareholder first became an Interested Shareholder
until the Business Combination has been consummated, exceeds the per share
amount of cash dividends received by the Independent Shareholders during such
period. The "Treasury Bill Rate" means for each calendar quarter, or part
thereof, the interest rate of the last auction in the preceding calendar of
91-day United States Treasury Bills expressed as a bond equivalent yield.
For purposes of this paragraph (1) per share amounts shall be
appropriately adjusted for any recapitalization, reclassification, stock
dividend, stock split, reserve split, or other similar transaction. Any Business
Combination which does not result in the Independent Shareholders receiving
consideration for or in respect of their shares of capital stock of the
Corporation shall not be treated as complying with the requirements of this
paragraph (1).
<PAGE> 5
(2) The form of the consideration to be received by the
Independent Shareholders owning the Corporation's shares must be the same as was
previously paid by the Interested Shareholder(s) for shares of the same class or
series; provided, however, if the Interested Shareholder previously paid for
shares of such class or series with different forms of consideration, the form
of the consideration to be received by the Independent Shareholders owning
shares of such class or series must be in the form as was previously paid by the
Interested Shareholder in acquiring the largest number of shares of such class
or series previously acquired by the Interested Shareholder, provided, further,
in the event no shares of the same class or series had been previously acquired
by the Interested Shareholder, the form of consideration must be cash. The
provisions of this paragraph (2) are not intended to diminish the aggregate
amount of cash and Fair Market Value of any other consideration that any holder
of the Corporation's shares is otherwise entitled to receive upon the
liquidation or dissolution of the Corporation, under the terms of any contract
with the Corporation or an Interested Shareholder, or otherwise.
(3) From the date the Interested Shareholder first became an
Interested Shareholder until the Business Combination has been consummated, the
following requirements must be complied with unless the Continuing Directors
otherwise approve:
(i) the Interested Shareholder has not received,
directly or indirectly, the benefit (except proportionately as a shareholder) of
any loan, advance, guaranty, pledge, or other financial assistance, tax credit
or deduction, or other benefit from the Corporation or any of its subsidiaries;
(ii) there shall have been no failure to declare and
pay in full, when and as due or scheduled, any dividends required to be paid on
any class or series of the Corporation's shares;
(iii) there shall have been (a) no reduction in the
annual rate of dividends paid on Common Shares of the Corporation (except as
necessary to reflect any split of such shares), and (b) an increase in the
annual rate of dividends as necessary to reflect reclassification (including a
reverse split), recapitalization or any similar transaction which has the effect
of reducing the number of outstanding Common Shares; and
(iv) there shall have been no amendment or other
modification to any profit-sharing, employee stock ownership; employee stock
purchase and savings, employee pension or other employee benefit plan of the
Corporation or any of its subsidiaries, the effect of which is to change in any
manner the provisions governing the voting of any shares of capital stock of the
Corporation in or covered by such plan.
(4) A proxy or information statement describing the Business
Combination and complying with the requirements of the Securities Exchange Act
of 1934, as amended, and the rules and regulations under it (or any subsequent
provisions replacing that Act and the rules and regulations under it) has been
mailed at least 30 days prior to the completion of the Business Combination to
the holders of all outstanding Voting Stock. If deemed advisable by the
Continuing Directors, the proxy or information statement shall contain a
recommendation by the Continuing Directors as to the advisability (or
inadvisability) of the Business Combination and/or an opinion by an investment
banking firm, selected by the Continuing Directors and retained at the expense
of the Corporation, as to the fairness (or unfairness) of the Business
Combination to the Independent Shareholders.
E. Other Applicable Voting Requirement. The affirmative votes or
approvals required to be received from shareholders of the Corporation under
Subdivisions B, C and H of this Article SIXTH are in addition to the vote of the
holders of any class of shares of capital stock of the Corporation otherwise
required by law, or by other provisions of these Articles of Incorporation, or
by the express terms of the shares of such class. The affirmative votes or
approvals required to be received from shareholders of the Corporation under
Subdivisions B, C and H of this Article SIXTH shall apply even though no vote or
a lesser percentage vote, may be required by law, or by other provisions of
these Articles of Incorporation, or otherwise. Any authorization, approval or
other action of the Continuing Directors under this Article SIXTH is in addition
to any required authorization, approval or other action of the Board of
Directors.
<PAGE> 6
F. Continuing Directors. All actions required or permitted to be taken
by the Continuing Directors shall be taken with or without a meeting by the vote
or written consent of two-thirds of the Continuing Directors, regardless of
whether the Continuing Directors constitute a quorum of the members of the Board
of Directors then in office. In the event that the number of Continuing
Directors is at any time less than five, all power and authority of the
Continuing Directors under this Article SIXTH shall thereupon cease and
terminate, including, without limitation, the authority of the Continuing
Directors to authorize and approve a Business Combination under Subdivisions B
and C of this Article SIXTH and to approve a successor Continuing Director.
Two-thirds of the Continuing Directors shall have the power and duty, consistent
with their fiduciary obligations, to determine for the purpose of this Article
SIXTH, on the basis of information known to them:
(1) Whether any person is an Interested Shareholder;
(2) Whether any person is an Affiliate or Associate of
another;
(3) Whether any person has an agreement, arrangement, or
understanding with another or is acting in concert with another; and
(4) The Fair Market Value of property, securities or other
consideration (other than cash).
The good faith determination of the Continuing Directors on such
matters shall be binding and conclusive for purposes of this Article SIXTH.
G. Effect on Fiduciary Obligations of Interested Shareholders. Nothing
contained in this Article SIXTH shall be construed to relieve any Interested
Shareholder from any fiduciary obligations imposed by law.
H. Repeal. Notwithstanding any other provisions of these Articles of
Incorporation (and notwithstanding the fact that a lesser percentage vote may be
required by law or other provision of these Articles of Incorporation), the
provisions of this Article SIXTH may not be repealed, amended, supplemented or
otherwise modified, unless:
(1) The Continuing Directors (or, if there is no Interested
Shareholder, a majority vote of the whole Board of Directors of the Corporation)
recommend such repeal, amendment, supplement or modification and such repeal,
amendment or modification is approved by the affirmative vote of the holders of
not less than a simple majority of the outstanding Voting Stock; or
(2) Such repeal, amendment, supplement or modification is
approved by the affirmative vote of holders of (a) not less than 75% of the
outstanding Voting Stock voting together as a single class, and (b) not less
than 66 2/3% of the outstanding Voting Stock held by all shareholders other than
Interested Shareholders voting together as a single class.
I. Further Considerations to Effect Business Combination. No Business
Combination shall be effected or consummated unless, in addition to the
consideration set forth in Subdivisions B, C, D and E of this Article SIXTH, the
Board of Directors of the Corporation, including the Continuing Directors shall
consider all of the following factors and any other factors which it (they) deem
relevant:
(1) The Social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located;
(2) The business and financial conditions and earnings
prospects of the Interested Shareholder, including, but not limited to, debt
service and other existing or likely financial obligations of the Interested
Shareholder, and the possible effect on other elements of the communities in
which the Corporation and its subsidiaries operate or are located, and
<PAGE> 7
(3) The competence, experience and integrity of the Interested
Shareholder and his (its) or their management.
SEVENTH: Shareholders of the Corporation shall have no preemptive right
to purchase shares when issued by the Corporation. Shareholders shall not have
the right to cumulate their shares in voting for the election of Directors of
the Corporation.
EIGHTH: The Corporation shall indemnify its present and past Directors,
officers, employees and agents, and such other persons as it shall have powers
to indemnify, to the full extent permitted under, and subject to the limitations
of, Title 17 of the Ohio Revised Code. Additionally, and subject to the
limitations set forth below, the Corporation shall indemnify its present and
past Directors for personal liability for monetary damages resulting from breach
of their fiduciary duty as Directors. Notwithstanding the above, no
indemnification for personal liability shall be provided for: (i) any breach of
the Directors' duty of loyalty to the Corporation or its stockholder; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) illegal distribution of dividends; and (iv) any
transaction from which the Director derived an improper personal benefit.
<PAGE> 1
EXHIBIT 3.b CODE OF REGULATIONS OF WESTERN RESERVE BANCORP, INC.
CODE OF REGULATIONS
OF
WESTERN RESERVE BANCORP, INC.
ARTICLE 1
Offices
Section 1. Principal Office. The principal office of the Company shall
be at such place in the County of Medina, Ohio, as may be designated from time
to time by the Board of Directors.
Section 2. Other Offices. The Corporation shall also have offices at
such other places without, as well as within, the State of Ohio, as the Board of
Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders of
this Corporation for the purpose of fixing or changing the number of directors
of the Corporation, electing directors and transacting such other business as
may come before the meeting, shall be held at such time as may be fixed by the
Board of Directors by resolution from time to time.
Section 2. Special Meetings. Special meetings of the shareholders may
be called at any time by the Chairman of the Board of Directors, President, or a
majority of the Board of Directors acting with or without a meeting, or by
shareholders owning, in the aggregate, not less than fifty percent (50%) of the
stock of the Corporation.
Section 3. Place of Meetings. Meetings of shareholders shall be held at
the main office of the Corporation unless the Board of Directors decides that a
meeting shall be held at some other place within or without the State of Ohio
and causes the notices thereof to so state.
Section 4. Notice of Meetings. Unless waived, a written, printed, or
typewritten notice of each annual or special meeting stating the day, hour, and
place and the purpose or purposes thereof shall be served upon or mailed to each
shareholder of record (a) as of the day next preceding the day on which notice
is given or (b) if a record date therefor is duly fixed, of record as of said
date. Notice of such meeting shall be mailed, postage prepaid, at least ten (10)
days prior to the date thereof. If mailed, it shall be directed to a shareholder
at his address as the name appears upon the records of the Corporation.
Section 5. Waiver of Notice. Any shareholder, either before or after
any meeting, may waive any notice required to be given by law or under these
Regulations; and whenever all of the shareholders entitled to vote shall meet in
person or by proxy and consent to holding a meeting, it shall be valid for all
purposes without call or notice, and at such meeting any action may be taken.
Section 6. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
the shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and a meeting may be held, as adjourned,
without further notice. A majority of the votes cast shall decide every question
or matter submitted to the shareholders at any meeting, unless otherwise
provided by law or by the Articles of Incorporation.
Section 7. Proxies. Any shareholder of record who is entitled to attend
a shareholders' meeting, or to vote thereat or to assent or give consents in
writing, shall be entitled to be represented at such
<PAGE> 2
meetings or to vote thereat or to assent or give consent in writing, as the case
may be, or to exercise any other of his rights, by proxy or proxies appointed by
a writing signed by such shareholder, which need not be sealed, witnessed or
acknowledged.
A telegram, cablegram, wireless message or photogram appearing to have
been transmitted by a shareholder, or a photograph, photostatic facsimile or
equivalent reproduction of a writing appointing a proxy or proxies shall be a
sufficient writing.
No appointment of a proxy shall be valid after the expiration eleven
(11) months after it is made, unless the writing specifies the date on which it
is to expire or the length of time it is to continue in force.
Section 8. Voting. At any meeting of the shareholders, each shareholder
of the Corporation shall, except as otherwise provided by law or by the Articles
of Incorporation or by these Regulations, be entitled to one (1) vote in person
or by proxy for each share of the corporation registered in his name on the
books of the Corporation: (a) on the record date for the determination of
shareholders entitled to vote at such meeting, notwithstanding the prior or
subsequent sale, or other disposal of such share or shares or transfer of the
same on the books of the Corporation on or after the record date; or (b) if no
such record date shall have been fixed, then at the time of such meeting.
Section 9. Action Without Meeting. Any action which may be authorized
or taken at any meeting of shareholders may be authorized or taken without a
meeting in a writing or writings signed by all of the holders of shares who
would be entitled to notice of a meeting of the shareholders held for such
purpose. Such writing or writings shall be filed with or entered upon the
records of the Corporation.
ARTICLE III
Directors
Section 1. Number of Directors. The number of Directors constituting
the entire Board shall not be less than five (5) nor more than twenty-five (25),
the exact number of Directors to be determined from time to time by a majority
vote of the whole Board of Directors of the Corporation, or by a majority vote
of stockholders at an annual meeting or special meeting called for such purpose,
and such exact number shall be eleven (11) until otherwise so determined;
provided, however, that any increase or decrease in the number of Directors
resulting from an action by a majority of the whole Board as herein provided
for, shall be subject to a limitation of two (2) persons in any one calendar
year.
Section 2. Election and Term of Directors. The Board of Directors shall
be divided into three classes, as nearly equal in number as the then total
number of Directors constituting the whole Board permits, with the term of
office of one class expiring each year. Any vacancies in the Board of Directors
for any reason, and any newly created directorships resulting from any increase
in the number of Directors, may be filled by the Board of Directors, acting by a
majority of the Directors then in office, although less than a quorum, and any
Director so chosen shall hold office until the next election of the class for
which such Directors shall have been chosen and until their successor shall be
elected and qualified. No decrease in the number of Directors shall shorten the
term of any incumbent Director. At each annual meeting of stockholders, the
successors to the class of Directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting.
Section 3. Nominations. Nominations of persons for election to the
Board of the Corporation at a meeting of the Shareholders may be made by or at
the direction of the Board of Directors or may be made at a meeting of
Shareholders by any Shareholder of the Corporation entitled to vote for the
election of Directors at the meeting who complies with the notice procedures set
forth in this Section 3 of Article III. Such nominations, other than those made
by or at the direction of the Board, shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a Shareholder's
notice shall be delivered to or mailed and received at the principal office of
the Corporation not less than fourteen (14) days nor more than fifty (50) days
prior to the meeting; provided, however, that in the event that less than
twenty-one (21) days notice or prior public disclosure of the date of the
meeting is given or made to
<PAGE> 3
Shareholders, notice by the Shareholder to be timely must be so delivered or
mailed no later than the close of business on the seventh (7th) day following
the day on which day notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs, but in no event shall such timely
notice of Shareholder nomination be received by the Secretary of the Corporation
less than seven (7) days prior to the Shareholder meeting. Such Shareholder's
notice to the Secretary shall set forth (a) as to each person whom the
Shareholder proposes to nominate for election or reelection as a Director, (i)
the name, age, business address and residence address of the persons, (ii) the
principal occupation or employment of the person, and (iii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
the person and (b) as to the Shareholder giving the notice (i) the name and
record address of the Shareholder and (ii) the class and number of shares of
capital stock of the Corporation which are beneficially owned by the
Shareholder. The Corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as Director of the
Corporation. No person shall be eligible for election as a Director of the
Corporation at a meeting of the Shareholders unless nominated in accordance with
the procedures set forth herein. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure and the defective nomination shall be
disregarded.
Section 4. Vacancies. In case of any vacancy in the Board of Directors,
through death, resignation, disqualification, or other cause, the remaining
Directors, by an affirmative vote of a majority thereof, may elect a successor
to hold office for the unexpired portion of the term of the Director whose place
is vacant until the election and qualification of his successor.
Section 5. Removal. No Director may be removed except upon the
affirmative vote of the holders of not less than 75% of the issued and
outstanding shares qualified to vote at a meeting for the election of Directors;
provided, however, that if the Corporation shall be subject to the right of
shareholders to cumulate shares for voting in the election of Directors, a
Director may not be removed if the number of shares voted against his removal
would be sufficient, if voted cumulatively, to elect such Director at a meeting
called for such purpose. A Director also may be removed upon action of the Board
of Directors for the reasons provided by the Ohio Revised Code.
ARTICLE IV
Powers, Meeting, and Compensation of Directors
Section 1. Meetings of the Board. A meeting of the Board of Directors
shall be held immediately following the adjournment of each shareholders'
meeting at which directors are elected, or within sixty (60) days thereafter.
The Board of Directors may, by bylaws or resolution, provide for other
meetings of the Board.
Special meetings of the Board of Directors may be held at any time upon
call of the Chairman of the Board of Directors, President, or any two (2)
members of the Board.
Notice of any special meeting of the Board of Directors shall be mailed
to each director, addressed to him at his residence or usual place of business,
at least two (2) days before the day on which the meeting is to be held, or
shall be sent to him at such place by facsimile, telegraph or cable, or be given
personally or by telephone, not later than the day before the day on which the
meeting is to be held. Every such notice shall state the time and place of the
meeting but need not state the purposes thereof. Notice of any meeting of the
Board need not be given to any director, however, if waived by him in writing or
by facsimile, telegraph or cable, or telephonic communication whether before or
after such meeting is held, or if he shall be present at such meeting; and any
meeting of the Board shall be a legal meeting without any notice thereof having
been given, if all the directors shall be present thereat.
Meetings of the Board shall be held at the office of the Corporation,
or at such other place, within or without the State of Ohio, as the Board may
determine from time to time and as may be specified in the
<PAGE> 4
notice thereof. Meetings of the Board of Directors may also be held by the
utilization of simultaneous telephonic communications linking all directors
present at such meetings, and all such business conducted via such telephonic
communication shall be considered legally enforceable by the Corporation.
Section 2. Quorum. A majority of the Board of Directors serving in such
capacity shall constitute a quorum for the transaction of business, provided
that whenever less than a quorum is present at the time and place appointed for
any meeting of the Board, a majority of those present may adjourn the meeting
from time to time, without notice other than by announcement at the meeting,
until a quorum shall be present.
Section 3. Action without Meeting. Any action may be authorized or
taken without a meeting in a writing or writings signed by all the directors,
which writing or writings shall be filed with or entered upon the records of the
Corporation.
Section 4. Compensation. The directors may receive compensation for
their services in an amount fixed by resolution of the Board of Directors.
Section 5. Bylaws. For the government of its actions, the Board of
Directors may adopt bylaws consistent with the Articles of Incorporation and
these Regulations.
ARTICLE V
Committees
Section 1. Committees. The Board of Directors may by resolution provide
such standing or special committees as it deems desirable, and discontinue the
same at its pleasure. Each such committee shall have such powers and perform
such duties, not inconsistent with law, as may be delegated to it by the Board
of Directors. Vacancies in such committees may be filled by the Board of
Directors.
ARTICLE VI
Officers
Section 1. General Provisions. The Board of Directors shall elect a
President, such number of Vice Presidents as the Board may from time to time
determine, a Secretary and Treasurer, and, in its discretion, a Chairman of the
Board of Directors and a Vice Chairman of the Board of Directors. If no such
Chairman of the Board is elected by the Board of Directors, the President of the
Corporation shall act as presiding officer of the Corporation. The Board of
Directors may from time to time create such offices and appoint such other
officers, subordinate officers and assistant officers as it may determine. The
President and the Chairman of the Board shall be, but the other officers need
not be, chosen from among the members of the Board of Directors.
Section 2. Terms of Office. The officers of the Corporation shall hold
office at the pleasure of the Board of Directors and, unless sooner removed by
the Board of Directors, until the reorganization meeting of the Board of
Directors following the date of their election and until their successors are
chosen and qualified.
A vacancy in any office, however created, may be filled by the Board of
Directors.
ARTICLE VII
Duties of Officers
Section 1. Chairman of the Board. The Chairman of the Board, if one be
elected, shall preside at all meetings of the shareholders and Board of
Directors and shall have such other powers and duties as may be prescribed by
the Board of Directors or by law.
<PAGE> 5
Section 2. Vice Chairman of the Board. The Vice Chairman of the Board,
if one be elected, shall preside at all meetings of the shareholders and the
Board of Directors, in the absence of the Chairman of the Board. The Vice
Chairman shall have such powers and duties as may be prescribed by the Board of
Directors, or prescribed by the Chairman of the Board, or by law.
Section 3. President. The President shall be the chief executive
officer of the Corporation and shall exercise supervision over the business of
the Corporation and over its several officers, subject, however, to the control
of the Board of Directors. In the absence of or if a Chairman of the Board shall
not have been elected or a Vice Chairman shall not have been elected, the
President shall preside at meetings of the shareholders and Board of Directors.
He shall have authority to sign all certificates for shares and all deeds,
mortgages, bonds, contracts, notes and other instruments requiring his
signature; and shall have all the powers and duties prescribed by law and such
others as the Board of Directors may from time to time assign to him.
Section 4. Vice Presidents. The Vice Presidents shall perform such
duties as are conferred upon them by these regulations or as may from time to
time be assigned to them by the Board of Directors, the Chairman of the Board or
the President. At the request of the President, or in his absence or disability,
the Vice President, designated by the President (or in the absence of such
designation, the Vice President designated by the Board), shall perform all the
duties of the President, and when so acting, shall have all the powers of the
President. The authority of Vice Presidents to sign in the name of the
Corporation all certificates for shares and authorized deeds, mortgages, bonds,
contracts, notes and other instruments, shall be coordinated with like authority
of the President. Any one or more of the Vice Presidents may be designated as an
"Executive Vice President" or a "Senior Vice President."
Section 5. The Secretary. The Secretary shall issue notices of all
meetings for which notice shall be required to be given, shall keep the minutes
of all meetings, shall have charge of the corporate seal, if any, and corporate
record books, shall cause to be prepared for each meeting of shareholders the
list of shareholders entitled to vote thereat, and shall have such other duties
and powers as may be assigned to or vested in him by the Board of Directors, the
Executive Committee or the President.
Section 6 The Treasurer. The Treasurer shall have the custody of all
moneys and securities of the Corporation and shall keep adequate and correct
accounts of the Corporation's business transactions, including accounts of its
assets, liabilities, receipts, disbursements, gains, losses, stated capital and
shares. The funds of the Corporation shall be deposited in the name of the
Corporation by the Treasurer in such depositories as the Board of Directors may
from time to time designate. The Treasurer shall have such other duties and
powers as may be assigned to or vested in him by the Board of Directors or the
President.
Section 7. Assistant and Subordinate Officers. The Board of Directors
may appoint such assistant and subordinate officers as it may deem desirable.
Each such officer shall hold office during the pleasure of the Board of
Directors and perform such duties as the Board of Directors may prescribe.
The Board of Directors may, from time to time, authorize any officers
to appoint and remove assistant and subordinate officers, to prescribe their
authority and duties, and to fix their compensation.
Section 8. Duties of Officers May Be Delegated. In the absence of any
officer of the Corporation, or for any other reason the Board of Directors may
deem sufficient, the Board of Directors may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer, or to
any director.
ARTICLE VIII
Certificates for Shares
Section 1. Form and Execution. Certificates for shares shall be issued
to each shareholder in such form as shall be approved by the Board of Directors.
Such certificates shall be signed by the Chairman of
<PAGE> 6
the Board of Directors or the President or a Vice President and by the Secretary
or an Assistant Secretary of the Corporation, which certificates shall certify
the number and class of shares held by the shareholder in the Corporation, but
no certificates for shares shall be delivered until such shares are fully paid.
When such a certificate is countersigned by an incorporated transfer agent or
registrar, the signature of any of said officers of the Corporation may be a
facsimile, or engraved, stamped or printed. Although any officer of the
Corporation whose manual or facsimile signature is affixed to a share
certificate shall cease to be such officer before the certificate is delivered,
such certificate, nevertheless, shall be effective in all respects when
delivered.
Such certificate for shares shall be transferable in person or by
attorney, but, except as hereinafter provided in the case of lost, mutilated or
destroyed certificates, no transfers of shares shall be entered upon the records
of the Corporation until the previous certificates, if any, given for the same
shall have been surrendered and canceled.
Section 2. Lost, Mutilated or Destroyed Certificates. If any
certificate for shares is lost, mutilated or destroyed, the Board of Directors
may authorize the issuance of a new certificate in place thereof, upon such
terms and conditions as it may deem advisable. The Board of Directors in its
discretion may refuse to issue such new certificates until the Corporation has
been indemnified by a final order or decree of a court of competent jurisdiction
and may, in its sole discretion, require a bond prior to issuance of any such
new certificate.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall end on the 31st day of
December in each year, or on such other day as may be fixed from time to time by
the Board of Directors.
ARTICLE X
Amendments
These Regulations may be amended or repealed at any meeting of
shareholders called for that purpose by the affirmative vote of the holders of
record of shares entitling them to exercise a majority of the voting power on
such proposal or, without a meeting, by the written consent of the holders of
record of shares entitling them to exercise two-thirds (2/3) of the voting power
on such proposal.
<PAGE> 1
EXHIBIT 5 LEGAL OPINION-WERNER & BLANK CO., LPA
{WERNER & BLANK CO. L.P.A. LETTERHEAD}
December 19, 1997
Board of Directors
Western Reserve Bancorp, Inc.
23 Public Square, Suite 220
Medina, Ohio 44256
RE: SB-2 Registration Statement for Shares of Western Reserve Bancorp, Inc.
Common Stock
Gentlemen:
In connection with the proposed public offering of up to 500,000 shares of no
par value common stock (the "Shares") of Western Reserve Bancorp, Inc. (the
"Company") by the Company covered by the above registration statement, we have
examined the Company's Amended and Restated Articles of Incorporation, the
Company's Code of Regulations, the Company's corporate minute book, and the
registration statement on Form SB-2 to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933.
Based upon our examination of the above-mentioned items and such other documents
and records as we have deemed necessary or appropriate, we are of the opinion
that:
1. The Company is duly incorporated, validly existing and in good standing
under the laws of the State of Ohio.
2. The Shares of the Company are duly authorized, and when issued, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement of the Company and to its reference under the caption
"Legal Opinion" in the Prospectus, constituting a part of the Registration
Statement.
Very truly yours,
/s/ Werner & Blank Co., LPA
Werner & Blank Co., L.P.A.
<PAGE> 1
EXHIBIT 10 A. EMPLOYMENT CONTRACT OF EDWARD J. MCKEON
EMPLOYMENT AGREEMENT
This Agreement is made this 25th day of August, 1997, by and between
Project A, Inc., an Ohio corporation hereinafter called the "Corporation" and,
Edward J. McKeon hereinafter called the "Employee."
WHEREAS, the Board of Directors of the Corporation believes that the
future services of the Employee in the capacity of President and Chief Executive
Officer will be of great value to the Corporation; and
WHEREAS, the Corporation has been formed for the purpose of chartering
and operating a wholly owned commercial banking subsidiary which will engage in
the general business of banking, hereinafter the "Bank"; and
WHEREAS, the Employee is willing to continue in the employ of the
Corporation on a full-time basis for the term of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein set forth, the parties hereto have agreed and do hereby
mutually agree as follows:
1. Term -- Agreement to Serve
The Corporation hereby employs for itself or its subsidiaries
(hereinafter sometimes collectively referred to as "Corporation"), the
services of Employee for a period commencing as of the date first
written above and terminating December 31, 2001 (the "Termination
Date"), subject to the rights of earlier termination hereinafter set
forth, to perform the duties of President and Chief Executive Officer.
The Employee hereby accepts such employment in consideration of the
compensation and the other terms and conditions herein provided, and
agrees to serve the Corporation well and faithfully and to devote his
best efforts to such employment as long as it shall continue hereunder.
During the period of such employment, the Employee will devote all of
his time and attention -- reasonable vacations, periods of illness and
the like excepted -- to the affairs of the Corporation. In connection
with his agreement to provide services hereunder, Employee agrees to
relocate to Medina County, Ohio within one year of the commencement of
operations of the Bank.
2. Base Salary and Fringe Benefits
Except as otherwise provided herein, as compensation for these services
hereunder, the Corporation will pay to Employee, in installments and on
dates in accordance with its normal payroll, during the period of his
employment hereunder, a base salary at the aggregate rate of One
hundred twenty-five thousand dollars ($125,000) per year, subject to
the right of the parties, by mutual agreement, to adjust such rate
upward on a basis no less favorable than upward adjustments provided as
a class to other senior Employees of the Corporation, in respect of any
future calendar year or years after the date hereof, hereinafter "Base
Pay".
In addition the Corporation shall:
(a) Pay for and provide to the Employee for his exclusive use a
full-sized automobile, the make and model of which shall be of
the Corporation's choosing, equipped with a car phone.
(b) Provide $250,000 in term life insurance, payable to the
beneficiary of Employee's choice.
(c) Provide four weeks paid vacation annually.
<PAGE> 2
(d) Pay all of Employee's reasonable moving expenses incurred in
connection with his initial relocation to Medina County.
(e) Pay for and provide to Employee reasonable and customary
disability insurance. In the event the parties are unable to
agree on what shall constitute "reasonable and customary" the
decision of the Corporation shall be conclusive, provided,
however, that such insurance shall provide Employee with a
monthly disability insurance payment equal to not less than
60% of his monthly Base Pay.
(f) Reimburse Employee for any costs incurred in connection with
his continuation of family medical insurance pursuant to his
"COBRA" rights for a period of eighteen months commencing as
of the date first written above.
3. Bonus and Options
(a) Employee will be eligible for Corporation's employee bonus
plan as the same may be in effect from time to time.
(b) Employee shall receive a cash bonus equal to $25,000 upon the
commencement of operations of the Bank.
(c) The Corporation hereby grants to Employee options to purchase
that number of shares of the Corporation which constitute 10%
of the outstanding shares of the Corporation (the "Options"),
computed prior to the grant of such options, upon the
commencement of operations of the Bank. The per share exercise
price of the Options granted herein shall be: (i) the per
share price, adjusted for any stock dividends or splits at
which the Corporation sells shares of its common stock to the
public prior to the commencement of operations of the Bank
(the "Base Price") for 70% of the options granted hereunder,
and (ii) 160%, 180% and 200% of the Base Price for each of the
remaining 10% increments respectively. The Options granted
hereunder shall be nonqualified stock options.
(i) Such Options shall become vested upon commencement of
operations of the Bank and thereafter exercisable on
or after December 31, 2001.
(ii) The Options shall expire, unless properly exercised
prior thereto, ten years from the date first written
above, or 30 days following termination of
employment, whichever shall first occur.
(iii) Notwithstanding paragraph 3.c(i) and (ii), of this
Agreement, the Options shall become fully vested and
may be exercised by Employee or his personal
representative, within the 180 day period following
the termination of employment of Employee pursuant to
paragraph 4(b) or 4(d) of this Agreement, or within a
period of one (1) year following the termination of
employment of Employee pursuant to paragraph 4(f) of
this Agreement. All unexercised Options shall
automatically expire and Employee will forfeit all
rights thereto upon termination of Employment
pursuant to paragraph 4(c) or 4(e) hereof.
(iv) The terms of the Options set forth herein and such
other terms and conditions as the Board of Directors
of the Corporation shall determine not inconsistent
with the terms of this Agreement, shall be set forth
in a written stock option plan adopted by the Board
of Directors of the Corporation and a written grant
form executed by the Corporation and the Employee
prior to the commencement of operations of the Bank.
Among other things the written grant form shall
provide for the Cashless Exercise of the Options, as
hereinafter defined. Cashless Exercise shall mean the
issuance by the Corporation in exchange for the
<PAGE> 3
cancellation of the Option, shares of the Corporation
equal in market value to the difference in the market
value of the Corporation's shares over the Option
exercise price, provided that the Corporation and the
Employee must be able to agree on the market value of
the Corporation's shares. In the event the
Corporation and Employee are unable to agree as to
the market value of the Corporation shares, Employee
shall not be entitled to the right of Cashless
Exercise.
4. Termination of Employment
The employment of the Employee under the terms of this Agreement shall
cease and terminate as follows:
(a) Expiration of Term
On the Termination Date; or,
(b) Death
On the date of his death; or,
(c) Termination by the Corporation with Cause
For Cause at any time by action of the Board. For purposes
hereof, the term "Cause" shall mean the Employee's willful and
repeated failure to perform his duties under this Employment
Agreement, which failure has not been cured within thirty (30)
days after the Corporation gives notice thereof to the
Employee; it being expressly understood that negligence or bad
judgment shall not constitute "Cause" so long as such act or
omission shall be without intent of personal profit and is
reasonably believed by the Employee to be in or not adverse to
the best interests of the Corporation; or,
(d) Disability
Upon receipt by the Employee of written notice from the
Corporation that, in its opinion, based on reliable medical
evidence, the Employee is unable by reason of permanent
physical or mental disability to continue the proper
performance of his duties hereunder. For purposes of this
Employment Agreement, the Employee's "permanent disability"
shall be deemed to have occurred after one hundred eighty
(180) consecutive days, during which one hundred eighty (180)
days the Employee, by reason of his physical or mental
disability or illness, shall have been unable to discharge his
duties under this Employment Agreement. The date of permanent
disability shall be such one hundred eightieth (180th) day. In
the event either the Corporation or the Employee, after
receipt of notice of the Employee's permanent disability from
the other, dispute that the Employee's permanent disability
shall have occurred, the Employee shall promptly submit to
physical examinations by three physicians in the Cleveland,
Ohio, area and, unless two of such physicians shall issue
their written statement to the effect that in their opinion,
based on their diagnosis, the Employee is capable of resuming
his employment and devoting his full time and energy to
discharging his duties within sixty (60) days after the date
of such statement, such permanent disability shall be deemed
to have occurred; or,
(e) Termination by the Corporation - Non Commencement of
Operations
At the election of the Corporation, on or after that date
which is 18 months from the date first written above if the
Corporation has not, as of the date it elects to terminate
Employee hereunder, commenced operations of the Bank; or
<PAGE> 4
(f) Termination by the Corporation without Cause
At the election of the Corporation, at any time during the
term of this Agreement without cause.
Upon termination of employment of the Employee pursuant to paragraph
4(a), (b), (c), (d), (e) or (f) above, the Employee shall be entitled
to receive the amount of Base Pay provided for in paragraph 2 hereof
through the date of his termination of employment and any unexercised
Options held by Employee shall be governed by paragraph 3 hereof. In
addition, in the event of the termination of employment of Employee
pursuant to paragraph 4(f) above, the Corporation shall pay to the
Employee a lump sum severance payment in an amount equal to eighteen
(18) months of Base Pay.
5. Covenant Not to Compete
(a) Throughout the term of this Agreement and for a period of two
years thereafter, Employee agrees that he will not, except on
behalf of the Corporation or with the written consent of the
Corporation,
(i) engage in any business activity, directly or
indirectly, on his own behalf or as a partner,
stockholder (except by ownership of less than 1% of
the outstanding stock of a publicly held corporation),
director, trustee, principal, agent, employee,
consultant or otherwise of any person, firm or
corporation, which is competitive with any activity in
which the Corporation or any parent, subsidiary or
affiliate of the Corporation is engaged at the time,
(ii) allow the use of his name by or in connection with any
business which is competitive with an activity in
which the Corporation or any parent, subsidiary or
affiliate of the Corporation is engaged, or
(iii) offer employment to or employ, for himself or on
behalf of any competitor of the Corporation or any
parent, subsidiary or affiliate thereof, any person
who at any time within the prior three years shall
have been employed by the Corporation or any parent,
subsidiary or affiliate of the Corporation.
(b) The parties acknowledge that this paragraph 5 is fair and
reasonable under the circumstances. It is the desire and
intent of the parties that the provisions of this paragraph 5
shall be enforced to the fullest extent permitted by law.
Accordingly, if any particular portion of this paragraph 5
shall be adjudicated to be invalid or unenforceable, this
paragraph 5 shall be deemed amended to
(i) reform the particular portion to provide for such
maximum restrictions as will be valid and
enforceable, or if that is not possible,
(ii) delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such reformation or
deletion to apply only with respect to the operation
of this paragraph 5 in the particular jurisdiction in
which such adjudication is made.
(c) The provisions of this paragraph 5 shall not apply in the
event the employment of the Employee is terminated by the
Corporation pursuant to paragraph 4(e) of this Agreement.
(d) During the term of Employee's employment hereunder, the
covenants contained in this paragraph 5 shall apply without
regard to geographic location. Upon the termination of
Employee's employment, the covenants contained in this
paragraph 5 shall be limited to Medina County, Ohio and
contiguous counties, except for Cuyahoga County.
<PAGE> 5
6. Inventions, Discoveries and Improvements
The Employee hereby agrees to assign and transfer to the Corporation,
its successors and assigns, his entire right, title and interest in and
to any and all inventions, discoveries, trade secrets and improvements
thereto which he may discover or develop, either solely or jointly with
others, during his employment hereunder and for a period of one year
after termination of such employment, which would relate in any way to
the business of the Corporation or any parent, subsidiary or affiliate
of the Corporation, together with all rights to letters patent,
copyrights or trademarks which may be granted with respect thereto.
Immediately upon making or developing any invention, discovery, trade
secret or improvement thereto, Employee shall notify the Corporation
thereof and shall execute and deliver to the Corporation, without
further compensation, such documents as may be necessary to assign and
transfer to the Corporation his entire right, title and interest in and
to such invention, discovery, trade secret or improvement thereto, and
to prepare or prosecute applications for letters patent with respect to
the same in the name of the Corporation.
7. Confidential Information
Employee shall not at any time, in any manner, while employed by the
Corporation or thereafter, either directly or indirectly, except in the
course of carrying out the Corporation's business or as previously
authorized in writing on behalf of the Corporation, disclose or
communicate to any person, firm, or corporation, any information of any
kind concerning any matters affecting or relating to the Corporation's
business or any of its data, figures, projections, estimates, customer
lists, tax records, personnel histories, and accounting procedures of
the Corporation, without regard to whether any or all of such
information would otherwise be deemed confidential or material.
8 Non-Assignability
(a) Neither party to this Agreement shall have the right to assign
this Agreement or any rights or obligations hereunder provided
that nothing herein shall prevent the Employee from
designating one or more members of his family or a trust or
trusts for the members of his family as a beneficiary or
beneficiaries entitled to receive payments hereunder as
heretofore specified.
(b) Except as provided above, no title to any payments which shall
become due and payable to the Employee, his personal
representative or designated beneficiary under the provisions
hereof, shall be vested in him or any of them until the actual
payment thereof is made to such person by the Corporation in
accordance with the provisions of this Agreement. Neither he
nor any of them shall have the right or power to transfer,
assign, anticipate or encumber any interest in any such
payment, prior to the actual receipt thereof from the
Corporation. Neither this Agreement, the Corporation nor any
person's rights hereunder shall be liable for the debt,
contract or engagement of any of them. None of them shall be
permitted to appoint any agent or attorney-in-fact and except
as provided herein, to collect or receive his share of such
payments or any part thereof unless permission to do so shall
be specifically granted by the Corporation in writing. The
Corporation, in the absence of such written permission, shall
not in any manner recognize such appointment, transfer,
assignment or encumbrance.
(c) If the Employee or any personal representative or any
designated beneficiary attempts to transfer, assign or
encumber his interest in such payments, or any part thereof,
prior to the payment or distribution thereof to him or her;
or, if any transfer or seizure thereof is attempted to be made
or brought through the operation of any bankruptcy or
insolvency law, the right of the person taking such action or
concerned therein or affected thereby, and who would, but for
this provision, be entitled to receive such payments, or any
part
<PAGE> 6
thereof, shall forthwith and ipso facto terminate, all rights
bestowed on any such person being hereby, on the happening of
any such event, expressly revoked; and the Corporation shall
thereafter, in its absolute discretion, at such time or times
as it deems proper, cause such part of such person's
theretofore existing share of such payments to be paid to such
person or persons, including the Employee, of any parent,
spouse or child of said person, as the Corporation, in its
uncontrolled discretion, shall deem advisable; and the
remainder of such payments, if any, may be distributed by the
Corporation to the person or person who would have been
entitled to receive the same if such person had died
immediately prior to said attempted transfer, assignment or
encumbrance, or attempted transfer or seizure by operation of
law.
9. Binding Effect
This Agreement shall be binding upon and inure to the benefit of any
successor of the Corporation, and any such successor shall be deemed
substituted for the Corporation under the terms of this Agreement. As
used in this Agreement, the term "successor" shall include any person,
firm, corporation, or other business entity which, at any time, whether
by merger, purchase, or otherwise, acquires all or substantially all of
the assets or business of the Corporation.
10. Entire Agreement
This Agreement contains the entire agreement of the parties hereto
concerning the subject matter hereof, and if the date hereof supersedes
and cancels any and all other oral or written agreements or
understandings between the parties with respect to the subject matter
hereof. The Agreement may not be changed orally, but only by agreement
in writing signed by both parties.
11. Authorization for Acts of Corporation
Any act, request, approval, consent or opinion of the Corporation
hereunder shall be authorized, given or expressed by resolution of its
Board of Directors.
12. Arbitration
In the event the parties are unable to resolve any issue,
misunderstanding, disagreement or dispute after making a good faith
effort to do so, the parties hereto agree to arbitrate any such issue,
misunderstanding, disagreement or dispute in connection with the terms
in effect in this Agreement in accordance with the Rules of the
American Arbitration Association, before one arbitrator mutually
agreeable to the parties hereto. If after eight weeks they have been
unable to agree upon one arbitrator, then either party may appoint one
arbitrator and require the other party to appoint a second arbitrator.
Whereupon, the two appointed arbitrators shall appoint a third
arbitrator mutually agreeable to the two arbitrators. The arbitration
shall occur in Medina, Ohio, or such other place as mutually agreed
upon. Each party shall bear their own expenses in connection with such
arbitration.
13. Regulatory Reformation
If any provision of this Agreement shall be deemed unacceptable to the
Ohio Division of Financial Institutions, the Board of Governors of the
Federal Reserve System or the Federal Deposit Insurance Corporation
(hereinafter the "Regulators"), the parties shall use their best
efforts to cause the Regulators to find this Agreement acceptable. In
the event the parties are unable to agree upon such modifications as
are required to make the Agreement acceptable to the Regulators, then
either party may terminate this Agreement and the parties shall have no
further obligations hereunder whatsoever. In the event of termination
pursuant to this subparagraph by the Corporation, the Corporation shall
pay to Employee, immediately upon such termination, a lump sum cash
payment equal to eighteen months of Base Pay, less all amounts of Base
Pay previously paid to Employee.
<PAGE> 7
14. Governing Law
This Agreement is executed and delivered in the State of Ohio and is
intended to be interpreted, construed and enforced in accordance with
the laws of such State.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by the Chairman of its Board of Directors, and the
Employee has signed this Agreement, all as of the date and year first above
written.
By: /s/ P.M. Jones
----------------------------
Chairman, Board of Directors
/s/ Edward J. McKeon
----------------------------
Employee
<PAGE> 1
EXHIBIT 10 B. AGREEMENT AMONG ORGANIZERS
AGREEMENT
Whereas, the stockholders of Project A, Inc. (the "Company") have
formed the Company for the purpose of formation of a new commercial banking
corporation or association; and
Whereas, in connection with such plans the stockholders have formed the
Company and purchased a total of 50 shares of its common stock for an aggregate
purchase $50,000; and
Whereas the stockholders desire to restrict the transferability of the
common stock of the Company pending the Company's successful implementation of
its plans raise equity capital for the purpose of the formation of a new banking
corporation; and
In consideration of the mutual covenants and premises herein contained,
the undersigned stockholders hereby agree as follows:
1. The 50 shares of common stock of the Company owned by the
undersigned stockholders may not be sold, transferred, pledged or hypothecated
in any manner whatsoever for any reason on or prior to the termination of this
Agreement.
2. The certificates representing the shares of stock owned by all of
the undersigned shall bear a legend setting forth the restriction on
transferability set forth in this Agreement which legend shall read as follows:
The shares represented by this certificates are subject to an Agreement
dated May 15, 1997, by and between Project A, Inc. and the owners of
all of the outstanding shares of capital stock of Project A, Inc. This
Agreement prohibits the sale transfer or other disposition the shares
represented by this certificate and Project A, Inc. will mail to the
stockholder a copy of the Agreement without charge within five (5) days
after receipt of written request therefor.
3. This Agreement shall terminate only upon the occurrence of one of
the following two events.
(i) This Agreement shall terminate upon the unanimous written consent of
all of the undersigned stockholders, or, in the case of the death of a
stockholder, the personal representative of such stockholder; or
(ii)This Agreement shall terminate upon the successful completion of a
public offering of common stock of the Company pursuant to which the
Company receives gross offering proceeds of at least $5,000,000.
In Witness Whereof the parties have affixed their signatures hereto this 15th
day of May, 1997.
/s/ Paul Merritt Jones
- ----------------------------
Paul Merritt Jones
/s/ Dr. Bijay Jayaswal
- ----------------------------
Dr. Bijay Jayaswal
/s/ George R. Klein
- ----------------------------
George R. Klein
<PAGE> 2
/s/ Ray E. Laribee
- ----------------------------
Ray E. Laribee
/s/ C. Richard Lynham
- ----------------------------
C. Richard Lynham
/s/ R. Hal Nichols
- ----------------------------
R. Hal Nichols
/s/ Rory H. O'Neil
- ----------------------------
Rory H. O'Neil
/s/ Michael R. Rose
- ----------------------------
Michael R. Rose
/s/ Glenn M. Smith
- ----------------------------
Glenn M. Smith
/s/ Thomas A. Tubbs
- ----------------------------
Thomas A. Tubbs
<PAGE> 1
EXHIBIT 10 C. ESCROW AGREEMENT BETWEEN COMPANY AND MID AMERICAN NATIONAL BANK
& TRUST COMPANY
ESCROW AGREEMENT
This Escrow Agreement dated as of December 23, 1997 is entered into by
and between Western Reserve Bancorp, Inc., an Ohio corporation (the "Company"),
and Mid American National Bank & Trust Co., Bowling Green, Ohio (the "Escrow
Agent").
RECITALS
A. The Company proposes to engage in offering for sale a minimum of 250,000
common shares and a maximum of 500,000 common shares (the "Shares") at a per
share price of $20.00 per share (the "Offering"), pursuant to a Prospectus (the
"Prospectus") which is to be filed as part of a Registration Statement on form
S-1 with the Securities and Exchange Commission and appropriate state regulatory
agencies, a copy of which will be provided to the Escrow Agent.
B. The Offering provides that all sums paid in connection with subscriptions for
the minimum number of 250,000 Shares (the "Offering Proceeds") will be deposited
into an Escrow Account with the Escrow Agent and will be subject to certain
terms and conditions as hereinafter described. However, some of the Shares have
been and will be sold to the Organizers of the Company outside of the escrow as
described in the Prospectus.
C. The Company desires to have Mid American National Bank & Trust Co. act as
Escrow Agent and in connection with such responsibilities to establish an
appropriate segregated interest bearing account to receive for deposit all of
the aforesaid Offering Proceeds of sales of the Offering.
D. Escrow Agent desires to act in such capacity.
AGREEMENT
In consideration of these premises and of the mutual promises and other
good and valuable consideration, the parties hereby agree as follows:
1. Appointment of Escrow Agent
The Company hereby appoints Mid American National Bank & Trust Co. as
the Escrow Agent and Mid American National Bank & Trust Co. hereby accepts such
appointment to serve as the Escrow Agent, all in accordance with the terms and
conditions set forth herein.
2. Term of the Escrow Agreement
The term of this agreement shall commence on the date hereof and shall
terminate upon completion of the Offering, whether successful or unsuccessful.
As of the date hereof, it is anticipated that such term will end no earlier than
July 1, 1998 or later than September 30, 1998, provided, however, that the
Company can further extend the Offering as described in the Prospectus.
3. Compensation under Escrow Agreement
For its services rendered hereunder, the Escrow Agent shall be entitled
to receive the fees set forth on Exhibit A attached hereto and made a part
hereof. All interest income generated from holding the Offering Proceeds in an
interest bearing account shall be disbursed as herein described.
<PAGE> 2
4. Recording of Proceeds of the Offering Held in Escrow
In accordance with the provisions herein, the Company shall provide and
the Escrow Agent is responsible for recording: (i) the name and address of the
subscriber; (ii) the amount of Offering Proceeds held in escrow under such
subscriber's name; (iii) the date of deposit of such Offering Proceeds; (iv)
interest earned on such deposit; and (v) the date of distribution from the
Escrow Account for each deposit made by the Company in the name of such
subscriber.
5. Conditions for Release of Escrowed Funds/Termination
The Escrow Agent shall act as Escrow Agent hereunder until the earlier
to occur of:
(a) The sale of 250,000 shares, including the Shares of the Company
sold to the Organizers of the Company outside of the escrow; or
(b) July 1, 1998, provided, however, that the Company may, by letter to
the Escrow Agent, extend this Expiration Date until not later than
December 31, 1998. Any extension beyond September 30, 1998 will require
the approval of the then current subscribers to Shares in the Offering.
Upon the occurrence of one of the foregoing two events, the Escrow
Agent shall remit the balance of monies held in the Escrow Account by issuing
its cashiers checks payable to the Company or, if the Company fails to accept
subscription agreements representing the sale of at least 250,000 Shares prior
to the Expiration Date, then, the Escrow Agent shall return the Proceeds to each
subscriber. The person or entity to which the subscription proceeds are remitted
also shall receive from the Escrow Agent interest on such Subscription Proceeds
in an amount equal to the U.S. Government Money Market Fund rate from time to
time in effect with the Escrow Agent during the time period while the Offering
Proceeds were held in escrow
6. Delivery of Proceeds to the Escrow Agent
Proceeds from the Offering shall be delivered, in accordance with the
Subscription Agreement, to the Company and the Company hereby agrees to deliver
such Offering Proceeds to the Escrow Agent within five (5) days of acceptance of
such subscriptions. Further, Company agrees to provide to the Escrow Agent the
name, address, amount subscribed for by subscribing individual, the date
accepted by the Company, the date delivered to the Escrow Agent and a copy of
substitute IRS Form W-9 for each such subscriber.
7. Investment of Proceeds
All Proceeds of the offering held in the Escrow Account by the Escrow
Agent shall be invested in interest bearing accounts. All such funds shall be
invested in the Escrow Agent's U.S. Government Money Market Fund unless
otherwise mutually agreed to by the Company and the Escrow Agent. In no event
shall any such Proceeds be held in other than such account or short term
obligations of the United States Government or shares of a money market fund,
the assets of which are invested in short term obligations of the United States.
The Escrow Agent shall hold such Proceeds of the Offering in a separate account
on behalf of the Company as herein described, and shall hold such proceeds under
the name of the individual subscriber.
8. Indemnification
The Company hereby agrees to indemnify and hold harmless the Escrow
Agent from and against any and all claims, liabilities, losses, actions, suits
or proceedings at law or in equity, which it may incur or with which it may be
threatened by reason of its acting as Escrow Agent as herein described, and in
connection therewith, to indemnify Escrow Agent against any and all expenses
(including attorneys' fees)
<PAGE> 3
or costs of defending any such action, suit or proceeding or resisting any such
claims, provided, however, that the provisions of this paragraph shall not apply
in the event of any claim, liability, loss, action, suit or proceeding,
resulting from a material breach by the Escrow Agent of any provisions in this
agreement or from its gross negligence or willful misconduct.
9. Contingencies
If any event, circumstances or happening shall arise or occur that is
not provided for hereunder, the Escrow Agent shall have no duty to act or not
act, as the case may be, until: (a) written instructions are received from the
Company; or (b) instructions are provided by a court of competent jurisdiction.
10. Miscellaneous
This Escrow Agreement shall be read in accordance with and interpreted
under the laws of the State of Ohio. It is further agreed among the parties that
all conflicts of law as relating to this agreement shall be under the
jurisdiction of the laws and courts of the State of Ohio. This agreement shall
be binding upon the Company and Escrow Agent and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the date and year above stated.
Western Reserve Bancorp, Inc. Mid American National Bank & Trust Co.
By: /s/ Edward J. McKeon By: /s/ J. Philip Ruyle
-------------------------------- --------------------------------------
Edward J. McKeon, President J. Philip Ruyle, Senior Vice President
<PAGE> 4
EXHIBIT A
In consideration of the Escrow Agent timely fulfilling its duties and
obligations under this Agreement, the Company agrees to pay to the Escrow Agent
the following fees pursuant to Paragraph 3 of the Agreement:
A. An escrow administration fee of $1,200.00, $600.00 of which is payable
upon execution hereof, receipt of which is hereby acknowledged by the
Escrow Agent, and the balance due at the termination of this Agreement.
B. A subscriber maintenance fee of $10.00 per subscriber account
established will be charged at the termination of this Agreement,
except that this charge will be waived if the Offering is successful
and Mid American National Bank & Trust Co. is not required to issue any
1099 forms to any subscribers, but only to issue one form 1099 to the
Company.
C. $85.00 per hour for "extraordinary" work on the part of Escrow Agent,
provided that fees under this subparagraph D. shall not exceed $500.00
without the Company approving the "extraordinary" work required. Such
$500.00 limit shall not apply to the indemnification of the Escrow
Agent pursuant to the provisions of Paragraph 8 of this Agreement.
<PAGE> 1
EXHIBIT 23 CONSENT OF CROWE, CHIZEK & COMPANY LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation in this registration statement of Western
Reserve Bancorp, Inc. on Form SB-2, of our report dated December 3, 1997 on the
financial statements of Western Reserve Bancorp, Inc. as of November 30, 1997.
We also consent to the reference to our firm under the heading "Experts" in the
prospectus, which is part of this registration statement.
/s/ Crowe, Chizek & Company LLP
Crowe, Chizek & Company LLP
Cleveland, Ohio
December 29, 1997
<PAGE> 1
EXHIBIT 24 POWER OF ATTORNEY
POWERS OF ATTORNEY
DIRECTORS OF WESTERN RESERVE BANCORP, INC.
Know all men by these presents that each person whose name is signed
below has made, constituted and appointed, and by this instrument does make,
constitute and appoint Paul Merritt Jones, Edward J. McKeon or Ray E. Laribee,
or any one of them acting alone, his true and lawful attorney with full power of
substitution and resubstitution to affix for him and in his name, place and
stead, as attorney-in-fact, his signature as director or officer, or both, of
Western Reserve Bancorp, Inc., an Ohio corporation, formerly known as Project A,
Inc. (the "Company"), to a Registration Statement on Form S-1 or other form
registering common stock of the Company under the Securities Act of 1933, and to
any and all amendments, post effective amendments and exhibits to that
Registration Statement, and to any and all applications and other documents
pertaining thereto, giving and granting to such attorney-in-fact full power and
authority to do and perform every act and thing whatsoever necessary to be done
in the premises, as fully as he might or could do if personally present, and
hereby ratifying and confirming all that said attorney-in-fact or any such
substitute shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed at Medina,
Ohio, this 18th day of December, 1997.
/s/ Edward J. McKeon
- ------------------------------
Edward J. McKeon
/s/ Paul Merrit Jones
- ------------------------------
Paul Merritt Jones
/s/ Dr. Bijay Jayaswal
- ------------------------------
Dr. Bijay Jayaswal
/s/ George R. Klein
- ------------------------------
George R. Klein
/s/ Ray E. Laribee
- ------------------------------
Ray E. Laribee
/s/ C. Richard Lynham
- ------------------------------
C. Richard Lynham
<PAGE> 2
/s/ R. Hal Nichols
- ------------------------------
R. Hal Nichols
/s/ Rory H. O'Neil
- ------------------------------
Rory H. O'Neil
/s/ Michael R. Rose
- ------------------------------
Michael R. Rose
/s/ Glenn M. Smith
- ------------------------------
Glenn M. Smith
/s/ Thomas A. Tubbs
- ------------------------------
Thomas A. Tubbs
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information from the annual report on
Form SB-2 for the fiscal year ended and is qualified in its entirety by
reference to such.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> FEB-25-1997
<PERIOD-END> NOV-30-1997
<CASH> 254
<INT-BEARING-DEPOSITS> 56,293
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 121,159
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,264
<LONG-TERM> 0
8,000
0
<COMMON> 0
<OTHER-SE> 111,895
<TOTAL-LIABILITIES-AND-EQUITY> 121,159
<INTEREST-LOAN> 0
<INTEREST-INVEST> 0
<INTEREST-OTHER> 928
<INTEREST-TOTAL> 928
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 928
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 41,033
<INCOME-PRETAX> (40,105)
<INCOME-PRE-EXTRAORDINARY> (40,105)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (40,105)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99 FORM OF SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT
Western Reserve Bancorp, Inc.
23 Public Square, Suite 220
Medina, Ohio 44256
Gentlemen:
The undersigned hereby subscribes for and agrees to purchase the number
of shares of common stock, no par value (the "Shares"), of WESTERN RESERVE
BANCORP, INC., an Ohio corporation (the "Company"), indicated below. The
undersigned has executed and delivered this Subscription Agreement in connection
with the Company's offering of Shares described in its Prospectus dated
________, 1998. (Such Prospectus, including any amendments and supplements
thereto, is herein called the "Prospectus.")
The undersigned agrees to purchase the Shares subscribed for herein for
the purchase price of $20.00 per share and has herewith delivered to the Company
a check made payable to MidAmerican National Bank & Trust Co., Escrow Agent in
an amount equal to the aggregate purchase price of all Shares subscribed. The
undersigned acknowledges receipt of a copy of the Prospectus.
- --------------------------- --------------------------------------------------
Number of Shares Please PRINT OR TYPE exact name(s) in
(minimum 250 shares) which undersigned desires Shares to be registered.
- --------------------------- --------------------------------------------------
________Total Subscription Signature of Investor
Price (at $20.00 per share)
--------------------------------------------------
Signature of Joint Investor, if any
<PAGE> 2
SUBSTITUTE W-9
Under the penalties of perjury, I certify that: (1) the Social Security Number
or Taxpayer Identification Number given below is correct; and (2) I am not
subject to backup withholding.
INSTRUCTION: YOU MUST CROSS OUT #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
_____________________________ ________________________________
Date Signature
_____________________________ ________________________________
Area Code and Telephone No. Signature of Joint Owner, if any
_____________________________ ________________________________
Social Security or Federal Street Address
Taxpayer Identification No.
________________________________
City, State, Zip Code
Please indicate the form of ownership desired for the shares:
____ Individual ____ Corporation
____ Joint tenants with right
of survivorship ____ Partnership
____ Tenants in common ____ Custodian
____ Trust ____ Other (please describe) _________
______________________________________
TO BE COMPLETED BY THE COMPANY
Accepted as of ____________________, 1998, as to ____________________ Shares.
WESTERN RESERVE BANCORP, INC.
By:___________________________
Edward J. McKeon
President
